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How to Be an IC

(Plus! Job-market Tips for Everyone!)

Howard Fosdick(630)-279-4286hfosdick@compuserve.com

(C) 2001 FCI

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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

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Why am I Giving this Talk ? 2 Consulting Paradigms

Proprietary OpenSecret information Open negotiation for for negotiating power for trust relationshipsCompetitors Cooperation / CoopetitionStrength thru secrets Strength thru working togetherDirect Marketing only Indirect Marketing (“Pay me now!”) (“Sow seeds, reap the harvest later”)Trade Secrets Sharing knowledgeCompetitors (ICs, No competitors contract firms, FTEs, (just difficulties like 1706, Headhunters customers, everyone!) and Brokers!)Gimme, gimme ! Give to get

TraditionalOpen Source Consulting

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Outline

1. Definitions2. How Employees are like contractors3. IC Business Models4. What are Your Goals ?5. Legal Status of your firm6. Rates7. CP Firms, Brokers, Recruiters8. IRS 1706 and AVLs9. Selling Yourself10. Contracts, Payroll, Insurance, Finances, Retirement 11. Getting Gigs / Jobs12. Resources

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Definitions

FTE = Full Time EmployeePTE = Part Time EmployeeW-2 = Employee1099 = How non-employees get paidCorp-to-Corp = How corporations get paidIC = Independent ConsultantCP = Contract Programmer or Contract ProgrammingConsultant = Advice giverMgmt Consultant = Advice giver to managementPure IC = IC gets their own gigsBrokered IC = IC goes through a Broker to get gigsBroker (aka Bork) = places Contract ProgrammersRecruiter (aka Headhunter) = places FTEsContract Firm (aka Body Shop) = Broker, Headhunter,

CP Employer Big 5 Consulting Firm = Actg firm with all FTE CPs

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“We’re All Contractors Now!”

Employee

Implied Deal :“You don’t screw up,we don’t fire you”

Company-providedcareer planning (ie career path)

Defined benefit planDefined health plan

Company-directed training

Rule 1: They employ you because it pays them to!Exercise : Calculate your cost and your benefit to your company

Disposable resource (ie “contractor”)

Implied Deal :“You’re here only as long as we choose to keep you”

Self-directed career planning (ie career path)

Self-directed retirement (401k)Selectable benefits

Self-directed training

1980s Today

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Who Moved My Cheese ?

“He knew it was safer to beaware of his real choices than toisolate himself in his comfort zone.”

by Johnson & Blanchard, p. 75

“Companies don’t take care of you,you take care of you.”

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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

Note: if you’re Bill Gates ignore this foil...

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Rule 3: There are many ways to be an IC

Goals

BusinessModels

Values

Kinds ofWork

Etc.

Based on different ...

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There are many ways to be an IC

TechTrainer

Permatempw/ specialExpertise

Solo Contractorthru Broker

SmallContractorFirm

Pure IC

“Expert”Partnership getcontracts thruvendor

others

DBAPartners

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Business Model Parameters

one a few many

narrow (1 product) 1 topic (eg DBA) generic

on own via contract firm or broker

local regional national international

weeks months yearly “perma-temp”

piecemeal typical DBA / SA expert or “Name”

Number onPayroll

Breadth ofExpertise

GettingGigs

Travel

EngagementLength

Rates

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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”

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Business Model - Example #2Contract 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

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Business Model - Example #3Technical 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 $$

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Business Model - Example #4Experts 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)

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Why be an IC ?What are Your Goals ?

+ “Be my own Boss”

+ More interesting Work

+ More Money

+ It’s your Passion

+ Alternate Lifestyle

+ Ego

+ _______________

Exercise : make your own rank-ordered Goal List Self-awareness is key !

==> more control over worklife / life==> be an entrepeneur

==> greater choice of gigs

==> get paid for overtime==> be a techie but make mgmt $$

==> techie passion==> entrepeneurial = build a company

==> work when you want

==> have people listen to you==> “make your own rules”

==> fill in the blank with your goals

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Ways to Work

VendorIT Shop Contract Firm

Brokered IC

FTE W-2 (hourly) 1099 Corp-to-CorpPTE PTE Corp-to-Corp 1099

W-2 (salaried)

Pure IC

For Illinois business bookletsand legal forms see www.ilsos.net

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Sole Proprietorship

Partnership

+ You took no action+ Simplest tax filing-- Unlimited liability

-- Common property-- Unlimited group liability

Non-corporate

Forms of Business

Taxes

Liability

(aka, the Legal Status of your business)

1.

2.

These drive everything:

LLC(Ltd Liability Co.)

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Subchapter C Subchapter S

-- Taxed Twice+ Large Companies

+ Taxed Once+ < 50 Employees

Corporations

Forms of Business

Corp Employee

Taxes

Liability

1.

2.

+ Limits Liability

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Rates

* The contractor version of employee’s salary

* There are no “rules”

* Everything is negotiable

* Know typical rates

* Know client’s target rates

Knowledge is the key !

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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 !

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Rates Vary By...

Training

SmallShops

Documentation

“Name”Experts

LargeShops

PC / LANSupport

DBA / SASupport

Architects

DesignArchitects

Super TechSpecialists

$$$

lower

higher

Government

where you work, and what you do

MgmtConsultants

Help Desk

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How Much You Gotta Make ?

* 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 ?

Assuming 1-person S-Corp

Good Rate = 2 * FTE SalaryMarginal = 1.5 * FTE Salary

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Rates and Salaries ?

Sources

computerworld.com

informationweek.com

datamation.com

earthweb.com

realrates.com

dice.com

(Blue = online & print)many others...

itworld.com

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How Contract ProgrammingFirms Work

President/Founder

Brokers /“VP Placements”

ContractProgrammers

1099’s

W-2’s (hourly)

Corp-to-Corp

1

3 + 1

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Billing andLegal Treatment

W-2’s (salaried)

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How Brokers Make Money

What Client pays $200,000/yr

What CP gets $120,000/yr

What Broker makes $80,000/yr

$100

$60

The Broker makes the spreadbetween what client pays and what you’ll accept.

Most Brokers key on reducing your rate !

Is this Broker worth $80,000 / year ?

Brokers get 10 - 60 %typical 33%

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Why You Care About theBroker’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 !

Susie SE = $225/$60You (brokered) = $100/$60Joe “Pure IC” = $80/$80

Who they gonna keep ?(and why does Susie SE accept a rip off ?)

Assuming all areequally useful...

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How Recruiters Make Money

New FTE’s 1st-year salary = $90,000/yrRecruiter @33% makes = $30,000

Upon placement, the Recruiter makes either :(1) Agreed-upon fee(2) Percent of new FTEs 1st-year salary

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 negotiatingthoughts to the Recruiter !

Recruiters get $10k - $40kper placement(20% - 33%)

Example:

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Why are many Brokers / Recruiters Unethical ?

* They do real work, they deserve to get paid

* But their pay is sometimes outrageousas is their behavior !

Why ?

* 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

(see A. Zanevsky, Contract Professional)

Client

Techie

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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 to an inappropriate interview* Abusive contracts* Abusive non-competes* “Jennifers” and “Guys”

Credit-check your broker: www.experian.com @ $20 - $30

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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

* 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 ICBrokeror CP Firm

Book on 1706:www.icca.com $27

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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

* Use Umbrella Firm

Client ICUmbrella Firm

See: www.pacepros.com orwww.contractorsresources.com

Umbrella Firm : * Employer of record * Billing, Admin services * Group-rate benefits

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Microsoft “Perma-temp” Lawsuit

* $100 Million cost

* Plus legal costs

* Big impact on IT

* AVLs and Brokers everywhere !!

“yuck, yuck!”

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AVLs

* Shields IT shop from potential IRS 1706 Liability

* Liability is the real reason for AVLs

Client

AVL

CP Firms

Brokers ICs

CP ICsFirms

ICs

Subcontracting = What a mess !

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IT Professionals Lose !

IRS 1706H1B

UCITA

IT Labor is:

* Young* Non-political* Unorganized* Lobby-less in DC

“Special Interests are the greatest threat to democracy in America” -- President Jimmy Carter

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Hiring -- IT Manager’s Viewpoint

* Shortage of qualified people* $10k - $50k to hire ONE* $10k - $20k to train * 10:1 effectiveness ratio between candidates

=> If you find a good person, grab him fast !=> Whoever you hire must be worth their training costX Don’t lose good peopleX Hire attitude & related skills (not exact skills match)

Rules :

Results :

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2 Hiring Responses

GATEWAYS

FACILITATORS

* The “Rules” people”* “I just work here”* Require exact skills match* HR

* “Is this person good, if yes, how do I hire her?”* Deal-makers* Problem-solvers

IDENTIFY & KEY ON THE FACILITATORS !

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One Way to Sell Yourself

Rule :

Specialization sells

Exercise :

Define your Calling Card

Prioritize, defineyour 3-part pitch

10seconds

Your Calling Card= quick “Trump Card”

Summary : “Who I am andwhat I can do for you”

Resume : “Here’s proof ofwhat I can do for you”

2minutes

30minutes

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Certification ?

* Industry trend

* Vary by the Cert :* Cost* Difficulty* Marketability

* 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 credibilityExperienced -- another hoop to jump through

It’s up to you to determine Certvalue for your area

See coriolis.com,certification.com

Joe SA

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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

As as per Computerworld*

*

Change will happen,be prepared to handle it!

Involuntary

Voluntary

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How Skills Become Obsolete -- Example

Primary

2ndary

Obsolete

1981 1991 2001

MVS

MVS

DOS

DOS

MVS

VM

VMDOS

OS/2

OS/2

Linuxes

Unixes

Unixes

Windows (desktop & server)

Exercise: map your chart for OSs,DBMSs, Pgming Languages, etc.

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Skills for Optimal Success

Technical Skills

Business Skills

(Taxes, liability,finding clients,selling yourself)

Personal Skills

(Psychological,Sociological,Leadership)

New Technical Skills

Corollary: Technical skills are only the necessary preconditionfor larger success

Rule 2: Technical skills plusother skills yield greater successthan technical skills alone

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Contracts

* They are serious

* You better understand them

* Everything is negotiable

* 2-party versus “brokered” or “subcontracted” (3-party)

You have legally agreed to what your contract says ;Nothing anybody says matters.

Or pay a lawyer to understandthem for you.

“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 andicca.com

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Insurance

1-person Corp Larger Corp

* General Liability (GL) * Errors & Omissions (E&O) ($300 - $500) * Workman’s Comp * Employee Liability * Fidelity Bond * Other Bonds * Company Auto * Etc. ($ thousands)

See www.ccbsure.com www.techinsurance.com

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Why Liability Predominates

$0 cost to Plantiff to launch lawsuit

Defendant pays $$ to you,you share with lawyer

Plantiffwins

$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 !

Yes No

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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

allincome

Your S-Corp

You

Corpexpenses

payroll

FICA (2 * 7.5%)Fed WH TaxState WH Tax

“I didn’t know!”

All Corp accounting must be separate from your personal finances

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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* Various IRAs* Annuities (Fixed and Variable)* Stocks vs Bonds vs Cash vs Real Estate vs Etc.

“I quit !”

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How to Get Gigs / Jobs

Pay Someone to find them

DirectMarketing

IndirectMarketing

Brokers(Recruiters)

* Do what Brokers do (“Be your own bork”)

* Do what Brokers can’t do* Clients come to you due to your visibility

gig me,baby !

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How to do Direct Marketing

ID Companies

ID theirTechnologies

ID Contacts

* Where* Its business* Its structure

* Software* Hardware* Size* IT dept. structure

* Who* Titles / positions / roles* Phone #s / email addresses

Create/maintainRelationships

* Takes time* Difficult due to changes* The hard part !

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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, industry meetings, networking events, etc.

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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

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-- 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

IndirectMarketing

Long-term survival is a sociological endeavor

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Vocational

* Biz partners, leads, CPs * Company co-founders

Institutions

-- Teach a Class

Research

Experience : -- 0 leads ? Yours ?

-- Pay low+ Satisfaction high

IndirectMarketing

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-- 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)

IndirectMarketing

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-- 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

IndirectMarketing

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-- 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 ?

IndirectMarketing

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-- Give Presentations

A Public Job Interview

* Users Groups* Conferences* For-profit organizations

+ Great visibility+ Establish you as an “expert”

Experience --

+ Good Leads? Your results ?

IndirectMarketing

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-- 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 ?

IndirectMarketing

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-- Write a Book

How to Get Published ==> Produce the book !

+ Expertise (“She wrote the book on it!”)+ Satisfaction -- Effort Required-- Pay -- Obsolesence

# ofauthors

1 2 3 4# books written

# ofauthors

$$

IndirectMarketing

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-- 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

IndirectMarketing

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-- Develop Freeware

A Product displays your talentsplus provides the foundation for your company !

(If you’re a Web Developer, make your resume a “wow” website)

Oracle Examples :* Alertview* TOAD* Statspack Viewer

Indirect Marketing

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Resources

The only Association for ICs

www.icca.orgwww.icca-chicago.orgThey sponsor GO CONSULT on Compuserve800-779-8911 for info

Dues $175 - 275 / yearChicago $30 - $45 / meeting

Annual conference: St. Louis in June

ICCA (Independent Computer Consultants Association)

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Resources for ICs

Websites for Contractors

* realrates.com* cpuniverse.com* icca.com* guru.com* 1099.com* pacepros.com* nase.org* ilsos.net

Associations

* Independent Computer Consultant’s Association (ICCA)

* National Assocation for the Self-Employed (NASE)

Magazine

* Contract Professional

Books

* 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

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To Learn More...

FTE ?

Read Ruhl’sComputer Job Survival Guide

Read Ruhl’s IC books -or-Peter Meyer’s book

Check out ICCAand PACE

Check out websiteslike realrates.com etc.

Yes No

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