Wednesday, October 27, 2010

Secrets you need to know about the client who asks you to do work for free

It’s pretty obvious why giving your product (your art) away for nothing in return is a bad move for your business. But, what about those clients that DO offer you something, it’s just not money? What if it’s a royalty, or a piece of ownership in the project? That’s not the same as offering nothing, right?

Well it’s not exactly the same~ but it’s often a dead giveaway of something about the person who is offering it to you- that something is a secret that maybe the client doesn’t even know about themselves. What is this secret? The secret is: this very offer shows that they have no idea what they are doing! And if they don’t know what they’re doing, they’re probably not going to be successful in their goal.

Giant Red Flag #1 “I am just looking for help to get this going and then it will take off”

Why this flag is red: There are institutions and individuals out there who make a living by lending people money- a couple of these institutions are called banks and venture capitalists. Both of these strange organizations are full time lenders of money- it’s what they do, it’s what they excel at, it’s why they’re rich and they have money to lend in the first place. They make money off of lending people money, and they ask for a set amount back in return, called interest, for their trouble.

If a client doesn’t know about this, then they either:

a) don’t know what they are doing which means the likelihood of success of the project is very slim, or

b) they weren’t able to secure funding because their idea wasn’t thought through and the lenders saw them as a big risk and said heck no!

And if the billionaires say they don’t want to risk $10,000 on someone, you, non-billionaire artist, should definitely not risk anything on them either

Giant Red Flag #2 “In exchange I will give you a royalty so when this blows up you will be rich”

Why this flag is red: Why would a client offer someone a royalty on something that they have pretty much proven through diligent research to be a successful product when it’s cheaper to just pay for the thing up front? That money will be taken away from reinvesting and growing their business.

It’s usually because:

a) They don’t know how to get funding because they don’t know what they’re doing, and if they don’t know what they are doing, the product probably won’t succeed, or

b) A client would do that because they aren’t sure if the product will succeed because they didn’t research it and they are guessing, and so they will offer a royalty as a way of avoiding any risk of their own- because they don’t want to lose their OWN money on it, they’d rather lose your money.


A color illustration for a tshirt= $300. 3% royalty on a 100,000 shirts that are sold at wholesale prices to stores "when the shirt blows up"= $21,000.

Why would they pay $21,000 when they could pay $500? Because they don’t know what they’re doing, and since they don’t know what they’re doing the project probably won’t work.

Giant Red Flag #3 “You can have a piece of the ownership of the project!”

Why this flag is red: This is even worse than giant red flag #2- it is giving away even more of that money that they should be wanting to keep to help their business succeed. They’re offering you money on stuff you didn’t even work on. They’re offering you money on projects that will be made ten years down the road by some other artist you’ve never met. Instead of offering you $21,000 in exchange for $500 of work, they’re offering you $175,000. That’s an even more ridiculous move on their part and will even more seriously dwarf the growth of their company.

Also, when banks and investors review business plans to decide if they should invest in a company or not, they look and see how many owners of the company there are. If someone has given away ownership to people who aren’t helping to run the business , that’s a giant red flag to them too that the person doesn’t know what they’re doing and that they will never get their money back. And that person will be denied.

They are offering a deal that could make the chances of failure of their company greater, and they are also offering a deal that could make it harder for them to get approved for additional funding later. So they could be double-screwed, by their own decisions. This person definitely doesn’t know what they’re doing, and if they don’t know then it probably won’t work.

Giant Red Flag #4 Artists are pitched projects with these terms about a zillion times a year.

Why this flag is red: The fact that this is so prevalent means the likelihood of the one in a zillion projects that will actually work being pitched to you out of every other artist on this planet is low. It’s like winning the lottery. And we all know how easy that is.

But what if you are actually interested in the project?

I think we as artists should start learning something from the banks. They research the project, research the person, and use all of this information to come up with an educated determination. We should also ask questions and scrutinize these people who are basically asking us to invest. Here are some things that banks want to know, that artists should also want to know:

-What is your marketing plan for this project and how much do you have to spend on advertising it?

-Who are you selling it to, and where will you be selling it?

-Have you sought out a loan to fund this project? If not, why? If so, why were you denied?

-Do you have any deals that are already in writing regarding this project? If so, with who?

-What are your qualifications that make you and your team able to bring this project off successfully?

-How much of your OWN money are you investing in this project?

-May I see the financial analysis of your projected sales for the next 3-5 years?

Giant Red Flag #5 If a client has no answers, won’t share these answers even after an offer of a confidentiality agreement, or has crappy answers. Then they definitely don’t know what they’re doing and therefore the project probably won’t succeed.

So these are the secrets I have learned that I am sharing. To learn more about his stuff take a class on writing business plans and talk to your bank about what is involved in seeking and being granted a business loan. This can be useful information for your own business as well as for understanding what goes into a product or company that makes it succeed.

If we’re expected to be investors, then we need to protect ourselves with basic knowledge and with information to guard against bad investments, because that’s exactly what you don’t need to get your bills paid.

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