Our primary focus in business at Green Mango is building custom software (web and mobile apps) based on the plans of others. Whether that’s a startup idea or just a revamp to a corporate tool, we put our absolute best foot forward in trying to make sure your project is successful. While questions related to cost tend to be the most frequently asked, we do also answer a lot of questions about whether or not we will work for equity.
First of all, I think it’s important to remember that we don’t value ideas very much. Some ideas are absolutely better than others, but at the same time, Paul Graham of YCombinator once said, “Some of the best ideas are outliers everyone ignores because they seem crazy.” For this reason we can never be too sure what a good idea looks like. What tends to separate success from failure is not just an idea, but the execution of that idea.
There are a lot of people that can make a burger as good as McDonald’s, but there are few who could execute the business plan that McDonald’s has over the last 60 years. An idea did not sell 247 billion burgers. Execution sold 247 billion burgers. In the same way, when someone comes to us with their idea, we see ourselves as a large and key part of that execution, while the idea is a very small part of the work.
What this means in a lot of cases, is that the very request that we work for equity indicates to us that we are being undervalued right from the start. It could be a big red flag for the partnership in general, or just a sign that our potential partner does not understand how much work goes into building a piece of software.
Getting beyond the value of the idea, let’s talk about what taking equity means to us. Taking equity as payment means we are making an investment in something that we hope will pay off in the future. For our business, it means a lot more than that. We aren’t just being asked to give our money like a typical investor. We’re being asked to give our time, which we believe is the most valuable asset we possess. We’re giving our time, but we’re also giving our money indirectly. We are asked to work on something for free when we could be working on something that we were paid to do instead. In other words, there’s a huge opportunity cost.
Going back to the investor analogy, I think it’s important to take a closer look at what would sweeten the deal for us. At the end of the day, if we’re making an investment, then we look at the project very similarly to any other investor. The question of whether to make an investment comes down to a few key things:
Ask yourself how well we know each other. Trust is so important to business and if we’re on a first meet and greet 15 minute screener call based on a contact request we received, I can say it’s incredibly unlikely we would consider an equity investment. I would liken that to asking someone to marry you on a first date. I’m sure it could possibly happen, but probably the very best answer you’re going to receive from us is, “No for now, but we’d love to keep talking.”
I’ve spent a considerable amount of time explaining why we will probably say no to an equity deal. Let’s talk about something that I consider to be more practical and likely: Giving Green Mango a small equity stake as a part of our contractual relationship.
One of the reasons that startups give out equity is not to skimp on staff salaries, but to align incentives. If I stand to make a large sum of cash based on the success of a product, I’m going to make sure I do everything I can to push that project forward. How does this play out for us? In some cases it can make sense for a client to give us a relatively small grant of equity.
To be honest, I do not think equity substantially changes our incentives to perform better on the project. We already have a large incentive to make a project successful. First of all, if the project succeeds, it gives us more credibility. In the end will make us more legitimate to future clients. Secondly, if a project is doing well, it usually means we get more work out of it.
There is one other reason to give us equity, and this is a really significant reason to do it. Equity literally increases our authority in the company and our position in discussions. If you’re hiring Green Mango because we have skills and expertise in areas that you don’t, it seems you should want that voice represented in the decision making process. I can tell you from experience that the voice of an outsider consultant carries much less weight than a shareholder. This equity enables us to do more than share our opinions. It also allows us share them with the authority only a partner in the project can possess.
Naturally, there are other ways to give us the proper authority in company discussions and equity is just one of them. A lot of companies don’t offer equity to even their internal staff. Despite this, they still find a way to keep everyone motivated.
We are aware that potential clients are often in discussion with several software companies besides ourselves to solicit bids for a project. Occasionally, the client informs us that another agency is being more flexible about equity than we are. Without discussing any specific deal, there are a few things to keep in mind here.
Number one, every single software developer you talk to is going to give you a different end result. Hiring a software development company should not mainly focus on cost, but the quality of the result you think you can achieve by working with them. You may have to screen out certain firms that you know will land outside of your max budget. In general, you will be disappointed with the lowest bidder approach. Secondly, we’re acquainted with several companies in LA and Orange County. They set their rates high with the intention of knocking them down through an equity conversation or other negotiation. That 35% discount you bargained for with equity is not necessarily a real discount, but a planned negotiation tactic.
Our unwillingness to discount pricing should be an indicator to you that we aren’t playing games with our pricing. We’re confident enough to not need to.
Being paid in plain old greenbacks seems to work just fine for us. Equity has its value, but it can severely complicate a relationship that can be really simple and straightforward. For this reason, we would definitely shy away from even wanting to take free equity on a smaller project. The overhead of the equity contracts just may not be worth it for us in all cases. There can be many junctures to a project where equity is up for discussion. Like any investor, we’d prefer to build a relationship for some time before even discussing that.
If we decide not to take equity on your project, it is in no way an indicator that we don’t believe in you or what you’re building. We do hope you will not take it personally and understand where we are coming from. At the end of the day, we want to build great software and be paid for providing that service.