
Kalzumeus Podcast 3: Growing Consulting Practices, with Brennan Dunn - fooandbarify
http://www.kalzumeus.com/2012/10/10/kalzumeus-podcast-3-growing-consulting-practices-with-brennan-dunn/
======
Silhouette
Just as a minor PSA: I get that certain consultant types around these parts
are always saying "raise your rates", and I get that a lot of people who work
freelance do undercharge and often significantly, but the advice has very
limited value unless it has some sort of quantifiable element attached to it.
Otherwise, with due respect to those consultant types, it sounds a lot like
"We're obviously smarter than you, because we charge enough and we're sure you
don't" without any real data to back up such a claim.

Obviously rates vary dramatically according to many factors other than the
desire of the freelancer/consultant/whatever who wants to charge them:
location, industry, level of experience/credibility/relevant specialist
skills, and so on. But without even a general indication of how much the
poster child consultants of HN have succeeded in putting their own rates up
before dispensing this advice endlessly to everyone else, it's hard to take
seriously the idea that an average freelancer who isn't Internet famous is
going to jump from their normal rate to something on a different kind of
level, at least not without fundamentally changing the way they're working in
a lot more ways than just the cost per unit time on invoices.

Let me ask a very simple question, which hopefully those consultants might be
able to answer without giving away anything sensitive about the specific rates
they are personally charging right now: if the going rate for freelance
software development work in your area is typically in the range $x-$y, and
you have moved via successive rate increases and repositioning what you offer
to $z, approximately what are the ratios between x, y and z? For extra marks,
since in the podcast a comparison was drawn with the way lawyers charge, how
would z compare to a typical range for lawyers working in the same area and
with the same kinds of clients?

~~~
manmal
They do mention in the podcast (rather at the end) that internet famous is not
customer famous. Patrick is well-known only to HNers and then some, but not to
all CEOs in the world. Much seems to come from word of mouth.

Do you think Patrick or Brennan are übermenschen? Can they program 30x as good
as you? They focus on bringing value to clients, discarding pride in technical
perfection (well maybe they do, but your customers don't want to hear it
anyway). It's taking development focus from "how you do" it to "what you do".
Once you do that, your methods change over time - at least that's what I got
out of this podcast. Of course you can't demand 100k for an app from a
bootstrapped startup - but you can demand 100k for an app which makes a bank
some more millions per year.

~~~
Silhouette
To be clear, I'm not asking because I'm concerned about my rates. I don't work
full-time on contract projects as I have other business interests as well, but
even when I do, I seem to be somewhere around what Patrick considered the
sweet spot in terms of size of client, who I'm dealing with, etc.

I just wish that if people who have been consulting for a relatively short
time themselves want to share their advice with others who might be thinking
of going down that path, they would give some sort of meaningful context to
guide those other people about what to expect in practice. Otherwise, we're
going to have a whole load of people who were actually on perfectly
respectable if not exceptional rates, who were happy doing the work they were
doing, whose clients were happy with the work they were doing, and who can't
conveniently tie their personal contribution to an X% increase in the total
profits of their clients, yet who then think they should be charging 10x as
much and start going after new clients with unrealistic expectations. In most
places, the software development industry is still quite a small world, and
I'm genuinely concerned that such an approach is going to damage young
developers' careers.

To be frank, I'm deeply skeptical about the current round of Tim Ferriss-style
"Make More Money Than God In Five Minutes" discussions on HN. There are some
interesting perspectives, and I'm certainly not criticising Patrick or any of
the other guys for volunteering their points of view. But I do think quite a
lot of that advice is going to be hard for many people to apply in practice,
because the context won't be the same, and I do think it's borderline
irresponsible to push the advice in as general and unqualified a form as
sometimes happens, even if it happens with the best of intentions.

~~~
mgkimsal
This is slightly a plug for my conference, but is also the motivation behind
it.

I've been in software dev for 18 years or so. I set up a small shop 12 years
ago, went bust after 4 years, then went solo again in 2007. I've not expanded
beyond myself (so far), but have been hopefully getting better at what I do,
both in terms of software but also business skills.

A couple of years ago I started seeing an uptick in questions from people in
the area: "How much do you charge? How do you decide what to charge? How do
you write a contract? How do you get clients? How should I do XYZ? What tools
do you use?", etc.

People who know me know I love to talk, so I'd happily answer. I started to
realize though, that I was only giving one perspective. Even when I'd qualify
that perspective as "this is just my experience", it didn't help them very
much. I started getting other people I knew involved in the discussions,
getting their perspectives, which were sometimes vastly different than mine,
and they'd arrive at different conclusions. Eye-opening to say the least.

At the point, the idea of the conference (<http://indieconf.com>) was born -
an event to bring people together to foster the learning, Q&A and networking
which helps those questions get answered with far more perspectives than I
could offer on my own.

Reading a book is not necessarily bad, but being able to ask questions about
those books' ideas face to face, get answers, and have discussions about those
topics has worked out decently for the conference over the past couple years.

------
patio11
Happy to answer questions, to the extent possible.

This dovetails quite a bit with the Ramit Sethi interviews earlier, but is
largely about the mechanics of businesses as they get away from the solo
consultant stage. There is some very important math in there for folks looking
to expand by hiring. (Copious hat tips due to Thomas for much of the advice
here. Except the bad stuff, that's mine.)

~~~
deadbea7
How do you charge if onsite presence is required for an engagement? This could
either be due to a client requirement or you need to do interviews with
developers for an architecture/code review. Should you add a separate line
item for travel + lodging expenses or just bundle it together with the
consulting rate? I feel like you're at a disadvantage if the client can see
that you're more expensive compared to local talent because of the added
travel expense, especially if you're coming into a place with plenty of
competition, such as the valley.

~~~
patio11
"I'll follow your standard procedures for expensing business travel." (Hat tip
for Thomas -- this line has totally resolved every discussion I've ever had
about this issue.) nYour more desirable clients do this _all the time_. At
many places it is budgeted out of an entirely different pot of money than your
salary.

~~~
adrianhoward
That's interesting. I've been playing with not charging expenses and adding an
appropriately sized chunk on my overall price. Generally this seems to go down
well with some variation of a "neither of us want to waste time arguing over
what my max meal bill should be" line.

I like avoiding two separate sets of price negotiations.

------
barry-cotter
Bits that were not obvious in retrospect and not previously covered in
Patrick's writings or just obviously really important.

1\. Patrick's consulting rate has more than septupled since he began
consulting (or possibly just this year, can't remember.)

2\. The longest he has ever waited to get paid by a client he would be happy
to work with again is nine months.

3\. On a related note: The bigger your client is the more bureaucratic BSthey
will have so they get the special “I expect dealing with you on a business
level to be hell” surcharge.

4\. Becoming a consultancy is a different deal from being a consultant, even
an extremely high end one. Brennan made less as yhe principal of a consultancy
than as a consultant for the first year and a half. If you take the
_commendable_ attitude that making payroll is sacred you should have $30K set
aside for “Despite cashflow issues, we made payroll” purposes.

5\. On a related note: When the business has a bumper year employees get a
3-5% payrise. When things are looking like shit they still get paid what was
previously negotiated, on time. Most people are, quite sensibly, risk averse.
If they want the upside they can take the downside too.

There is a great deal more that's very valuablr in the transcript, like the
discussion of the change in attitude that comes with charging more nut those
struck me especially. Oh, and there's a link to a tptacek ccomment that is
step by step guide to making LOTS AND LOTS OF MONEY.

~~~
barry-cotter
3\. Not a surcharge an anti-discount

4\. That's 30k per employee.

I'd have edited the original post but commenting on HN from a Lenovo phablet
is hell.

------
Alan01252
This was my favourite Podcast so far. A few things I really took away from it
( which I'll be implementing in my own freelancing /consulting business ) in
no particular order

1\. Charge more.....

2\. Sell yourself as someone who solves business problems, not as someone who
implements technical solutions

3\. <http://thunderboltlabs.com/> \- An excellent example of how to sell
yourself as a developer, without selling yourself as a commodity coder. Their
hourly rate does makes my brain melt.

4\. Learn the language of yours customers. This is something I've really got
to work on, I have now idea how business people speak.

5\. When you're teaching a potential customer new things in your sales pitch
you've already won the sale.

I'm not sure I've summarised number five very well. So here's an example from
my own limited experience. When I've stepped into a design agency who's
looking for a developer and I start talking about version control, the latest
technologies, previous projects and how I could make their business better
I've actually felt the atmosphere change in the room. At that point I know I'm
walking out of there with a new client.

There's more hidden gems in this Podcast and I'm sure I'll be reading /
listening to it again before the days out.

So much to learn.... being self employed _is_ awesome.

~~~
ErrantX
> Learn the language of yours customers. This is something I've really got to
> work on, I have now idea how business people speak.

Not just their language, but their lifestyle and culture.

A big portion of my clients are Jewish; this is because an early client was
Jewish and I learned the little things like... sending emails late on Friday
afternoons will rarely get a response till Monday. Or, Mondays are bad days to
be in touch because a lot of Jewish holdays fall on them. Etc. etc.

I picked up a ton of clients because word got around that "hey, there's this
guy who is easy to work with"

> Their hourly rate does makes my brain melt.

Is that the hourly rate for both of them? (they say they work in "pair
programming style"). Given the mass of skills and experience they bring that
seems and _extremely good_ rate.

~~~
Alan01252
Good point! Thanks Tom.

I assumed it was for one person but now you've mentioned it, that is probably
for them both. In which case I guess it's less extreme on my brain.

~~~
mluiten
From <http://thunderboltlabs.com/hire>: "Development is $277 an hour per
developer. Technical work is done in pairs."

Ouch. It looks like they've got the skills and marketing figured out. I think
there's a great lesson in there for all of us freelancers.

~~~
Alan01252
Wow, consider my brain melted. I guess the next question is, how busy are
these guys?

------
tom_b
I would love to hear more about shifting the "offering commodity skills" to "I
produce measurable business value" mindset. From Patrick or other HN'ers.

My career path has always been very conservative, e.g. "What skills do I need
to be employed by corporations at salary X?" Even today, I struggle with a
strong and compelling internal voice that says "oh, learn blub and enterprise
platform ZZZZ" and then you will be seen as more valuable.

I know this is a _extremely limiting_ mindset, but breaking free to a new
viewpoint has proven difficult.

------
adrianhoward
_Your paycheck is, occasionally, a burnt-offering to the gods of Trusted Third
Party Opinion, just like it is sometimes a magical talisman against Blowback
If This Goes Sour._

Worth it for that line alone. There's a special art in being the one who gets
the idea through _purely_ because you're a third party and not the internal
person/team. Some of my happiest gigs are when I've ended up getting paid to
teach management to listen to the team and implement their suggestions.
Everybody wins ;-)

------
zissou
Talk economics to me, baby.

As an economics PhD drop-out who left [after year #2] to start my own
consulting company based on my PhD research, I can relate with so much of what
I've heard so far (I'm only at 22mins at this point).

Also, as a person who went from the economics/business (albeit, academic) life
-> developer life, I agree with your observations about how programmers suck
at economics (err... business). It is a much easier transition (relatively
speaking) to go from an econ/business person --> compsci/developer than it is
compsci/developer --> econ/business person. You can't learn economics
overnight, but I can certainly figure out how to create a tool that solves a
specific problem overnight, because some guy wrote a tutorial about how to use
<some technology> to solve <a congruent problem>.

I'll try and update my post later after I've finished the podcast.

~~~
ErrantX
I think you're simplifying. It's easy to follow an online tutorial; but if
that is what a consultant is doing then he is a very low quality consultant.

Conversely; I have an engineering background but found it very easy to pick up
the basics of good business, at least how it applies to consultancy. Of
course, I'm not trained in economics, but I figured out enough to get by (you
could make an argument business sense isn't really related to economics - some
wildly successful businessmen have never been educated in even the basics,
they just saw and opening and sold).

What you seem to be suggesting is that an econ/business person could buy a
programming 101 book and start making big bucks as a consultant software
engineer. In theory I'd like to say that's rubbish, in practice I know of
several people who do this.

Can't condone it though: the underlying drive for a consultant should always
be - "I have a valuable skill, here is what it is worth"

------
tocomment
Ok, let's do a concrete example. All of this seems very hand-wavy to me.

Scenario: A client asks me to do support and maintenance on an internal
accounts receivables tracking app. How do I justify asking 300/hour or
whatever you guys are suggesting? How do I give them substantial business
value from that?

~~~
patio11
How much time is wasted on accounts receivable every month? What's the average
fully-loaded cost of their employees tasked with AR? What's the percentage of
uncollected invoices?

What happens if we cut the time wasted by 10% and bring in one or two extra
invoices a month? Oh, we just made you several hundred thousand dollars in the
first year? Interesting. What is that worth to you?

"I'll write up a document explaining the plan, but in broad strokes, we're
going to work on the user experience so the team spends less time fighting
this tool and more time being effective in chasing receivables. Also, we'll
build a new workflow which automates the early stage of receivables
collection." (I would start thinking "Automated emails or Twilio replacing a
human employee doing either is pure win in the early stages of collection" but
you're the guy in the client's office, figure out what they'll except.)

~~~
tocomment
Very interesting.

So if their system is already highly optimized, or it's a small company so any
gains wouldn't translate into large amounts of money, you'd suggest to pass on
the opportunity?

Also, what happens if you improve the UX and make new workflows but the
profits don't materialize for some reason? Would you not get paid?

~~~
patio11
I prefer working with companies where I can create value versus in companies
where I can't. If your small company thinks their internal one-off AR system
is important enough to hire a dev for, that should be worth Serious Money (TM)
to the company. If it isn't, tell them "Look, you trust me to deliver wins for
the business. This engagement isn't a win for you. If you absolutely need that
system worked on, I can recommend someone for it. But let's talk about
somewhere where I _can_ make you a couple hundred thousand dollars: ..."

 _Would you not get paid?_

No, of course you get paid. The client bears all execution risk. That's why,
when you make them 10 million, they get the vast majority of that 10 million.
If clients expect you to shoulder downside risk then they should expect you to
capture much of the upside. (Here's words I like: "Well, if you expect me to
bear the risk for this project, I want to share equitably in the rewards, too.
My sense of equitable is that if I'm responsible for doubling the company's
sales I should end up owning half the company. Or, you know, you could just
pay my rates.")

~~~
infinite8s
>>> Well, if you expect me to bear the risk for this project, I want to share
equitably in the rewards, too. My sense of equitable is that if I'm
responsible for doubling the company's sales I should end up owning half the
company. Or, you know, you could just pay my rates.

That's pretty awesome. Have you ever had to use a line like that?

------
mgkimsal
SHAMELESS PLUG: While I understand not everyone can attend,
<http://indieconf.com> is a conference dedicated to these sorts of topics, and
Brennan will be speaking there. If you'd like to meet him face to face, this
is an opportunity to do so, while also meeting with other solo
consultants/freelancers looking to grow.

------
adrianhoward
_So if you’re dealing with, say hypothetically (not a client), Bank of
America, you will not budge the Bank of America purchasing department, because
they just don’t care_

ProTip: Make friends in the purchasing department and learn their rules. There
are often ways to game the system...

For example: Some may have a global rule that they must take advantage of any
discount greater than N% on the invoice if it's just a case of moving the
payment date. Offer an N+1% discount for payment up front to that department
and you will automatically have payment up front. Suddenly your cashflow looks
_much_ happier ;-)

(edit: Also - you _never_ punish people for late payment. You _reward_ people
for early payment. Of course the numbers may look the same either way ;-)

~~~
pc86
Why would you not punish people for late payment?

~~~
adrianhoward
Because it's more effective not to (in my experience anyway). Instead use the
same numbers and make it look like a great deal. So rather than.

"Your bill is $10k, pay after Dec 15 and you get fined an additional $5k"

say

"Pay by Dec 15 and get our discount rate of $10k, otherwise get our standard
rate of $15k"

Numbers are the same. Very different reaction from people.

Discounts are something people _want_. Having time-limited discounts is a
classic sales technique. People don't want to lose out.

Some departments are _required_ to take discounts, but encouraged to fight
late fees.

Fines are annoying, but the effectively give you a structure and excuse for
doing the bad thing.

There is no logical difference - but people aren't logical.

