Isn’t Consulting Risky?

Small Business Ownership. It’s one of the Great American Dreams. Our forefathers, the founders of the country that I call home, were entrepreneurs. They were merchants, farmers, and woodworkers. Many, such as the blacksmiths and cobblers, were in the high tech industries of their times. And like those forefathers, the call of self-employment persists in many of us today. We long to “hang a shingle out” and see if we have what it takes to make it as a small business owner.

And the desire is not limited to Americans, either. No, people from around the world want to join the ranks of the self-employed. It seems to be a common trait in most everyone.

So, what’s stopping us? Why don’t more of us break away from the employee-employer relationship and go to work for ourselves?

Risky Business

As I’ve talked with developers, database administrators, project managers, and others in the IT field, a recurring theme continues to surface when I asked that question: RISK! It may not be expressed so concisely, but that’s what it frequently comes down to. Risk.

Many would-be consultants are concerned that launching a career in consulting would be like setting a course straight into stormy weather. And that understandably gives them cause for concern. There’s just too much on the line in many people’s lives: a mortgage payment to make, mouths to feed, and a certain level of creature comforts to maintain. If a career in consulting doesn’t pan out, we stand to loose much of that. Nobody wants to risk their livelihood.

And there’s nothing inherently wrong with risk aversion. We all, at some level, want to minimize our exposure to risk. That’s why we buy insurance, to help protect us from uncertainty. We invest in a diverse portfolio to help protect us from a volatile free market. (Although both of those are probably not the best examples given what’s happened in the world’s economy of the past couple of years.)

We all have different tolerance levels for the amount of risk we find acceptable. And for many of us, that line is drawn before what we reach the self-employment point.

The Risk of Staying Employed

But to be fair, let’s consider the alternative; it’s not risk-free either.

The employer-employee relationship has been described by some as a sort of marriage where there is a bit of give and take on both sides for the good of the overall relationship. It’s full of compromise and trust. The employer trusts that you’ll work hard and you trust that they’ll pay you for working there.

But employment really isn’t like a marriage at all. There’s no commitment. There’s no loyalty. There’s not a “till death do us part” clause in an employment contact. When you receive an offer to go work for another company, you can. If the organization believes they can outsource your job and save money, they will. The employer’s priority is maximizing returns for its shareholders. The employee’s priority is making a good living for himself. If anything, it’s more of a marriage of convenience than a life long commitment.

sailing_into_a_storm_2010_02_09.jpg

I don’t mean to sound cynical about employment. I’m not really. There are a lot of really good companies out there to work for, a lot of good managers to have as a boss. And finding one can mean many years of contentment in the workplace.

However, you must realize that employment is not a safe harbor from risk. On the contrary, I’d even say in some ways it’s even more risky than consulting.

No matter how hard we work, no matter how well we do our jobs, we are only one downsize, one merger or acquisition away from the unemployment lines. And it really doesn’t have anything to do with us as employees. It’s completely out of our hands. If a decision is made to sell off our division, to close this factory, to off-shore our department, we’re out of a job. Even though we were best in our job, we’ve lost it because of something that had nothing to do with us as employees.

You Have the Power

On the contrary, in consulting our success depends solely on our performance. Our jobs cannot be out-sourced or taken off shore. We cannot be downsized or re-organized out of a job. Our livelihood depends solely on how well we perform our role as a consultant.

Oh sure, some of our clients will no longer need our services. But if we’re actively engaging multiple clients at one time or we have other clients in the pipeline, our livelihood is not affected. We simply move from helping one client to assisting another client with little disruption to our streams of income. And I’ve found that if I do a good job for a client that generally leads to either more work from them or glowing recommendations to others.

It’s No Cake Walk

But consulting does require effort, not just in areas where we consider ourselves strong either. To be successful, we must nurture our client relationships; we must arrange to have another engagement lined up after this one winds down; and we must be willing to talk about money and negotiate agreements.

In short, consulting requires that we expand our skill set beyond our technical abilities. We must learn to become project managers, bookkeepers, salespeople, executives, and janitors. Our success in consulting relies not only on our technical prowess, but on the skills that will get us to a point where we can exercise our technical skills to help clients.

And can be a scary proposition. One that we should not enter into lightly. But more about that in another post.

Now it’s your turn

I’d like to hear your thoughts.

  1. What lessons have you learned about employment? About consulting?
  2. Do you want to start consulting? What’s holding you back?
  3. Is consulting really as risky as it sounds? Why?
  4. How can remove some of the risk associated with consulting? Employment?

And finally, I’m thinking of doing a series of blog postings on consulting. Interested?

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16 Responses to Isn’t Consulting Risky?

  1. Rajib Bahar says:

    Responses to your questions:

    #1 – Sometimes the FTE’s are not challenged fully, and the job gets boring, where consulting gigs keeps you engaged with the latest technologies. On a 2nd thought, I should take that back… It probably depends on the project we bid upon.
    #3 – Somewhat… The payoff is great, but, the tension/nervousness starts to rise when you are near the end of the project delivery. You always have to have something in the pipeline to keep yourself busy. Maybe few side gigs where you spend time offline.
    #4 – Networking and knowing more people helps. I think the best thing to do when you are starting is to read some kind of guidelines around Consulting soft skills, ethics related tips.

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  3. Hans says:

    1. Employment can have other benefits : some positions are rarely filled in with consultants but more easily with people from within the organisation (you could call this the career path). Extra benefits on top of your salary are often used as a means of rewarding people (and not be targeted by taxes) which are your own responsibility and cost if you’re a consultant. That means you’ll have to increase your rate for your customer.

    In general I find privately owned companies to be slightly “safer” for employees as opposed to companies rules by share holders. Decisions are usually based more on common sense than on squeezing out that last extra dime.

    2. Consultancy often means hopping between companies. Some people do not feel comfortable with that and prefer to spend longer times at one place.

    3. I do not agree that consultancy cannot be outsourced. I’ve seen it happening quite a few times already. If the company you’re working for finds someone cheaper (probably abroad), they probably will not extend your contract the next time. This is certainly happening in bigger companies where they outsource entire departments and just terminate the consultants’ contracts. This operation will probably be reversed at some point in time when they discover that the quality really isn’t the same, or communication is a lot harder but by then the damage is done.

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  5. David Stein says:

    Great Article. I think my career will eventually go here. I’m still learning as fast as I can, but I don’t feel that I’m ready to jump into so deep a pool yet.

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  8. Marc Beacom says:

    Enjoying the posts on consulting!
    1. What lessons have you learned about employment? About consulting?
    –Nothing is guaranteed. Also, it seems that your recommendations are taken with a higher regard if you are a consultant rather than when you are an employee. Maybe due to the fact that consultants are getting paid more.
    2. Do you want to start consulting? What’s holding you back?
    –Yes, consulting on my own. I’ve played the consultants role before but always for a company and they took care of the contract and negotiations. The biggest hurdle I have is dealing with the contracts and sorting that out. I’m rather conservative when it comes to this and don’t want to put myself in an adverse situation due to know knowing how best to write up a contract. There are template contracts out there, one of which is provided with your book. However, there still is a lot to consider when drafting a contract outside of the template.
    3. Is consulting really as risky as it sounds? Why?
    –Depends on how adaptable you are to change. You never know what the customer may want next and if you don’t keep up on what is new, it will be risky. Consultants typically make a higher hourly rate but this is to cover the nonpaying aspects of the job such as Sales and tracking down the next contract. If you are good about having a month or two away from a paying work and have the funds allocated as such, this will reduce the risk.
    4. How can remove some of the risk associated with consulting? Employment?
    –For ether, I think the best way to reduce risk and open opportunities is to never stop learning. Always seek out opportunities to learn new technologies or techniques whether or not you think you will use it today as this knowledge may help tomorrow.

  9. Joe says:

    Thanks for the response! You’re right, nothing is guaranteed. It took me a while to learn that. I didn’t want to get over committed so I’d only pursue one opportunity at a time, turning away other potential clients with thoughts that the one outstanding proposal I had out would come through.

    I’ve since learned the fallacy of that approach. Maybe I’ll turn that into a blog post as well.

    Thanks for reading and for the feedback.

  10. Marcus says:

    3. Jobs can be outsourced but also the rates can be undermined by offshore people coming into the country (H1B Visa) and working for low pay. The quality may not be there at first but as they get more on the job training and add to their resume the quality will improve. I was an independent consultant until 2005 but was forced out after the economic crisis created by 9/11 and the fact that there was no mechanism to cancel H1B visas. The market was flooded with people techinical people. Also technology can change so it is vitally important to keep up to date and to keep an eye on what is fading and what is becoming more popular.

  11. Dave says:

    Hi Joe, What a great subject. I found out in 08 that there definitely was no loyalty on my employers part after the market tanked. They made cuts starting at the top pay and worked down. Their goal was to keep as many as possible via trimming the highest paid. A month later, they realized they needed me. By then I had already committed to starting my own consulting firm. After they signed a consulting agreement with me, I do work for them on a regular basis, at a much higher rate of course then they were paying me when full time.

    Loved your two classes at Birmingham! Those out there, if you have not yet had the opportunity to hear this guy, you are missing out.

    To Markus, I know what you mean about foreign competition, but I assure you, it is waking up those who “got it done cheaper”. When the communication barriers cost them re-writes, what money is saved? I was in a position to purchase a very expensive new application for my employer a few years ago. Out of the two products I was reviewing, one of the companies bragged they used programmers from India because they could get 4 for the price of one. I bought the other product. I just think we do it better!

  12. Joe says:

    Thanks, Dave! I’m considering doing a series of blogs on the topic of consulting in the coming weeks.

  13. Clark Quaid says:

    Greetings I recently finished reading through through your blog and also I’m very impressed. I truly do have a couple queries for you personally however. Think you’re thinking about doing a follow-up posting about this? Will you be going to keep bringing up-to-date at the same time?

    • Joe says:

      Thanks Clark! I’m glad you’ve found this information useful!

      I’m going to continue to write blogs that are focused on consulting so stay tuned. You can also email me directly as well.

      Thanks!

      joe

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