A Few Simple Rules for Professional Services Free Agents

The following is our hypothesis of what the few simple rules (a Code of Conduct) might be that could cause the emergence of a sustainable commercial ecosystem among professional services free agents:
1. Reward sales behavior
2. Honor the Prime, the Sub and the Client
3. Honor your own identity (whether you are the Prime or the Sub)
4. Reveal the network to the client
5. Manage and share your knowledge (client and transactional info)
6. Show up and add value
7. Do the right thing for all – choose win-win-win outcomes

Our hypothesis is that when this suite of “simple rules” are played out, including the economic model described above, synergies will emerge. We assert that this will lead to:
• A sustainable commercial ecosystem of free agents where both transaction costs and coordination costs are very low;
• Greater value to clients;
• Better working relationships;
• Healthier margins for professional service providers;
• Increased flexibility and speed in assembling service delivery capacity;
• A humanistic adult-to-adult (vs. parent-child) work culture where individual responsibility is supported; and
• The gradual migration, through self-selection, of individuals into roles in the commercial ecosystem for which they are best suited (temperament, talent, and training). Eventual self-organization of small work groups and guilds (multi-celled organisms) will emerge within a context of collaboration.

Simple Rules with Not-So-Simple Implications

Each of these “simple rules” has important nuances that we believe will generate healthy collaborative relationships and positive commercial behaviors. Below we will describe each point in more detail.

1. Reward Sales Behavior – For sustainable commerce there must be a consistent evangelic focus to discover opportunities to be of service and to present the offers of the free agent network. The reward for finding a lead supports this behavior at all points along the way. This is perhaps the most straight forward of the “simple rules.” Some consultants are hesitant to pay a referral or finders fee. It is as if they don’t realize that the fee is only paid after a transaction is consummated. Further, most referrals are warm leads that have been somewhat qualified and prepared to meet the consultant. Those who refer a Free Agent to a prospect are automatically positioning the Free Agent in the most credible and positive light possible via the personal connection the referrer has with that prospect. No amount of money will buy this from any marketing consultant or ad agency over the long haul.

2. Honor the Prime Contractor, the Sub and the Client – A common problem among Prime and Subcontractors is that they seldom have clear agreements between them about roles during an engagement. Always directing the Client back to the Prime when opportunities emerge for new contracts is key to building trust. Prime contractors need assurance that their client relationships will be preserved and not undermined by Subcontractors. From a strictly business perspective, the cost to land an engagement is highest if the client is new. First engagements may have very slim margins for the Prime Contractor. Subsequent engagements, whether they be follow-on projects, repeats, or referrals to other groups within the same client organization require progressively less effort and expense as the Prime becomes a trusted “partner” of the client. Ensuring that the Prime has every opportunity to make up their desired profit over the life of the client relationship is key if Prime and Subcontractor relationships are to become really effective and efficient. If the Subcontractor is truly supporting the Prime to do the job of selling and contract administration with a given client then it would only follow that all inquiries, hints, and suggestions of more or new work would be directed to the Prime to handle. Likewise, if the Prime is truly supporting the Subcontractor in the delivery of service, client management, and in rewarding sales behavior, more work will result for both the Prime and the Subcontractor. It goes without saying that if either the Prime or the Subcontractor does not honor the client, both will be out of work.

One of the key negotiating points related to this simple rule is “How long does the Prime’s relationship to a particular client need to be honored?” or more simply, “At what point can a Subcontractor sell directly to a client.” There is a fairly wide range of perspectives on this point that run from 12 months to 24 months to never. The Prime and Subcontractor must be completely clear about this point before they engage with a client as there are typically pressures over time that shift the center of gravity away from the Prime. Fundamentally, the Prime must maintain their leadership role (contribution of value) in defining the engagement, closing sales, coordinating it’s planned delivery and any changes, handling the contract and financial details, and lastly, managing quality and client expectations. There are many different scenarios that we have explored in developing this concept, but suffice it to say that if the Prime gets complacent, both Subcontractor and client will feel the burden shift to them and naturally move to cut the Prime out of the equation.

3. Honor Your Identity Whether Prime or Sub – If one is a Subcontractor to numerous Primes, a number of dilemmas arise:
• Whose business card do I present today? I’m not really an employee of Prime Contractor X, but they want me to strengthen their brand and relationship with the client. Will presenting my own business card confuse the issue? Will that give the client the notion that the Prime and I are potential competitors?
• Will the client try to circumvent the Prime and deal with me directly?
• When the client needs to contact me directly, how do I answer the phone at my office?
• How do I know which client or which Prime is calling?
These issues can be crazy making if not handled proactively. In the world of collaborating free agents it’s very difficult to switch identities from day to day, therefore we suggest that in most, if not all, circumstances one honors his or her identity. This means handing out your own business card with your own company name and contact information.

How, you may ask, do all the dilemmas mentioned above get resolved this way? If the Prime Contractor follows Rule #1: Reward Sales Behavior, the Subcontractor can be confident that in both the short and long run they will be rewarded for deferring client inquiries to the Prime who already has the client’s ear and can most efficiently sell new and different services. This is amplified if a Subcontractor follows Rule #2: Honor the Prime, the Sub and the Client. The Prime can be all the more supportive of the Subcontractor’s relationship building and prospecting.

4. Reveal the Network to the Client – The best way for the Prime to maintain strong and healthy relationships with both client and Subcontractors is to educate both. Disclosing to the client the source of labor assigned to their project and the basic relationship between the Prime and Subcontractor will head off any confusion the client may have. This simple rule may feel threatening to a Prime that is presenting itself as a large consulting firm with dedicated employees, when in fact they are nothing more than a marketing shell for Subcontractors. On the other hand, by informing the client of the general nature of this ecosystem of collaborating free agents and its benefits (lower transaction costs, lower coordination costs, increased ability to put the right talent on the right project, more flexibility, and lower overhead that the client would have to finance) this arrangement can be turned into a differentiator and competitive advantage. Disclosure of this nature must be made first by the Prime then reinforced by the Subcontractor.

5. Manage Your Knowledge – For successful collaboration, it is critical that all nodes in the free agent network/ecosystem manage their transactional information and content. Transactional knowledge and information includes: a client or prospect’s contact information, the source of the lead, the history of contacts with the lead/client, and transaction details and documents. The other kinds of knowledge and information that are critical to manage could be thought of as “content knowledge.” These include: Knowledge Products produced and used before, during, and after an engagement. These may be workshop materials, reports, event designs, models, prototypes, and the like.

Managing transactional knowledge is encouraged by Rule #1: Reward Sales Behavior. The value of a lead is increased with every detail about the prospect’s needs, decision makers, history, and so on. The more proposals, contracts and other document examples that are available to the Ecosystem, the more efficient the whole can become at making new deals. Templates will trend toward improvement with every use. Poor handling of transactional information causes lost opportunities and revenues for Prime and Subcontractors and makes it harder for all to serve the client.

Management of content knowledge in some respects is encouraged by Rule #3: Honor Your Own Identity in that through copyrights and intellectual property agreements the ecosystem of free agents can reward each other for generation of unique and specialized documents and products. A free agent’s marketability is enhanced if they have authored or created some knowledge object (document, image, model, software, etc.) that the rest of the ecosystem finds useful. From a liability point of view, managing content knowledge that contains a client’s proprietary or secret information is critical to protect all involved. From this point of view knowledge management becomes a facet of risk management for Prime, Subcontractor, and Client.

6. Show up and add value9 – Imagine how the world would change if this were the predominant modus operandi in business. Managers would have a very different role and there would be many fewer of them. Leadership would focus far more on developing visions of a bright future and less time on motivating people to do what needs to be done. In an ecosystem of free agents, where there is ambiguity everywhere and everyone is self-managed, direction and motivation are truly an inside job. The free agent must use their own senses and energy, not someone else’s, to identify what is valued, ferret out what needs doing, and get in position to deliver that value. In a troubled world, sometimes just showing up, just being with people, is the value. Further, “add value” doesn’t always mean adding more of anything. As the old Quaker saying goes “Don’t speak if you can’t improve on the silence.” Living this simple rule deeply can, of course, be a life long discipline in and of itself.

7. Choose win-win-win outcomes – In an interdependent collaborative as we are describing here, it is not a sustainable path to merely satisfy only the Prime, or the Client, or the Subcontractor. Since a free agent in this ecosystem could be a Prime today and a Subcontractor tomorrow great care must be taken to accrue goodwill points with all members of the ecosystem. Needless to say, choosing outcomes that don’t benefit the client will sooner or later cost Prime and Subcontractor alike. The ecosystem we’re describing behaves like a market of buyers (Primes) and sellers (Subs). Further, it is a highly connected modern market where news travels at the speed of light and in the case of email and web sites it is persistent. A free agent’s win-lose choices become a matter of written record very quickly as stories get passed back and forth about working relations and outcomes. No performance management system in the world moves this fast.

On the upside, choosing win-win-win gets spread around just as fast and strong positive reputations can be built quickly. Those who faithfully practice all the simple rules, especially managing knowledge and sharing it, can establish a culture and pace for others to emulate. The questions of the hour become: “Is the compensation fair in this transaction, no matter whether I am the lead generator, prime contractor, or subcontractor?” and “Am I following the simple rules?”

In summary, we believe that these simple rules, taken as a system, can cultivate a sustainable commercial ecosystem among professional services free agents. Without a doubt, there are other “simple rules” that could be articulated. We find that more than six or seven becomes hard to remember. Whereas our focus is on business consulting, there may be rules that are specific to other professional services. These rules result in both a solid foundation for conducting business and a safe, open environment for experimentation as greater opportunities arise.
Binding Agreements

Many free agents have shared with us stories of disappointment, upset, and frustration that have come from Prime or Subcontractor arrangements gone wrong. For want of a good written agreement, otherwise great collaborations have produced heartache and financial losses. For some Primes, poorly conceived and executed contracting ruined their reputation for years among potential collaborators. Tax liens are a reality if agreements are not well formed with respect to employment laws. Fundamentally, good agreements tend to make the involved parties more thoughtful about engaging with one another, surface innocently hidden assumptions, and increase specificity around money. It’s been said that drama is a wonderful thing on the stage, but not when you’re exchanging money. Most people we know want their financial transactions to be as predictable as gravity and just about as dramatic.

What kinds of binding agreements are necessary to clarify legal boundaries and performance expectations between Prime and Subcontractors? A Prime must manage legal and tax liabilities when engaging and deploying others. The Subcontractor needs to ensure he or she has defined the relationship to the Prime and client and that performance expectations, compensation, and payment terms are clear. To paraphrase Albert Einstein, we want to keep this agreement business “as simple as possible, but no simpler.”

Transactional agreements to codify these variables come in four primary colors from which all manner of relationships and projects can be painted. They are:
1. Subcontractor or Independent Contractor Agreement
2. Mutual Non-Disclosure Agreement
3. Intellectual Property Compensation Agreements (royalties, use agreements, licensing)
4. Work Order (for each project including fees, logistics, etc.)

These agreements form specific boundaries for each transaction, define roles and responsibilities, set out timing for certain activities, create a safe context for sharing ideas and their derivative products, and make clear how money will be exchanged for services and products. When added to the value chain of professional services engagements and the Few Simple Rules, all the components are present to begin seeding the ecosystem. With a little more context around each agreement, the links and forces between them will become more apparent. Understanding these starts to bring to light the larger force field that, we believe, can be created by their use.
Subcontractor or Independent Contractor Agreement – By formalizing the relationship between Prime and Subcontractor roles, individuals invoke a body of law with its implications for taxes, insurance, confidentiality, liability and dispute resolution. Additionally, they are setting a context for general performance expectations and for exchanging money. A list of clauses in robust Subcontractor agreements follows:
1. Statement Of Work
2. Compensation
3. Progress Reporting And Payment
4. Term and Termination
5. Independent Contractor Status
6. Confidential Information
7. Intellectual Property
8. Warranties and Representations
9. Restrictive Covenant
10. Insurance
11. Trademark and Trade Name
12. Indemnification
13. General Provisions
14. Dispute Resolution Procedures
Mutual Non-Disclosure Agreement – Collaboration among professional services free agents almost by definition requires exchange and use of intellectual properties. Since ideas, processes, images, and conceptual inventions are the stock and trade in professional services, compensating those who generate these is critical. In order to understand, evaluate, and make decisions about intellectual properties the creators/purveyors need to present them to buyers. In so doing, however, the idea is revealed. Paradoxically, you can’t sell some intellectual properties until after you give them away. To protect the copyrights and other protections afforded creators, a mutual non-disclosure agreement (MDA) is very useful. In essence it causes each party to promise that they won’t use or give away to others the creator’s ideas without first executing a separate agreement for compensation. This makes it possible to share ideas without fear of losing credit for or ownership of them.
Clients certainly have many of the same concerns when hiring consultants. They understandably want to be sure that consultants don’t misuse trade secrets and proprietary knowledge they may get exposed to in the natural course of an engagement. Likewise, it may be important to create a specific agreement with the client about future use of the consultant’s trade secrets and proprietary knowledge that the client may be exposed to during an engagement. It is not bad policy to open an engagement with an MDA to raise everyone’s awareness about the risks and negotiable points in the engagement having to do with intellectual property.
This is unmistakably quicksand if there is no code of ethics in play to augment the MDA’s clarity and legal leverage. In our few simple rules, #5: Manage Your Knowledge and #7: Choose win-win-win outcomes guide us to document our ideas and take the long view so that all parties benefit. With good knowledge management and a win-win-win culture the pace and quality of learning, recombination of ideas leading to true innovation increase dramatically.
Intellectual Property Compensation Agreements (royalties, use agreements, licensing) – The transactional aspects of using intellectual properties involves a combination of honoring copyright laws and establishing equitable compensation schemes. Compensation for using intellectual properties can take many forms. The three most common types of compensation are Royalty Agreements, Use Agreements, and Licensing Agreements.
Briefly, a Royalty Agreement determines the division of proceeds (%) from the sale of an intellectual property, say a book, poster, or video between a distributor and the item’s creator. In the context of our Free Agent Ecosystem, a Prime Contractor (person A) may duplicate and sell products at the back of a seminar room to participants while the seminar may be conducted by a Subcontractor (person B). After the seminar, the creator (person C) gets a cut of the proceeds. There are many applications of the royalty theme. The creator retains ownership of the intellectual property and all associated rights. It is common for the distributor to also publish or duplicate the product. The percentage the creator gets may be variable depending on sale price the distributor actually achieves.
The “Use Agreement”, is somewhat different in that the intellectual property in question may be used in the course of delivering professional services versus sold as in the case of a book. The use may be limited to a specific amount of time or number of uses. An example would be when a personality assessment created (by person C) is used during a specific consulting engagement sold by a Prime (person A) and delivered by a Subcontractor (person B). Neither Prime, Subcontractor, nor client own the intellectual property rights. They are instead retained by the creator.
Licensing Agreements – License agreements can take a number of forms. In one instance, the creator supplies materials to the Prime who negotiates to buy at a low price, and does its best to sell at a high price. Payment to the creator is a fixed price regardless of sales made by the Prime. The license to a Prime will likely have a specific duration after which it will have to be renewed. Another form we’re all familiar with involves software or multi-media products wherein we agree with the creators (usually by virtue of breaking the seal on the packaging) that we will use the intellectual property in certain ways and not in others. These don’t have specific time limitations but clearly remind us that we don’t own the intellectual property, we just use it.
Which agreement to use depends on the intellectual property, its intended application, and the players. Templates for each can be found in a number of places. The Graphic Artists Guild Handbook of Pricing and Ethics, 10th edition has a number of easily adapted agreement forms that work well. Additionally, Nolo Press (www.nolo.com), a venerable source of do it yourself legal forms, has templates.
Work Order – The Subcontractor or Independent Contractor Agreements are typically an umbrella agreement that sets the context for Primes and Subcontractors to work under for a year after which it is modified and renewed. It does not require that a Subcontractor fix their fee schedule for the year, but does put in place the basic way the Prime-Subcontractor relationship will work. For each project that a Prime generates, there are a number of details that must be specified for the delivery and transaction to go well. The critical information that a Prime should be sure to cover in the Work Order includes but is not limited to:

• Specific statement of work including desired outcomes and timeline of the work.
• Compensation, including the Prime’s policy for reimbursable expenses
• Client contact information (names, titles, phone #s, emails, websites, mailing addresses) including short descriptions or notes on key engagement sponsors
• Contact information and roles regarding other Subcontractors involved in the engagement. On larger projects, early resolution of roles and responsibilities between the Subcontractors can accelerate a project and keep clients focused on the work at hand (not the Prime’s organization).
• Logistics including location of event or consulting venues and client offices, travel arrangements, catering arrangements, and necessary equipment and furnishings.
• Sources for various intellectual property/materials (workbooks, event designs, articles, software, assessments, etc.), especially when they are being sourced from a third party not involved in the delivery of the engagement.
• Any specific performance expectations (length of work day, dress code, requirements for message response cycle time, etc.)
Wrapping up
It bears repeating that as professional services free agents, we have tremendous influence over commercial, governmental and military organizations. If actions speak louder than words, then our collaborative behavior may be some of the highest leverage communication we can make to our clients. Our Free Agent Ecosystem can influence the world. Now more than ever we need to demonstrate visions of a prosperous and healthy future and take steps to manifest them every day. It’s up to us to model the brightest future we can conceive. I challenge you to experiment with these models. Let’s see how far we can get together.

Rita SterlingFAE – A Few Simple Rules