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Ask HN: Is Revenue Sharing a scam?

5 points by codemonkeymike ↗ HN
Recently I was offered some work as a programmer by an acquaintance from highschool, outgoing friendly guy. He said in return for making his website that I would receive 5% Revenue Sharing of the website. This seemed odd to me as I've never herd of doing work for a share of a startups revenue. From what I know most startups don't produce revenue ever so in essence Revenue Sharing would be a scam. Does anyone else feel this way?

Edit: for grammar

10 comments

[ 0.19 ms ] story [ 26.3 ms ] thread
HiroProtaganist
It is not a scam per se; unless you deem investing, or taking risks a scam.
citricsquid
A new business isn't necessarily a startup, if he has a solid plan to be generating revenue from day one then it would be a business. A startup (as defined by Wikipedia is):

    A startup company or startup is a company or temporary organization designed 
    to search for a repeatable and scalable business model. These companies, 
    generally newly created, are in a phase of development and research for markets. 
    The term became popular internationally during the dot-com bubble when a great 
    number of dot-com companies were founded.
You can stand to make very good money from revenue share, the question is are his projections good, are you confident in them? Does the business model stand up?
codemonkeymike
I actually do have confidence in my friend and his business model. But what seems like a bit but to me is that I think he may look for an out from the company within a year or two of getting off the ground. This may pose another problem like the revenue share being dropped from any deal made to sell the company.
kls
Is the product the developed site or does he sell a material product that he needs a website to sell it. If you are building a web app, that will be the product 5% is a low offer for basically doing all the work to create the business. If he has an existing business, with an existing product that he already has sales for, and he just needs a website to sell online, then you will have to do the math, it may be great and it may be a horrible offer.

I turned down an offer once to receive 1% or profit on every transaction that came in through some web-services I build in lieu of cash up front. It was the worse mistake I ever made. That service did over 50 mill in profit the first year alone. I should have done the math and took the risk. So it all depends.

codemonkeymike
You make a good point, the website is offering a new service. A service which my friend will be doing most of the work providing the service.
kls
So 5% of his ongoing labor, is this perpetual? How much is the average service contract and how long do you think it will take to build what he is looking for. Also you will want to get a pretty good contract in place. As time goes on people tend to appreciate work that was done in the past less than they did when they needed and start to look at the fees associate with that work as a free ride. You will want to make sure that a year or two down the road he does not decide that you have made enough and try to renegotiate or cut you out completely.
ProblemFactory
Revenue sharing schemes are fairly common in areas where revenue from an individual's performance can be directly measured. For example, it's common for sales staff to have a low base salary + 10% of their sales as a bonus.

It's much more difficult to get right when you are building long-term assets (such as a website) instead of making one-off sales. If you build a website and leave, do you keep getting revenue share from it forever? If the company branches out to a new field, is that included?

chrisjack
No revenue sharing is not a scam, but be sure to put it in contract.

But the fact that it's not a scam might not mean it's a good deal. Do an estimate of the cost of the project considering your rate at your job and the time the project will take.

Compare it with what you're expect to make with the 5% in the next few years.

Maybe they are added benefit of doing the project with him, like experience with a new tech or having first client of a side business making web apps.

sfrechtling
Like a few of the other posts - make sure you put it all in writing and manage the expectations of both parties (eg. how long does it last for? can you review revenue data etc)
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