Archive for November 18th, 2008

What We Focus on is What We Tend to See

Tuesday, November 18th, 2008

In Paul Scheen’s Book – Photo Reading, he points out that our subconscious brain takes in 2000 times more information than our conscious brain is aware of. If you don’t believe this, start photographing your day to day life. Then study those pictures a couple hours after you take them. When I first noticed this phenomena, I was at the Houston Rodeo. It the first show we went to with our Belgium Blue Cattle. I was taking pictures of the cattle and wasn’t even aware there were three cattleman in the row behind our stall – not until I looked at the pictures later. I was literally only focusing on our cows.

Only Noticed the Other Guys When I Looked at the Pictures.

Only noticed the three cattlemen when I looked at the pictures much later. I had no recollection of people being in the background.

Lets fast forward to today. Look at what the mass media chooses to focus on – the mismanagement of companies that need to be bailed out, disasters, the basic depravity of the human condition. But lets look at some different facts. According to The Wealth Report, the amount of millionaire households has doubled in the past ten years.

Number of Millionaire Households

Number of Millionaire Households

Let’s look at this chart. This was created in 2004 – so from 1994 to 2004, the number of millionaires doubled. Six of those years we had a democratic as the president of the US. For some reason the folks I know in the finance sector always seem to feel they will be better off when there is a republican president. Is this really true or is it just what they are choosing to focus on?

If you start to find yourself getting excessively down about life, check out Rob Brezsny’s *PRONOIA IS THE ANTIDOTE FOR PARANOIA: How the Whole World Is Conspiring to Shower You with Blessings* – for sale at http://tinyurl.com/qaj62. (I am not getting any royalty compensation from this endorsement – I just think he presents a much different way of viewing the world).

So now if I want to see things differently, I change what it is I am choosing to focus on. It truly is all just a matter of perspective.

Contracting Risks on Projects

Tuesday, November 18th, 2008

A twitter follower – Doug Barger prefers to work on ventures where he can get a percentage of the royalties. There are a variety of risks with various contracting approaches when supporting a project. Lets look at two types of contracting approaches – percentage on royalties and work for hire. Lets start with the risks associated with Doug’s preferred contracting approach – percentage on royalties. Here are the associated risks:

1. You are depending on your counterparts to carry through on their end of the work. If they don’t, the time and effort you put in expecting a good return on your efforts won’t materialize.

2. You become tied to them for the life of your royalty relationship. This gets very cumbersome as new ventures often go through numerous evolutions of their accounting system. You need to either be a very good auditor or have very good auditors working for you so that you can “trust but verify” that their accounting system is providing adequate records of revenue for royalty calculations.

3. If you’re a start up and you are offering people preferred stock (a form of % royalties) in exchange for their cheap labor, you make it incredibly difficult for an exit strategy that involves outside investors. The more hands you have in the pot, the more complex it makes to cut an exit strategy deal (share holder liquidation, capital acquisition, IPO). Setting up stock ownership incentive plans for early contributors is very complex and requires the work of legal experts. Be wary of people who offer you this without the requisite legal support.

Percent royalty arrangements transfer risk from the company for whom you are working to the person doing the work. They require tremendous due diligence in supporting.

The next arrangement – work for hire. Work for hire means the company for whom you are providing the work owns the rights to the work you are doing. You do not get the legal rights to own that work once it is complete. The risks associated with this contract type are:

1. If you use even part of the work you do in a work for hire for another client, especially a competitor, you open yourself up to costly litigation. Read the fine print in these contracts very carefully and know what it is you’re agreeing to – especially if you are a programmer.

Cheetah Negotiation - How to Get What You Want, FAST

Cheetah Negotiation - How to Get What You Want, FAST

2. The majority of risk for performance in these contracts is placed on the company hiring the work for hire contractors, if the contract is done on a time and material basis. To reduce the risk to the company, they may require the contractor gets paid only after specific milestones are achieved. The contractor then assumes the risk for achieving the milestones. If the milestones are not clearly defined, and the scope of the project is rather vague, this presents tremendous risk to the contractor.

I have just had too many problems on both sides of the fence (company owner, and contractor) with the percentage royalty arrangements and will very reluctantly enter them. Prior to engaging anyone who wants a percent royalty arrangement, I make sure that my accounting system can adequately track the performance of their efforts, and that we make sure that the time frame is of a reasonable nature so they can’t exit stage right and still continue to collect royalties. On the flip side, I just won’t take on royalty arrangements any longer as a contractor. First, I found that some company’s actually have governance requirements that forbid this (especially defense contractors). Second, I just don’t like to enter into that type of relationship with clients where I have to depend on their financial management to insure I get my fair share of the gains made from my efforts.

When I negotiate with contractors, I want all parties to feel like they leave the table spoiled. But sometimes what contractors want really isn’t in either parties long term interests. A little bit of preparation by all sides goes a long way in creating a much more harmonious working relationship. To develop negotiation practices that generate great outcomes and develop good long term relationships, check out http://www.cheetahnegotiations.com.