I, Consultant (part 2)This is a follow-on to the original I, Consultant article. Hey... maybe there's a series here!
Published in Embedded Systems Programming, November 1994
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By Jack Ganssle
Last November I wrote about the joys and perils of becoming a consultant in the embedded industry. The article generated a flood of replies from those who found success and failure, and from consulting wannabees, looking for further insight into going off on their own.
There is nothing more critical to success than selling yourself and your business, a subject I wrote about at length last year. Unfortunately, in business everything is important. Without sales you cannot even get started. Without engineering you cannot deliver. Without proper cash management you'll choke on success or failure. Even little things are important, like how your phone is answered.
I recently found a full page color ad in a major PC magazine promoting Bell Atlantic's "Airbridge" service, a way to connect your laptop to a cellular phone to get access to E-mail and other on-line services. It seemed like a neat idea so I called the 800 number and was presented with a deep menu of electronic messaging options. After spending too much time experimenting with different selections a fax listing available Airbridge documents arrived. Another call to the 800 number, more navigation of the menus, and I entered the appropriate document numbers. Surprise! Each entry generated an "Illegal document number" response.
The ad had neither address nor non-800 number listed, so I gave up in frustration. A few weeks later Bell Atlantic had yet another ad, quoting a customer soooo happy with their service that he wanted prospective customers to call to hear him sing the Company's praises. Just for yuks I called on my Bell Atlantic cellular phone... only to get a "I'm sorry, this number is not in service" message.
The moral of the story is to be accessible. Make it easy for people to contact you. Most won't try this hard! How often have you called a business to get an answering machine, confusing voice mail, or a sullen receptionist? This immediate turn-off is a guaranteed way to lose business fast.
The most successful consultants I know either have a full time receptionist or a wonderfully friendly phone system that gives their clients a fast and easy way to get in touch. One option is well planned voice messaging that you check hourly. Another is a cellular phone that you always answer promptly. Avoid answering machines. Beware of having a spouse pick up the phone, unless he is trained to answer in a businesslike fashion identifying the name of your company.
Small kids crying or dogs barking in the background immediately imply "small time". A quiet private office is crucial. Success requires creating an image of sophistication and competence, even if this is a part-time business that you started yesterday. I write this as Woodstock 94 runs its course; as part of the love & peace generation of 25 years ago we eschewed "image", thinking that it was a sort of sham perpetrated by "those losers in Madison Avenue". We were wrong. Image is a part of human psyche that everyone must deal with in some manner. I blush to think of our denouncements of "image" while we oh-so-carefully cultivated long hair, beads and tie-dye shirts.
Image in business is no more than making your customer comfortable about dealing with you. This might mean wearing a suit to meetings with suited executives; creating a phone system that reeks of "professional", and generally acting in a quietly competent manner, even when you haven't a clue what is going on.
Is this a fraud? I think not. No incompetent or even marginally able person should hang out a consulting shingle. To do so is fraud. However, if you really know what you are doing, and have a reputation of being able to make things work, then sometimes it makes sense to act capable while admitting to being short a few facts, in the expectation that you'll soon figure it all out and give your customer value for their money.
And, if it doesn't work out, simply do not issue a bill. Above all, going into business yourself is a commitment to take risks, one of which is exemplified by the "no cure, no pay" concept used by salvagers at sea. Yes, some contracts are hourly where you'll be paid just for showing up. In many cases a potential client will contract with you to fix a short term problem. It seems unethical to charge for failure.
And, it's great marketing to be able to tell the prospect "hey, if I can't help, just don't pay me". The risk is all yours, a very appealing thing to any customer.
Another aspect to image is creating literature that promotes your product or service. Too many consultants rely on a crummy Xeroxed resume. There are a lot of folks beating on doors looking for consulting work - your name and company must somehow stand out from the others. Invest in a decent set of brochures that gets your message across.
Cash is the grease of business. You'll need far more of it than you can imagine. Before hanging out your shingle come up with a plan to get access to money in emergencies.
Forget venture capital - only a tiny number of firms ever get any; most of these are run by business geniuses with armies of contacts, lots of previous experience, and a killer product. The only sort of VC that is possible for most of us is from family and friends.
The second avenue is a bank. Banks are happy to loan to small businesses - as long as you have sufficient collateral. Too many new entrepreneurs moan about collateral requirements, but this is simply a fact of life in the banking world.
For a small business the bank will want you to cosign a line of credit. Then they get your house and other assets if the company folds. Further, you'll need an asset that is very liquid - accounts receivable are probably the most frequently-used form of collateral, though sometimes you may have to sign over a personal T-bill or other asset as well.
I've found that smaller, local banks are easier to deal with than their mega-cousins. No banker likes to deal with an unknown, so make sure that you are visible. Get to know your target banker by getting involved in community activities and by sending them information about your business. Take a banker to lunch once in a while.
Remember, though, that bankers hate new businesses. Figure on starting off with no bank backing, but plan on generating sufficient profits that in a year or so you can go back to the bank with a history that you are proud of. If you can show cashflow and collateral, getting a line of credit will not be a problem.
Bankers really do want to make loans, but work within strict regulations that limit their ability to take risk. A successful business will need a line of credit at some point, so start your business with a plan to cultivate a banking relationship. Above all, start before you really need the money. Plan ahead, since in desperate times no one will answer your calls.
I think most small businesses are initially financed by credit cards. These will be personal cards, as no organization will give your fledgling outfit significant credit. Get lots of credit cards. Pay the yearly fee with a smile, realizing that the plastic might keep you alive someday.
It's not unusual to talk to a business owner who has $50-100k in available credit on their credit cards.
At some point many consultants become overwhelmed with either work or the tedium of office maintenance and hire employees. Be wary! Payday rolls around every week, even those weeks when the bank account is squeezed dry. Few employees tolerate even a day's delay in getting their check. Somehow you will have to come up with their pay each and every week. Your own check will be a distant second in priority.
One friend tells how for 68 straight weeks the night before payday his company had no money, yet somehow enough showed up just hours before his nearly 100 employees started cashing checks. Somehow he survived, though even a one week glitch would have made the whole company walk.
Poor cashflow kills more small companies than anything else, and the biggest impact on cashflow is payroll. Before hiring, be sure you can make payroll week after week, year after year. If cashflow is good salt away the profits to use as a rainy day fund. Get a line of credit with the bank. Acquire a fist full of credit cards. Just be sure that you have a way to get a reasonable amount of emergency cash to deal with the hard times that will surely come.
Now that the government intrudes on each little facet of our lives you practically need a lawyer to wake up in the morning. Your business may have to conform with hundreds of laws regulating relations with employees and the public. Worse, sleezeballs will try to take advantage of each opportunity.
Most employers I know have been involved in frivolous discrimination or harassment actions (I could write pages, but will spare you, gentle reader). Generally the government pays for the prosecution of the "case" brought against a business while you have to pay your own way - even when you win. Since there really is no defense against such abuses, I recommend that you treat your employees as fairly as possible, using the Golden Rule as a good behavior model. Then, hire a good lawyer and build a war chest for the inevitable battles.
One company I know is really a shell organization that owns no assets. They contract to other businesses all owned by the same person. The idea is that the shell can fold in a heartbeat if it loses a big lawsuit. Though perhaps this is a cynical view of late 20th century America, there may be some merit to the idea.
Employees do bring a new kind of slavery and of freedom to your life. Slavery, because you must provide them with a kind environment and the resources they need to be productive. As boss, you'll find yourself spending more and more time managing and less time selling or working on billable projects. Freedom, since you can delegate many routine tasks and concentrate on the more creative (and enjoyable) problems you like.
Hire carefully, and then treat your employees well. Give them a stake in the success of the organization via bonuses or stock. Fire losers early before they disrupt moral, and nurture the winners.
One reader who prefers to remain nameless has been corresponding a lot about how management at his company has no concept how to deal with software issues. His frustration is enormous. This is a common complaint that may someday diminish as the ranks of management are filled with ex-embedded engineers who really do understand the technology. Be sure you bring your expertise to bear when managing employees. Don't fall into the old trap of "us versus them" with poor communication, consistently impossible schedules, and a lack of appreciation.
The Down Side
Despite all of these words about the joys and perils of consulting, I have a confession to make: I refuse to hire a technical consultant. Not for any defect in the profession, nor for a lack of trust of individuals. Rather, many organizations are knowledge companies. Their product may be some thing - hardware, software, or whatever - but the organization itself grows and thrives only as it builds expertise.
The knowledge is usually embodied in the organization's workers, despite all business advice to codify it in procedures and manuals. It is simply not possible to proceduralize complex high tech tasks in an industry in such a sea of change.
A consultant is an outsider. His client is one of many clients; any of which might be expendable given a better deal. Personally I'd rather hire employees, motivate them properly, spread the knowledge around so no one worker is indispensable, and thus, like an ant hive, thrive despite changes in personal.
There are many cases where a consultant makes sense for a specific, limited project. To date, however, I've worked hard to keep all such work in-house so the employees benefit from the knowledge gained in creating that technology or project. We do, however, use consultants in areas outside of the business's fundamental competencies - like business development and accounting.
As I stressed last year, remember to sell constantly. Consultants die through lack of proactive selling, which all too often takes a back seat to delivering the service.
Finally, have fun. Being in business is an adventure that has its share of deep lows, but each is balanced by incredible highs and an ability to create new kinds of personal freedom. Structure your business to give you whatever it is you need to have a happy life.