I, Consultant (part 1)Here's how to get rich quick: quit your job, become a consultant, and charge $90/hour. NOT!
Published in Embedded Systems Programming, November 1993
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By Jack Ganssle
How do you make money in the embedded systems world?
I hear this question posed constantly. Friends who own tool companies often wonder if the market is large enough to make the battles of business worthwhile. Engineers (those actually doing the work) complain about career stagnation and limited salary growth. Want ads offer few open positions, while my desk is swamped with an unceasing flood of unsolicited resumes, each with its own sad tale of angst hidden between desperately optimistic lines.
Let's face it - our business is so specialized that most non-technical people have no idea it exists. I've had to develop a boiled down story, simplified and almost meaningless, to tell the great unwashed of what I do for a living. It's just not worth the trouble to explain about embedded processors, when to a dentist or lawyer the word "computer" conjures only the image of a PC.
And yet... the products we embedded folks design underlie the fabric of civilization. It seems every electronic product has an embedded micro that somehow creates direct benefits for hoards of consumers. Information processing, sometimes quietly buried away in an innocuous kitchen appliance, is the great paradigm of the late 20th century. It's almost like the start of the industrial revolution, where those who built the cars and made the steel slaved away for a pittance, while others reaped the benefit. Sure, hardware and software engineering yields far more than slave wages, but is the pay really reflective of the value of our contributions to society?
And so a great number of engineers find their way to consulting to fulfill their immediate needs for a job and to chase those big bucks. Consulting's typical $50-$100 per hour rates look so appealing (uh, $100 times 40 hours per week times 52 weeks... hey - I'll be rich!) that few can resist the lure.
These ruminations reached a peak recently while talking with a customer who owns a clearly successful consulting business with work backed up beyond his capacity to handle. Yet I hear almost daily from legions practically begging for work. Why this disparity? The magazine's editor will probably kill me for submitting this for-once non-technical article. Fire away, Tyler! So many of our readers either are consultants, or wish to be the same, that I'll take a break from ones and zeroes to make a few comments drawn from bitter experience.
In 1980 a friend and I quit our engineering jobs, and in a grand, expensive, and foolish leap we rented office space, hired employees, and became... consultants! Our only wise decision was to do this before either of us had children, because we starved.
The rented space was needed, we rationalized, because our clients would need to see a respectable company before forking over their cash. We spent endless hours building walls in the unfinished R&D space. I wonder if those walls are still there, and if they are still full of the empty beer cans we used for, ahem, insulation. In fact, in the two years we were in business few customers ever saw the facility. Every month, though, the landlord arrived with his hand out, depleting our meager resources.
For the first weeks we stared at each other. What do we do now? How do we get customers? Who is going to pay all of these bills? We ran ads. No one responded. The yellow pages produced no inquiries. Small contracts from our former employers kept us miserably operating, until time taught us to sell, sell, sell. We started banging on doors, making cold calls and getting no end of rejection. A little work started to trickle in. More networking and working friends of friends or friends brought more in.
As the work backed up we learned the next lesson - fixed price contracts are a horrible mistake. We did an audiometer for $3000, designing and building the hardware, and writing all of the code. A grossly underbid $12k steel mill job kept the paychecks at bay for months. To make any sort of decent living on fixed price work one has to bid high enough to cover surprises, and one's estimation ability must be prescient.
As time went on we honed the art of estimating software and hardware to a fine skill, but discovered the true cost of developing embedded systems. Unfortunately, few private companies cared to enter into multi-hundred thousand dollar contracts for a product's development. Most seemed happier paying us hourly, even though the total billing would be about the same as for a fixed price contract. Humans are a perverse and puzzling lot - but in business, you must deal with the customer's expectations, needs, and oddities. The customer, is, after all, king.
Only the government seemed willing to foot large fixed price efforts, but we found it difficult to get those fiercely competitive contracts. A formula we hit on accidentally worked like a charm: write proposals, on spec, as a subcontractor to a large operation. Let the big partner handle the peculiarities of government work.
After my partner and I went our separate ways I continued consulting, alone, and put these painfully learned lessons to work. I worked out of the house, keeping overhead low. My company had no employees other than myself. I secured a good answering service to create a weak but valuable business-like phone service. All of my billings were hourly, and most of my business came as a sub to large corporations involved in government contracting. The money was good (finally!), but I hated the work.
Fun and Money
There are only two reasons to work for a living, and I believe both are necessary conditions: fun and money. Who wants to be a slave, working like a dog and hating every minute, just to put food on the table? The opposite is only marginally better - having a great time, but not having the means to survive.
Everyone has different fun and money needs. Donald Trump might need an annual 8 figure income to be happy, whereas others are satisfied in the low 5s. Success of a consulting business (and in life) starts with an introspective, soul searching analysis of your own psyche. What do you want? How do you get from where you are, to where you want to be?
Even the smallest consulting company needs a vision to march to, something you can use as a yardstick to plan and measure against. Though everyone loves to hate Microsoft, I have enormous respect for Bill Gates. He defined a vision and spent years pursuing it. His dream of a GUI yielded the abysmal Windows 1.0, followed by the equally useless 2.0. But Gates kept at it, following his dream, and eventually producing versions that have quite simply taken the world by storm. A lesser man might have given up after the first or second debacle.
A reasonable consulting vision might be to generate a reliable $90k income. Another might be to grow the firm to lawyer-like status, with the founder just living off the fruits of the labors of hired guns. Either way, the vision must be specific, so you can develop a reasonable plan to attain it. You'll surely guess wrong about many things, but the right goal lets you periodically stop, access progress, and implement new plans as needed.
Far too many consultants have no firm goal, and thus drift along, never achieving much success. Know where you are going, develop a plan to get their, and implement it. Regularly monitor your progress and take action to get back on course, for even the best planners make massive mistakes.
Sales and Competition
You will go out of business if you are not constantly selling. My partner and I repeatedly made the classic consulting error of somehow, though heroic efforts, obtaining a contract, and then simply doing the work. The job was always complex enough, somehow, to require both of our efforts for its duration. We'd submit the final product and invoice... and then starve until another contract came around.
The vast majority of consultants go though this boom and bust cycle. Everyone complains they cannot sell while working on a job, so blindly work on, knowing a financial cliff looms even in the best of times.
Selling is as important as switching on the computers in the morning. The excuse "but I don't have the time" is simply unacceptable. As the only way to avoid those horrible bust times is to sell constantly, you must aggressively sell or market your services every single day. You have no choice, so plan to run the business with sales as the top priority. If time is precious (as it always is) a solution might be to bill fewer hours each day, leaving time free for sales. Rest assured that those "lost" hours will be recouped in lack of downtime.
Never forget that consultants live in a fish tank of vicious competition. Every unemployed engineer has a de facto shingle hung out. Many fully employed designers consult on the side, often for ridiculously low wages. It's easy to find a consultant; it's not so easy to insure that you are the one that is found.
Scott and I made a fundamental mistake in forming our partnership. Both of us were techies, a fact that in our naivete we thought would make us more productive. Wiser heads would have taken a third partner on board, one devoted entirely to marketing and sales. This third person could have kept our in baskets full, thus insuring ongoing strong receivables.
But wait! you say. If I sell all of the time, what happens if I'm too successful? I can only work on one or two jobs at a time - suppose a dozen come through?
My feeling is it's easier to turn work away than pay the bills those times there is no income. Besides, success breeds more success. If the word gets around that you are in demand, then more will want your services. You might even become a scarce commodity. Raise your rates!
You can deal with success in more effective ways, of course. Hiring engineers is an alternative. This creates more challenges, as someone (i.e., you) must manage their work, burning up yet more of your limited time. Some outfits very cleverly develop networks of consultants they can draw on in peak periods, raking a percentage off the top. If you serve as prime contractor for these outsiders, you'll be held responsible for their work, so select them carefully. Compuserve has a consultants forum which might be a good place to develop this sort of network.
How does one sell consulting services? This is a tough nut to crack. Some companies advertise in national publications, an option generally too expensive for one and two man shops. Others beat the want ads to death, using these as a source of intelligence into business' needs. I doubt that any pat answer exists, but it seems that the best companies thrive by developing and exploiting relationships.
Get around. Meet local business people. Join an organization that might have potential customers involved. A natural is the local High Tech group. Here on the East Coast it seems every county has some sort of High Tech Council. Some are better than others -research them and spend your time with the one most likely to produce valuable contacts.
Remember that your goal in networking is to meet people. Never join and just scan the newsletter. Get involved. Chair a committee.
Participate in causes. Did you know that Gates joined the United Way board simply to meet John Ackers of IBM? What works for the big guys can work for us as well.
Call on engineering managers to discuss their problems. Count on rejection. A lot of rejection. So much you'll wonder why you do this. Remember that rejection is never personal, and that one win in a hundred calls could keep you in bacon for years.
Do mailings, but not exclusively. Follow-up on them. Contact the State for lists of technology companies. Some counties maintain decent lists as well.
Yeah, all of this takes a lot of time. That's why I believe in taking on a partner dedicated to sales. No one has enough time to sell and do the work. Know what you do well, and do it. Surround yourself with others who complement your skills.
Live becomes sweet when that 2 year 40 hour per week job finally comes though. Nurture the customer. More work will certainly follow if you treat them well. Do a good job, and make sure they know just how good your work is.
Beware, though, of the big customer. Don't allow your business to become dependent on one company for most of your income. New management could decide to fire all outsiders (it happens all of the time). They might go broke, possibly even leaving you stuck with unpaid bills. Big customers are important and wonderful and awful, so develop other clients as well. Never place all of your bets on one role of the dice.
I could ramble on for chapters about other small business killers like poor cashflow management, but these are all secondary to sales. Remember one thing: success at consulting comes from never ending selling. Do this and you can generate a steady and appealing income. Forget it and things may be rosy for a while, but the ceiling will certainly fall in.
It seems the happiest consultants have learned a few important lessons: know where you are going, sell, save money for the slow times, keep overhead low, and measure how well you are doing in reaching your goal.
Every budding entrepreneur simply must read "The E Myth" by Michael E. Gerber (1986, HarperBusiness, New York). Ignore all of the nonsense about franchises, and soak up Gerber's wisdom of designing a business for success.
I mentioned that I hated the work of consulting. It seemed silly to pour your heart out into a project... and then start all over with the next one. Surely there's some way to reap recurring rewards from all of that effort. Royalties might be an option, but I know of very few cases where consultants have successfully exploited this. I finally decided the solution was to sell a product: design it once, and sell it many times.
Above all, have fun.