Ask HN: Evolving from freelancing gigs to a consulting company?

37 points by kashifzaidi1 8 years ago | 23 comments

I feel like i am stuck in a loop, I see a lot of folks struck in this as well, I started a freelancing account on upwork/freelancer/similar site, a year or two later, I have an established profile, I want to build a company instead of getting gigs as an individual (because of the securtiy net / the prospect of getting paid even when i can't work etc). But the gigs I have as yet, don't convert as they insist I be the one to write the code instead of someone I hire. Any advice on people who have been through this problem? how should i address it?

canterburry 8 years ago |

I spent a decade both as a "gig" consultant and as a "real" consultant. Here are the differences I saw between the two.

"Gig" consulting - You are a skillset for hire or the client is simply short on ppl to do the work. You are selling labor. While you have skillsets, the client needs you for a very specific project/product and they manage you in context of that project. You are two hands on a keyboard with bonus points if you have a brain.

"Real" consulting - You come in with a "solution" which the client needs or think they need. You are selling knowledge. They don't even know how to begin and you are the brains of the operation. You are hired less on your skillset and more for the IP you bring with you. The IP may be a process for how to get from A to B or training materials along with work sessions with a team etc. Yes, development may be part of the engagement but it's not what's actually being bought nor is it what you sell.

To be able to hire ppl who do the work, it's very important to disconnect the "who" is doing the work from the product itself. If you are selling a skillset, the "who" performs the work quickly becomes a sticking point. If you are selling a final product, an outcome...the who is less relevant.

While many "real" consultants bill hourly, many of the bigger consulting companies sell "projects" and then make money on the margin. You can charge more for knowledge than labor because knowledge is harder to valuate in $ than an hour of labor is.

I.e. a friend of mine would sell white papers on particular topics within his expertise customized to the clients use cases. So, $200 hourly for coming in, meeting everyone, taking notes on needs, use case, meeting with CxO levels on concerns and goals etc. Spend 5 hours updating a pre-made template with most of the boiler plate info plus client specific stuff and charge 20K + hourly billing for the finished paper of maybe 20 pages. Usually these would support whatever agenda some CxO at the company wanted to push and needed "industry expertise", "best practices" and "market research" to back it up.

Selling a product vs your billable time makes consulting scale better in terms of revenues.

welder 8 years ago |

How about charging more for your service so it's more worth your time to write the code?

Also, I can recommend reading this blog post series on consulting for general advice:

https://kirubakaran.com/blog/consulting-outline/

As for creating a contracting agency, it becomes about sales and marketing. You can market yourself as a premium dev shop if you find other senior programmers to work with you. You have to get good at reaching out to companies and offering them your services. Upwork isn't a good place for that imo, but you could think of Upwork as just another channel for your sales funnel.

Mz 8 years ago |

I started a freelancing account on upwork/freelancer/similar site, a year or two later, I have an established profile, I want to build a company instead of getting gigs as an individual

Generally speaking, your freelance profile through an online service is going to only get you more gig work through that service. Their contract typically stipulates that outright. If you want to transition away from that, you will need to set up your own website elsewhere and figure out how to get consulting work through a different pipeline. You probably need a website and a portfolio of some sort, plus a payment mechanism, description of services and means to start promoting yourself.

All of these other things are additional business skills you will need on top of whatever central skill (like programming) that you are actually selling. If you can figure them out, great. If you can't, you might have newfound appreciation for why the service has value.

I am doing this as a writer, not a coder. Having my gig work via a service is my bread-and-butter and security to fall back on while I develop more lucrative stuff that I enjoy more, like polishing resumes.

debacle 8 years ago |

You're going to find that your abilities don't scale - the people who do what you do as well as you need them to to be able to provide good service cost too much for you to effectively arbitrage their labor.

kashifzaidi1 8 years ago | |

< your abilities don't scale

True, but making a good process to replicate it further can scale

debacle 8 years ago | | |

I speak from experience - you can leverage the cooperation of 3-4 successful consultants to fill gaps or land larger projects, but you'll make more money consulting than you ever will trying to make your process scale.

The only exception is if you target a repeatable market for business processes.

OtterCoder 8 years ago | |

That is patently untrue. Otherwise, agencies wouldn't exist.

gt2 8 years ago | | |

In my experience and close friends, the agencies hire consultants to do the difficult work, and are not good at managing that more difficult work.

debacle 8 years ago | | |

Agencies have no understanding of how to estimate a software project, and arbitrage underpaying moderately skilled workers who don't know any better working 50-60 hour weeks to compensate for bad schedules and lowballed estimates. I've never worked at an agency where a 40 hour week was remotely the norm.

jayec 8 years ago |

Keep doing what you're doing and get case studies and testimonials from your clients to prove that you solved their problems. As others have said, clients want their problem solved, not someone to do xyz. Prove that you can solve problems and progressively apply for bigger gigs until you're in a position where you need to put someone on to help you complete the project. If you do great work and progressively take on bigger challenges then eventually an agency will fall into place.

cweagans 8 years ago |

Stop using freelance sites. They aren't worth it.

gt2 8 years ago | |

What about for people who have no contacts and can't find clients?

cweagans 8 years ago | | |

If you can't find clients without a freelance site, that's the skill you need to develop first. And if you have no contacts, you haven't been working in the industry long enough, IMO.

eicnix 8 years ago | | |

You might want to look for sites / agencies hiring especially for contractors that travel to the client onsite.

At those positions you are able to charge much more than the basic bid for project website. Plus you don't have too deal with the masses of offshore devs that underbid you. The downside is that you need to travel to your client which means sleeping in a hotel 3-4 nights a week

jamesmp98 8 years ago | | |

your screwed

akulbe 8 years ago |

First, let me disclaim IANAL.

Depending on the wording in your SoW/contract (You DO have a written contract, right??) you may not have to disclose that someone else working for you are doing the customer work.

It may also depend on the structure of your business. I'd talk to a lawyer about it. I am in the same boat as you, and I formed as an LLC, so I've been working on getting other work that I can sub out.

leepowers 8 years ago | |

A contract will not necessarily inoculate you against a charge of fraud.

It's legally dicey to represent that you personally will be performing work and then sub-contract to another person. Usually the client won't care. But if things go sideways (especially on a big contract with a lot of money at stake) you are opening yourself to a large amount of legal risk.

Always be upfront and honest. And always negotiate in good faith. The best legal strategy is to never engage in behavior that will require a lawyer to defend.

akulbe 8 years ago | | |

Going back, rereading what OP said. It wholly depends on the nature of the contract. (Which we don't have here.)

Please don't attribute anything untoward to me. Reputation is EVERYTHING in this industry. I would NOT suggest someone do something fraudulent, ever.

When you hire $PLUMBING_COMPANY to come fix a leak at your house, you don't care WHO does the work. You want your problem FIXED. YESTERDAY.

So... is it fraud if they send someone who is less experienced than the owner if it's his name over the door, if your problem still gets resolved? No, not at all.

So not knowing OP's details of the contract with $CUSTOMER, you can't assume either way.

zapperdapper 8 years ago |

It sounds like you need to 'productize' what you were doing before. You didn't say what you were doing but I will assume 'developing'. There have been quite a few threads on this, but you could perhaps look to capture your knowledge in a training course or e-book. Have a look at IndieHackers for more ideas.

leepowers 8 years ago |

An agency is a middle-man that primarily adds value via management. It abstracts away to costs and headaches of managing a project. As with any successful middle-man your agency will need to position itself in a nexus of supply and demand.

First, you need the demand. Ideally where the demand for your type of services is above your current capacity to deliver. As in you're literally declining well-paying work with reputable clients because you simply don't have the time to build all the projects yourself.

Second, you need a supply of talent. A network of other developers who are dependable who you can call up on demand or hire outright.

If you lack either of these the agency is going to have a rough time, and probably going to fail.

Third, as an agency you will make money on the margins. Revenue will flow through your business and you will capture some percentage of it. This is very different from consulting where you capture almost 100% of the revenue, less some minor expenses.

The reason for this is simple: labor.

Let's say your rate is $100/hr. Since you're a consultant operating in a global free market that $100/hr is competitive within the market, and is mostly inelastic - there's not much room to go up or down. Another developer with your same skill level is going to cost $100/hr.

So where's you're margin? You can find margin by hiring a less-skilled developer at $75/hr. But then the quality suffers (and so can your reputation, reducing demand). Or you can attach a $25/hr "agency fee" to every hour worked. Or you can find a sucker who doesn't know the true value of his labor, and underpay and overwork him. (This last option is how most agencies operate).

Instead of making $100/hr consulting you're making $25/hr for each hour your sub-contracted developers work. This can work out nicely if you have a high level of demand, and if your developers are responsible self-starters who don't require a lot of management work on your part. But you would need some multiple of your current workload to earn the same amount of money.

My advice is to _not_ fold your current consulting into an agency. Instead, start an agency as a side-project, incorporated as a completely separate business. An agency needs to be marketed very differently than an individual consultant. Find other developers and marketing people you can partner with, agree on a compensation structure, and see if the company can land some big contracts. You can even sub-contract the project work to yourself individually at your normal labor rate.

It will be difficult to find partners who are comfortable with this. It's very difficult to work on a margin basis when your partner is working on a labor basis. But if you can earn $100/hr on the open market why would you work for your own company for less? This is one reason why many consultants end up making less money when they start an agency - they undervalue their labor because it's their company.