Read an Excerpt
An Insider's Guide to Building a Successful Consulting Practice
By Bruce L. Katcher Adam Snyder
Copyright © 2010 Bruce L. Katcher
All right reserved.
Chapter One Deciding Which is Best for You: Employee, Contractor, or Consultant
The following three colleagues of mine all perform essentially the same work, but the first is an employee, the second a contractor, and the third an independent consultant. As will be the case for many of our stories, their names have been changed to protect their anonymity.
Mark is an executive search professional. He has worked for a twenty-five-person executive search firm for the past ten years. His job has two parts. First, he finds organizations that need help hiring an engineering professional. He then finds an appropriate engineer to fill the position. Mark typically works a forty-hour workweek and rarely works nights or weekends. He is paid a salary. His employer offers a pleasant working environment, all the office equipment he needs, marketing support, a 401(k) plan, and health benefits. He values the strong reputation the company has established over the past twenty years. He works side by side with other search professionals and likes the camaraderie and support he receives from them. He also likes being part of a team. He knows that his job is secure as long as he continues to do his job well, but he is also a realist. He knows that he could lose his job at any time if his sales drop, the company experiences financial difficulties, or is acquired by another firm.
Rhonda is also an executive search professional. She specializes in the high-tech industry and works as an independent contractor. Her typical assignment is a three- to six-month contract for a startup firm or a rapidly expanding company. They usually issue her a contractor's name badge, assign her temporary office space, and agree to pay her by the hour for the time she spends recruiting for them. Rhonda enjoys her independence and likes the fact that she is removed from the politics of her clients. She is free to just do her work and leave. She typically receives more money per hour than the full-time employees, but no health or retirement benefits. The major challenge she faces is that when an assignment ends, she must then spend time marketing herself to other firms. There is often, therefore, a gap in her income.
Harvey is also an executive search professional. He has been an independent consultant for the past twenty-five years. He works out of a comfortable, well-equipped office in his home. His typical clients are owners of small, privately held businesses in need of a chief operating officer (COO). After finding a COO, Harvey works with the owners to make sure the new hire is successfully integrated into their company. Harvey relishes his independence and the control he has over his life. He spends a good deal of time volunteering for professional and community associations and traveling with his family. His wife is an employee of a large healthcare company, so his benefits are covered. He must, however, supplement their retirement savings from his own earnings. When he lands a new client, he receives significantly more money than he would if he worked in-house for a firm or as a contractor. The income he receives, though, is sporadic. During good years, cash flow is very strong, but during lean years he must draw upon his savings.
These three executive search professionals all apply their skills in different ways. Mark is an employee, Rhonda is a contractor, and Harvey is an independent consultant. Each type of employment has advantages and disadvantages. Before you jump full-steam ahead into consulting, you should carefully consider which of these three types is best for you. Table 1-1 compares ten major job factors you should take into consideration as you decide. Each of the factors is then described below the table.
Control of Time. Do you mind having set workdays and hours, or would you prefer to have more control over your time?
Most employees are restricted to set working hours and are limited to a certain number of vacation days, sick days, and personal days. Although you won't find it written in any company handbook, salaried employees are typically expected to work more than a fortyhour week and put in some time on nights and weekends as well. Some salaried employees are provided with flexibility in terms of when they start their day and when they end it, but most are not. Some have the flexibility to be able to take off in the middle of the day to run errands or attend a child's soccer game, but most do not.
Typically, contractors do not have a great deal of control over their work hours either. In Rhonda's case, she is expected, although not required, to work forty hours per week during normal working hours, making calls and interviewing job candidates. Because they use equipment that is maintained by full-time employees or because they must often attend meetings with employees of the firm, engineers hired on a contract basis are also usually restricted to working during normal work hours. I know many contract career counselors who conduct hour-long sessions with job seekers and work for an outplacement firm; their hours are restricted to standard working hours.
Some contractors, however, have more control of their time. For example, my brother-in-law was a contract programmer for Lotus for many years. He worked on an hourly basis, primarily from his home. He typically put in many more than forty hours per week, but he was able to decide exactly when he was going to work. He was free to sleep late, take off in the middle of the day, or work all night if he preferred. It was up to him.
Independent consultants can have a great deal of control over their time. They don't have bosses telling them when to arrive and how many hours they should spend working during the week. Harvey is therefore in total control of his work hours. When he is busy with client work, he puts in more hours, but he decides when. If he wants to play tennis at 3:00 PM, he is free to do so. If he wants to take a day off to visit his daughter, there is nobody saying he can't. He just needs to make sure that he is meeting the expectations he has negotiated with his clients.
But not all consultants have total control over their time. As we will discuss in chapter 4, some independent consultants adopt business models that require them to work set hours. For example, some human resource consultants work onsite during normal working hours.
Even consultants who charge by the hour can control their time, though. For example, Martin, a consultant colleague of mine, helps people use their computers. He charges by the hour for his services. A few years ago, he decided to prioritize improving his overall health over retaining any single client and decided that he wanted to reserve every morning for exercise. This meant that his earliest client appointment time became 11:00 AM. He gradually weaned his relatively few early morning clients to later hours in the day. As an independent consultant, this is something he could do because he is in total control. As it turned out, once he explained why he was making the change, he did not lose any clients.
Control of Space. Do you like the idea of having a place to go to work every day that clearly separates your work from your home? Or would you prefer to work at home or in an office that you rent for yourself?
Many independent consultants choose to leave the corporate world so they can escape the daily grind of being in an office all day, every day. They yearn for the freedom to work from home, their own office, or the local Wi-Fi–enabled coffeehouse.
Some contractors are able to work from home, but many are not. It depends on the type of work they perform and what their clients prefer. For instance, some contract programmers must work onsite because they use that organization's computer facilities or interact with employees.
Most employees do not have control over their workspace. They are required to be at the workplace during normal working hours. For many, this involves a long, expensive commute.
Depending on their work activities, some employees can telecommute (i.e., work from home periodically). This has become more common. Companies are trying to reduce the costs of office space, and they realize that most employees typically communicate with each other via e-mail rather than face-to-face. Many organizations have also realized that their fears that employees won't be productive working from home are unfounded. A survey conducted in 2007 by Citrix Online found that 23 percent of American workers regularly do their jobs from someplace besides the office. The study also found that the majority of employees envy those who work from home. Sixty-two percent of respondents who cannot work off-site said they would like to.
Control of Work Activities. Do you mind being told what to do by your boss, or would you prefer to have more control over the type of work you perform?
Some workers are attracted to consulting because they are tired of having their employers assign them work that is not challenging and does not capitalize on their skills or jibe with their current interests. Although contractors can choose whether or not to accept a contracting assignment, they are often assigned work and do not have a great deal of say in the matter.
Stimulation from Others. Do you like working as part of a workgroup, team, department, and organization, or would you prefer to work alone?
This is one of the most underrated characteristics of a job. In my consulting work, I often conduct focus groups with employees to ask them about what they like and don't like about their work. They almost always say that what they like most is "the people." When I counsel people who were recently laid off from their jobs, many of them are mourning the loss of their colleagues and friends at work. They worry that those relationships will be difficult to maintain or replace.
At the same time, many employees are attracted to contracting and independent consulting in order to escape the politics and the hassles of dealing with uncooperative coworkers. One of the major challenges for many independent consultants is fighting loneliness and lack of stimulation from coworkers. There is usually no one in the office to have coffee with or speak to at the watercooler. These consultants must find other ways to meet their needs for social stimulation.
Aspiring consultants need to take stock and decide whether they will be able to feel comfortable working alone for long hours at a time, or whether they would rather be in the company of others.
Need to Market and Sell. Do you relish the idea of marketing and selling your services, or does the thought turn your stomach?
There are no two ways about it: Independent consultants and contractors need to market and sell their services. Most employees, except of course for marketing and sales professionals, do not need to do so. If you are unwilling to accept the challenge, independent consulting and contracting may not be for you.
Personal Growth. Is developing your skills and abilities important to you?
Continuously developing one's skills and abilities is very important to many employees. They become restless and frustrated when they feel they are stagnating and complain when their company does not provide them with training or professional development opportunities. Many also like to be involved in cutting-edge work.
Independent consulting does not necessarily bring these opportunities. If staying on the cutting edge in your field requires a huge investment in capital equipment, independent consulting might not be a viable option. For example, if you are a rocket scientist, you probably are going to need to be employed by a company that can afford a few rockets for you to play with.
Similarly, if you relish the type of learning that only happens through working side by side with colleagues on a daily basis, solo consulting will not meet your needs. You might want, instead, to start a consulting firm and surround yourself with industry experts.
Contracting may also limit personal growth opportunities. Although there are exceptions, many contractors complain that they are asked to do the more routine, less challenging work while fulltime employees complete the more interesting tasks.
To continue to grow, independent consultants must arrange to attend professional development programs, pay for their own training, pay to attend conferences, and take the initiative to learn on their own. However, many consultants actually grow professionally because they must learn to fend for themselves. They must tend to tasks that their company did for them, such as procuring office furniture, sending out bills, keeping the books, paying payroll taxes, installing their own software, fixing the office equipment, and, of course, marketing and selling.
Potential for Higher Income. Are you satisfied with your income, or do you believe that you could earn much more if you were out on your own?
Many venture into consulting to earn more money than they could as an employee. They are tired of being stuck in jobs with restricted salary ranges, frustrated by their lack of promotions, and angered by the fact that there is no link between their pay and the quality of their job performance. They believe in themselves and are willing to take the risk of going it on their own.
One must be realistic about the potential for higher income. It may happen eventually, but it could take some time to develop the business. Although you may have some good years, your business may flounder in others.
Benefits. Are you willing to pay for your own health insurance and retirement benefits, or does the thought of having to pay for your own benefits terrify you?
For most salaried employees, benefits are a significant component of the compensation package. Employers typically spend 25 to 45 percent of an employee's salary for benefits such as health, disability, unemployment, and life insurance; retirement benefits; and many other perks that employees often take for granted (e.g., the Christmas party, free parking, and occasional free meals). As we will explore in the next chapter, this means that to maintain the salary level you earned as an employee, you must actually earn a great deal more in order to fund your own benefits.
But there are several ways for independent consultants and contractors to cope. For example, many consultants have working spouses whose organizations provide them with generous benefits that cover the entire family—including you.
Also, as an independent consultant you can purchase most of the benefits employers offer. There are many group health insurance plans you can join and insurers that will sell health insurance to individuals. It won't be inexpensive, but if you are willing to pay higher deductibles and co-payments, you can reduce the cost. And here's a real plus. If you are self-employed, the cost of health insurance may be a deductible business expense from your federal and state income taxes. This can reduce the cost greatly, depending on your tax bracket.
Job Security. Are you willing to give up the security of a full-time job?
Many wannabe consultants decide against becoming independent consultants because they don't want to lose the security that comes with a full-time job. They value monthly paychecks, paid benefits, and the certainty of long-term employment.
However, these days job security has become an oxymoron. Employees lose their jobs every day through no fault of their own. During difficult economic times, after a merger or acquisition, or because of a change in company strategy, even good performers are shown the door. Layoffs used to be mainly reserved for nonprofessional staff, but that is no longer the case. Companies often eliminate entire levels of management to save costs. Even the most senior managers of a firm are vulnerable.
It used to be that staying with an organization for a long time would ensure your eligibility to receive a generous pension. These days, however, very few companies still offer pensions. According to a 2007 report by McKinsey & Company, the share of active workers covered by defined benefit plans (i.e., pensions) dropped by more than half since 1980, to 20 percent.
Those who are avoiding consulting due to pseudo–job security should think twice. White-collar professionals who lose their jobs are often unemployed for long periods of time while they search for their next job. The unemployment benefits they receive usually fall far short of their needs.
Excerpted from An Insider's Guide to Building a Successful Consulting Practice by Bruce L. Katcher Adam Snyder Copyright © 2010 by Bruce L. Katcher. Excerpted by permission of AMACOM. All rights reserved. No part of this excerpt may be reproduced or reprinted without permission in writing from the publisher.
Excerpts are provided by Dial-A-Book Inc. solely for the personal use of visitors to this web site.