The Tempting Proposition of Investing in Clients Projects
Picture this scenario: you’re in the process of establishing your position as professional advisor to support enterprises. A potential client approaches you with a proposition that seems mutually beneficial: they suggest a collaboration that involves utilising your services for a project.
The deal is simple: when the project succeeds, you will get generously rewarded for your contribution. Essentially, they say, by participating in the project you will be involved in decision-making, which motivates you to provide the best to lead it to success.
The allure of investing by contributing only with your know-how in a client’s project is undeniable. If considered as a business opportunity, this arrangement might appear appealing, fostering a sense of camaraderie and shared risk, implying a sense of shared purpose and collaboration, where both parties bring value to the game. If your professional position is not yet at its top, you may also benefit from successful projects that you may not be able to get elsewhere. And, ultimately, devolving some of your non-allocated time for a project that may pay well later on, seems reasonable.
However, before embarking on such joint ventures, it’s essential to consider the potential pitfalls that can arise from investing time, effort and valuable know-how in a project under the promise of getting paid. This arrangement can quickly evolve into a quagmire of conflicts, as the core of the issue lies in the delicate balance between professional success and risk management. Let’s see what risks you may carefully consider.
Evaluating Your Role as a Professional: The Risks of Collaborative Client Investments
As you are a professional, your journey has undoubtedly comprised an investment, including the lessons drawn from experiences, trials, and failures. These cumulative endeavours have significantly contributed to your expertise and the stature you bring to your role as an advisor.
It is now time for a payback of the investment: getting paid for the know-how you can provide.
Instead, investing your know-how into a client’s project, you essentially accept to increase the risk of your own investment: instead of optimising the returns on your own investment, you find yourself deferring it by contributing it into another venture.
You may end up participating in a venture where you don’t have control.
As a business professional, your primary interest is to succeed by leading projects for the best results. When your professional advice is intertwined with the project’s success, the decision-making process can become muddied, frustrating the required negotiation between parties. When your client doesn’t agree with your advice and decides to implement a different option, you are stuck in a situation where you disagree, but you can’t impose your way, even if you feel the wrong decision may harm the whole project.
When it happens with a client that pays for your services, you know you are there to facilitate the decision-making process, clarify pros & cons as ultimately your role is to advise the client in running their project to the best of their ability. Your mandate is to provide know-how not result.
When that happens in a project where you get only paid if it succeeds, but you are not entitled to decide, you may feel deeply hurt by a possible decision against the evidence of your knowledge, as it impacts you: it fosters the chances to not get paid for your contribution, even if nothing was wrong with it. You may be right or not, but from that very moment, your level of commitment and effort will change. This is human: it goes under the definition of the agency dilemma.
Navigating the Agency Dilemma in Economics Theory
In the economics theory, the agency dilemma takes place when an operator, the agent, is expected to perform a service or a job to be paid on success fee. There are two main courses of action the agent may choose:
Spend all the possible effort and commitment to make it successful
Doing nothing and leaving as the course of events goes
If the second may seem oriented to a more probable failure, it has the great advantage of zero effort: if the success happens, it will be a free win. If it won’t, there will be no loss.
The first one may seem more honest and committed to success, but in lack of full control of the parameters of the success, it may end up in an extremely expensive failure.
Humans, it has been proved, are naturally driven by loss avoidance.
Understanding the Challenges of The Lack of Full Control on Projects in Client Collaborations
Considering the failure rate of similar projects and the lack of full control over them, a professional advisor who provides know-how on success fee schemes will end up trying to avoid losses. A natural choice that implies reducing the commitment to the project itself. You may find yourself betting on the success of the project independently by your contribution.
If we really care about a startup or a project run by one of our clients, it may be better to invest an amount of money in it, but then get paid for the contribution brought on the table.
It may seem counterintuitive, but actually, this ignites a virtuous circle where the professional role will be separate from the investor’s role.
As an investor, you may take part in the decision-making, guiding for the decision improvement, no matter what you think or know.
As an advisor, you may contribute to the performance of the project with your know-how but also step back if you see the situation is not healthy for you as a professional.
Balancing Professional Success and Financial Investments in Client Projects
Keeping clearly separated any financial investments from our professional success is a formula to avoid emotions stepping into your professional career: We can invest money into a venture that we know may or may not have success and we accept that risk without having direct control over it.
When you use your know-how it should only be under one of the two possible schemes:
in exchange for money
under full control of the risks
The best is to invest money well aware of the risks as an investor. Ultimately lets anyone do their role, entrepreneurs face the major risks, investors just risk money and professional advisors contribute with the best know-how, but the ultimate decision-making remains in charge of the risk-takers!
Why CRM Is a Critical Business Component
We don’t provide consultancy on CRM strategy in exchange for a success fee.
We can invest in new ventures if we really believe they are valuable.
Then we can provide CRM expertises to make the venture succeed even better, under a reasonable compensation scheme.