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Howard Fosdick hfosdick@compuserve

Computer Jobs Survival Guide (An Independent Contractor Approach). Howard Fosdick hfosdick@compuserve.com. (C) 2003.5 FCI. Version 2. * Written 2.5 years ago as: “How to be an Independent Consultant” * Revised and updated * What techies need to know about IT jobs.

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Howard Fosdick hfosdick@compuserve

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  1. Computer Jobs Survival Guide (An Independent Contractor Approach) Howard Fosdick hfosdick@compuserve.com (C) 2003.5 FCI Version 2

  2. * Written 2.5 years ago as: “How to be an Independent Consultant” * Revised and updated * What techies need to know about IT jobs Origin of this Talk

  3. Evolved from an FTE * IC since 1988 * 1-person shop by choice Contract Programmer * DBA : Oracle, DB2, SQL Server * SA : Unixes, Windows Consultant * User Group Founder / past Pres. (IDUG, MWDUG, CAMP) * Author (books & articles) * Presenter * Management Consultant How did I become an Independent Consultant (IC) ?

  4. Traditional Contracting Why am I Giving this Talk ? 2 Consulting Paradigms versus Open Consulting Proprietary Open Secret information Open negotiation for for negotiating power for trust relationships Competitors Cooperation / Coopetition Strength thru secrets Strength thru working together Direct Marketing only Indirect Marketing (“Pay me now!”) (“Sow seeds, reap the harvest later”) Trade Secrets Sharing knowledge Competitors (ICs, No competitors contract firms, FTEs, (just difficulties like 1706, Headhunters customers, everyone!) and Brokers!) Gimme, gimme, gimme ! Give to get

  5. Why am I Giving this Talk ? Because I practice open consulting Open Consulting -- a contracting business based on specific attitudes and behaviors differing from those of “traditional” consulting. Open Consulting -- a consulting paradigm some consider impractical but one that, in fact, works great for some people

  6. 1. Definitions 2. How Employees are like contractors 3. IC Business Models 4. What are Your Goals ? 5. Legal Status of your firm 6. Rates 7. CP Firms, Brokers, Recruiters 8. IRS 1706 and AVLs 9. How to Sell Yourself 10. Contracts, Payroll, Insurance, Finances, Retirement 11. Getting Gigs / Jobs 12. Resources Outline

  7. FTE = Full Time Employee PTE = Part Time Employee W-2 = Employee 1099 = How non-employees get paid Corp-to-Corp = How corporations get paid IC = Independent Consultant CP = Contract Programmer or Contract Programming Consultant = Advice giver Mgmt Consultant = Advice giver to management Pure IC = IC gets their own gigs Brokered IC = IC goes through a Broker to get gigs Broker (aka Bork) = places Contract Programmers Recruiter (aka Headhunter) = places FTEs Contract Firm (aka Body Shop) = Broker, Headhunter, CP Employer Big 5 Consulting Firm = Actg firm with all FTE CPs Definitions

  8. 1990 Today Employee Implied Deal : “You don’t screw up, we don’t fire you” Company-provided career planning (ie career path) Defined benefit plan Defined health plan Company-directed training 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 “We’re All Contractors Now!” Rule 1: They employ you because it pays them to! Exercise : Calculate your cost and your benefit to your company

  9. $ $ Rule 1: They employ you because it pays them to! Exercise : Calculate your cost and your benefit to your company Knowing Your Rate is Vital $ $ Employee: Know the internal labor rate at your company (“Hey boss, what do I use as an hourly rate in cost-estimating this project ?”) Contractor : Know your rate to the client (see the contract between your company and the client) $ $ $ $ $

  10. “He knew it was safer to be aware of his real choices than to isolate himself in his comfort zone.” Who Moved My Cheese ? by Johnson & Blanchard, p. 75 “Companies don’t take care of you, you take care of you.”

  11. 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 Be a Realist Note: if you’re Bill Gates ignore this foil...

  12. Rule 3: There are many ways to be an IC Based on different ... Business Models Kinds of Work Goals Values Etc.

  13. There are many ways to be an IC DBA Partners “Expert” Partnership get contracts thru vendor others Permatemp w/ special Expertise Small Contractor Firm Tech Trainer Solo Contractor thru Broker Pure IC

  14. Number on Payroll Breadth of Expertise Getting Gigs Travel Engagement Length Rates one a few many Business Model Parameters 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”

  15. * 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” Business Model - Example #1 Technical Niche Specialist

  16. * 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 Business Model - Example #2 Contract Programming Thru One Broker

  17. * 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 $$ Business Model - Example #3 Technical Trainer

  18. Business Model - Example #4 Hands-on Contracting plus Indirect Marketing for self-placement * Works as a hands-on technician * Places self thru Indirect Marketing (IM) (gains visibility through public activities) * Indirect Marketing examples: web forums, writing, presenting, developing web training, user groups, etc. + Indirect Marketing garners respect & contacts + Likes both programming & IM activities -- Time commitment to cover both those areas

  19. * Works for a dozen small businesses (autoshops, churches, dental offices, local realtors...) + Lots of work available !! (vendors ignore this market) + Great freedom of action + Clients trust him totally -- No peers to talk to (works alone at clients) -- Customers don’t always understand all that’s involved in doing this work -- SMBs pay low Business Model - Example #5 Solo PC/LAN Support Guy

  20. * 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 ($200 -> 500/ hour) + Short Contracts + Travel * S-Corp (partner-controlled, 6 people) Business Model - Example #6 Experts Contracting thru Vendor

  21. + “Be my own Boss” + More interesting Work + More Money + It’s your Passion + Alternate Lifestyle + Ego + _______________ ==> 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 Why be an IC ? What are Your Goals ? Exercise : make your own rank-ordered Goal List Self-awareness is key !

  22. Why be an IC ? What are Your Values ? * Being an IC is not inherently better or worse. * It depends on your goals, values, likes and dislikes. * Your personality type is another factor. Exercise : be sure you’re making your owndecision, not your peers’, your parents’, or your spouses’ ! Self-awareness is key !

  23. -- Stress -- Uncertainty -- Greater time commitment -- Becoming a “business person” (being a “computer freak” isn’t enough) -- Getting gigs -- Tax and legal complexities -- Managing your own benefits, retirement, etc. Why be an IC ? The Overlooked Downsides “aaargh !”

  24. Ways to Work Vendor IT Shop Brokered IC Pure IC Contract Firm FTE W-2 (hourly) 1099 Corp-to-Corp PTE PTE Corp-to-Corp 1099 W-2 (salaried) For Illinois business booklets and legal forms see www.ilsos.net

  25. (aka, the Legal Status of your business) Forms of Business These drive everything: Sole Proprietorship 1. Taxes Non-corporate 2. Liability LLC (Ltd Liability Co.) Partnership + You took no action + Simplest tax filing -- Unlimited liability -- Common property -- Unlimited group liability

  26. Forms of Business SubchapterC 1. Taxes Corporations + Limits Liability 2. Liability SubchapterS -- Taxed Twice + Large Companies + Taxed Once + < 50 Employees Corp Employee

  27. 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 !

  28. 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 ! How To Compute Rates

  29. DBA / SA Support PC / LAN Support Rates Vary By . . . What you do Training Super Tech Specialists Architects “Name” Experts lower Help Desk $$$ Design Architects Documentation higher Management Consultants Entry Level Positions

  30. New York Large Shops Architects Small Shops Rates Vary By . . . Where you do it Rural areas Big cities Depressed areas Silicon Valley lower Low-tech areas $$$ High-tech centers higher Many other countries 1st world nations Education Government Non-profits Big Business

  31. * 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 ? How Much You Gotta Make ? Assuming 1-person S-Corp ... Good Rate = 2 * FTE Salary Marginal = 1.5 * FTE Salary

  32. Rates and Salaries ? computerworld.com realrates.com informationweek.com Sources earthweb.com dice.com infoworld.com itworld.com Many others including: careerbuilder.com, salary.com, careerjournal.com, opm.gov/oca/payrates ...

  33. President/ Founder 1 How Contract Programming Firms Work “Join us, Buffy” Billing and Legal Treatment Brokers / aka “VP”s 3 W-2’s (salaried) W-2’s (hourly) 1099’s Contract Programmers 60 Corp-to-Corp

  34. The Broker makes the spread between what client pays and what you’ll accept. How Brokers Make Money $100 What Client pays $200,000/yr What Broker makes $100,000/yr $50 What CP gets $100,000/yr Most Brokers key on reducing your rate ! Are this Broker’s services worth $100,000 / year ? Brokers get 10 - 60 % typical 33%

  35. Why You Care About the Broker’s Mark-up Some contractors like to say ... “I don’t care what my broker makes as long as I make __$$__.” Big Mistake !

  36. (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 ! Why You Care About the Broker’s Mark-up Client Pays: IT Pro Gets: Susie SE $225 $60 You(brokered) $100 $60 Joe “Pure IC” $80 $80 Assuming all are equally useful... Who they gonna keep ? Hint: It ain’t gonna be you ! Even though Joe makes more than you do! (and why does Susie SE accept a rip off ?)

  37. Upon placement, the Recruiter makes either : (1) Agreed-upon fee (2) Percent of new FTEs 1st-year salary How Recruiters Make Money Example: New FTE’s 1st-year salary = $90,000/yr Recruiter @33% makes = $30,000 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 negotiating thoughts to the Recruiter ! Recruiters get $10k - $40k per placement (20% - 33%)

  38. (see “What You Are Paying Your Agent For,” Sept 2000, In Contract Professional at www.cpuniverse.com By Andrew Zanevsky * They do real work, they deserve to get paid * But their pay is sometimes outrageous as 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 and you make $120k ! ) * This brings out the greed in some people * Superior knowledge yields manipulative power Why are many Brokers / Recruiters Unethical ? Client Techie

  39. * 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” Example Sleazy Broker / Recruiter Practices Credit-check your broker: www.experian.com @ $20 - $30

  40. * 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) Why Brokers Predominate Book on 1706: www.icca.org $27 Broker or CP Firm Client IC Client IC

  41. * 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 How to Handle 1706 Umbrella Firm : * Employer of record * Billing, Admin services * Group-rate benefits Umbrella Firm See: http://rmpcp.com/ or www.pacepros.com Client IC

  42. * Shields IT shop from potential IRS 1706 Liability * Liability is the real reason for AVLs (even though everybody says it’s a cost issue) AVLs AVL Brokers ICs CP ICs Firms ICs Client CP Firms Subcontractingis an artificially created mess !

  43. H1B IRS 1706 IT Professionals Lose ! IT Labor is: * Young * Non-political * Unorganized * Lobby-less in DC UCITA L1 Off- shoring Out- sourcing “Special Interests are the greatest threat to democracy in America” -- President Jimmy Carter “Wish we had one” -- Joe IT Professional

  44. Rules : Hiring -- IT Manager’s Viewpoint * Deluge of applicants * But still expensive to hire & train => Keyword matching on resumes (by machine and HR) => Tiny % of applicants will get interviewed X Non-conformant talent is over-looked X They don’t realize there’s a 10:1 effectiveness ratio between candidates ! X If you’re just a resume in the pile, you lose X If you don’t know how the game works, you lose X You need “human contact” to get hired Results :

  45. 2 Hiring Responses FACILITATORS * “Is this person good? If yes, how do I hire her?” * Deal-makers * Problem-solvers GATEWAYS * The “Rules” people * “I just work here” * Require exact skills match * HR IDENTIFY & KEY ON THE FACILITATORS !

  46. Your Calling Card = quick “Trump Card” 10 seconds Rule : Specialization sells Exercise : Define your Calling Card Prioritize, define your 3-part pitch One Way to Sell Yourself Summary : “Who I am and what I can do for you” 2 minutes 10 minutes Resume : “Here’s proof of what I can do for you”

  47. Calling Card-- “Hi, I’m Bob, a certified Oracle DBA with 8 years hands-on experience” Summary -- “I noticed you use 9i under AIX. You must be kidding. I specialize in performance issues like those you face because I just did a major performance analysis on an AIX data warehouse last year. Are you having any issues with slow-running queries?” Resume-- it’s carefully worded and well thought out, it was in your hand, and now you’ve put it in hers. Bob “forgot” to mention that the data warehouse he worked on was still on Oracle 7… he’ll mention that later... One Way to Sell Yourself -- Example

  48. Most people hire who they know -- + Limits risk + Reduces time + Easier Human Contact is How to Get Hired * 60% of jobs filled through Networking (Challenger, Gray & Christmas) * You must key on personal contact

  49. * Hand them out judiciously * IT pros often don’t… because of “recruiter” behavior Business Cards Talk with person No Yes Bork ? “good luck!” Trade cards

  50. + Purpose -- meet their needs (not “describe yourself”) (it’s not about you) + Gets you an interview, doesn’t get you the job! + Specialization sells => Customized resumes + Buzzwords sell -- Verbose -- Wrong format -- Spelling Errors -- Too long ? Know it it’s computer scanned, tailor your resume for it ? Be careful about web posting Resumes

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