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There is an inherent conflict in a consultant’s business model and the needs of a startup. Consultants trade their time for money whereas startups need to trade their money for results. In order to eliminate this conflict, any consulting relationships you establish must be performance-based. In this way, by tying compensation to results, your startup can trade its money for even more money.
(...)However, when you pull the consultant out on The Fringe and negotiate a performance-based deal, you are ensuring that they will only enter into an engagement with you if they believe that they can move the needle and make a real impact on your adventure. The consultant will be compelled to vet your engagement based on their ability to drive concrete results, rather than your wherewithal to pay their invoices. Thus, performance oriented deals reduce the risk that your startup will waste its two most valuable resources.
(...)As described in Roping In The Legal Eagles, service firms are pyramids. A handful of Rainmakers sit at the top, while most of the ‘real work’ is done by less experienced and therefore less insightful folks. The larger the firm, the larger the pyramid. The larger the pyramid, the greater the distance between the Rainmaker who closes the sales and the worker bees who have to deliver on the Rainmaker’s promises.
Thus, do not be enamored by a service firm’s size. Size does matter, but in an inverse manner. The larger the firm: (i) the greater the disconnect between the Rainmaker and the workers, (ii) the higher the personnel turnover, and (iii) the more time you will be forced to expend training each new crop of MBA-wannabe’s. Remember – your adventure’s time is precious.
(...)Allow the consultant to invest in your future success; in lieu of cash, grant them equity in the form of Non-qualified Options that vest based upon the attainment of quantifiable goals; keep in mind that adverse tax consequences may be associated with such equity grants, so check with your accountant before deploying this form of compensation
Negotiate a startup discount; you may be surprised how often you can get a break on such fees, especially if the service provider truly believes in your future viability
Pull a Blondin (see: Do They Believe?); make the service provider prove their belief in you by getting on your back as you step onto the proverbial entrepreneurial tightrope. Having consultants accept equity in lieu of cash, define their compensation based on concrete results and defer their payment until the attainment of certain milestones (including fundraising) are all ways you can execute the Blondin Test. If the consultant really believes in you, your team and the prospects of your adventure, they will be willing to ‘get on your back’ and trust that you will make it to the other side unscathed.
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