Deal: Outsourced Product Dev - proposes 12% vested equity for $15k discount + free branding & marketing. Should I accept? The product dev studio I am outsourcing the initial development to is happy to give a discount of $15000 for 2 years vested equity of 12%. They will also help with free branding and marketing efforts totalling to 95 hours. Plus key contacts with investors and partners. The studio group is credible with good clients list and second time entrepreneurs.
We have a few programmers in house but when we have to we outsource to a NJ based Software Development company - www.BetaBulls.com, their leader Sree is amazingly talented and well adapted to working with startups as his niche market. I know they have taken clients on equity before but is always a small percentage and even allow flexible payment options. How flexible? You'd have to ask him for more details.
With that said, I do agree with you, when I launched my very first startup years ago I had to partner with a small programming team and gave them the CTO position (as a team) with their shares and rights but because they were being hired - they also took payment. Needless to say, the partnership didn't work out. We did get an MVP going but because they weren't entrepreneurs themselves they only cared about their share of the work and pay and were not willing to put in extra work for the equity they had received - equity is not meant to be seen as a payment for the contractor, but as an opportunity for the contractor who believes in your product to generate something for themselves much higher than their typical fee would allow.
As first time entrepreneur, or Newbie CEO as I call them, you need to watch out for these subtle differences in the companies you are looking to outsource your work to. Consider the dev agency's entrepreneurial spirit, their capabilities as well. For example, we chose BetaBulls because they have so much skill power behind their team that any development setback can be quickly out maneuvered and they can probably churn out better work than other teams who have the same skill sets through out the table where as they have overlapping and niche skills.
Beware of these promises, it reminds of me those who offer 'free promotion' in exchange of your service. Branding is part of marketing, and marketing is not advertising while branding is also not a logo. If what you need is cohesive branding through out your app, web and accounts online an affordable graphic designer (maybe one from our team) can do that for you. If is branding design work for the app/web itself - then that is not something they are doing for free, because it should be part of the Statement of Work - how can they build something with no design? As far as Marketing goes, do they have any marketers in place? previous case studies of how they did something for someone and exponentially grew their company?
MARKETING IS NOT ADVERTISING
Marketing is a management level effort, for example when we get hired, our clients get our MBA, Startup experience, Strategy expertise to help them fine tune their operation, their product, their branding, market positioning and anything else that is CUSTOMER FACING - once we have that do we begin working on a marketing strategy that involves advertising to the right audience, right demographic, timing, channels, with the right words, the right content, right images, right blogs, right relationships and running paid advertising on the right channels - if their "Marketing Help" is helping you post on social media--- that's not worth 12% equity, maybe .5% percent.
For context/contrast - is typical for board members of a growing startup to get .5% - 2% for their participation - for most non-snap chat type of startups .5% is the standard offering - because you need as much equity to leverage as you continue to grow.
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Answered 5 years ago