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Consulting versus Contracting: A Costly (Lack Of) Distinction

So what!? What’s the difference?

There are many folks who call themselves consultants. There are also many who call themselves contractors. Humorously — and I only know this because I fell into the same trap — there are many folks who call themselves one when they are really the other. Clients, especially those who aren’t used to working with consultants, often aren’t really thinking about the labels either. Legally, at least in the United States, you’re generally paid the same way (1099). But the two roles — namely the value delivered and the expectations — are very different from each other.

Not being completely clear about which role you are operating in — and thus what the expectations are — is costly, for both you and the client. Costly in terms of money, frustration, and mismatched expectations.

Alan Weiss has a wonderful post on the subject and even mentions “IT consultants” specifically:

If you call yourself a “consultant” but are usually hired merely to complete a task for the client, you are not a consultant, you are a subcontractor or part-time employee. This is especially prevalent among “IT consultants.” If you are paid to write code or program some sequence simply because the client has no one around who can do it—and a thousand people like you can do it equally well and exactly the same way—you’re not a consultant. (And you’re subject to enormous price pressures, because you’re a commodity.)

Sometimes, in your IT business, you may switch back and forth — depending on the client and the project. Let me explain what I mean so that you can avoid this costly and frustrating mistake.

On Consulting

I like to think of consulting like this: you (pretend you are the client) call up a trusted friend or respected colleague. You ask them to join you the next day at your place of business. You share with them some of the current goals, concerns, troubles, and hopes. You ask them to take a look around, to observe, and to ponder what you’ve shared and what they see. You encourage them to not hold anything back. You tell them that you know things are so-so in some areas, quite weak in others, and perhaps excellent in still others.

Unfortunately, it can be tough to sort everything out amidst day to day pressures and priorities. You also know you cannot see nor become an expert in everything. You ask your friend to stick around a bit, that you’ll compensate him for his assistance, and that you’d appreciate his perspective, expertise, and unique background applied to your business. You may also suggest, because of his background or a particularly nagging problem you are having (or both), that he take a close look at one area or situation in particular.

The consultant is your trusted advisor, perhaps one among several that you have. He or she helps you unlock — or at least get a bit closer to — the best version of your organization — and yourself.

On Contracting

Contracting is different. It is more akin to asking a friend, associate, or friendly looking stranger to “pitch in” because you are short of hands — temporarily because of peak demand, a special project, or because of an intermittent shortage of staff.

The line may seem a little blurry if your new contractor is also something of an expert in the work you’ll be having him do, but he is still primarily there to DO rather than help you figure out what to do.

Some consultants, perhaps most, can and do help with implementation, however the advice they provide is central to the relationship and engagement. In theory someone else could be substituted in to DO (implement) what they help you architect around your business objectives, but as a matter of convenience, flexibility, or risk reduction you prefer they DO the implementation as well — or at least remain involved in it alongside you and/or your staff.

It is for this reason that the most value is delivered when consulting, whether or not the consultant is involved in the implementation. On the other hand, sometimes all you need is some help with implementation, and hence a contractor, even one that is a specialist in the area you’ll be using them, is what you should be looking for.

The Value Difference

With consulting, the value is in your brain: insights, observations, ideas, and suggestions drawn from your unique background, experiences, skill set, and area(s) of expertise. You are not a commodity. Typically, focused on the right business problems, consulting is extremely valuable to the client who needs guidance such as help making a decision, fixing a serious business problem, or figuring out how to go after an attractive business opportunity. Generally, you are working with management.

With contracting, the value is in the labor: having an extra set of hands around to complete a pre-defined task. Your expertise may be involved, but only so far as is needed to implement a task that is already well defined. You aren’t involved in helping the client come to a decision as to which path to task (such as choosing among this project or several others). Any assistance in decision making you provide is ancillary. Generally, you are working for management.

Both roles are important. Both have quite different value propositions. Both are delivered differently. Both are priced differently. Both are different businesses, with different competitive concerns, marketing, sales, and proposal processes.

Some examples of differences:

  • Consultants can, generally speaking, charge more per hour of labor input into a particular project (whether or not they charge literally by the hour is irrelevant). This isn’t to say that consultants “work less” — it’s just that much of their work was done long before the client came into the picture: they are charged with applying their unique background of experiences and skills and perspectives to a the client’s situation. Contractors are literally paid for their efforts (inputs). Consultants are paid for their thoughts and guidance and, optionally, their assistance with implementation. It is a subtle difference, but a critical one.
  • Consultants are more likely to structure their proposals differently and charge differently for different types and phases of the project. For example, a common situation would be a hybrid project: Phase 1 being analysis and advisory work, Phase 2 being design and project management, and Phase 3 being implementation. The consultant would definitely do Phase 1, while they would optionally do Phase 2 and Phase 3 which are closer to traditional implementation (contractor) roles. Phase 2 is something of a hybrid: while, in theory, any project manager (internal staff or contracted) could be put into place to implement the project as designed, there is still added valued from having the consultant play this role (assuming they are also good at being in this role). Phase 3 could be internal staff, contracted labor, or some combination. With the analysis and advisory work done and a firm design and project management handled, the actual implementation can relatively easily be done by just about anyone skilled and motivated enough. The task is to — essentially — follow orders. Important, but more of a commodity than the other roles. If the consultant is to fill all of these roles, they should consider what they charge for for Phase I to have little relation to what they charge for Phase 3. One thing that must be taken into account: The value declines and commodity-like nature of the work accelerates between Phase 1 and Phase 3. If you are a so-called contractor, yet find yourself doing lots of Phase 1 and 2 work, perhaps you should re-think your positioning, proposal structure, and fees — after all, you are doing the work of a consultant withing charging for it (Gary Klaben, head of Protinus, would probably call this “shadow work”, which comes up a lot in his industry of financial advisors). On the other hand, if you find yourself mostly doing implementation work and mostly whatever you’re told by your client, than you are a contractor with a very different value proposition than a consultant: you are face a very different competitive situation as a result.
  • Any given consultant may be more of an expert in one particular area than another. The best consultants (and business leaders) realize, however, that all organizations with a mission are complex living organisms. There are goals, rules, and guidelines to keep everyone organized, but there are also humans involved, human nature to integrate, and creativity and innovation to apply constructively. Even seemingly unrelated things have an impact in other areas. A consultant, regardless of his area of focus, takes an interest in understanding the client business as a whole. While 80% of his efforts may be targeted in a specific area, having a holistic perspective of the client’s business will help him help the client in the best way possible within that 80%. Even a contractor will benefit from doing this, but a consultant benefits the most.

It’s important you know which role you are in. It’s probably important you know which one you prefer.

Questions to Ask Yourself

  • Are you a primarily a consultant or a contractor?
  • Which does your client want?
  • Are the answers different depending on the client and project?
  • Do you prefer one role over the other?
  • Are you doing “shadow work” and not getting compensated for it?
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The Time Management Matrix That Changed My Life

One of the biggest shifts in my productivity was finding a way to sort out what is important, not merely what is urgent. The funny thing is that once I started to get a handle on identifying the important items, I was able to spend more time on being pro-active, preventative projects, and the like (and not feel guilty about it either). This created a feedback loop which further reduces the urgent items that come up on any given day. I can’t completely eliminate urgent items, but I can do a far better job at reducing how often they occur in my work and life.

So how do you do this?  And what exactly do I mean by Important versus Urgent?

You start by putting your tasks into four quadrants:

  1. Important & Urgent (emergencies, pressing problems, deadline-driven projects, scheduled activities)
  2. Important & Not Urgent (preparation, planning, clarifying goals and priorities, true relaxation/recreation)
  3. Urgent & Not Important (interruptions including many types of calls & emails, things that easily distract and fool us into being busy but don’t get us closer to our priorities)
  4. Not Urgent & Not Important (trivia, time wasters, escape activities, junk mail)

I find that most individuals, including highly dedicated professionals, spend a considerable amount of time in #1 and #3. Folks that really fool around spend a considerable portion of their time in #4.

The goal, presuming you want to productively work towards your priorities and shift as much of your work away from fire-fighting as possible (and towards value creation), is to spend as much time as possible in #2. Ideally, any other activities that don’t justify being in #2 should at least fall into #1 (both of these quadrants represent important work).

Here are some images (including a nifty mind map) to visualize this:

Click on the below image to download the mind map image (pay particular attention to the comment bubbles in yellow and connecting them):

And here is a PDF to a blank matrix to help you brainstorm this for yourself:

Covey 7 Habits Time Quadrants

These concepts and framework is all drawn from Steven Covey’s two books:

If you found this post interesting, in addition to checking out both of these books, you may also find Randy Pausch’s Time Management presentation insightful:

[first 7:30 minutes or so of video are folks introducing him if you feel like skipping over those]

So what do you think: Are these concepts something you can utilize in your work and life?

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Why Marketing Really Matters

A business does marketing and sales for the money, but that’s not the sole reason to get good at it.  One of my favorite mentors, authors, and consultants is David Maister.  One day a while back I was reading through his archives and snipped this nugget from an article entitled “Doing It For The Money” (if you’ve been on my e-mail list for awhile you may have seen me mention this quote once before):

What getting good at marketing can do for the individual is to help him or her find the clients they could care about and be eager to help, and the types of work that would be truly stimulating.  The better you are at marketing, the more truly professional you can be, because you are not forced to take money from anyone and everyone just because you need the cash.

David’s original article is a bit long, but there are some other tidbits wrapped around this quote if you feel inclined to dig them up.  The link to the article is above.  I recommend reading two of his books, “The Trusted Advisor” and “Strategy and the Fat Smoker“, or spending a morning with your coffee in hand while perusing his articles and blog archive.

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How to Find, Reconnect With, and Revive Your Professional Network


In early 2007, several months after moving on from my last venture, I found myself sitting on my butt a lot doing — well — not much of anything (I did get a lot of reading in).

I wasn’t getting out all that much to interact with other people and wanted to re-connect with folks. I did not have any system for tracking my various contacts. I had no centralized address book. And what information I did have seemed to be incomplete and usually out of date.

Which was a serious problem since I was supposed to be freelancing and consulting while I decided what was next. And that required doing some hustling to get gigs, which was best started within my existing professional and personal networks.

At some point, I stumbled across LinkedIn.com, which is a well established online networking community for professionals. It is NOT the place where you go to find out whether your drunken college buddies are, well, still drinking.

It turns out that LinkedIn.com is a wonderful automatically updated “rolodex” of sorts. I found it useful to remind me about people I knew (some well, many casually or very loosely), but had fallen out of contact with due to changes in jobs, organizations, projects, and engagements …as well as changed email accounts, phone numbers, and addresses.

Now, the interesting thing about this, is that based upon a couple of studies and references I’ve read, the average person “knows” about 250 people or so. That may sound like a lot to you (or not). Most people can come up with at least half of those people within 30 minutes or so if compelled to do so. The balance will pop into their mind over the next couple of days, if they keep thinking about it every so often as well as through reminders from reviewing the initial list of ~100 people they came up with (remembering one person often reminds you of another).

This is good news for those who are bad about cultivating their professional networks because, chances are, you know more people than you think already! You don’t have to use LinkedIn.com to do it, but I found it VERY helpful for me. I don’t really use its other features (I just have the free account).

By using LinkedIn.com to track down old colleagues, employees, employers, friends, and even relatives(in their day jobs) you’ll be putting in place a good foundation to stay connected with these folks no matter where they — and you — end up going in the future.

Sending a connection request on LinkedIn.com to someone you know also provides a convenient excuse to touch base with them. I do have one important suggestion though (which I’m embarrassed to admit that I didn’t realize myself until sending out 150+ connection requests): change the default connection message text. You’ll have far more luck getting people to acknowledge your connection and it’s far more polite and friendly (bring some humanity to the process — heh social media!). The default message text I’m talking about (and suggesting you customize) is the dreaded:

I’d like to add you to my professional network on LinkedIn.

Once you start using LinkedIn.com it also becomes helpful in two other really cool ways:

  1. Checking out a bit of the professional background for someone you just met …or are about to meet (or talk to on the phone). Think a prospective client, referral source, or simply a friendly face.
  2. Re-enforcing a contact you just made off-line (or even on-line) by offering to connect with them on LinkedIn.com (and sending them a connection request as part of your follow-up with them to re-enforce it). This will help both parties remember some of the professional details of the other person and increase the likelihood of actually staying in touch.

Good luck!

Have you found it helpful to re-connect with your professional network more centrally and formally? Have you discovered a useful technique, approach, strategy, or tool that others should know about? How did you find this post helpful in showing you some new ways to re-connect and cultivate your professional network? Share your thoughts by posting a comment attached to this post.


Originally published on December 7, 2010, with minor revisions.

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The Professional Consulting Success Ladder

Perhaps You Need a Ladder…

I’ve been doing a lot of pondering about the different approaches people take to being an independent IT professional.

There are really (at least) 4-5 camps. And they make all the difference in the world when it comes to how happy you are with where you are and what approaches to take when trying to get where you want to be. Each has different trade-offs.

If you aren’t aware of their existence than you may be “barking up the wrong tree”.

Many think the folks more successful than themselves are better at marketing, lucky… or some other mysterious attribute. That may be true but often they’re in an entirely different business. (It’s no wonder folks get frustrated trying to chase others when they are on the outside looking in.)

They’re chasing the outward results someone else is achieving but don’t understand the underlying strategy or positioning.

The table below documents what I call the Independent IT Professional Success Ladder.

This ladder will, undoubtedly, annoy a few folks. If they get over that initial feeling, they may learn something about where they are and about getting exactly where they want to be (and staying there hopefully).

Your position (which is under your control) on this ladder drives your strategy, income, level of success, types of clients, hours worked, quantity and types of client, projects, and engagements, durability through varying economic climates, and market and specialization agility. So, basically everything.  🙂

More importantly though, clearly knowing where you are and where you want to go should reduce frustration and give you greater clarity about how you are going to get to where you want to be.

Do you have to be at the top to be successful? Not at all. You define what you want success to be. There are different trade-offs to be made at every step on the ladder. Which ones make sense for you to stand on is a matter of personal preference & opinion.

Do you have to take go up the ladder in order? Nope. But it often works that way.

If it’s not already obvious, knowing where you’re at and where you want to be is key to your happiness with your level of success. It is the key to assembling an effective strategy for your business.

My point in sharing this ladder is four-fold:

  1. To get you thinking about where you want to be (your destination)
  2. To get you thinking about where you are (your present-day starting point)
  3. To get you thinking about how you’re going to get from where you are to where you want to be.
  4. To give you greater clarity if you’re happy with where you’re at already so that you can make sure you’re armed with an appropriate strategy to stay there in an effective and efficient way.

It also puts all advice you hear from or observe in others into context:

  • Where are they?
  • Where are you now?
  • Where are you headed?
  • Which things are they are saying or doing that make sense in your context… and which don’t?

The Independent IT Professional Success Ladder

(Role then Key attributes)

Thought Leader

  • Perception of “when we want the best we absolutely must get this guy”
  • Large body of work (books, reports, articles, interviews, speeches, case studies, client lists, endorsements, testimonials, etc.)
  • Above market fees, often way above so-called “market” fees. Clients consider fees an investment, judging based upon outcome and perceived quantitative as well as qualitative value versus tasks/inputs.
  • Highly differentiated/unique (perception)
  • Respected and viewed as an equal (if not more) by buyer/client

Trusted Advisor

  • Relationship akin to having an outside financial advisor/planner, long-time personal family lawyer, trusted business coach
  • Advises on a variety of matters, informally and formally, which may or may not be directly technical
  • Contains many, perhaps most, of the attributes of the Management Consultant and Technical Consultant
  • Strong bond with the client that is based on more than just being an expert and meeting expectations
  • Respected and viewed as an equal by buyer/client

Management Consultant

  • Strategy emphasis over tactics
  • Executive level discussion
  • Business-orientation yet tech-savvy
  • Straddler of business & technical communities. Not simply a geek or computer guy.
  • Leadership potential
  • Tendency towards “trusted advisor” status
  • Primarily concerned with figuring out what should be done to achieve the organization’s objectives not necessarily exactly how to do it.
  • Independent of any vendors

Technical Consultant/ Project Manager

  • A small body of work
  • Agenda definer collaboratively with client.
  • Provides pro-active recommendations or findings (formally or informally) at end of engagements.
  • May follow a (more) typical general consulting approach, process, methodology.
  • Leadership capabilities.
  • Tendency to be outcome oriented. Sometimes paid as such rather than task oriented.

Freelancer/ Contractor/ Technician

  • Akin to an employee-on-demand
  • Paid hourly, generally based on prevailing market rates.
  • Very difficult to charge above market rates.
  • Minimal loyalty even if client is delighted
  • High likelihood of being typecast into “the computer guy” role
  • Any formal interaction with business requirements is accidentally or peripheral
  • Often a generalist with some specialization tendencies. Or a deep specialist with little generalist capabilities.
  • Generally short-term tasks and projects
  • Unlikely to have or need a proprietary methodology
  • Often break-fix
  • Little real influence
  • Primarily concerned with properly carrying out decided upon plans (agenda implementor, not agenda setter).
  • Usually paid based upon tasks / work input rather than output.
  • Not a peer with management. “Hired help”.
  • May be respected by buyer but not necessarily considered a peer
  • No client independent body of work

Key Takeaways

Some final notes regarding the ladder that are, in general, true:

  • Income level/pay scale is in descending order, highest at the Thought Leader level
  • The farther down the ladder you are the more difficult it is to differentiate yourself
  • Attracting new and higher quality business is easier the higher up the ladder you are
  • Sales cycles are often shorter the higher up the ladder you are
  • Specialization as well as being a broader generalist can exist at any level
  • Expertise remains important at all levels but is not the end all be all. It is quite possible to be the poorest, most over-worked, most stressed out, and smartest guy in your niche at the very same time. Doh!
  • Pinpointing where you are (or want to be) is not an exact thing. The ladder is meant as tool for pondering your strategy within. You don’t have to agree with every step or attribute to benefit from the thinking it encourages.
  • I put this together for my own clarity and planning originally. I did not spend hours editing and perfecting it. It was unnecessary once the big picture became clear. Feel free to build your own that is more agreeable.
  • Perception is reality
  • There are exceptions of exceptionally successful firms/individuals at all levels. In reality though these exceptions only appear to be exceptions. In most cases they are borrowing strategies from more than one ladder and simply appear to be at one step when they are effectively really at an entirely different level than you think. 🙂

Share your thoughts on the ladder and this viewpoint with me by hitting me up on Twitter or shooting me an email.

What do you think of the ladder?

Do you think it’ll help you in your strategic thinking?

Where are you right now?

Where do you want to be?

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So… why don’t you have more business?

Have you pondered the post title recently?

Why don’t you have more business?

It’s a common failing among IT consultants to accept one of the following excuses:

  • It’s just how it is
  • It’s the economy, stupid
  • It takes time to build up a sustainable business and I’m just not there yet and there’s little, if anything, I can do to speed it up
  • It’s mostly outside of my control when my clients do business with me and by how much. The best I can do is keep them happy and hope they come back for more in the future.
  • The ups and downs in income are just a part of the consultant/contracting lifestyle. Some months are good and others are less than good.
  • My competition beat me to it because they charge less
  • My competition beat me to it because they have more money to advertise

Respectfully, these, and more like ’em, are all utter bullshit.

The sooner you get over them the better.

Most IT consultants are technicians first and only business owners, marketers, and salespeople second…. (at least in their heads..)

So it’s understandable that you may have grown to accept this.

But, as I said, it’s total B.S. Get it out of your head right now.

It is very important to recognize — and accept just as you have the opposite belief up until now — that not having as much business as you’d like is a symptom, not a cause.

Identifying the causes of your not enough business situation will help you end it.

But there is one very important task that we must tackle first before getting to that. It may be uncomfortable, at first. Some folks just can’t handle it… or at least may not realize they need to undertake this shift in thinking, without some coaxing: You must take full responsibility for your situation, both the good and the bad.

No more blaming the competition, clients, economy, etc.

Now you may be wondering how you are supposed to take full responsibility when there really are some things that happen that are completely outside of your control?

The important thing to realize is that while you may not always have control over what happens… you do have control over how you react to it.

So back to the original question posed: why don’t you have more business?

Well, first, it’s probably because you’ve accepted one or more of the above, or similar, excuses.

That’s the bad news but there’s good news:

The ONLY reason you don’t have more business is because you accepted these excuses and thus stopped trying to solve the problem…. because it seemed futile. Why try to solve a problem that has already been deemed to be outside of your control or responsibility? (Makes sense…if only the premise wasn’t faulty).

But we’ve wiped those excuses away hopefully so now we can get onto actual problem solving. (Something IT consultants have a lot of practice with and are plenty good at).

Remember: it is a GOOD thing to realize that more is under our control that previously thought.

….because now we can get to actually solving the real problem.

There are only four strategies to boost your business profits:

  1. Increase the quantity of clients
  2. Reduce your expenses
  3. Increase the revenues from each client
  4. Get paid sooner/more often

These are wonderful levers to have at your disposal (once you know they are there).

What about tactics? How exactly do you implement the above?

Well, while there are many many ways but, thankfully, unless your goal is to teach a marketing A-to-Z course you don’t need to know all of them to be effective at your objective of simply getting more business for yourself. You just need one or more to start making some progress.

Over time, if you want, you can add to the tools at your disposal…

For now, I’m going to hone in on business boosting strategy #3 in particular by suggesting two paths to consider to increase your revenue from each client. As always these are not just theories. They are methods that I’ve either found successful myself or learned from other successful practicing consultants…or both.

The point being that they are real and they are things that you can do. More importantly, they are things that are under your control.

So there are two straightforward ways to increase the revenue you receive from each client:

  1. Get them to spend more with you per engagement (project, signed proposal)
  2. Get them to come back to you more often

To get clients to spend more with me per engagement, I find it useful to ponder and answer the following questions when I’m putting together a proposal for a new engagement:

  • What else might the client want that we haven’t talked about?
  • Is there a way that I can offer them something else that they might be interested in that is a win-win for both of us?
  • How might I tactfully add this option (or multiple options) to our correspondence, proposal, or conversation?

In other words, “what’s next?”

It doesn’t have to be the most original invention around. For example I’ve done pre-payment and priority discounts towards additional projects and a year of e-mail only advice services. Sometimes it may be a above and beyond option for the project under discussion… even if I know it is probably above their perceived budget. I simply include these as options in proposals or in occasional e-mails/mailings to select clients.

Consider if you offer a special e-mail based advisory service for $1995/year to a handful of your clients. If even just one out of ten takes you up on it, that is $1995/year of “found money”. Keep
coming up with interesting offers and you’re bound to find some that are super intriguing to your particular client base. These naturally boost your per client transaction $$$ size and ultimately
your overall book of business.

It doesn’t have to always work out. Feel free to experiment. Play with the amounts…have the option sometimes be a very low cost option relative to the likely value of the engagement/project… and other times have it greatly exceed it. (Hint: When you don’t get interest in something ask your clients why they didn’t take you up on it…and incorporate their feedback into your next invention).

The above highlights one of the nifty aspects of our type of business. Because we don’t make widgets it is far easier for us to invent new products and experiment without having to do things like
retool factories and toss out supplies when no one bites on a new offering. Plus our incremental marketing costs for these add-ons are essentially zero since they’re just tacked onto our other
correspondence with clients.

Okay so that’s a bit about how to get them to spend more…but how do we get them to come back more often?

There are many methods but, in general, they all revolve around two
themes:

  • staying top of mind with your inactive clients
  • building up the level of trust in the relationship

This could be done one-on-one but it’s very time consuming and, oddly, I’ve found can sometimes be less effective one-on-one (I think because if you are always hanging around, taking them out to lunch, and picking their brain about their problems it can become somewhat obvious what you’re doing). If you can do one-on-one great… but I’d still suggest augmenting it with the following…

I prefer methods where I can keep in touch and inform my clients without showing up at their door or calling them all the time. Examples include sending out “tips” week/monthly e-mails or mailings (say, postcards), e-zines, newsletters, and, to some extent, blogging. Content should be informative, intended to both present yourself as an obvious expert on the topic and make your client smarter.

I also think it’s important to send out opportunistic personalized useful resources to your clients from time to time. For example, you run across an interesting article on an IT issue faced by small regional banks. One of your clients happens to be a small regional bank, send it on to them with a brief note attached: “Thought you’d find this interesting -Josh”.

It may not seem like it at first… but once you start thinking in this way, with a bit of time, the above strategies and tactics become almost second nature. What I mean is that during the normal course of your day you come across resources of interest, ideas occur to you, and you likely solve a variety of problems. All of these are prospects for sending to clients, writing up, etc.

You invest a lot of your waking hours in your business. You owe it to yourself to think differently about increasing your profits. Even if you are satisfied with your book of business, reconsidering
your marketing strategy and tactics can help you reduce the time spent on them, reduce stress, cut your working hours by working with and on more of your ideal clients and projects, providing you
and your family with greater security regardless of the ups and downs of the economy, and competitive conditions, etc.

Best of luck in your endeavors,

-jr

P.S. Interestingly I’ve discovered that it doesn’t literally take “going the extra mile” to get ahead of the competition and to achieve one’s goals. Perhaps an extra 100 feet, yards, or meters (or so) but generally not a mile…

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This cash flow booster is almost too easy

This tip is so simple that I hesitated…to pass it on. I was worried that you’d toss an old busted Linksys wireless router at me… or some other similar sign of your displeasure.

But I decided that you may just find it helpful to your bank account – as I did. I am following the (paraphrased) maxim that: “what now seems obvious – once you’ve discovered it – once wasn’t”.

It is something you can can put into action RIGHT NOW within just a few minutes… and get results in a matter of several days, at most. Thus…

For the longest time I invoiced my IT consulting clients once a month on or around the 1st of every month. So (sort of) every 30 days… Not exactly atypical.

Then I started experimenting with variations, more out of necessity at the time. Cash was tight – what can I say?. One experiment was billing out sooner than 30 days if a project was substantially completed prior to the next billing cycle.

An example is a project that is worked on from the 3rd thru the 5th. Rather then waiting until the 1st of the following month came around I’d bill out immediately on the 6th (or even the 5th sometimes). Why wait 25 days to send out an invoice and then another 30 days for payment (thus not getting paid until 55+ days had past since I’d done my part)?

But that’s NOT actually today’s tip…

It’s just a lead in to a series of simple changes that improved my cash cycle… (but you may want to implement the above if you haven’t already).

In any case, no one seemed to mind the change so I decided I’d keep questioning “the usual ways of doing things” until someone balked. (And, a story for another day, even when someone griped — after testing the waters a bit, checking my back, and doing the math — I usually opted to stand firm and it nearly always worked out in the end).

I don’t remember the entire series of items and order I tried them in at this point but I can tell you four of the essentials that I stuck with:

  • Billing out every 15 days rather than 30 days (and sooner if, as mentioned already, a project is completed sooner).  Heck, maybe I could have gotten away with billing every 7 days… who knows?  But 15 days worked well enough, at the time, without changing ANYTHING else… it certainly cut two weeks off of my cash cycle.
  • Stating all invoices are “Due upon receipt.  1.5% per month financing charge applicable if not paid within 15 days.” (check your state laws; I’m told that many states regulate what the maximum annualized late payment interest percentage can be.  Mine works out to 18% but I’d drop a client – and write off the accounts receivable – probably long before it ever got to that.  This reference may be enlightening if you want more info…or frustrating if you want an actual answer..heh.   If unsure, remembering I’m not providing legal advice, a safe bet might be to see what your local utility companies have in their fine print and match it).
  • Automating invoice payment late notifications so they’d go out like clockwork.  With the automation I’d be sure – and the client too if it happened even just once – that I was on top of things.  A professional, but direct, reminder sent out on the 16th day, without exception, does wonders.  It is easy for a client to wiggle and squirm about paying late when you are clearly not on top of following up on late payments immediately yourself.  Not so when it’s consistent done.  And automation is the ultimately consistency.   I quickly cleaned up and automated all of my time tracking and invoicing in general for similar – and other – reasons[1].
  • Simplifying – and automating – as much of my invoicing and time tracking tasks as possible.  My consistency encouraged consistency from my clients which has only increased over time.   Stragglers or newcomers are quickly brought into line professionally but rapidly…and without extra effort on my part.

I’ve also experimented and ultimately implemented other techniques, some more dramatic in their (positive) impact on cash flow. For example, getting paid prior to starting work, prior to having even having met with a new client. This, and others, have become a part of my modus operandi. Many are advanced techniques, but that’s a topic for another day…

[1] I use FreshBooks for my own invoicing and time tracking. It also handles late payment notifications automatically. You can sign-up for a FREE account here. I’ve been a VERY happy user for a couple of years now and recommend them without hesitation.

I love completing a day of work with a client and having them immediately receive a professional invoice (emailed) before I’ve walked out the door (Freshbooks supports postal invoices too…without requiring you to print/stuff/lick – they do it for you).

It’s not uncommon for me to leave on vacation and, while away, take a quick look at my inbox… to see an apologetic reply, from a client who is a bit late paying, to my automated reminder.

Take that procrastination! Things are getting taken care of – even if I’m away, procrastinating, or busy with a client doing (billable) work. It has done wonders for my cash flow…

-jr

P.S. If you enjoyed this particular tip, I invite you to drop me a line via e-mail and say so. If you thought it totally sucked, I challenge you to put your typing where your mind is and tell me why. If you implement any of these techniques – or are inspired to come up with your own as a result – please share it with me. And, once you get back results, share those too.

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Tech Consulting in a Tight Economy

Independent consultants may be in an enviable position within the world of business. Our services, by their very nature of not being tangible, allow us to be more agile. We can adopt to changing market demands.

This is especially true for us IT consultants. After all, regardless of how many folks are laid off, how badly capital budgets are cut in the near-term, etc. – nearly every organization has investments in IT infrastructure. And it’s nearly a given that a good part of it is necessary to supporting the mission of the organization — through good times and bad.

In fact, with layoffs and hiring freezes, some organizations may increase their use of consultants and contractors because it doesn’t require the same approvals that hiring a new employee would and it doesn’t commit them to keeping another body around. You’re also probably going to be “cheaper” than keeping someone around with your expertise full-time.

That’s all well and good but what should you actually DO to increase your chances of being hired for a gig (or kept on) in more uncertain times?

Aaron “Crooky” Cruikshank, the Founder of Friuch Consulting, sums it up quite nicely:

“Find new pain points, serve them.”

That may sound disingenuously simplistic to some but it’s really the essence of serving your clients – in good times and bad.

Elsewhere he makes an observation and argument that knowledge workers, which includes us, have always done better even in economic downturns:

http://friuch.com/now-is-a-great-time-to-start-consulting

And in a prior post where he advocates against “undercharging”, he hits on it also from the angle of the tendencies a few of us may have during an economic downturn:

“People starting out in consulting today might think that they need to go down market to succeed in a shrinking economy. I respectfully submit that such thinking is bunk. What you need to do is find a niche that is not something everyone else is doing and sell it at a premium. For example, when the economy is tight – offer a service that makes people think they’re saving money. You’re a webmaster? People still need websites, even when the economy is in the toilet. Make your niche designing websites in the most affordable way possible or link your design techniques to a measurable return on investment (ROI) so that the client can be sure they got their money’s worth.”

I’ve often heard Dan Kennedy, a highly successful consultant as well as marketer, state that we consultants are selling “dollars at a discount”. That is, we are (often) hired to save our clients money, increase the money they receive (improve ROI), or (indirectly) help them avoid some other pain that would cost them money at some future date.

We can talk about cool software features and faster IP networks but everything we do must be translated into its benefit to the business. We’re in the “dollars at a discount” business. Ponder that and consider how you fit into that arrangement with your clients. Then consider whether you are effectively _communicating_ your worth in terms of business benefits.

Now some of us will certainly suffer during economic downturns….just as we would if we relied too much on a single client (such as our ex-employer turned first client). Anytime something impacts our client relationships our weaknesses are exposed.

Warren Buffett used the phrase “After all, you only find out who is swimming naked when the tide goes out” shortly after September 11, 2001. He was referring to insurers who weren’t prepared for the worst and thus were suffering mightily – some fatally. It’s an appropriate metaphor for many recurring situations in history – and thus in business and in life.

If one of your weaknesses is your new client pipeline and thus far you’ve been getting by because you’ve had one major client that accounts for most (or all) of your income, this may be the time to evaluate what you should be doing to mitigate that risk a bit. Purchase a bathing suit, if you will.  🙂

On the upside, when business does slow down a bit for us, there is more time to spend on some of those put off activities such as building up a marketing funnel (generating leads, encouraging referrals, increasing repeat business, list grooming, relationship building). If you aren’t familiar with these topics, spending time may include educating yourself more, finding some mentors, and seeking out other (farther along, more successful) consultants, etc.

As a side note, there may be some promotions you can tie into the current economic concern mindset that you can offer specifically to your current (and past) clients. How can you be their dollars for a discount in this time of their greater need for capital?

How indeed…

(Within all problems lie opportunities).

-jr

(adapted from the very post I made, which was e-mailed out to the first few subscribers to join ITConsultingLessons.com, on 11/29/2008).