I have a project from client, shall I open a startup or play a mid man and make a cut


4

I have a project from Client to implement ERP software(starting project of worth 450K$, and may get similar 2 or 3 more projects), I do not have any company for now and is doing a regular software job(earning ok but steady). Now following are the options I am thinking of -

  1. Open my own startup with above project(The max profit I may make of it is 100K$ of each project), also as I do not have any practical knowledge of ERP platform so need to hire few resources and deliver it(also pay their salaries from that profit) and I have no other projects after these 2~3 are over and not sure how to survive thereafter(I may be getting some maintenance amount from above projects but that may not be suffice for long run) and hence little scared about leaving my software job, but again ain't I am into software field only as a founder/entrepreneur and can join back good software firm in future if all fails.
  2. Open my own startup with above projects, and hire contract developers from other startup company who has delivered such projects before and execute it to completion, however the client would not know I have outsourced it to others or involved others as I have some aggrement with startup company, How does such a model works and is it ethical, does startups practice this ?
  3. As Client is providing project to me based on my goodwill so I rather play as a consultancy firm role which finds the right technology and people or company and outsource it as I lack expertise and capacity, and take some cut as consultants charge. Client knows I have outsourced the implementation part to sub contractor but the management and supervision is controlled by me. This way I can continue building my consulting brand and expand business in longer run if needed. I may add 1 more partner and that's all until we grow large.
  4. No need to open a startup, continue doing my job and just find a company who can do it introduce it to client, and negotiate with company to provide me my cut.

Which of it you think sounds more feasible to you ?

Thanks in advance!

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asked Nov 16 '12 at 16:18
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Goku
58 points
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3 Answers


2

It depends on what you want to do long term.

If your not that interested in starting your own business then just do 3 but negotiate your fee before introduction and not afterwards.

If you want to start a business and build it up over the next 5-10 years then I would start with option 2 but modify it slightly.

You can be the brand name that subcontracts most of the work to a few local companies. Your brands job would be to find new work (marketing and sales) and possibly charge for project management and account management functions, being the middle man that can smooth issues over with both parties.

You don't need to hide the subcontractors if you get their agreement and your contracts sorted out, you just become the brand clients come to in order to ensure the job gets done. We have this style of arrangement with various companies from time to time and it usually works out pretty well.

Over time as you find experts you could look at taking on option 1 but if your good at what I've said above then your risk may be lower if you just stick to option 2 because you have no staff to worry about and if you get the contracts right you can offset your risk between the client and the implementation crew.

answered Nov 16 '12 at 16:57
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Robin Vessey
8,394 points
  • Thanks Robin, your option2 variation sounds good, but I do not want to expose subcontractors to Client, is it legally possible to just hire resources of subcontractors / outsource the project to subcontractors but under terms such as Client shall see them as my employees( and it is actually my team as I have hired them on contract to get the job done), would subcontractors be okay with it ? Is there any better way to go ahead on this model – Goku 7 years ago
  • for your version of Option 2, how much % I can charge for PM & AM functions and should I discuss this with Client upfront?, Why would Client agree for paying to 2 parties?, who would be paying SubContractors ? – Goku 7 years ago
  • We have operated like that in the past in both your role and the subcontractor role, generally you just ask them and agree before introducing the job. 20% is a general guideline but I have also seen a seperate management fee line item to seperate the risk clearly. – Robin Vessey 7 years ago

1

In my opinion #3 would be the best choice.

Option 1 is too dangerous, you don't have such knowledge. There is less chance of project success. And you may risk the loss or claim if project fails.

Option 2 is not so possible. ERP need heavy involves with client. You can hardly hide it, and you risk losing trust if client found it.

Option 3 would be the best. Honest. Little risk. Still earning right cut. More trust and more friends.

answered Nov 16 '12 at 16:35
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Billy Chan
1,179 points
  • Thanks Billy, How about Option2 for first project(I may hire few resources from startup on contract for this first project, all client wants is that I shall deliver it successfully in above budget and schedule, but is it legal in software industry that though I actually have no resources of my own but I am accepting a project from client ?) this way I learn what it takes for execution, then later hire the right team for rest of 2 projects or continue using the contracts of previous startups if it sounds reasonable. – Goku 7 years ago
  • Goku, I just saw Robin made solid points. It all depends on how you plan the next years, and how strong you decision is to be a good player in this field. Your new option should be legal. But, while you are going to take big cut, you take bigger responsibility. That's rather a burden if you are new in this field. I can't make decision for you, but if I were you, I'll choose to work as a consultant, or a PM as Robin mentioned, even if I want to enter this industry. After you collected enough experience and reputation, new projects opportunities should not be hard. – Billy Chan 7 years ago
  • I see you make a point, but I feel as a consultant or a PM the cut would be really low, moreover to focus on it efficiently I may need to quit my full time job anyway. I see this cut somewhat equivalent to that of Option 3 with advantage as having fulltime job to play safe, whereas for the former though I get chance to start my own buisness but with such low cuts(say I get 3~4 above prjects) would it be viable in longer run? – Goku 7 years ago
  • It is definitively not a clear cut option 2. It is difficult to hide because the customer will notice lack of attention. It is ethical to know before hand that you are going to subcontract so you focus on management as added value. It is not ethical to say you will program it if you know you won't. The position your are offer is to be responsible for the delivery, not for the implementation – Pdjota 7 years ago

0

@Robin: Sorry I messed with my logins so posting here,

Thanks, I am convinced that your suggestion makes more sense, given lack of my expertise and capacity, also it keeps things more transparent and lesser work for me( though lesser cut too),

My understanding and few questions are :

  1. I shall register my company first and then find suitable subcontractor and convince him about the project and ask him to come up with quotation for such a project(If quotation is above clients budget then ask him to adjust it appropriately),
  2. then I shall convince my Client that I am a consultant firm which delivers IT solution by subcontracting the implementation to best suited people and completely control the management, execution and quality.
  3. Here I shall also sign a deal(with proper legal process) with SubContractor about our shares, How shall we decide the shares here ?, Shall I say 70% of profit(say 100K$) of total project cost( say 450K$) is of subcontractor and 30% is my charge. but how would I know exactly if subcontractor manipulates profit figures( say he shows more Hardware cost or implementation cost) How shall I control it. Also is 70-30 ratio less or more ?
  4. I shall request Client to allocate some advances to commence the project and I shall transfer amount or portion of it to subcontractors. I shall get status report from subcontractor of current progress and share it with my Client.
  5. Once the project reaches a prototype stage, Client shall release the further portion of amount and I shall transfer amount or portion of it to subcontractors. I shall get status report from subcontractor of current progress and share it with my Client.
  6. Once the project reaches a final stage, Client shall release the final amount after verifying/testing the product and I shall transfer final amount to subcontractors keeping my portion of it.
  7. For further maintenance as and when Client allocates the amount we shall follow the same process.

Am I missing any steps, Do I need to know anything more ? Is there anything more to my role, also I am planning to add one more partner to help me execute this. Does our role here requires us to quit our current jobs and completely monitor this from start to end

Thanks once again for your helpful comments.

answered Nov 17 '12 at 02:02
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Goku
58 points

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