Our guild builds products alongside our client services. This page describes what a product is, how we account for it, and how its profits are shared among the people who build and maintain it. ## Products A product is a reusable solution we develop and offer to our clients. Each product has a unique product code (product ID) and its own profit and loss statement that we review on a monthly basis. This gives us a clear monthly view of each product's revenue, gross margin, contribution margin and profitability, independent of our hourly engineering services. The full revenue a client pays for a product is guild revenue and runs through the guild's own P&L — products are not a separate legal or financial entity. The product P&L is therefore a **management P&L**: a separate view kept alongside the guild's books purely to track each product's profitability and to determine the profit share owed to its product shareholders. It mirrors the real books for that slice of activity, but it is not a second set of accounts. ## Product Shareholders Each product has its **product shareholders** — the people who hold a share in the product and in its profitability. Product shareholders earn a share of the product's profits in return for their contributions to building and maintaining it. Each product shareholder is allowed to send an invoice to the guild based on the gross profit generated by their product and the share they hold in it. From the guild's perspective this payout is a cost, settled in the same way as our [[Financial Policy#Engineer payables|engineer payables]]; the gross profit booked in a product's management P&L therefore flows out of the guild as product shareholder invoices, while the 20% distribution fee is the margin the guild retains. ## Acquiring a Product Share ### Types of contribution You earn a product share by contributing to it. Contributions come in three forms: - **Cash** – directly funding the product, for example paying its hosting fees. - **Time** – hours spent building or maintaining the product. - **Knowledge** – expertise and intellectual property brought into the product. ### Logging and valuing contributions We track every contribution per product in a dedicated contributions sheet. When you log a contribution, the product owner reviews it and either confirms or rejects it. The product owner is a dedicated role in our guild, responsible for confirming and allocating the contributions made to their product. For each confirmed contribution we agree on a value, which is added to your equity in the product: - **Time** is valued at an agreed hourly rate. A senior engineer, for instance, can agree on their hourly rate, and that amount is booked as an equity contribution to the product. - **Cash** is valued at an agreed multiple of its face value. Because cash is actual money put at risk — unlike time, which is a non-cash contribution — a cash contribution is usually worth more than its nominal amount. For example, €1.000 contributed towards hosting might be valued at two or three times that amount in equity. The exact multiple is agreed up front; you might settle on cash simply being worth its face value, or two or three times as much. - **Knowledge and IP** is valued by agreement within the product team. A good example is contributing something you have already built that complements the product — you and the team agree on the equity value that pre-existing intellectual property represents. The product team itself decides how each kind of contribution is valued for its product, and these values are not fixed over time. The more cash-flow positive a product becomes, the less valuable new contributions tend to be — whether cash, IP or time. Early on, when it is still uncertain whether the product will ever generate cash flow, a contribution carries real risk and is therefore worth more. Once the product matures and the probability of generating cash flow is much more concrete, that same contribution carries less risk and is valued lower. This rewards the people who took the early risk to get the product off the ground. ### Paid work versus equity As a product matures it always carries some ongoing engineering hours — support, minor adjustments and other operational work. Such hours can be handled in two ways. They can be billed to the guild as paid work, in which case they reduce the product's gross profit as a direct cost but do not expand anyone's product share. Or they can be contributed as equity, in which case they are valued and added to a product share like any other contribution. The product shareholders decide which route applies. At a certain point a team may decide that routine maintenance and operations should simply be paid for directly rather than continuously converted into product share — otherwise every operational hour would keep diluting the existing product shareholders for work that merely keeps the product running. Whether every hour spent on a product expands a product share, or whether maintenance and operations are paid out directly, is a decision each product team makes for its own product. ### Calculating your share A product shareholder's share in the product equals their accumulated contribution value relative to the total contribution value of all product shareholders. That share is what determines the portion of the gross profit they can invoice to the guild. Dilution is technically instant: the moment a new contribution is confirmed, everyone's share of the product drops accordingly. Because shares keep shifting as people continue to contribute, we track each product shareholder's share on a monthly basis as the product's gross profit accrues. Holding a product share makes you a product shareholder, but not in the legal sense — a product is not a separate legal company. It is more like a small company within the company: a real claim you hold on that product's profitability, tracked in our books rather than in a share register. ### Receiving your share of profit Product shareholders charge their gross profit share to the guild on a monthly basis. In practice the product shareholders are usually active guild members who already invoice the guild monthly for their engineering work, so charging their product share in the same cycle adds no real administrative overhead. The exception is a guild member who steps out of the guild but still holds a product share. As long as that remaining share is significant they can keep charging it monthly, but when it becomes negligible — for example below €50-€100 per month — the monthly administration is no longer worth it. In those cases we settle the claim through a reconciliation or a small buyout. What counts as "significant", and how such a buyout is priced, is decided case by case. ## Profit Waterfall The profits of a product are calculated through a consistent waterfall, which applies across all our products. Starting from the revenue a client pays, we subtract the guild's distribution fee and the product's direct costs to arrive at the gross profit that is distributed among the product shareholders. Only the costs directly tied to delivering the revenue belong here — R&D costs are kept separate and are not part of this calculation (see [[#R&D Phase]]). Take a product for which we charge a client **€100 per month**: | **Step** | **Amount** | **Description** | | --------------------- | ---------: | ----------------------------------------------------------- | | Revenue | €100 | The monthly fee the client pays for the product. | | Distribution fee (20%) | −€20 | The guild's 20% distribution fee charged on top of revenue. | | Direct costs | −€30 | Costs directly tied to delivering the revenue, e.g. client-based hosting. Excludes R&D costs. | | **Gross profit** | **€50** | Distributed among the product shareholders. | The resulting gross profit — €50 in this example — is distributed among all of the product shareholders in proportion to their share. This same logic applies across every product in the guild. ## R&D Phase Not every product is profitable from the start. In its R&D phase a product typically has little revenue yet — sometimes only a few hundred euros — while still requiring thousands of euros in investment to build and run. These R&D investments are financed through our reinvestment fund, the share of our profits that we allocate to reinvestments as described in [[Financial Policy#Reinvestments]]. This R&D budget is distributed across all our products, and we direct it towards the new products that show the most potential. ### Separating direct costs from R&D In a product's P&L it must be very clear which costs are directly related to the revenue and which costs are really R&D costs. Only the direct costs belong in the [[#Profit Waterfall|profit waterfall]]; R&D costs are pulled out and are not used to determine the gross profit, because they are financed by the reinvestment fund instead. These R&D costs are activated per product per month by our [[Finance Manager|finance team]]. For example, a product might carry €800 of hosting costs in a month, of which only €200 is direct, client-based hosting tied to the revenue while the other €600 is R&D work. Counting all €800 would push the product into the red, but once the €600 of R&D is pulled out, the product can already be profitable and generating cash flow on a direct basis — even while heavy R&D is still going on. ### Temporary direct-cost losses It can also happen that the direct costs alone make a product loss-making. In that case the guild simply incurs those losses, which is fine, as long as it does not last too long. If a product stays loss-making for too long without additional R&D to ramp up its revenue, we eventually either raise prices or close the product down. Such direct-cost losses are always temporary and are usually not in the thousands of euros. ### Reducing R&D subsidies As a product's revenue goes up, there is a tipping point that calls for an ongoing, honest conversation between the product shareholders and the guild about what is a fair share of the R&D costs for the guild to keep covering. When a product becomes increasingly cash-flow generating, the guild no longer needs to subsidise it to the same degree. For example, a product might still invest €1.000 per month in R&D while already generating €3.000 in gross profit — at that point the guild can reduce the amount of R&D it pays for rather than keep covering all of it. This balance matters because the gross profit of a product flows only to its product shareholders, while the reinvestment fund that finances R&D is filled by everybody in the guild. Striking the right balance is therefore an expression of [[Home#Principles|solidarity]] between the guild as a whole and the specific product shareholders — the shared fund supports a product while it needs it, and the product shareholders take on more of the R&D as it becomes able to carry itself. ## How the Guild Benefits from Products Although a product's gross profit flows to its individual product shareholders, the guild as a whole still finances the R&D, because it benefits in two ways. The first is the **20% distribution fee**. The R&D the guild finances finds its way back through the fee charged on every product's revenue, which flows into the guild's general P&L as part of our [[Financial Policy#Distributable Earnings|Distributable Earnings]]. The second, and larger, benefit is **implementation revenue**. A product's own revenue is not the guild's main revenue driver — our hourly data engineering work is. Products require implementation at each client, and implementing a product that costs, say, €500 per month can easily generate €5.000-€10.000 of one-off engineering work. So the whole guild benefits when one or two engineers build a product that is then implemented by twenty different engineers across their clients: the builders earn their product share, while every implementing engineer earns hourly revenue. ## Spinning Off a Product A product can keep growing until it is no longer just a product within the guild, but effectively a company in its own right. There is a tipping point where it has enough critical mass to stand on its own as a separate business. In our experience that point is reached when a product generates more than €100.000 in revenue per month. At that scale we can consider turning the product into a spin-off: a dedicated legal entity that carries the business on its own. When that happens, the product shareholders convert from holding a claim within the guild's books into becoming actual legal shareholders of that new entity, so the share they built up in the product translates into real equity in the spin-off. The guild itself deliberately does not aim to become a shareholder — neither in the product nor in the spin-off entity. We want to be very explicit about being a guild of engineers, not a product company; those should remain separate entities. Even after a spin-off we continue to take our 20% distribution fee, and that is how the guild keeps benefiting from the product. We take no equity, because holding an equity position would undermine our agnostic stance, which follows directly from our [[Design Philosophy#Modular Design|modular design]] principle — best-of-breed and free of vendor lock-in. The moment we hold equity in a specific product, beyond the 20% distribution fee, that agnostic position is no longer as strong.