How to Be an IC
(Plus! Job-market Tips for Everyone!)
Howard Fosdick
(630)-279-4286
[email protected]
(C) 2001 FCI
1
How did I become an IC ?
Evolved from an FTE
* IC since 1988
* 1-person shop by choice
Contract Programming (CP)
* DBA : Oracle, SQL Server, DB2
* SA : Unixes, Windows
Consulting
*
*
*
*
User Group Founder (IDUG, MDUG, CAMP)
Author (books & articles)
Presentor
Management Consulting
2
Why am I Giving this Talk ?
2 Consulting Paradigms
Open Source Consulting
Traditional
Proprietary
Secret information
for negotiating power
Competitors
Strength thru secrets
Direct Marketing only
(“Pay me now!”)
Trade Secrets
Competitors (ICs,
contract firms, FTEs,
customers, everyone!)
Gimme, gimme !
Open
Open negotiation for
for trust relationships
Cooperation / Coopetition
Strength thru working together
Indirect Marketing
(“Sow seeds, reap the harvest later”)
Sharing knowledge
No competitors
(just difficulties like 1706, Headhunters
and Brokers!)
3
Give to get
Outline
1.
2.
3.
4.
5.
6.
7.
8.
9.
10.
Definitions
How Employees are like contractors
IC Business Models
What are Your Goals ?
Legal Status of your firm
Rates
CP Firms, Brokers, Recruiters
IRS 1706 and AVLs
Selling Yourself
Contracts, Payroll, Insurance,
Finances, Retirement
11. Getting Gigs / Jobs
12. Resources
4
Definitions
FTE = Full Time Employee
PTE = Part Time Employee
W-2 = Employee
1099 = How non-employees get paid
Corp-to-Corp = How corporations get paid
IC = Independent Consultant
CP = Contract Programmer or
Contract Programming
Consultant
= Advice giver
Mgmt Consultant = Advice giver to management
Pure IC
= IC gets their own gigs
Brokered IC
= IC goes through a Broker to get gigs
Broker (aka Bork) = places Contract Programmers
Recruiter (aka Headhunter) = places FTEs
Contract Firm (aka Body Shop) = Broker, Headhunter,
CP Employer
5
Big 5 Consulting Firm = Actg firm with all FTE CPs
“We’re All Contractors Now!”
1980s
Today
Employee
Disposable resource (ie “contractor”)
Implied Deal :
“You don’t screw up,
we don’t fire you”
Implied Deal :
“You’re here only as long as we
choose to keep you”
Company-provided
career planning (ie career path)
Self-directed career planning
(ie career path)
Defined benefit plan
Defined health plan
Self-directed retirement (401k)
Selectable benefits
Company-directed training
Self-directed training
Rule 1: They employ you because it pays them to!
Exercise : Calculate your cost and your benefit
to your company
6
Who Moved My Cheese ?
“He knew it was safer to be
aware of his real choices than to
isolate himself in his comfort zone.”
by Johnson & Blanchard, p. 75
“Companies don’t take care of you,
you take care of you.”
7
Be a Realist
Rule 2:
The job market works the way it works
+ Figure it out
+ Work it to your advantage
------
You can’t change it
Fight it and you suffer
It does not care what you think
It does not work “the way it should”
It does not care what you think the best product is
8
Note: if you’re Bill Gates ignore this foil...
Rule 3:
There are many ways to be an IC
Based on different ...
Business
Models
Kinds of
Work
Goals
Values
Etc.
9
There are many ways to be an IC
DBA
Partners
Tech
Trainer
“Expert”
Partnership get
contracts thru
vendor
Permatemp
w/ special
Expertise
Solo Contractor
thru Broker
others
Small
Contractor
Firm
Pure IC
10
Business Model Parameters
Number on
Payroll
one
Breadth of
Expertise
narrow (1 product)
Getting
Gigs
a few
on own
Travel
local
Engagement
Length
weeks
many
1 topic (eg DBA)
generic
via contract firm or broker
regional
months
national
international
yearly
“perma-temp”
Rates
piecemeal
typical DBA / SA
expert or “Name”
11
Business Model - Example #1
Technical Niche Specialist
* Tech support in small shop
for obsolete niche technology
* Makes 2 * FTE salary
+ 10 years there (“perma-temp”)
+ Very customer focused
-- When this client goes away ?
* Has saved $$
* She’s very smart,
will certify on new technology
while on “downtime”
12
Business Model - Example #2
Contract Programming Thru Broker
* Senior developer
* FTE w/ CP firm => IC on 1099 w/ Broker
* Gets gigs via 1 trusted Broker
+
+
+
+
No effort to get gigs
Choice of gigs
Choice on travel
Flexibility
-- Pays big % to Broker
13
Business Model - Example #3
Technical Trainer
* Started as FTE CP in CP firm
(C++ & Unix => Java & web)
* Then worked thru Brokers, did not like them
* Did Training on the side
* Evolved into specialty training for certification
* Now travels to teach a couple courses / month
+ Flexibility to raise her kids
while making reasonable $$
14
Business Model - Example #4
Experts Contracting thru Vendor
* Claim “expert” status on 1 software product
(published articles, speeches, books, UGs)
* Tight with software vendor
+ referrals thru the vendor
-- dependency
-- vendor kickbacks
+ High Rates ($100 -> 500/ hour)
+ Short Contracts
+ Travel
* S-Corp (partner-controlled, 6 people)
15
Why be an IC ?
What are Your Goals ?
+ “Be my own Boss”
==> more control over worklife / life
==> be an entrepeneur
+ More interesting Work
==> greater choice of gigs
+ More Money
==> get paid for overtime
==> be a techie but make mgmt $$
+ It’s your Passion
==> techie passion
==> entrepeneurial = build a company
+ Alternate Lifestyle
==> work when you want
+ Ego
==> have people listen to you
==> “make your own rules”
+ _______________
==> fill in the blank with your goals
Exercise : make your own rank-ordered Goal List
Self-awareness is key !
16
Ways to Work
Vendor
IT Shop
FTE
PTE
Contract Firm
Brokered IC
Pure IC
W-2 (hourly)
1099
Corp-to-Corp
PTE
Corp-to-Corp
1099
W-2 (salaried)
For Illinois business booklets
17
and legal forms see www.ilsos.net
Forms of Business
(aka, the Legal Status of
your business)
These drive everything:
1.
Taxes
Non-corporate
2. Liability
Sole
Proprietorship
+ You took no action
+ Simplest tax filing
-- Unlimited liability
LLC
(Ltd Liability Co.)
Partnership
-- Common property
-- Unlimited group
liability
18
Forms of Business
1.
Taxes
Corporations
2.
+ Limits Liability
Liability
Subchapter C
-- Taxed Twice
+ Large Companies
Corp
Employee
Subchapter S
+ Taxed Once
+ < 50 Employees
19
Rates
* The contractor version of employee’s salary
* There are no “rules”
* Everything is negotiable
* Know typical rates
Knowledge is the key !
* Know client’s target rates
20
How To Compute Rates
50 weeks / year * 40 hours / week = 2000 hours / year
So: $40 / hour = $80,000 / year
And: If you make FTE Salary of $80,000,
your Rate is $40 / hour (ex-benefits)
Your Rate to Employer is : $40/hour + Benefits
Average IT work-week = 48 hours
If your Salary is $80,000 and you work 48 hours,
you should be paid $96,000 !
21
Rates Vary By...
where you work, and what you do
DBA / SA
Support
PC / LAN
Support
Training
Help Desk
Super
Tech
Architects
Specialists
lower
$$$
“Name”
Experts
Design
Architects
Documentation
higher
Small
Shops
Government
Mgmt
Consultants
Large
Shops
22
How Much You Gotta Make ?
Assuming 1-person S-Corp
* 2 * FICA ( 2 * 7.5 = 15% )
* Benefits
*
*
*
*
Retirement (SEP-IRA or 401K)
Health Insurance
(go Group)
Disability Insurance “ “
Other (employee health club, dental, etc.)
* Corp Fees
*
*
*
*
*
Tax prep
Insurance (General Liability)
Unemployment Comp
Corp filing fees
Etc.
* Bench Time ?
Good Rate = 2 * FTE Salary
23
Marginal
= 1.5 * FTE Salary
Rates and Salaries ?
computerworld.com
realrates.com
informationweek.com
Sources
datamation.com
dice.com
itworld.com
many others...
earthweb.com
24
(Blue = online & print)
How Contract Programming
Firms Work
1
President/
Founder
Billing and
Legal Treatment
3+1
Brokers /
“VP Placements”
W-2’s (salaried)
W-2’s (hourly)
60
Contract
Programmers
1099’s
Corp-to-Corp
25
How Brokers Make Money
The Broker makes the spread
between what client pays and what you’ll accept.
$100
What Client pays
$200,000/yr
What Broker makes
$60
What CP gets
$80,000/yr
$120,000/yr
Most Brokers key on reducing your rate !
Is this Broker worth $80,000 / year ?
Brokers get
10 - 60 %
typical 33%
26
Why You Care About the
Broker’s Mark-up
(1) The spread may be too large
(you’re making less than you could!)
(2) Client bases all retention decisions
on their cost (not what you’re making)
Example: Time to reduce contractor costs !
Assuming all are
equally useful...
Susie SE
You (brokered)
Joe “Pure IC”
= $225/$60
= $100/$60
= $80/$80
Who they gonna keep ?
(and why does Susie SE accept a rip off ?)
27
How Recruiters Make Money
Upon placement, the Recruiter makes either :
(1) Agreed-upon fee
(2) Percent of new FTEs 1st-year salary
Example:
New FTE’s 1st-year salary = $90,000/yr
Recruiter @33% makes = $30,000
The Employer pays the Recruiter,
==> the Recruiter works for their interest !
Recruiter is not your friend nor do you pay him.
Do not disclose your negotiating
thoughts to the Recruiter !
Recruiters get
$10k - $40k
per placement
(20% - 33%)
28
Why are many Brokers / Recruiters Unethical ?
* They do real work, they deserve to get paid
(see A. Zanevsky,
Contract Professional)
* But their pay is sometimes outrageous
as is their behavior !
Why ?
Client
Techie
*
*
*
*
No startup / entry costs
No capital required
No manufacturing costs (pure profit potential)
It’s all convincing (1) Client and (2) CP
* Each placement really counts !
(eg: place 3 FTEs you make $60k this year,
place 6 you made $120k ! )
* Superior knowledge yields manipulative power
29
Example Sleazy Broker / Recruiter Practices
*
*
*
*
*
*
*
*
*
*
*
*
*
*
*
*
Selling resumes
“Enhancing” your resume w/o your knowledge
Presenting your resume to a client without your permission
Page Flipping
Stealing / selling company phonebooks
Selling IT staff lists
Stripping references
Bogus resume cross-references
Misrepresenting (lying) to either Client or CP
(esp. about Rates or the Work to be done)
Expenses never reimbursed
Non-payment
Suing you as a form of intimidation
Keeping you “on the line” by sending you
Credit-check your broker:
to an inappropriate interview
www.experian.com
@ $20 - $30
Abusive contracts
Abusive non-competes
“Jennifers” and “Guys”
30
Why Brokers Predominate
* IRS 1706 : a Rider passed w/ 1986 Tax Act by special interests
* Designed to force all IT workers to : Be employees
* To enhance role of CP Firms
* Easier for IRS to collect taxes
Book on 1706:
www.icca.com $27
* Legally Ambiguous
* Allows IRS to “reclassify” IC as an “employee” !
* Burden of proof & penalties are on the “Employer”
* Practical result -- (1) Many companies will not do
business w ICs (1099s and S-Corps)
(2) Brokers / CP Firms flourish !!
(3) Approved Vendor Lists (AVLs)
Client
IC
Client
Broker
or CP Firm
31
IC
How to Handle 1706
* Understand the “20 Questions”
* Have multiple clients
-or- :
* Stay at each client <= 1 year
* Pay your taxes scrupulously (use Enrolled Agent / CPA)
* Form multi-person IT firm
Umbrella Firm :
* Employer of record
* Billing, Admin services
* Group-rate benefits
* Use Umbrella Firm
Client
Umbrella
Firm
IC
See: www.pacepros.com or
www.contractorsresources.com
32
Microsoft “Perma-temp” Lawsuit
* $100 Million cost
* Plus legal costs
* Big impact on IT
* AVLs and Brokers everywhere !!
“yuck, yuck!”
33
AVLs
* Shields IT shop from potential IRS 1706 Liability
* Liability is the real reason for AVLs
AVL
Brokers
ICs
Client
CP
Firms
ICs
ICs
CP Firms
34
Subcontracting = What a mess
!
IT Professionals Lose !
IRS 1706
H1B
IT Labor is:
*
*
*
*
Young
Non-political
Unorganized
Lobby-less in DC
UCITA
“Special Interests are the greatest threat to democracy in America”
-- President Jimmy Carter
35
Hiring -- IT Manager’s Viewpoint
Rules :
*
*
*
*
Shortage of qualified people
$10k - $50k to hire ONE
$10k - $20k to train
10:1 effectiveness ratio between candidates
Results :
=> If you find a good person, grab him fast !
=> Whoever you hire must be worth their training cost
X Don’t lose good people
X Hire attitude & related skills (not exact skills match)
36
2 Hiring Responses
FACILITATORS
GATEWAYS
*
*
*
*
* “Is this person good,
if yes, how do I hire her?”
* Deal-makers
* Problem-solvers
The “Rules” people”
“I just work here”
Require exact skills match
HR
IDENTIFY & KEY ON THE FACILITATORS !
37
One Way to Sell Yourself
10
seconds
Your Calling Card
= quick “Trump Card”
Rule :
Specialization sells
Exercise :
Summary : “Who I am and
2
minutes what I can do for you”
Define your
Calling Card
Prioritize, define
your 3-part pitch
30
minutes
Resume : “Here’s proof of
what I can do for you”
38
Certification ?
Joe SA
* Industry trend
* Vary by the Cert :
* Cost
* Difficulty
* Marketability
It’s up to you to determine Cert
value for your area
* Enforces
-- Vendor-dependency
-- Specialization (at expense of generalization)
-- Keeping up-to-date is a chore
* Becoming a requirement for some IC roles (sometimes a Trump Card)
Inexperienced -- use it for instant credibility
Experienced -- another hoop to jump through
39
See coriolis.com,
certification.com
You Need a Longevity Plan
* Avg contract consultant lasts 6 years *
* By age 40,
< 22% of IT technicians still do technical work
Why ?
----+
+
Technical change
Burnout
Business model change
Industry change
Choice
Career evolution
Change will happen,
be prepared to handle it!
Involuntary
Voluntary
40
* As as per Computerworld
How Skills Become Obsolete -Example
1981
1991
2001
Unixes
OS/2
Primary
MVS
DOS
VM
Windows
(desktop & server)
Linuxes
2ndary
Unixes
MVS
DOS
MVS
Obsolete
VM
DOS
Exercise: map your chart for OSs,
DBMSs, Pgming Languages, etc.
OS/2
41
Skills for Optimal Success
Rule 2: Technical skills plus
other skills yield greater success
than technical skills alone
Technical Skills
Corollary: Technical skills are
only the necessary precondition
for larger success
Business Skills
(Taxes, liability,
finding clients,
selling yourself)
Personal Skills
(Psychological,
Sociological,
Leadership)
New Technical Skills
42
Contracts
* They are serious
You have legally agreed to
what your contract says ;
Nothing anybody says matters.
* You better understand them
Or pay a lawyer to understand
them for you.
* Everything is negotiable
* 2-party versus “brokered” or “subcontracted” (3-party)
“Offensive” provisions are commonplace,
negotiate out the worst:
*
*
*
*
*
*
Non-compete
Non-disclosure
Unlimited Liability
Location of adjucation
Severability
Software warranty
See samples on
realrates.com and
icca.com
43
Insurance
1-person Corp
* General Liability (GL)
($300 - $500)
See www.ccbsure.com
www.techinsurance.com
Larger Corp
*
*
*
*
*
*
*
Errors & Omissions (E&O)
Workman’s Comp
Employee Liability
Fidelity Bond
Other Bonds
Company Auto
Etc.
($ thousands)
44
Why Liability Predominates
$0 cost to Plantiff to
launch lawsuit
Yes
No
Plantiff
wins
Defendant pays $$ to you,
you share with lawyer
$0 cost to Plantiff
Defendant pays $$ for legal fees
Contigency Fee System makes the U.S. the Land of Lawsuits
“Law Suit Lotto” : no cost to play, and you just might win !
45
How Do You Pay Yourself ?
* S-Corp => Corp Accounting,
plus 4 quarterly tax filings plus year-end
Alternatives = Do it yourself
PC-software
H&R Block
CPA
Enrolled IRS Agent
all
income
Your SCorp
Corp
expenses
payroll
“I didn’t know!”
You
FICA (2 * 7.5%)
Fed WH Tax
State WH Tax
46
All Corp accounting must be separate from your personal finances
Finances & Retirement
* Learn how to invest
(or pay someone to do it for you)
* Investments determine how well you’ll live after retiring
Vehicles :
*
*
*
*
*
*
*
SEP-IRA
Supplemental SEP
SAR-SEP
401K
“I quit !”
Various IRAs
Annuities (Fixed and Variable)
Stocks vs Bonds vs Cash vs Real Estate vs Etc.
47
How to Get Gigs / Jobs
Pay Someone
to find them
Brokers
(Recruiters)
Direct
Marketing
Indirect
Marketing
* Do what Brokers do
* Do what Brokers
(“Be your own bork”)
can’t do
* Clients come to
you due to
your visibility
gig me,
baby !
48
How to do Direct Marketing
ID Companies
* Where
* Its business
* Its structure
ID their
Technologies
*
*
*
*
Software
Hardware
Size
IT dept. structure
ID Contacts
* Who
* Titles / positions / roles
* Phone #s / email addresses
Create/maintain
Relationships
* Takes time
* Difficult due to changes 49
* The hard part !
Where to get Direct Marketing Info
Lists :
* Local business directories
* Purchase IT magazine mailing lists
* Other lists
(eg: conference lists, proceedings,
user groups, software vendor lists,
hardware vendor lists, lotteries, etc.)
Online :
* Online discussion groups & boards (automated scanning)
* Company websites
* Job websites
* Popular techie websites
Print :
* Newspapers (Sunday Tribune)
* IT trade magazines
Face-to-Face :
* Conferences, User Group meetings, Trade Assocations,
50
industry meetings, networking events, etc.
Indirect Marketing
(Marketing through Visibility)
*
*
*
*
*
*
*
*
*
*
*
Move around within a long-term client
Teach a class
Write magazine articles
Be quoted in magazines
Write for web zines
Give presentations
Be a user group leader
Write a book
Participate in online discussions
Develop freeware
Informal networking
(FTF at conferences, user groups, etc)
* IC letter to employment ads - printed / online
51
Indirect
Marketing
-- How to Keep a Long-term Client
(Transfer around within 1 client)
* Be best on your team
* Have a reasonable rate
*
*
*
*
*
*
Work for all managers
Make no enemies
Appearances count
Results count (not “reasons” aka excuses)
Manage your emotions
Sociological & psychological insights key
Long-term survival is a sociological endeavor
52
Indirect
Marketing
-- Pay low
+ Satisfaction high
-- Teach a Class
Institutions
Vocational
* Biz partners, leads, CPs
Research
* Company co-founders
Experience : -- 0 leads
? Yours ?
53
Indirect
Marketing
-- Write Magazine Articles
How to Get Published -* Call editor with your idea
* Match the style, length, content
of what they print
* Be Accurate; respect their deadlines
* Editors will rewrite your English
* Improve with practice
Experience --- Pay poor
-- Declining due to web
+ Satisfying
+ 1 - 20 leads / article
(depends on magazine)
54
Indirect
Marketing
-- Be Quoted in Magazines
How to Get In -*
*
*
*
*
Be “a real IT contact” for a staff writer
Respect their deadlines
Return their calls fast!
Be quotable
Be up on imminent announcements
Experience -+ Makes you “the expert”
+ Good leads
-- Disruptive
55
Indirect
Marketing
-- Write for Web Zines
How to Get Published -* Same as print media
-- Not refereed, lack status
-- Readership ?
-- Pay poor
+ Satisfying
=> Suggest Print/Zine combo
Experience --- 0 leads
? Your results ?
56
Indirect
Marketing
-- Give Presentations
A Public Job Interview
* Users Groups
* Conferences
* For-profit organizations
+ Great visibility
+ Establish you as an “expert”
Experience -+ Good Leads
? Your results ?
57
Indirect
Marketing
+
+
+
--
-- Be a User Group Leader
High visibility
Instant credibility
Online presence (eg: Sysop / moderator)
Time intensive (unpaid)
Experience -+ Good Leads
+ Personal development
+ Speaking skills
+ Leadership skills
? Your results ?
58
Indirect
Marketing
-- Write a Book
How to Get Published ==> Produce the book !
+ Expertise (“She wrote the book on it!”)
+ Satisfaction
-- Effort Required
-- Pay
-- Obsolesence
# of
authors
$$
1 2 3 4
# books written
# of
authors
59
Indirect
Marketing
-- Internet Discussions
A Public Job Interview
*
*
*
*
Pick right forum (topic, size)
Don’t flame / be professional
What you say could be held against you
You’re not talking to a person,
you’re talking to the world !
Experience -+
+
---
Good leads
Friends and learning, too!
Brokers/Recruiters scan them
Spam
60
Indirect
Marketing
-- Develop Freeware
A Product displays your talents
plus provides the foundation
for your company !
(If you’re a Web Developer, make your resume
a “wow” website)
Oracle Examples :
* Alertview
* TOAD
* Statspack Viewer
61
Resources
ICCA
(Independent Computer Consultants Association)
The only Association for ICs
www.icca.org
www.icca-chicago.org
They sponsor GO CONSULT on Compuserve
800-779-8911 for info
Dues $175 - 275 / year
Chicago $30 - $45 / meeting
62
Annual conference: St. Louis in June
Resources for ICs
Books
Websites for Contractors
*
*
*
*
*
*
*
*
realrates.com
cpuniverse.com
icca.com
guru.com
1099.com
pacepros.com
nase.org
ilsos.net
Associations
* Janet Ruhl
* Computer Job Survival Guide
* Answers for Computer Contractors
* Computer Consultant’s Workbook
* Computer Consultant’s Guide
* Herman Holtz
* How to Succeed as an IC
* The Business Plan Guide for ICs
* Consultant’s Guide to Getting
Business on the Internet
* Gerald Weinberg
* Secrets of Consulting
* Peter Meyer
* Getting Started in Computer Consulting
* Independent Computer
Consultant’s Association (ICCA)
* National Assocation for
the Self-Employed (NASE)
Magazine
* Contract Professional
63
To Learn More...
No
Yes
FTE ?
Read Ruhl’s
Computer Job Survival Guide
Read Ruhl’s IC books
-orPeter Meyer’s book
Check out ICCA
and PACE
Check out websites
like realrates.com etc.
64
?
?
?
questions...
?
?
?
?
?
65
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