Some other suggestions things to think about:
* you'll need a significant buffer (bare minimum 4-6mo) to smooth out income variability. If you are on your own, you will probably always have high variability.
* Having an "anchor" contract before you transition would really help - e.g. 6-12mo with enough time committed to cover your basics. This shouldn't be more than max 40% time commitment, or else you won't get anything else done.
* You are going to become a salesperson. Commit to being decent at it.
* Understand what service you are selling and who you are targeting. You could have a high value, short engagement consulting business where you mostly talk to execs, you could have a higher volume (hours), lower cost, longer engagement business where you mostly provide bandwidth or experience variability to engineering managers. These are not the same business; trying to do both will probably fail.
* pricing is a signal. It's also hard to change.
* billing hourly is easier for you and them at first, but will put you in a box. billing by value will bring in a lot more $ assuming you can a) sell it and b) deliver
* what work you accept and don't accept is also a strong signal, but in the early days there is a tendency to take anything that comes along when you need revenue. Be careful not to pigeonhole yourself this way.
* cashflow issues will surprise you. If you are billing large orgs (especially public sector) you may have no choice on payment terms (but you will get paid). Outside of that, decide some you can live with and communicate very clearly. Net-15 or Net-30 with a proper discount will help you on flow.
* finding the work
* doing the work
* getting paid for the work
I've transitioned twice from FTE roles to long periods of consulting.
Things I'd consider if I was doing it now (some advice only applicable within the USA, sorry):
* have savings. I think 12 months is too much, I'd probably aim for 6. If you have a house, open a HELOC now and draw it down.
* more important than the number of months is your comfort with your runway and your planning on how to exit consulting if things don't go well. Don't wait until you have no money left to apply for jobs.
* if you want to buy a home, talk to a mortgage lender while still employed and see what the options are for self employed folks. When I last checked (years ago) you needed to have two years of self employment income to qualify for a mortgage.
* Depending on your skills, you may be able to find part time work pretty easily. For instance, if you are devops person and want to do training, there are opportunities out there. Training on cutting edge tech, if you like to teach, pairs quite nicely with consulting.
* Reach out to past colleagues and ask if they have any needs for extra hands. These folks who know you will be a great source of work and you won't have to spend as much effort selling them--they know you are great.
* cut your costs now. If you aren't watching your finances closely, take a look and plug any leaks.
* discuss the risk/reward with your family, if you have one. You'll be taking on additional risk and stress. Don't have that be a surprise.
* start a blog about your specialized business if you haven't already. This is a great way to 1) showcase your expertise in a scalable manner and 2) keep you on top of your game, since you'll be researching to write the posts.
You should also be charging _at least_ 2x your desired "salary" rate for your own time, more if you can pull it. E.g. if you made $100k/yr that works out to about $50/hr full time. Charge at least $100/hr. You'll need the buffer for taxes, healthcare, finding new clients, liability insurance, un-billable hours (e.g. writing quotes), etc.
If you are good at estimating, try to get fixed bid contracts rather than time and materials. They'll be more flexible and you won't have to be as meticulous with your time tracking. The projects are usually more interesting as well. Hourly contracts are often more like staff augmentation.
A good way to get work if you need to bootstrap can be to subcontract. Research and reach out to other, larger, consulting agencies. They're always looking for subs. Even the bigger ones like TEKSystems and RHI will take on subs (well, at least they used to, I haven't looked recently).
I would plan to work billable hours at most 75% of the time you want to spend working. The rest should be running your business. Marketing, fishing for your next client, networking, handling your business affairs.
Bring on subcontractors if your marketing/sales efforts get you too much work. This is easy profit if you can pull in the work. You should establish a network of trusted people to send subcontract work.
You probably want to use a pass-through LLC as this is a high margin business and you'll want to take profit sharing rather than salary to avoid double taxation and also want the liability protection of LLC. But talk to a good CPA in your area.
One: the artisan/boutique way. You can make plenty of money this way, it's how a lot of high-end law firms, marketing agencies, etc. run. Focus on a very high-value problem, do most of the work yourself or with a small team of partners, and be the best at it: medical malpractice cases, patio11-style marketing optimization, that kind of thing. Stay small, make a million (or more) per year, build your brand. Get work through referrals and keep charging more as you get better and more well-known. Most of your gains will come from serving clients with bigger pocketbooks, even through the work will be substantially the same (funny how that works).
Option 2: the true "business owner". Reframe from "I can make X for Y hours" to "I need to sell x million @ y% margin". Think like a drug dealer or a guy selling shoes. Sell a million dollars of product, keep 10%, you make 100k. Two million in sales @ 15% = 300k. The point is, you aren't selling yourself, you're selling a product, whether that's hours of developer labor, some kind of outcome, or even a physical product. You're a merchant. This is what it means to be a true "business owner" -- not that it matters that much, many people that go down the other path do just fine.
The main thing is to get into the mind of a (your) customer. It's no longer about the work itself, but your customer - how they find you, why they're paying you, etc. You need to figure that out.
Good luck.
(used to run an agency and now starting a software company.)
I would not do that approach again.
You've already got some consulting revenue, that's a great start. Do you have a solid 6 months of living expenses saved up? If not, do that. Do you have a portfolio of different projects you've done and a good way to communicate them? If not, do that.
In the small amount of free time you currently have, I'd look very selectively for a large contract. Once you land it, put in your two weeks and make the jump.
Once you're on your own, never stop prospecting. Even when you have too much to do to take on a new client, you have to keep the pipeline full - it's the only way to make it work because you'll invariably have some contracts end abruptly. I was real bad at that part of it, and that's why I stopped after ~4 years.
Full time job at startup doing web/mobile dev and infrastructure. I’m the fixer on the whole stack. Lots of personal side projects after hours.
2013: started moonlighting after full time job. An angular web dev project.
2014: started sole proprietor to have the after hours work on the books. Another Webdev project and a few websites. New client for which I am developing a platform that they can resell over and over.
2015: quit my job. Full time on my own. 3days/week at client office doing web/infra/uit. Other client projects on the side. Incorporated instead of sole proprietor for tax reasons.
2016: signed FTE contract as freelancer for more than a year doing web/mobile/backend/infra at startup. Other small client projects on the side.
2017: same
2018: same
2019: scale down long term client. Add other clients on the side.
2020: took on more than I could handle and I burned out. In two steps in June and September.
2021: spent 6 months at home not working. Living on my company savings.
Now I just started working again 3 days a week to make sure I have an income. 1 client in an R&D role. Some creative personal play project on the side.
Yes, finding work is important, doing the work is important, and getting paid is important, but the latter two are not as important if you know what you're doing and you work with people who will pay you. Those parts are not hard. Sales is "hard," in so much as it takes time.
The risk factor involved in my previous statement is that they shop around and rescind the work agreement because their timetable has immediate needs. Not a lot of clients are patient.
It's sort of a basic thing that goes without saying, but once you get into this line of work, you'll learn a lot about HR, compensation packages for your contractors/employees and corporate tools.
1.) You're going to do sales, invoicing, collections, bookkeeping and regulatory shit. At various points, these five jobs will make you want to go back to your FTE status.
2.) You will eventually become your own pointy headed boss (at times).
3.) The difference between net income, profit and cashflow will always surprise you in the wrong direction. Try not to spend theoretical dollars...
I wasn't independently wealthy, but I am pretty good with money, and had a fair bit of capital tied up in my house, so I had enough runway to last a few years without earning a penny.
Although I am first and foremost a software engineer, I had also worked a bit with sales in a software consultancy, and had also had a few years as a CTO where I had to hire consultants (its not super common to have experience in all three of these areas). Additionally I had a few semi-successful projects on GitHub (~2k stars, 1m+ downloads a year), so I had a modicum of tech-credibility.
So as it turned out getting work was super easy. I knew the sales process pretty well from a vendor and customer perspective, and I could also do the work myself. I had expected it to be harder than it was.
What was a bit unexpected was getting somewhat "stuck". 2-3 years in I began to realize that being a "super consultant" is a bit of a poisoned chalice. If you are always billed out 100%, then it doesnt really make sense to work with other people because you either have to partner up, in which case you can only make the same or less money; or you have to run a stable of less qualified consultants, which basically means a lot less money until you have got 10-20 or so, and then going hard after government contracts or subcontracting to more established consultancies. Consultancy is a bit of a grind, and thats a shame, because the exciting thing about software is that you can make stuff that can become really popular and really lucrative, really quickly. Tech consultancy is quite similar to corporate law- you make _quite_ a lot of money, but you wont get properly rich, and you will really have to work for it.
If I was to do it again, I would partner up with some like minded people, get financing for a couple of years and build a product company. It might do well, it might not, but it would be more fun.
(Also, practical advice for being a consultant: ask for much more that you think is reasonable- they quite often say yes to whatever terms you suggest)
First few months were nuts, working insane hours, but very quickly found a balance. After that, I managed to travel and be a sort of hybrid digital nomad, with a base in one country that I often returned to. I'd spend about six months in the Northern Hemisphere during late Spring and Summer, around four months in Southern Hemisphere for the their late spring/summer - and the other couple bouncing around the tropics.
Probably had a 12-24 month runway of cash if needed, but never actually touched any of it. No idea how to hustle for new work. But it kept coming in anyway. Stopped bouncing between hemispheres around 8 years later having settled in Australia.
Have now started a company with a co-founder and transitioning more to selling Saas products rather than contracting purely exchanging hours for cash. (I've never been able to get paid purely on value-based pricing)
1) Find a single large client with a steady stream of work. Quit your job to contract with this client, use new freedom to solicit additional clients. Avoid becoming entirely dependent on this single client, though.
2) Establish enough savings that you can reasonably coast for 12 months while building up the business. Make acquiring new clients your #1 priority.
The biggest challenge with consulting is not doing the work. It's getting the clients. It's an entirely different skillset than engineering, which is why so many freelancers fail. You should start networking and building relationships with potential clients long before you quit your job.
I personally moved to contracting, got a 6 month contract, which wasn't too dissimilar to being employee.
That gave me time in between contracts to build products, which ramped up. Incidentally I went back to FTE with side projects for personal reasons (paternity leave in primis) and I'm now about to do the jump to product only. I'm not excluding doing the odd contract if money is low in the future.
Savings wise we're a bit on the extreme side, we can either buy a house or live for 15 years without work.
I would say 1-2 year of savings would be plenty.
I only did big projects (>4 months).
This way I only needed 2 a year.
I searched online and send like 10 applications a month. Which isn't that much.
But since I only needed two companies to agree every year, the odds were in my favour.
That's what made the difference for me. I partnered with a marketing consultant and she added me to her services every time she got a new client.
The best book on this would be Million Dollar Consulting from Alan Weiss. Do your job well and then promote yourself to reading Trillion Dollar Coach ;))
That said, if the thought of shaking hands, giving free talks, and doing anything else to get a large client that you can be certain will actually pay their bill, then you probably shouldn't quit your FTE.
Figure out what your minimum living expenses are and acquire a part-time job to meet this level (either cutting back at your current job or switching jobs). Then when your business has ramped up enough you can quit this part-time job.
1) Start as a contractor.
2) Look to join teams that are set to grow.
3) Get paid hourly to a company entity instead of to yourself.
4) Make sure your rate has a 40-50% margin above a salary
5) Pay attention to staffing needs at your client.
6) When you see a possible need, be proactive about getting someone in that you have vetted or trust under your company umbrella.
7) Rinse and repeat.
At about 4-8 people you will be making less money as you wont have time to work, you will be managing people but they might not be making you as much as you made when you were billing as an individual.
You will just have to tough it out. you will likely make mistakes in hiring, lose customers and reset down to 1-3 where you are doing the work again.
Eventually you will have two simultaneous customers. Sometimes you will drop back to one, but eventually you will get 3 etc.
Most of your growth will come from existing customers, for us it is still 80% from existing customers, 20% from new customers. We are at about 60 people
The very first thing I outsourced was accounting (in the first week). The very next was an admin who could also manage a recruiting process. I happened to get a big first deal from a former employer and jumped to 10 people in the first year. But dropped back down during the 2001 recession and had to start over.
I hate networking and have never (rarely) found clients except the first. Therefore I dont think an ability to network is important. Im an introvert and try to minimize my contact with other people. I tend to hide in my office...
As soon as I could I started with a salesperson who could start to prospect.
You could take part time contract work with an agency to help smooth the transition and provide a nice baseline. By part time I mean hourly as demanded not whatever your country considers part time hours.
Cut the rigid lifestyle cost as best you can now. You will have a lot of headspace committed to running your business, the last thing you want to be stressing about is half a dozen subscription services monthly payments looming over you. It helps you be resilient to those income instabilities too and less likely to go back to FTE.
It's not so much about being frugal as it is being flexible. When times are good, I eat out, go to shows, buy things I want, and life is good. But when things are lean, I don't want to have to negotiate payment extentions or work around immovable payment dates.
Craig Box has me on the Kubernetes Podcast to talk about the journey and career from FTE to having a company
https://kubernetespodcast.com/episode/116-independent-open-s...
With regards to your current revenue, it takes time to build up your client list and for you to understand what people are willing to pay for, that you can do. As you'll see in my journey, I quit to offer support to commercial users of OpenFaaS, many were happy supporting it themselves because we err on the side of simple / documented. Developer brand and experience is something almost every company with a product needs help with.
Are there aspects of the work that can or should be automated?
Are there aspects of the work that should be offloaded to third party services to free you up to concentrate on the bits that bring in the money?
Are you charging enough? I ask because not charging enough to cover your needs is a common mistake. Increasing your rates might reduce the amount you need to scale.
Do you have enough saved up to endure a year or so of reduced income while you work out the problems of scaling?
Figure out the tactics. Plan for the transition. Don't just fling yourself into it. I don't say any of this to discourage you. I hope that, after some planning, you make the leap and I hope you do very well from it.
You become a natural and trusted partner in this relationship, provided you do give them the degree of commitment the retainer demands. With the retainers, you are given bare financial security. With security, you are free to try ideas of your own and that could be the best part.
-rick
I feel we could use a new round-up of tools small consultants may value, like invoicing, contracts, crm, demos and such.
I know these can be a duck search away, but many of those tools are not oriented to small extra price sensitive sole props/ new / small shops.
I think I've seen past HN thread with 'open-source countracts' and such - a new roundup would be useful.
Do what's right for you, but I jumped and never looked back.
The reason I started is for the flexibility. I'd like to be able to schedule a month or two to travel each year and this seems out of the parameters of most FTE positions. I'd also like to enjoy the outdoors more than a typical 9-5 + commute will allow for.
I actually quit my FTE job at the beginning of the year with the intent of traveling for most of 2020. COVID cut that short, and I decided to contract once we got back for maximum flexibility. I did have enough savings for at least 6 months to start, but only ended up needing to draw down about a month's worth before the contracting income was enough to live on.
I started by tapping my network. I also reached out on hiring platforms and tech communities, and started self-promoting via blog and social posts (though I havn't kept this up at all, perhaps to my detriment).
It didn't take long to secure some small contracts, in the $5 to $10k range for a month or two of work. Doing a good job on these opened me up to further work with those companies. I also kept my ear open on LinkedIn, though the vast majority of people on there and most hiring platforms are looking for FTE.
Every company that I've worked for has wanted to engage me for longer, but I've found that startups are most willing to look to contractors for flexible and part time work.
My most lucrative but least fulfilling contract was 6 months of a mostly-9-to-5, this just felt like being an employee with worse benefits.
Currently, I am working hourly for a couple of small orgs doing some odds-and-ends feature work that's outside of their in-house developers expertise, and I have an 11-day-a-month contract with one of the companies I did project-based work with last year.
This is enough to provide a stable SWE salary with a lot more flexibility. I won't be multiplying the value of my time unless I get into "product-esque" consulting (security, SEO, privacy, accessibility audits), or start working with larger companies.
My workload meets my needs for now, but if I want to grow a business I'll need to refine my offering, target larger companies, and generally put a more professional face forward. I'm not sure this is what I'm interested - I've always been more of an engineer than a business person, so I'm leaning towards working on product with some other people in the free time that my flexible schedule affords.
Some tidbits of advice:
* Get an accountant early on. Money well spent, and will save you a brutal headache when you run into tax questions in the next year.
* I havn't felt the need for a lawyer yet. I suspect if/when I start working with larger organizations, I'll need that next. I have not had much difficulty putting contracts together or getting paid, but I suspect my good luck will come to an end eventually :)
* I did incorporate as an LLC. It hasn't been particularly useful yet, but it might in the future.
* Knowing _why_ you are contacting is important. If you're working with people from the same company 9-5 for months at a time, having a daily standup with them - is that really much different from being a FTE? In some sense, yes, because you can change teams more quickly and easily than FTE, but you take on quite a bit of overhead to do it. You'll need to really work at building a schedule that accomplishes _your_ goals. Everyone wants more of your time!
A B C: Always Be Closing. You need to be closing your next deal while you are still working the last one.
Don't be afraid to hire an EA to do contracts and quoting and invoicing and whatnot. Your job is sales and the work itself.
with deel.com and remote.com it's pretty easy to do self employment
It's usually marketing. That's probably why revenues are low too. Once we had marketing sorted out we had more work coming in than we knew what do do with. So we promptly raised our rates and became small but profitable.
Don't quit your day job until you have too much work to do it.
I don't want to dump a rant (but I did anyways) but start online and start local. Do geofenced ads on Google and Facebook. Put in your ads that you're close by. Even in online age companies they can drive by and see have a huge edge, so this is best place to start with ads, you will have a solid handicap against powerful national ad campaigns. Know your market, for instance, we discovered a lot of older guys running small businesses listen to certain AM radio stations and ads there are super cheap. Some of them still read newspapers too. Lots of little insights like that eventually give you an edge. Marketing is all a big competition for eyeballs at the lowest price.
Another plus was partnering with an IT company. We gave them IT work, and they gave us software dev work when there wasn't an off the shelf fix. After years of this the owners merged the two companies for good profit.
Organic reach is just as important as ads, if not more. Figure out what problems you could solve for clients and start writing articles about them. Don't outsource this to ad agencies. They write fluffball articles with no substance and Google will deepsix you. Find the most knowledgeable person on the subject that doesn't want a fortune or even who wants to promote their own shit that doesn't compete with you. Humble-brag but I have some articles related to my specialty that still rank #1 on Google for our targeted keywords a decade after leaving that place. At one point 20 articles that I wrote brought in 70% of traffic. No idea what their metrics look like now, but I'm sure they still bring in tons of traffic to this day. TLDR: organic reach is super important because unlike ads, it's free.
Your best bet early on is copying successful competitors. There's a lot of services out there to monitor competitors ad campaigns and website organic reach/links. Mimic your competitors at first, leaning on closer physical distance to make up for worse targeting until you got your beat then rise up against them or find your own niche.
Again small advantages build up. One of our biggest local competitors used a help widget on every site they wrote. I eventually found all of their clients from this using DNS and we systematically called them all and took a good fraction that had issues with their hosting.
I am convinced it's all marketing. Software consulting is a generic business like a restaurant unless you specialize in military guidance systems or Fortran or something. Just like a restaurant, the food matters but marketing is what makes or breaks you
You could talk to your current employer about switching to a part-time contract - it seems like in the last couple of years, more companies (especially startups) are comfortable with this + remote. If you can get them at 20/wk, that will give you some good security while you work to fill the other 20 (sounds like you may already have a jump on that).
Have a lot of meetings with friends and past coworkers, and let them know you're striking out on your own with a particular skillset. All of my best projects have come from connections, and my worst ones have been anonymous inbounds/etc. If you're in-demand, you should be able to line something up before reducing your FTE hours or quitting your job. It might take some time to find a good set of clients + rhythm, and you want to avoid "burning savings" during that period as much as possible.
Do good work. It's good for your clients, good for referrals, and good for your soul. You're a craftsman, and your name is attached to your work in a new way as a consultant.
I charge a reasonably high hourly rate for my work, and my clients are usually around 15-20 hours a week. I've found two clients to be the right number for me. For them, it's a way to get senior experience on the team for the yearly price of a more junior dev, and for me it's a way to make a good salary, while getting to work with startups and enjoying some freedom and flexibility to do the things I love (traveling and learning to fly!).
I try to keep a bit of "slush time" (like 5 hrs/wk or so) to work on interesting one-off client projects that come along. They're fun and stimulating, and they keep me sharp at selling my skills to completely fresh clients. I normally work on the frontend/backend, so getting to work with things like Swift or ARKit is great. These projects are also really low-pressure, because my main stream of income comes from steady long-term engagements. This is my "blogging".
I jumped in feet-first, but I was a broke college student (and self-taught developer) when I started so my burn rate was ridiculously low. It took me a long time to find a good pace and to build a good network, and I started a few companies along the way. I'd only recommend doing it this way if you're young and resilient - in retrospect, I could have been doing many of the things I needed to do (getting experience, finding clients, making friends) with a more stable salary. I don't know if I would have, though - so the pressure was helpful in some ways. I was also lucky to be in a stage of life where stability was less important than adventure.
Hope some of that is useful, and best of luck striking out on your own!
Good luck. There's a lot of surprises. More complex taxes, issues with liability, marketing (not an engineer's strong suit typically), extracting cash from clients, the cost of health insurance/SS, the need to appear to be self-employed from a tax standpoint. Small companies don't know why it's so expensive, large ones push the payment out in time, entrepreneurs will trade you .1% of the company for a ton of work because their idea is so darn good.
OTOH, self-employed IRAs are pretty sweet.
You also have to be willing to let go of everything you think you "can't live without". Likely that means being willing to dump/avoid women and/or no longer being an over-extended financially by expenses like having mortgage and run-up credit cards.
You will fail - that's 100% NECESSARY to learn enough to succeed to not fail. So you have to deal with losing these things. Women don't care about your struggles; they only care about standing at the finish lines and picking the winners.
I was forced into it by Silicon Valley age-discrimination - I had to find a way to pay my bills, but every company was telling me I wasn't a good "cultural fit". I was also seeing this when I was passed over for promotion by yes-men who have demonstrably worse track records and lower IQ.
My "lack of cultural fit" was both reaching an age where I no longer gave a shit about "playing the game" and realizing I was smarter than my bosses.
I ended up losing my marriage as a result of jumping off - she didn't want someone struggling to make something better - she only wanted a winner. I had been one but it collapsed on me and she has zero fucks for that.
Eventually I lost another marriage but after that, I had only my own spending to worry about and my own lifestyle needs to meet which were far cheaper than what most women will put up with. You can only succeed as being self-employed or sole proprietor or an entrepreneur if you are willing to lose everything and still claw back to try again.
I sold one of my companies a few years back and that pretty much set me up for several more companies I had in mind. They involve things I love and that are in demand so they will make money. That's how you win. It's ONLY about you, and never we.