Annual Review #1

First Year, Post-Leap

The Yak Collective calls the process of leaving a job to work on your own full-time "making the leap." I made the leap in May 2023, and it's been a year of ups and downs. I think of this first year as the year of scavenging, struggling, and living to fight another day.

In total, I worked with three clients. Two of the clients were medium-term projects and the third was a one-time small payment. I'll expand on these experiences in a moment, but first, let's talk about some fun bits from first year's school of hard knocks.

Hard Knocks

Taxes

Relatively speaking, I made good money in 2022. I didn't understand the relevance this would have on my taxes the following year when I made the leap. The first year of self-employment estimated quarterly taxes owed to my state and the IRS were based off of my 2022 W2 income.

This led to a hefty tax bill in 2023 and wiped out money I had in checking and savings. Theoretically speaking, this will balance out in the future. However, I had no idea this would be a thing to consider when making the leap. Oops.

After navigating taxes with the help of a CPA, I was still penalized at the end of the year for underpayment of income taxes. I've heard of entrepreneurs who refuse to play this game, don't pay quarterly estimated taxes, and take the penalty at the end of the year. I don't think that is smart to do, but I now understand the sentiment behind the defiance.

Contracts

I was asked for my contract from clients on multiple occasions. I didn't have one. I didn't even have a template. So I took the time to write up a contract, learn the various clauses, understand what I was trying to protect and ensure via the contract. I would then share this with the client and ask for their feedback.

Doing business is litigous. There is always a pecking order and power imbalance. One side will gladly end the relationship if the other side is not willing to sign their contract. It is a skill to navigative these conversations and negotiate terms, something I am still learning.

Payment

At some point, each client I worked with was either late on payment, attempted to re-negotiate and pay me in "equity", or refused to pay entirely.

There were reasons and circumstances for all of these things and the optimist in me wants to believe that this is an unfortunate, but common price to pay when working with pre-seed to series A startups. Money is tight and runway is short. I get it.

However, if not handled properly, a business relationship can turn into charity. The more sympathetic you are to the client's situation, the more that will be leveraged in communications. It's a fine line to walk.

Lessons Learned, Back to the Clients

With respect to these clients, I am not going to name names. These have been great learning experiences and I am grateful for the opportunity to work with them. The point of this exercise is to reflect on the past year and learn from it.

The Company of Non-Employees

My first client was a generative AI startup having just raised a pre-seed round. I was hired as a product engineer contractor to rebuild their web app from the ground up and impliment new features.

I negotiated to get paid at the beginning of each billing month. I did this for a couple reasons: 1) I had no money and needed the retainer and 2) I wanted to protect myself and ensure I was paid before a delayed or missed payment could be used as a bargaining chip.

This was fine for a few weeks until the predictable cadence of monthly payments caused the co-founders to conflate contractors with employees. No longer was I an independent contractor doing X work for Y number of hours per month. I was an employee expected to attend meetings, be availabile during core hours of the client's choosing, and provide free on-call support as needed.

Because the company was small and the team relatively new and inexperienced, this meant on-call support was daily, often multiple times a day. I refused to do this work for free and was met with resistance. It eventually boiled over during a team call where I was scolded for not caring. I made a point that I (along with all of the others) was a contractor and not an employee. If support was needed, it would be billed at a certain rate.

Following that call, I was asked to re-negotiate a few different times. One attempt involved paying me in equity to do support work, another offering a combination of cash and equity to do support, and a third offering a full-time position with a lower-fair market salary and equity. I declined all of these offers and we eventually parted ways.

The Begrudged Client

When I first made the leap, I connected with an entrepreneur who wanted to leverage her personal brand to create a mobile app. She was looking for a tecnical contractor to greefield the project: determine the tech stack, build the app, and deploy it to the app store. She was not technical, but knew that she didn't know what she didn't know and did due dilligence to follow up about various topics and technologies.

After talking more with her, I ultimately decided that what she needed was a technical co-founder, not a contractor. There is a lot at risk when giving free reign to someone you do not know to build your digital brand. What she needed was to be working with someone she knew and trusted to build a solid foundation and great product. We parted ways for about half a year.

When she did reach back out, she asked for help. My previous advice had not been taken and she had hired a full-stack software engineer contractor to work on her project. The project was a mess, the engineer was not delivering, and she had a hunch that she was being taken advantage of. I agreed to review the code and provide feedback. This was my first mistake.

I told her what she already intuited. The code was subpar, there wasn't much of it, and the engineer was overbearing as a means to compensate for the fact that he was in over his head. At this point she was interested in working together again.

We started meeting occasionally to discuss round two of the project, UX/UI, and to plan what was needed for an MVP. I ended up writing a series of documents for her: a design plan, a tech stack recommendation and explanation, a list of features for the MVP, and an overall project proposal with estimated costs and timelines. I did this for free. This was another mistake.

After a few months of this, I realized that I was being taken advantage of. I was doing the work of a technical co-founder without the title or equity. I was being asked to do more and more work for free and was not being compensated for my time. I was being strung along.

Eventually, I brought it up. I stated that I was not going to continue working on the project without a contract and compensation. She was taken aback and said she didn't realize that I was expecting to be paid. I responded that I was a contractor and that I had been doing work for free that I should have been charging for (and do charge other clients for).

I told her I would not be taking any more calls or meetings without being compensated. I sent a Stripe payment link for the work I had done up to that point and mentioned that I would be happy to continue working on the project if she was willing to pay for my time. She replied that she would only pay for an hour of my time, aghast that I even asked to be paid.

I received a payment for one hour of work followed by an email stating that my proposal was being declined. Her counter was for me to complete the project in half the time for half the cost. I politely declined and rescinded my interest in the project. We have not communicated since.

The Company of Friends

The final company I worked with is a client I am still actively working with. It is a company of friends.

In many ways, it is a fun client to work with. The people are nice, the work is interesting, and the overall vibe is good. However, there are some downsides.

When friends run companies together, a personal friendship can get in the way of the professional relationship. By this, I mean serious conversations about money, timelines, and features can be difficult to have. It's hard to tell a friend difficult things. This is a current struggle with this client.

Because it is such a struggle, people have been brought into the company to serve as a buffer and mouthpiece for the hard conversations. However, there is additional overheard and costs to this inefficiency. Additionally, even with this buffer in place, it doesn't work all of the time and key points are still miscommunicated or lost in translation.

This also becomes a problem when the client is not paying on time. It's hard to ask a friend for money, especially when you know they are struggling financially. It is hard to stand your ground and demand compensation when you are being given personal reasons as to why the payment is late. And as sympathetic as I may be to their situation, it is not my responsibility to carry the financial burden of their company. It is not my problem. I need to be paid.

This friction has led to meandering and tedious calls reflecting on what went wrong, what could have been done better, and what needs to be done moving forward. All of this is frustrating because the problem is solved when I get paid on time. It's a simple solution to a simple problem. But it is made to be more complicated than it needs to be when it is personal and we're talking about friendships.

The process of getting paid becomes a journey. One in which I must at least acknowledge the lengths that were taken to get me paid, if not be grateful for them. The business relationship gets lost in the interpersonal soup. I must be understanding and patient. I must be willing to work with the client to find a solution that works for both of us. I must be willing to compromise.

I am still awaiting payment for work done a month ago. I'm told I will be paid soon. I'm not sure what that means.

In a Nutshell

If I distill the past year down to key learnings from these three clients, they would be:

I left a W2 paycheck life to become independent. I'm not giving that up because a client wants to LARP as my employer. Walk away from clients who try to treat the arrangement as such.

I need to respect myself and set boundaries. I need to make it clear that the preparatory, the ancillary, and the supplementary work (strategic work) is still work and billable. I need to cut ties with clients who do not value my time or contributions.

In this business, I am a consultant and contractor. I am not a co-founder. I am not a friend. I am not a charity. I need to get paid for my work. As a good friend put it recently, I need to be the contractor that a client knows to pay first.