One of the most exciting trends in coming years will be the formation of cooperative working groups made up of independent contractors. 

Whether they are called networks, guilds, cooperatives, collectives, flocks, or something else, these groups will bring back many of the benefits of working collaboratively with others, without the bureaucracy and overhead of traditional organizations.

As attractive and compelling as it is to be a full-stack freelancer, there are three significant downsides that can’t be addressed without collaboration:

• It is very solitary, even lonely work
• It is difficult to find mentors and peers to learn from and to learn from you
• You have to not only do the work itself, you have to market and sell it

One of the most interesting models I’ve come across is the Free Agent Ecosystem (FAE), a framework that describes a “sustainable, commercial ecosystem among collaborating professional services free agents.” It was first published in 2001 in a working paper1 written by a group of innovation and business consultants led by Joseph B. Sterling of Rainforest Strategies, along with Dr. Karen Dietz, Sharon Lieder, and Rita L. Sterling. 

The framework was developed in response to a series of emerging business trends that have created the conditions for new kinds of collaboration:

• Ubiquitous connectivity through mobile devices
• Radical increases in computing power available to individuals
• Narrowing corporate focus onto core competencies
• Demand for innovation from networks of contractors, suppliers, consultants, and vendors
• The ongoing transformation of employees into subcontractors

They argue that these trends are powerful headwinds in favor of free agents, while also demanding new skills. Free agents often don’t know how to structure deals with each other, making it difficult for them to take on projects that are too large and complex for an individual to handle alone. They also fear losing control of the customer relationship that is their lifeblood, and potentially not being compensated for their intellectual property. Not to mention legal and tax liabilities involved in hiring and paying others to deliver services.

As far as the technology has advanced for simple, two-way transactions online, the technology for large-scale collaboration has barely moved.

FAE proposes that an effective framework for effectively building coalitions of free agents must include three things:

1. An understanding of the “value chain” of professional services transactions
2. A way to deliberately cultivate the relationships and behavior of the ecosystem members
3. Agreement templates to structure service delivery and intellectual property transactions

These three components provide mechanisms and incentives for collaborating on all parts of project delivery. It allows small groups of decentralized free agents to serve more and larger clients without the overhead of large consulting firms. It offers a “relationship infrastructure” to bring just the right talent to each project – no more and no less.

#1 – The Value Chain

The “value chain” for professional services includes a series of stages through which a project moves, with value added at each step along the way. The Prime Contractor (PC or Prime) is the primary person responsible for the project, and hires subcontractors to perform certain functions.

With the trends mentioned above, these stages are increasingly being completed by different people and even companies. FAE identifies the following four stages in its model:

Lead generation (5%)

The first stage is the generation of qualified leads, which is separated out from the next step of closing the sale. It basically serves as a referral fee.

This arrangement allows some free agents to specialize more in generating leads, while others specialize in delivering the main service. It permeates the ecosystem with an open-ended reward for everyone to remain vigilant for sales opportunities, not only for themselves, but for anyone they might refer a client to.

Sales and contract administration (30%)

The second stage includes closing the sale, through administering the execution of the contract. It serves as an affiliate fee, separating the sales activity from service delivery. The same person could potentially complete the first two stages, earning a 35% share of the contract.

By raising or lowering this percentage, the Prime Contractor can signal how much they are willing to “pay” to not have to handle sales. The PC could even set the rate to favor certain kinds of projects or clients over others.

Delivery of Services (60%)

The actual delivery of the main service is allocated a 60% share, reflecting the fact that the activities before and after are together almost as valuable as the service itself. This fixed percentage allows the Prime Contractor to know more accurately how much they have to work with, and to pass along those clearer expectations to subcontractors.

Customer follow-up (5%)

The fourth and last stage is to wrap up the project, including quality assurance, customer service, collecting feedback and ideas for improvement, and up-selling or cross-selling the client on other projects.

This final stage is often overlooked or minimized, but is crucial to customer satisfaction. This share provides an incentive to extend current contracts, or ask for referrals to other clients. The final 5% for customer follow-up could lead directly to a 5% share for the next lead, representing an “investment” by the current project into the next one.

These percentages are not fixed, but can increase or decrease depending on the needs of a given value chain. They can be thought of as mid-points in a negotiable range. Their purpose is to ensure that the value attributed to each stage feels equitable, neither underappreciated nor overcompensated, regardless of which role a person plays in a given project. 

#2 – A Few Simple Rules

The second main component of FAE is drawn from the study of complex adaptive systems:

“An easy to understand way of describing a complex adaptive system follows: Many individual agents following a few simple rules which, when played out across the entire population, generates the emergent behavior of the whole(colony or hive). Frequently this emergent behavior is surprising and cannot be predicted by looking at the behavior of the individual agents.”

FAE’s 7 simple rules are:

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 – choose win-win-win outcomes

1. Reward sales behavior

The first rule is to reward any behavior that contributes to sales. What constitutes “sales” is so fuzzy and subjective, from a conversation over coffee to a card at the holidays, that it can be difficult to incentivize it directly.

The referral fee is only paid if the contract is signed somewhere down the line, so the incentive is for the referrer to position the Prime Contractor in the most positive light possible. The paper notes that “No amount of money will buy this from any marketing consultant or ad agency over the long haul.” The referral fee is thus low enough to discourage bad faith referrals, yet high enough to reward behavior that might happen in the course of existing relationships.

2. Honor the Prime, the Sub, and the Client

A common problem, the authors note, is that free agents rarely have clear agreements between them about roles. Prime Contractors need assurance that all communication will be shared with them and that their client relationships will be preserved.

From the point of view of the Prime Contractor, the cost of landing an engagement is highest in the beginning, when they may do extra work or discount their fee to win the deal. This sometimes leads them to jealously guard the client, knowing that they will only become profitable with subsequent contracts. 

The second rule promotes honoring all parties, keeping in mind that one’s reputation is all-important. At the same time, because any person can fulfill any role, if a Prime Contractor consistently shirks their duties, there is a mechanism in place for a client to hire a subcontractor directly. In this case, the subcontractor and Prime Contractor switch roles, which is reflected in their earnings.

3. Honor your own identity (whether you are the Prime or the Sub)

If an ecosystem of free agents was truly thriving, a given subcontractor would often find themselves working with different Prime Contractors. This raises some interesting dilemmas:

• Whose business card do I present today?
• 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

The third rule acknowledges that constantly switching one’s identity is a hard thing to do, and therefore advises against it. Instead, each subcontractor should use their own name, their own business card, and their own identity in most cases.

4. Reveal the network to the client

Building on the previous rule, FAE advises revealing the free agent network to the client, instead of keeping it a secret or pretending to be a bigger company. By disclosing upfront to the client the source of the labor being performed, any future confusion or embarrassment can be avoided.

This rule assumes a somewhat open-minded and progressive working relationship with the client. But for those clients willing to try this new way of working, the network standing behind the Prime can even be framed as a competitive advantage: lower transaction costs, lower coordination costs, better match between talent and the project, more flexibility, and lower overhead to pay for.

5. Manage and share your knowledge (client and transactional info)

With so many links in the value chain, knowledge management becomes even more critical than it already is. All the “nodes in the network” have to make their knowledge of the client’s needs and background more explicit and tangible, to be shared with their collaborators.

This background knowledge could include:

• A client or prospect’s contact information
• The source of the lead
• The history of contacts with the lead/client
• Transaction details and documents

The same is true of “content knowledge” accumulated during the course of the project, such as:

• Knowledge byproducts produced and used before, during, and after an engagement
• Workshop materials
• Reports
• Event designs
• Models
• Prototypes

Rule #5 reflects that the value of a lead is increased with every detail about the prospect’s needs, decision makers, and history. The more past proposals, notes, contracts, and document examples available to the ecosystem, the more effective every link in the chain can become. This should incentivize everything from good note-taking, to improving templates, to maintaining CRMs, to making warm introductions.

Free agents can also use copyright, trademark, and other intellectual property agreements to reward each other for producing valuable documents and products. The entire ecosystem benefits when one of its members has authored or created concrete “knowledge products” such as books, videos, courses, or blog posts, and could reward the leads generated by this content accordingly.

6. Show up and add value

A common pitfall of any kind of collaboration is that no one person is responsible for the whole project. Although this responsibility is clearly assigned to the Prime Contractor, rule #6 reminds everyone that it is their job to self-manage, find direction, and position themselves to deliver value. They have to use their own senses and energy, not a boss or manager, to figure out what needs doing, and to do it.

The purpose of this rule is to encourage a new version of leadership that focuses far more on developing visions of a bright future, and less time on motivating people to do what needs to be done.

7. Do the right thing – choose win-win-win outcomes

This rule has long been a part of business culture, but in a free agent ecosystem it gains teeth. Since a Prime today could be a subcontractor tomorrow, it becomes important to accrue “goodwill points” from everyone you work with, not just your superiors. You never know from where the next opportunity will come.

FAE effectively creates a marketplace of buyers and sellers, bringing fairness and transparency to the world of high-end professional services that has for so long been cloaked in secrecy. In such an open marketplace, information travels at the speed of light, and a free agent’s choices become a matter of public record very quickly. No performance management system in the world moves this fast.

On the upside, good choices and generous actions spread just as fast, allowing people who do good, quiet work to shine just as brightly as those who more naturally seek the spotlight.

#3 – Agreement Templates

The third major component of FAE is a set of templates for defining and managing the roles within the value chain.

The templates provided in the FAE framework include:

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.)

For example, a typical Subcontractor Agreement might include the following sections:

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

A standard Work Order might include:

• 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 numbers, emails, websites, mailing addresses) including short descriptions or notes on key engagement sponsors
• Contact information and roles regarding other Subcontractors involved in the engagement
• 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.)

Good agreements tend to make the involved parties more thoughtful about engaging with one another, surface innocently hidden assumptions, and increase specificity around money. These agreements form specific boundaries around each transaction, set out timing for certain activities, and define roles and responsibilities clearly. Their purpose is to create a safe environment for sharing ideas and derivative products, and make clear how money will be exchanged for services and products.

Knowledge Management in a Free Agent Ecosystem

The FAE framework is fascinating because it is a completely bottom-up approach. Two small town graphic designers could begin using it tomorrow for the simplest of projects, and it could scale from there to conceivably cover dozens of collaborators.

I believe that such an ecosystem could also resolve long-standing challenges in knowledge management. Knowledge management within organizations has failed to live up to its potential mainly for one simple reason: it’s not needed.

When you know you have the same set of people available in the same place (physical or virtual), it is just not worth the time to externalize and document one’s knowledge. Human beings will always be a far, far more effective interface to their own knowledge than any wiki, knowledge base, or database. No knowledge repository will ever be able to compete with the convenience and speed of pinging someone on one of the dozens of communication channels we now have available.

Interestingly, this doesn’t change with the rise of remote, distributed, asynchronous teams. As long as that person and their knowledge remain available to you in a reliable way, it makes more sense to contact them directly than to access any “knowledge artifacts” they’ve created. Which means, of course, that they won’t bother to create them in the first place.

But once we have modular projects among otherwise unassociated contractors, the game changes. When you are billed for accessing a collaborator’s time, the priorities shift. Suddenly, you might be willing to pay them to document their knowledge. You might be willing to spend some time beforehand reviewing their public work, before getting on that phone call.

As the price of their time goes up, new possibilities emerge. You may be willing to license their intellectual property, because it’s cheaper than their time. If we put a proper price on the terribly inefficient methods we use today for sharing what we know, knowledge management might actually become a central part of how we do our work.

Click here to view the original Free Agent Ecosystem working paper and a slide deck explaining the framework

1. © 2001-2017 by Rainforest Strategies, LLP., Polaris Associates, LLC and Lieder Group