Ramit and I recorded three of these interviews on starting consulting businesses, although we have poor message discipline so we couldn't resist talking product as well. The next one is about pricing. (It could be "Charge more!" for an hour, but isn't, although I hit that theme a few times.)
On a related but unrelated note, my usual podcast with Keith Perhac (and special guest Brennan Dunn next time) also is going to be a consulting-stravaganza next time. We talked the origin stories for our three consulting businesses (I run a sole-prop consultancy as roughly a 20% time project, Keith runs a small practice, and Brennan runs a fairly large many-people-at-full-time-utilization consultancy) and what we've learned along the way about hiring, pricing, cashflow management, chasing invoices, pipeline, and all that fun stuff.
My totally subjective opinion is that, if you're a freelancer or consultant, any one of these will be probably more useful than the entire rest of my blog put together. If you liked any of that, you'll like these, probably a lot.
"My totally subjective opinion is that, if you're a freelancer or consultant, any one of these will be probably more useful than the entire rest of my blog put together."
You're right there -- I was reading the first few paragraphs and thinking "thank God I'm reading this now and not 6 months down the line". So much actionable advice.
Here's a question for you: as someone making money from both services and products, but who has avoided the VC-lottery-ticket startup game, what's your opinions on starting a service business vs starting a product business?
I'm in the early days of building an e-commerce startup while freelancing on the side. Even though my day rate is on the low end, I'm still earning more than most people my age in the UK (I just graduated), except maybe junior IB analysts, and I'm pretty confident I could earn way more, especially if I focus on freelancing^ full time. Pitch myself at a much higher level, start hiring a few people, build a service business.
^(Yeah, I know, I should say "consulting" and not "freelancing").
But the obvious downside is that a service business isn't scalable. A scalable product business is much better, if it's a success. Plus Steve Jobs and Elon Musk would never have made the history books, or had the same impact on humanity, if they'd sold services instead of products -- but they're the 0.001%. What's your opinion?
what's your opinions on starting a service business vs starting a product business?
I like celery, and I like peanut butter, and despite them not being obvious complements they work together in a way better than even the sum of the delicious parts. I sort of feel the same way about products and consulting. I enjoy nothing in my work life so much as I enjoy making and marketing software. It affords me an unbelievable amount of freedom in arranging my day-to-day and month-to-month affairs. I get to pick everything I work on. Yay.
In consulting, I occasionally have to do things I don't really enjoy. (Contracts -- bah, not fun.) On the other hand, I get to work with very smart, fun, good people, which is something I genuinely miss when I'm in the BatCave working on my own stuff. The challenges are new and different as compared to working on my own stuff, and I get to take a look at something entirely novel every month or two instead of once-in-a-blue-moon. (Last big win for BCC? May-ish. Last big improvement to the state of the art, for the narrow art-field of small software devs? Hmm, years ago. Last big win for a consulting contract: last gig, and happens almost every gig. Last big improvement to the state of the art, for the narrow art-field of B2B software companies: last gig, and happens maybe every other gig.) Also, there's the money thing. I'm not terribly motivated by money, but I'm now a recently married man, and the combination of consulting + products is even more stability than products alone was.
But the obvious downside is that a service business isn't scalable.
Not scalable like Oracle/IBM/SAIC are not scalable, or not scalable like charging only $20k a week is not scalable? Because both of those strike me as accomplishing many of the goals I could ascribe to the word "scalable."
What's your opinion?
I suspect that there's a real fundamental values gap (or a vastly different collection of weights and terms in utility functions, if you swing that way) which make my opinion less useful to you than it might otherwise be.
"I suspect that there's a real fundamental values gap (or a vastly different collection of weights and terms in utility functions, if you swing that way) which make my opinion less useful to you than it might otherwise be."
I'm very curious as to what exactly you mean here. I have an inkling what you mean, but it sounds a bit like:
"So which did you prefer, Paris or India?"
"Well, they're both great, in very different ways. You like adventure and I like relaxation so my preference will be different to yours".
"But you've been to both and I haven't been to either, so I just want to hear what they're really like, and what the guidebooks don't tell you..."
I'll send you an email, would love to hear more of your thoughts if you have time.
I'm very curious as to what exactly you mean here.
Let's say there's a particular worldview, call it A, under which Musk is a heroic figure. (There are infinitely many, but pretend that we can narrow it down to one well-specified one, for the sake of illustration.) Let's call my worldview B. A and B do share occasional points of overlap, but they're very, very, very different from each other. A is, in fact, so different from B that if I describe some salient ways in which B is different, I think many people who subscribe to A would think I was intentionally picking a fight with them.
One minor codicil in B is "All else being equal, do not pick message board fights, and most especially do not pick fights on message boards at 6:30 AM in the morning."
I’d just like to say thanks for the AWESOME link out to CastingWords! (Though we are a little wary of making our strategy, and delivered turnarounds, quite this explicit :)) Regardless we do love happy customers - and this strategy delivers both in keeping us afloat, and keeping the customers happy.
Thanks for saving me ~40 hours of brain-melting work this month. The product is awesome. (And built on top of mturk, which just makes my head explode... your Q/A processes must be Space Shuttle quality.) Take my money. Take more of my money. Take as much as you need. I would be a very, very sad podcaster if I had to hire a freelancer to do this every time.
I'll point out that differing classes of service (and rates) for work with different turnaround times is standard in the medical transcription industry. There, a patient could literally be waiting to enter surgery because the transcribed pre-op report is late. But something like clinic notes would be much less time sensitive.
It's a brutal industry, though, lots of price pressure, and seemingly becoming commoditized.
I'm sort of getting mentally stuck on the part about enterprise pricing ("like if every enterprise software company doesn't put their prices on their website"). My knee-jerk reaction is that a lot of companies -- especially those that aren't necessarily in the enterprise market, but are wanting to look like they are -- actually are just doing it that way because they're imitating the other players in the market. (And as an IT consultant, that is super annoying to me, even when I'm working with a client that actually does have the budget.)
So: I'm genuinely curious, have you seen something that tells you that there's a clear advantage to doing it that way, especially where it's better for the customer somehow? e.g., does that give them a chance to gather sales leads or actual phone conversations from more serious customers?
And do you think that that sort of behavior translates down to smaller businesses? Should I not be saying, "I hate that, it sucks", and posting our rates on our site?
I heard this so often, agreed, but at still continually surprised to find out that I've underpriced myself.
My initial rates 18 months ago were X. I gradually increased it, hitting 2X a little while ago.
Decided to try 2.3X. No objections from clients. Will have to try an even higher rate for new clients.
I have found that this doesn't work via email, for me and my industry (tutoring). If I have someone on the phone, it's easy to convince them of my expertise. And if the rate is too high for them, they'll tell me. If I still want to work with them, I can figure something out.
By email, I'm more likely to receive no reply. So now I push all conversations to the phone.
But really, I should be raising my rates (more). So should you, probably.
I originally started consulting in 2009 after being laid off; I had a client in two days (acquaintance already) at $50 an hour. Three and a half years later my advertised rate is $125/hr or $800/day, with a few clients being grandfathered into lower rates (usually only if I know they're on a tight budget and have a decent amount of work in the pipeline).
Don't misunderstand me: I have lost clients because I raised my prices. Maybe that was a failure on my part to adequately explain the reasoning behind the increase and the value they were getting. Regardless, those aren't the kinds of clients I want anyway. I don't want to deal with someone complaining their invoice is $1480 instead of the $1450 I estimated.
Rate discussions should be conversations, and email is too slow moving to really be practical. Don't say, "This is my new rate." Instead try to really get at the heart of why you're being hired, what kind of returns are practical, and speak in "Doing X will produce $Y benefits for you and cost you $Z".
More comment than question.. I'm trying to sign my first consulting client after a long stint in the enterprise world. I really had to struggle to not underbid. I went through the same thought process as you discussed and in the end I'm glad that I didn't underbid. Hopefully the client signs but if not, there'll be others.
Thanks for a very timely podcast (at least for me). Now to read the rest.
You probably still underpriced yourself! Remember: clients are almost never spending their own money. Budget money is monopoly money to IT decision makers. If you're over and that's the reason you're going to lose the gig, usually the client will tell you so. (On the other hand, savvy clients will "tell you so" no matter what).
Remember you are almost never rejected as over-priced the moment you mention money.
for example, asked your rate, just double the amount you thought of.
If you build in plenty of ceiling, you can have the other guy look like a negotiation genius to his boss, and you still have achieved your original goal. But don't ever just cut your rates, ask for something in return - IP rights to software, endorsements on your site, just don't cut your rates. (I have, I always regret it)
PS I think tpateck has "don't cut your rates" as a tattoo.
:-)
PPS - getting something in return really makes the other guy look like a negotiating genius
Do you think it's possible to get started and get good deals with US-based companies being a non-US (and not even EU, Russian actually) citizen? Or is it too much paperwork for both sides?
Oftentimes, I feel like I could bring a lot to some company's table, but no one will even consider my offer because of my geographical situation.
Yes, I think it is possible. US paperwork for dealing with contractors abroad is extraordinarily lenient: you are hireable for exactly the same amount of work it takes to hire non-US-located-US-citizen me, or less, if the party doing the hiring has their act together. (This is decidedly not the case for on-site engagements: if it would require traveling to the US, having a US passport makes life much, much easier for all parties.)
Oftentimes, I feel like I could bring a lot to some company's table, but no one will even consider my offer because of my geographical situation.
How are you identifying clients? How are you pitching them? Do you have problems with leads when you get to the "By the way, I'm in Russia" question? Does that happen a lot? I think you can probably finesse the location issue if you pitch a) more prospects and b) better prospects.
> How are you identifying clients? How are you pitching them?
To be honest, I just responded to some web-published offers for contract work I saw anywhere, and I didn't have any measurable progress at all. Most of them just didn't respond, but those who did told me that they weren't interested because I wasn't from US, so it disappointed me (after all, I'd spent non-trivial time writing a reply, not just blanket-bombed them with my resume) and hurt my confidence. For now I've got a regular job, but when I decide to move on, I will certainly try to do more and better prospects.
Thank you for the answer, Patrick, it means a lot to me.
xentronium There is no way to private message on HN, but I am in need of programming work here please email me cvos{at}netpaths{dot}net
In the spirit of this post, it pays to be active where potential employers are. If you want to work with HN type of companies, then being an active member of this community is one of the surest ways to success, especially if you have physical barriers such as being in a different country.
Firstly. Thankyou for putting this together. I'm just about to start listening. I did a quick scan of the transcript to see if there was any discussion around lead generation. I.e. actually finding clients but didn't see anything. Is this something discussed in the podcast or planned for the future?
Hey Patrick - great interview. I bought Ramit's earn1k course about 1.5 years ago and I have to say it helped me quite a bit. I was able to land an author who has sold over 2 million copies who started a non-profit company, as well as a lawyer, among other clients.
However, I've made (and am still making) many of the mistakes that you both talked about in your interview, so it's a great reminder to pop into earn1k and rework through some of the modules.
As a side note, I also used the principles behind earn1k to launch a physical product business in my local area and the biggest tip I took out of earn1k was to not do ANYTHING that was an indirect way of getting clients. It's been two months and I already have 5 of the best restaurants in my city as clients.
Plug: My new book on freelance/consulting pricing that Patrick, Keith and I discuss in next week's podcast is available for $20 off using the discount code "patio11": http://doubleyourfreelancingrate.com
Plug for Brennan's plug: This book is amazing. I've increased rates by +$30/hr with the advice in this book. If you send invoices to clients BUY THIS BOOK.
Not to be a wet blanket, but I recently increased my hourly rate by $50 and I didn't need to read a book. I just decided to bump up my rates. And I did.
If you provide value, and you're good at what you do, why not ask? If it's because you can't handle being told no once in awhile, maybe Rejection Therapy[1] is the best way to go. The game can be applied to all aspects of life, not just getting higher hourly rates.
Guys, I said it on the (yet unreleased) podcast and I'll say it again -- this book is amazing, and it would be foolish not to spend the mere $39 on real, actionable advice that can double your freelancing rate. In the first 20 pages I found at least 3 things that I wanted to try out in my next proposal.
I still can't believe Brennan's only charging $39 (with promo code) for it.
Extremely actionable advice in this. Compared to a lot of super fluff books, I used this immediately, and it made me more money. Great book and worth every penny.
The headline suggested to me (although I realize on re-reading it wasn't about that) that the article would be about how you find that first client. Any tips for the people trying that?
Try networking with people you know online or in real life.
My consulting business (shameless plug: http://argonautlabs.com) got started by me reaching out to someone I knew via Twitter and asking if he needed any help in his consulting business. At that moment, he didn't, but he asked me to send him what my skills were. I did. Two weeks later, he sent me an email with something that was going to take 6-8 hours that he didn't really want to mess with. I did it well, and that led to more work from him. From there it spread by word of mouth. People I did work for referred me to other people, and it just grew from there.
Feel free to email me if you want to talk more. I'm always happy to help another freelancer out.
"Statistical significance is irrelevant when you’re doing customer research."
There is a time and a place for carefully-written Likert surveys with control questions and large samples. Psychological research, election polling.
Customer research is about learning the realities of someone else's world. What you're aiming for is more a structured conversation than a statistical survey. Are you both speaking the same language, are you overlooking any major cultural or procedural factors, what emotionalresponses occur repeatedly and what triggers them?
It's the difference between empirical research and phenomenology and one of the things that makes Psychology a) a bit woolly compared to other sciences and b) a lot more interesting.
When establishing a consulting relationship with a client, what do you typically do contract-wise? Do you call up your lawyer and have something prepped on a per-client basis, do you use a slightly modified template, or do you operate on a more casual handshake sort of agreement? How specific are the terms you generally work out?
FWIW my firm uses a set of standard terms drawn up by our lawyer. They're very carefully thought through and it means we know exactly what we're getting into with each client.
Doing this once wasn't that expensive. We try and avoid renegotiating with each client on anything important, because it tends to be an expensive, time consuming process and nevertheless changes are never in your favours:(
Where we've done work without a contract it has a much higher probability of problems arising.
Obviously not the OP but I'd like to offer my experience. I've told every client of mine they'll get a 15% payment off any referral's first contract (ongoing if it's a retainer), and offered the same deal to many friends who know the business I'm in.
I haven't gotten a single call or email about it. If people like you, they will refer you to everyone who will listen. If they don't, they'll talk bad about you to even more people. Offering a few hundred dollars or even more is, in my experience, not going to sway them one way or the other.
Have you tried offering professional recruiters a referral fee? I wonder if they'd work double hard getting a fee on both ends? Or is that just not done?
Ramit and I recorded three of these interviews on starting consulting businesses, although we have poor message discipline so we couldn't resist talking product as well. The next one is about pricing. (It could be "Charge more!" for an hour, but isn't, although I hit that theme a few times.)
On a related but unrelated note, my usual podcast with Keith Perhac (and special guest Brennan Dunn next time) also is going to be a consulting-stravaganza next time. We talked the origin stories for our three consulting businesses (I run a sole-prop consultancy as roughly a 20% time project, Keith runs a small practice, and Brennan runs a fairly large many-people-at-full-time-utilization consultancy) and what we've learned along the way about hiring, pricing, cashflow management, chasing invoices, pipeline, and all that fun stuff.
My totally subjective opinion is that, if you're a freelancer or consultant, any one of these will be probably more useful than the entire rest of my blog put together. If you liked any of that, you'll like these, probably a lot.