As with any business, a business that gives over half of its work away for free is prone to some substantial risks and downsides. We never said that this was easy, right? That said, the actual risks may surprise you. In this section titled “Risks,” we will reveal the tax implications of pro-bono services, explain the financial risks that can come from leveraging a 50% pro-bono business model, explore the logistics of managing a full-time staff while still giving work away for free, and the potential lifestyle changes that may result from giving over half of your work away for free.
J1: What are the tax implications of pro-bono service?
I am so sorry to be the bearer of bad news. The donation of time is not something that can be written off on taxes. Because no physical goods or monetary values are being exchanged under this model, there is actually no way to “officially” document the “value” of your work. Contrary to popular belief, a letter from an organization’s founder to your accountant won’t cut it, so don’t expect Uncle Sam to send you a check for thousands of dollars at the end of the year.
J2: What are the financial risks involved in a model like this?
Contrary to popular belief, the financial risk of a model in which 50% of your work is being given away for free is actually no higher than the financial risks of launching any other business.
Lucky for service providers, there is no need to invest in anything beyond your own time to allow your business to grow. Unlike the product business, service-providers don’t have a physical inventory of goods or materials, and we don’t even necessarily need a dedicated workspace right off the bat. In the early days of verynice, we had no fixed costs (aside from coffee) because I had no dedicated employees or office space at the time. Instead, the only business expenses I would accrue would come in conjunction with a project, and therefore, the financial resources to cover the costs of a project were already there.
As a service provider, I recommend always asking for at least half of the payment for a project up-front so that you can easily fund the project and cover the expenses of your collaborators in order to get that out of the way.
J3: How long will it take to become credible?
To become credible as a service provider you need nothing more than proof. If you are claiming to be able to develop a business plan, design a website, write a book, or defend a client in a courtroom, you need to have a track record. This is the hardest part of developing any consultancy. However, here is the good news: experience is easy to develop and quantify in the pro-bono space.
Having started my freelance career in high school, and further developing it as an undergrad before finally launching verynice at the age of 19, I had only one goal in mind: get a ton of clients in order to develop a comprehensive portfolio of work. To do this, I took on as many opportunities as possible and noticed that about 95% of them were being done entirely for free on my end. I volunteered for just about every student group I could find on the UCLA campus, and even responded to hundreds of craigslist ads in order to get my foot into as many doors as possible. By the time I was 21 years old, as a result of this perseverance, I already had more clients under my belt than someone that has been in the field for a decade.
verynice has evolved over the years from being a more conventional design firm that offers the typical branding, web, and graphic design services to a global leader in the practice of innovation consulting. These services include product development and business development, two things that I, as the founder, was never educated in. In order to grow our competency into more fields and disciplines over the years, we have simply leveraged our pro-bono relationships to try new things. This unique position that we are in has allowed us to grow as a business and gain credibility in fields totally different than the services we launched with. One of the beauties of a pro-bono business model is that it can shape/lead the way of your company’s future before you even catch sight of it yourself.
J4: I have a full-time staff of a handful of employees. How does this model affect their salaries?
As verynice has grown from a staff of one to a staff of 10, we have been experimenting with models that allow our 50% pro-bono model to coexist with the fixed monthly costs that we are starting to develop. To do so, we have a unique staffing strategy which calls for the entirety of our full time staff to have experience in management.
The reason for this strategy, and the reason it is necessary in the scaling of a 50% business model, is that it calls for your business to spend the majority of your time executing paid work and simply managing unpaid work by leveraging a remote staff of volunteers to get the work done. By doing this, we have found that our financial resources are still minimized and therefore our pro-bono clientele work continues to accrue almost no expenses to complete.
J5: When you are operating in a smaller market, when do you become more public about your offering?
There is always a fear amongst business owners around making the announcement that you give over half of your work away for free. That said, the moment you finally make your claim is an extremely liberating experience.
A very unrealistic level of paranoia is literally always on the mind of an entrepreneur on the verge of announcing their use of the 50% pro-bono business model for fear that they will get thousands of people banging on their door asking for free stuff. You are in
luck because this simply is not the case. Even verynice, a business whose offerings is now featured in some sort of publication on a weekly basis, only gets about 5-10 pro-bono applications entering our inbox each month. High volumes of requests will come, but they will come gradually.
Another thing to always remember is that you do not, in fact, have to do anything you don’t want to. If you are too busy to take on another pro-bono project at the moment that it comes knocking on your door, don’t do it! Set policies for yourself and always adhere to them. Don’t take on more than you can chew. If you are having a tough week, don’t bother responding to requests! Take a breather. You are allowed to, and it is OK.
J6: Wait, I used to make 6 figures, is my lifestyle going to take a hit?
Whenever you are in a comfortable job and you are looking to make the leap into entrepreneurship, it can be a very scary thing. That comfy office, the fat pay check, and the nice apartment, are all luxuries. That being said, the beautiful thing about entrepreneurship is that you are the sole designer of your own destiny. If your goal is to make a fat profit and live in the Hamptons, I’m here to tell you that you can do that. However, you’ll have to work hard. Maybe a little harder under this model, but nonetheless, it is possible. Go get ‘em tiger.
J7: How long will it take to turn/make a profit?
The amount of time it will take you to turn a profit in this business is directly related to the amount of expenses you choose to take on right off the bat. The lower your expenses, the higher your profit. In theory, you should be profitable on every single project you take on. That said, set a level of expectation for yourself that you, as an individual, will not get personally compensated for as little as three months and as much as six months. As a common rule of thumb, when starting any business, you should expect to have very little resources left over for yourself for just about an entire year.
J8: What precautions can be made to avoid potential pitfalls?
Any business professional will tell you not to scale too fast. This is an especially important anecdote in a business that is trying to maintain as little to no fixed costs for as long as possible. When you give half your work away for free, you are not in the business of accruing high overhead. Instead, you are in the business of living a very resource-limited mindset in order to scale appropriately and cautiously.
If you are the type of person that is signing up to give half of your work away for free, it is likely because you are very passionate about helping others. As a result, it is likely in your blood to want to give even more than you should at times. I know this because it has happened to verynice. After being featured on GOOD Magazine for the first time, we received an overwhelming response from organizations across the nation. Within 2 days of the article being published, we received applications from 20 different non-profit organizations. Seeing as we were very excited by the momentum, we actually said yes to every single one of those inquiries. This unfortunately brought us to a non-profit to paid ratio of about 80% pro-bono. While we made it out alive, that was a very difficult three months for the company, and I hope it is something other replicates of this model can learn from! Always remember: stick to your policies. There is a reason you put them in place. Some of us have to learn the hard way.
J9: What is the investment?
As with any service-oriented business, the investment is not so much one of financial resources, but instead of time. Unlike most other businesses, this is not a model that allows for fast growth in regards to staff that works on-site. Building slowly, and scaling organically is crucial for this model to work as you need to maintain a 0% expense rate on your pro-bono projects as long as possible until your base of paid clientele is large enough to cover the fixed costs of your operation as they develop.
For the first three years of verynice, our fixed monthly operation cost was $0. Only in our fourth year did we begin to scale our internal operation and even now in our fifth year with a staff of 10, monthly fixed costs are still quite l0w.