From Contracting to Beyond!

[GillsMan]

When you took on a permie, that must have been a big step. Small business employers I have spoken to say that managing staff is the most onerous task of running a business, especially with the UK's many employment laws. What strategies did you use to manage that ?

First permie was a big step, yes, but she was someone I knew, having worked with her at a previous client. She's on £35K pa so it wasn't like she was doing a bit of light admin either. In terms of HR rules, etc, my professional insurances came with access to Arag Legal document centre which is fantastic. So to create a contract of employment, you follow a wizard with questions such as salary, holiday entitlement, sick pay policy, etc, and along the way it provides information about the laws. From that you get a pretty good contract. I've used this to create sickness policies, staff handbook, etc.

Yes, managing staff is an onerous task. I don't manage the staff. Below me is a manager, who I manage, but day-to-day management is the responsibility of the manager. We do annual performance reviews, have a small HR system, the lot. Basically, I'm ticking boxes here so that in the event that I need to get rid of someone, it's a piece of piss. Managing sickness is the hardest for me - I never get sick, so it's difficult dealing with some staff who have a fair bit of sickness, but that's life.

The advantage of hiring someone I knew first of all, is that I trusted her to WFH, and we'd meet occasionally. This enabled us to grow and expand to the point where we wanted/needed a third person which necessitated an office. I definitely wouldn't have gone with someone I didn't know as my first employee.

In making the move to fixed-price, did you take on a new client fixed price, or move your existing client from daily-rate to fixed price ? The reason I ask is that generating sales from scratch can be a challenging business, and (I guess) there are no agencies to help you.

Good question. Actually, it was a couple of things. First, clients contacting me after I had finished my contract, asking if I could put some e-learning modules together for them. This piece of work is easy to make fixed price, since I know roughly how long it'll take, and it's easy to charge a one-off price. Secondly, a client asked the vendor of some LMS software I specialise in if they knew any consultants who could help them with an implementation, and the vendor recommended me, so that was lucky.

Thirdly, I went for a contract interview for a daily rate job. Didn't say anything to the agent about my intentions, but agreed a daily rate, and the client flew me out for two days in Germany to work with them to put together an action plan. Whilst there, I explained how we could do it fixed price, with payment at various milestones. I estimated the amount of work hours each task would take, and used the daily rate to come up with a fixed price approach. They were impressed, as they were getting the work done at a fraction of the cost of hiring me every day - plus if they delayed the project, they wouldn't have to pay me daily rate while the delay was occurring. And it meant I could do that on the side and get more business in. We then told the agency what was happening, and the agency basically did what the client told them to, and I invoiced the agency what I agreed with the client at each milestone, and the agency in turn invoiced plus their mark-up.

So a combination of specialising in the right technologies, and getting clients and agents to agree to this. I always emphasised how the client could save money with this approach, and it's rare that they were like "oh, it's OK thanks, we'd rather spunk a load of cash on having your ass on a seat". One or two potential clients did, but not many.

Contractors vs Permies for your business:

Just one extra point. I went for permie staff for my business as opposed to outsourcing work to contractors when I was over capacity, simply because I believe that a lot of contractors are quite business-minded, and frankly, I didn't want to expose my IP to contractors who might use it for their own business - particularly if they had a wider network than me, as they could take my work, and go and do the business generation better than me, then I'd lose out! I wanted permies who had a permie mindset and were interested in a career, etc, rather than people who'd charge a high premium and potentially go away and run this business better than I could!!

[GillsMan]

I've just moved a previous client from a daily rate to more of a fixed price model for adhoc work. They like it as project management can nail down costs to deliver something even if the timescales slip so fingers crossed I can start to grow it.

Great post by Gillsman, I too have ordered the book

Good move - well done. By the way, the book by Alan Weiss, whilst excellent, actually explains how you can run a consultancy firm turning over $2.5m with only one consultant (himself) and four support/admin staff. He says there is no need to hire more staff, move to an expensive office, etc, unless you want to feed your ego. I do agree with him, but for me, I wanted the hubris of running a company, employing people, working out of an office, and building something. You want to be rich? Get multiple clients and don't employ people. Don't do what I've done. That said, I'd like to think I can grow this into a £1m+ turnover per year company by the end of 2015, so hopefully I could make some dosh. But Weiss' advice isn't to do what I have done.

[Antman]

I read the Weiss book a while ago. There are some useful principles there to get you using a different mindset (value consulting etc.) and he does like to talk about his cars and that but post #12 above probably has as much advice as the book.

Thanks, v. useful post.

[tomtomagain]

I am just coming up to the end of my first full year of living entirely from my software product sales.

I had contracted ( and worked as a permie ) for years for large corporates and I needed a change. A few of years ago I wrote some software and marketed it on the internet. To my surprise it sold and over time I was able to build up a steady stream of sales.

Last year I got to the stage where I thought "If I don't do this now, I never will". So I quit to concentrate on it full time.

What I find now is that I can sell the software to a corporate customer and also pick up project work for them too ... doing custom enhancements and so on - which can be very lucrative.

I've enjoyed the last 12 months, but it's not been completely stress free! And sometimes it is a slog without any other people to motivate me.

My plan for next year is to get an office ( I really need to get out of the house! ) and an employee.

[scooterscot]

My tuppence worth:

I'm working with hourly rates and fixed prices. Majority is currently fixed price. Also support on retainer, which is a nice way to sell your services if you can.

One matter that I think is overlooked is lifestyle. That's why I got into this game in the first place, so I could spend less time working more time living. For me it's not all about achieving dizzy turnovers, I'm happy sitting between €200-300k per annum whilst capping labour at ~30 hours per week.

I agree about getting into fixed price as much as you can, negotiate on time of delivery as a scale on price. And never turn away small jobs.

Networking, networking, networking - do it everyday. Or in my case most Monday's are dedicated to networking and little else.

[jamesbrown]

I also do a mixture of hourly and fixed price work. Fixed price work is lucrative if you're better at estimating the costs involved than the client, but they will ultimately see what you've done for the money, so you need to offer a fair service and avoid nickel-and-diming clients, in order to secure repeat business. On the other hand, fixed price work can be rather risky if it's anything other than a predictable solution (and it rarely is, at least in what I do). For example, one (fortunately quite small) project I completed recently ended up costing more than double my estimate. You have to swallow these costs to build a reputation and price more conservatively in future. The reverse is also true; you can "easily" multiply an ordinary hourly/daily rate several times through fixed price work.

Taking on employees is an entirely different thing, though, and I'd venture that it comes from an entirely different motivation, namely to "build something" or put a collection of people together (it's probably quite a social motivation) rather than to conduct interesting technical work or to make money per se. I don't have that motivation, beyond subcontracting work when necessary, but I do enjoy collaborating with other contractors on technical work.

[scooterscot]

I also do a mixture of hourly and fixed price work. Fixed price work is lucrative if you're better at estimating the costs involved than the client, but they will ultimately see what you've done for the money, so you need to offer a fair service and avoid nickel-and-diming clients, in order to secure repeat business. On the other hand, fixed price work can be rather risky if it's anything other than a predictable solution (and it rarely is, at least in what I do). For example, one (fortunately quite small) project I completed recently ended up costing more than double my estimate. You have to swallow these costs to build a reputation and price more conservatively in future. The reverse is also true; you can "easily" multiply an ordinary hourly/daily rate several times through fixed price work.

For my fixed price work I prepare a free Statement of Work. A solution and scope are identified within the scope. It's a risk for me to prepare because the time spent could be all for nothing. However once the client has signed it, there's no moving the goalposts without extra charges.

I agree there's a risk you can under estimate a job, or overestimate. It's the nature of fixed price work, there's always one winer one looser.

Calculating cost on a fixed price job for me is very different than that of a hourly rate job. For example if I were to examine a widget made of 100's of parts, I'd allocate X amount of time per part multiplied against my hourly rate (dependent on delivery time) plus a 1/3 for contingency. As I think was mentioned before, this approach removes risk that a daily rate cannot, and clients like this.

[jamesbrown]

For my fixed price work I prepare a free Statement of Work. A solution and scope are identified within the scope. It's a risk for me to prepare because the time spent could be all for nothing. However once the client has signed it, there's no moving the goalposts without extra charges.

I agree there's a risk you can under estimate a job, or overestimate. It's the nature of fixed price work, there's always one winer one looser.

Calculating cost on a fixed price job for me is very different than that of a hourly rate job. For example if I were to examine a widget made of 100's of parts, I'd allocate X amount of time per part multiplied against my hourly rate (dependent on delivery time) plus a 1/3 for contingency. As I think was mentioned before, this approach removes risk that a daily rate cannot, and clients like this.

Yes, likewise, although in my case, it often involves a tendering process (so, in some cases, it involves a lot of time for no immediate gain, because the tender is won by another company). There's a big difference between moving goal posts (a repricing event) and pricing optimistically. It's difficult to avoid pricing optimistically. At the same time, the pricing could substantially exceed what a client might expect in terms of the hourly effort, but that is generally because their understanding of the effort is wrong, so pricing is also an educational process. Ultimately, they get an acceptable pricing (otherwise they wouldn't accept) with no budget risk. Win-win (until you under-price a large job ).

[oliverson]

I'm really pleased to have got such a great response to this thread. It only supports the feeling I've had for a while now that my contracting days are coming to an end. Sitting here passing the time of day earning £x a day is no longer enough and I also want my own office, staff, etc. In short, I want to build something and have my efforts resulting in income not just for me but for others too. I need to get to the top of Maslows pyramid and it starts in 2015.

[colinrobinson]

I went the other way

I'm really pleased to have got such a great response to this thread. It only supports the feeling I've had for a while now that my contracting days are coming to an end. Sitting here passing the time of day earning £x a day is no longer enough and I also want my own office, staff, etc. In short, I want to build something and have my efforts resulting in income not just for me but for others too. I need to get to the top of Maslows pyramid and it starts in 2015.

I employed @10 consultants back in thatchers times, but as been said they each attempted to leave taking chunks of my business with them ruining the business and client relationships built up over many years. each one had a family and i often felt i was supporting an army of forty people, id ask someone to work away and get hassle from his partner etc, i got blamed for marriage issues, cancelled holidays and just about every thing under the sun was my fault. 10 consultants,10 families, 10 cars, 10 mortgages to support it goes on. then run a business on top.

I went back to contracting no hassle and a decent income. now i could do with a three day week contracting role working remotely to ease into an early reitirement but probably not going to happen any time soon.