How to become an independent IT consultant

The risk may be high, but the rewards can be even higher

itconsultant vs full time

In my previous article I talked about the first half of the journey toward consulting – increasing responsibility as an employee, from getting direction, to owning your own process, to finally being a trusted advisor to senior management. The next step, the step of faith, is leaving the safety of the employer to the cold, external world.

Today I'm going to cover that next step of going independent, including a bit of my own story. 

If you have enough capital, you can go independent tomorrow. All you need is savings to survive for the next five years without generating any revenue. Most people do not have five years of savings, or are unable to put that much capital at risk. In that case, you'll want a few other things before you leave the nest: A somewhat reliable way to find clients (network and reputation), the skill to serve them well, and techniques to figure out how to price, predict work and build reputation to generate more. 

Let's talk about finding work. 

Finding work 

Sales makes people uncomfortable; it brings to mind pictures of used car sales-people in cheap suits. It is possible for consultants to "push" business, walking up to relative strangers at a conference or user's group, asking a leading question, then replying "Oh you need help with your website, eh? I'll do it." 

Rarely do these sorts of tactics close deals. In the odd chance that the "prospect" really does need a new website right now, and has budget, and decision authority ... they probably already have someone else in mind. 

Instead of sales, allow me to suggest a different approach, marketing, which is the often-ignored cousin of sales. Marketing isn't about direct selling as much as notifying people of our services, along with making, perhaps, a brand promise. That way, when they have a need, they think of you. If you don't like the term "marketing," consider another: Reputation. Reputation combined with some way to remind people of your offerings can be all the marketing you need, and it changes the relationship. Instead of "pushing" sales, people are approaching you. 

One way to start is to find a player in your field who has more work than they can handle; ask them for referrals. It's very common for me to get calls about projects when the timing doesn't work (e.g., I am booked), or the location is too far away, or even for work I am not qualified/interested in doing. Sometimes the pay level isn't a fit for my business, but might be fine for someone more junior. Some consulting companies make this a business, subcontracting work and collecting a profit, while some independents do this out of genuine desire to help newcomers. 

[Related: How to go from coder to consultant] 

That's actually how I got my first full-time assignment. Lanette Creamer, out of Seattle, was sick of a Midwest client – by which I mean literally sick. She was spending every Sunday and Friday afternoon in airports and airplanes, and five nights a week in a hotel. Commuting in from Seattle to Northern Indiana just did not make sense. So when it was time to renew, she gave me a call; I was a two-hour drive away in West Michigan. 

That was 2011. Lanette and I had known each other for years. By recommending me for the assignment, Lanette was risking her reputation; I doubt she would have done that for someone she met on Twitter the hour before. We also shared a specialty. We were test-leaders who thought of ourselves as "Agile," saw testing as an activity and were interested in growing team capability through coaching. That's a mouthful, but it really differentiated us from the rest of the technology pack. 

When I asked peers about finding work, they often said things like "All the work I find is through referrals." That struck me as a non-answer; it means someone heard about you or recommended you from someone else. How did they find out about you? My second major assignment came from Twitter, just replying to an ad for someone contract and remote. I did not know the hiring company, but each of us had enough public information – websites, Twitter followers, published articles – that we could get a sense of each other. 

My next major assignment came from someone I had known through a user-group for years that had called me before about the potential for work; the time was finally right. The common theme here is that I knew people over a series of years, and when an opening happened, they thought of me. That took a lot more than one touchpoint and a business card. If you can do it without being smarmy, I've found that it never hurts to ask; I have closed a deal or two thanks to a good week together at a conference. (After four years and 40 customers, that number is, literally, a deal or two.) 

Recently a few contacts came from our website, or even LinkedIn. The key to LinkedIn is to make your profile match what people are searching for – and to be the best at it. That's probably a niche, like, say, software delivery AND consulting AND writing. It took me four years to get there. 

Differentiation – on what you do 

When you start looking for work, it is tempting to do everything. A "one stop shop," after all, sounds appealing. Yet that should have limits. As David Maister, the retired Harvard Business School Professor, points out in Strategy and the Fat Smoker – if you go to McDonalds and ask for a pizza, they won't sell you one. Companies that sell anything are likely to go to low-end freelancing website that list jobs and pay the lowest bidder. The lowest bidder will be ... low. Instead of competing on price, compete on something else, what you do differently and better than your peers. For an independent, that could mean that the expert advisor who leads the sales is the same person that does the work – and the person who picks up the phone afterwards for support. 

Speaking of support, let's talk about three kinds of work. Contracting tends to pay by the hour, and charge for post-implementation support. If you charge an hourly rate, you'll be compared to others who charge by the hour, which can lead to competition against teams from developing nations that can charge very low rates. Consulting and piece-rate work comes in to solve a problem, and can often charge a fee based on the value of the solution. Years ago I got a frantic phone call, asking for some software to do an EDI conversion in a very short timeframe. I could have asked for an hourly rate, at which point we are nickel-and-diming – but I knew the firm and the end customer and about what they would charge; I quoted a rate about one-fifth what they would charge. This limited their risk, yet allowed me to get an hourly rate roughly 3x what I could if forced to put in a competitive bid based on hours worked. One bonus to the client for fixed-rate pricing is the implied satisfaction guarantee; if you call with a question, you won't get a bill for 15 minutes of time. This provides an incentive for a consultant to solve the problem done-done, instead of trying to optimize for billed hours. 

Consulting usually means giving advice; helping an organization understand a specific problem, designing processes, helping to craft the plan, or delivering training. The point of consulting is to increase the capability of the client, so they don't need you anymore. Some people like to implement the solution, to build the product, do the testing and administer the machines. There's nothing wrong with this; we typically call it freelancing when it is part-time or at night, and contracting when the work is on-site, 30 or more hours per week. 

Contracting and freelancing can be easier to sell because people know what they are getting. Consulting is ... squiffy. A typical engagement for consultants is an in-person meeting, interviews, a report with recommendations and a follow-up meeting. We tend to call that process assess and report. The typical assignment is two or three days, plus a day to write the report; if the client can't afford that, we are unlikely to work together well. The report has some ideas to implement, which the team could do internally, or the company might outsource, say, building test tool infrastructure. Some might be training that we offer. In some cases, my company, Excelon, proposes to bid on the follow-up work. Sometimes we don't. 

[Related: 7 simple, low-cost ways to acquire new customers] 

One thing to consider is the market. It is very challenging to sell products that companies do not understand. Many consultants make the bulk of their income through training, because HR departments and managers understand three-day courses. That allows Monday and Friday for travel or to add two days of consulting onto the assignment as "bookends." 

For more on fixed-rate pricing, consider Alan Weiss's Million Dollar Consulting is about growing a consulting practice to seven figures without hiring billable employees, or his other book Value Based Fees

Budgeting money, budgeting time, planning the business 

Part of my going independent was based on a mistake. I took a look at my expenses for the past year, averaged them, and came up with a weekly minimum earning statement, which was a good step. I had been freelancing at night for years, doing consulting, training and writing, and had saved about $20,000 U.S. dollars. If I cut my expenses to the bone, I figured I could make just enough income from the freelancing alone to get by – although I'd be eating beans and baloney and nothing would go into retirement. 

I did the math wrong. 

I forgot about health insurance and taxes, which came out of the check for the day job before I ever saw it. 

The $20,000 cushion plus the freelancing income provided me at least a year of runway; all I needed was a month, for Lanette to give me a call, and another month and a half to get onsite. 

So budget. It is kind of important. 

When you’re looking at expenses, I suggest three family budgets – a to-the-bone budget, in survival mode; a normal budget, that includes retirement, emergency savings, saving for a new car, computer, repairs and so on. You might also consider an “everything goes swimmingly” budget that gives you some time on, say, a cruise ship once a year. If business picks up and you suddenly get busy, you'll also need some time away. Create these budgets based on the amounts of money you are actually spending and historic trends. People like presents at Christmas, and heating bills are higher in the winter. 

Then there is budgeting your time. In Secrets of Consulting, Jerry Weinberg suggests that consultants bill at five times survival rate. After all, you'll need to spend one fourth your time marketing, one fourth doing administration and paperwork – you need to reserve some time to rest. That leaves about one-fourth your time to do billable work – plus you want to save some for lean times. If you aren't comfortable with those rates, Jerry suggests that perhaps consulting isn't for you, and it might not be. Freelancing and contracting tend to have much lower hourly rates, but provide more hours and longer assignments. An employee typically runs 2,000 hours per year; a freelancer or contractor might bill 1,500-1,800, a true consultant might bill 800. That makes for a huge difference in pay rates. 

It also means that the consultant can have many clients simultaneously. When employees lose an employer, they fall back on unemployment insurance and look for a new employer. Contractors take savings out of the bank and do the same; a real business has multiple clients, takes a 10 percent hit to sales, and drives on. Spreading the work among multiple clients reduces the risk individually, but it requires an entirely different way to think about work-life. 

Getting started 

If you kept reading this far, then you probably have some interest in this area.  Small, simple experiments can be one way to start. Find some work at night, see if you like the freedom, and responsibility that comes with it. Get out to user groups and meetups and find out what problems exist in the community, and if you can meet them. Start a blog, tell your friends and get your ideas out there. 

Don't try to complete with the big companies that pay for the Platinum Sponsorship and buy big banner ads. Instead, do what they can't – the personal, meaningful, individual connections that the big billboards and glossy brochures can never do. Yes, you'll need a website. 

But people don't buy consulting from websites. They buy from other people. 

So get out there … and let us know how it went.

This story, "How to become an independent IT consultant" was originally published by CIO.


Copyright © 2015 IDG Communications, Inc.

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