Great business idea #1 - Umbrella Companies

Published September 24th, 2008 edit replace rm!

Are you contracting or freelancing? Would you like to but don’t want to deal with the hassle of all the paperwork? Hire an Umbrella Company to handle all that for you. The only problem if you are outside the UK is that there aren’t any. It’s an obvious business opportunity with a real need and real income, ready for the taking with plenty of space for competition.

Umbrella Companies are hired by their employees to handle invoicing, accounting and payroll for them. They provide a similar service to Professional Employer Organization’s with the exception that the customer is the contractor who becomes an employee and not the employer.

If you are a contractor or freelancer you become an employee of the umbrella company. Most companies in the UK provide a system where you enter your hours or invoice details via a web application. The umbrella company in turn invoices your client on your behalf. They then deduct whatever payroll tax they need to deduct and pay you your salary. In the UK most charge a fixed monthly fee, but I’m sure there are all sorts of other supplementary business models.

Where umbrella companies compete are on the benefits they offer, tax deductions you can take etc. You could imagine an umbrella company offering you the latest top model MacBook Pro. Behind the scenes they would lease it and deduct it from your invoices pretax. I seem to remember hearing about Companies in the UK offering car leasing and all manners of other kinds of deductions, all without the red tape you would normally deal with as a freelancer.

Really there are lots of ways you could do this. All you really need to do this is one or two good programmers and someone with payroll and/or accounting experience. You could probably even outsource the payroll part of it to one of the many Payroll companies out there like PayCycle or PayChex.

As an employer there are risks involved, but with proper advise from an account none greater than any other employer faces.

Umbrella companies became very popular for IT contractors in the UK a few years ago because of new tax legislation making it difficult to work through your own company (or corp 2 corp as they say here in the US). The great site Contractor UK has a List of Umbrella Companies but you can also google the term to see what you find.

With the face of business changing in the US, there are more and more reasons why people would hire an umbrella company.

Update: MBO Partners seem to offer an umbrella company option, which seems to support most of everything I talk about above. Anyone have experience with them?

Who is supposed to draft your agreements? You are!!!

Published September 23rd, 2008 edit replace rm!

We’ve already seen what happens when you leave drafting your agreements entirely to an uninterested legal team.

Yet people still have their lawyers draft up an agreement, which more than likely for most contracts really is a paralegal filling out a word template. There are lots of myths surrounding agreements that I wrote about earlier in It wont hold up in Court.

Dilbert.com

I can’t stress enough that an agreement is not between lawyers, it’s between it’s parties. You as the entrepreneur and the other party, whether it is your users in a User Agreement, your client in a consulting agreement or an investor in a term sheet.

Yes for many of these you need to bring lawyers in. In particular high value risky agreements such as Term Sheets you need lawyers to help you out. That does not remove your responsibility however to understand the core of the agreement.

The mysterious Uncle Saul who is now one of my favorite bloggers says in his great post Roping in the Legal Eagles :

As the businessperson with the most intimate knowledge of a particular deal, you should draft as much of the “business-oriented text” of your contracts as possible. At the very least, you or the appropriate member of your team should document the primary deal points in bullet-point form. The more specifically you document the business terms, the fewer iterations will be required to finalize the agreement. Even a highly attentive, business-oriented lawyer cannot put himself in your shoes. They do not work at your company, so there is no way they will have your insights. Thus, the more work you do upfront to document the business issues, the less you will ultimately be charged and the more closely the agreement will reflect the spirit of your verbal negotiations.

Your Lawyers do NOT and can NOT understand every aspect of your business. Only you and your team have that knowledge. Uncle Saul continues:

There is no magic language which makes an agreement legally binding; in fact, in most cases, the simpler the text, the better. Many a binding contract has been written on the equivalent of the back of a napkin. Once you draft the straightforward text, sans the legal mumbo-jumbo, ask your lawyer to review the text to ensure your layman descriptions do not result in an unintended interpretation. As noted in Tom and Huck, plans and agreements written in plain language reduce confusion and benefit all parties. If you select the right lawyer, he will not load up your text with gratuitous legal jargon (leave that job to the BDC’s legal squad).

Go read the rest of Roping in the Legal Eagles for more tips on how to create and deal with a good legal team.

I guess my best advise here is to remember that it is your job as an entrepreneur to take risks. It is the lawyers job to avoid risk. Don’t let the lawyer talk you out of risks worth taking, have him educate you so you can make the decision if the risk is worth taking.

Negotiating contracts with Big Companies

Published September 20th, 2008 edit replace rm!

Just discovered a great article Kiss of Death – Contract Provisions Entrepreneurs Should Avoid at All Costs about dealing with Big Companies from InfoChackie.

The mysterious Uncle Saul as he calls himself has a wealth of tips about dealing with what he calls BDC’s (Big Dumb Companies) or as I like to call them Kim Jong-Il.

Big companies can be extremely tempting to deal with. They’ve got lots of money, they validate your business idea and you know it sounds great to brag about signing a deal with company X.

However as Uncle Saul says beware. Big companies are often run by all kinds of internal politics and have bureaucracy’s you couldn’t imagine. I have personally seen many small companies die because they either were desperate to sign a deal with a Big company or actually did and then got screwed.

That said, if you manage it right. Keep the control on your side and know when to cut your losses there are lots of opportunities for the smart entrepreneur. Uncle Saul describes in detail the contract negotiation part, which really is the single most critical part of dealing with these kinds of companies.

Don't be yet another Kim Jong-Il of the business world

Published September 11th, 2008 edit replace rm!

Kim Jong-Il the glorious leader of North Korea has long been the laughing stock of most of the world except of course the poor millions of North Koreans who happen to be stuck under his rule.

So why is it that most medium to large companies blindly follow his doctrine? Why are so many startups sliding down the path of becoming North Korea.

You may be thinking now that Pelle has finally lost it. Well bear with me to the end of this, I hope it will make sense.

The visionary leader

A traditional large company has a fearless visionary leader in control of everything. A large company typically has many different product and service lines often in a whole range of different industries. Yet the fearless leader has the majestic vision and good heart that he can see and make correct decisions about all.

How the Google EULA controversy shows the problems with lawyer written agreements

Published September 3rd, 2008 edit replace rm!

By now you have no doubt heard about the issue with Google’s Chrome End User License Agreement (or EULA).

The original clause of concern was:

1.1 You retain copyright and any other rights that you already hold in Content that you submit, post or display on or through the Services. By submitting, posting or displaying the content, you give Google a perpetual, irrevocable, worldwide, royalty-free and non-exclusive licence to reproduce, adapt, modify, translate, publish, publicly perform, publicly display and distribute any Content that you submit, post or display on or through the Services. This licence is for the sole purpose of enabling Google to display, distribute and promote the Services and may be revoked for certain Services as defined in the Additional Terms of those Services.

In theory this pretty much gave Google rights to anything you do through your browser. In practice as it is a non negotiated contract of adhesion this clause probably wouldn’t hold up in court anyway. (If they used Agree2 it would though)

Anyway Google changed it to:

11.1 You retain copyright and any other rights you already hold in Content which you submit, post or display on or through, the Services.

Ars Technica has the full story on the change with this choice quote from Google’s Senior Product Counsel (read lawyer) for google Chrome:

Google’s Rebecca Ward, Senior Product Counsel for Google Chrome, now tells Ars Technica that the company tries to reuse these licenses as much as possible, “in order to keep things simple for our users.” Ward admits that sometimes “this means that the legal terms for a specific product may include terms that don’t apply well to the use of that product” and says that Google is “working quickly to remove language from Section 11 of the current Google Chrome terms of service. This change will apply retroactively to all users who have downloaded Google Chrome.”

This to me is why you really should not leave these to lawyers. Lawyers will almost always copy and paste rather than look at the real needs of your service, situation or offering. This is as she says exactly what She did. Without at any point thinking that this does not in any way make sense for a browser.

Too many people (such as Rafe) hold lawyers up on such a pedestal that they forget that it is them the owners, product managers or what have you that really understand the product. I am not saying don’t use lawyers, just check it over and refuse anything that doesn’t make sense. Also tell them your concerns and needs with the agreement before hand.

About me

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My name is Pelle Braendgaard. Pronounce it like Pelé the footballer (no relation). I live in wonderful Managua, Nicaragua. I work with Clojure, Bitcoin and Ethereum.

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