1. 1 How to Be an IC (Plus! Job-market Tips for Everyone!) Howard Fosdick (630)-279-4286 hfosdick@compuserve.com (C) 2001 FCI

2. 2 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

3. 3 Why am I Giving this Talk ? 2 Consulting Paradigms 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 ! Give to get Traditional Open Source Consulting

4. 4 Outline 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. Selling Yourself 10. Contracts, Payroll, Insurance, Finances, Retirement 11. Getting Gigs / Jobs 12. Resources

5. 5 Definitions 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

6. 6 Were All Contractors Now! Employee Implied Deal : You dont screw up, we dont fire you Company-provided career planning (ie career path) Defined benefit plan Defined 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 : Youre 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 1980sToday

7. 7 Who Moved My Cheese ? He knew it was safer to be aware of his real choices than to isolate himself in his comfort zone. by Johnson & Blanchard, p. 75 Companies dont take care of you, you take care of you.

8. 8 Be a Realist Rule 2: The job market works the way it works + Figure it out + Work it to your advantage -- You cant 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 youre Bill Gates ignore this foil...

9. 9 Rule 3: There are many ways to be an IC Goals Business Models Values Kinds of Work Etc. Based on different...

10. 10 There are many ways to be an IC Tech Trainer Permatemp w/ special Expertise Solo Contractor thru Broker Small Contractor Firm Pure IC Expert Partnership get contracts thru vendor others DBA Partners

11. 11 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 on Payroll Breadth of Expertise Getting Gigs Travel Engagement Length Rates

12. 12 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 $$ * Shes very smart, will certify on new technology while on downtime

13. 13 Business Model - Example #2 Contract 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

14. 14 Business Model - Example #3 Technical 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 $$

15. 15 Business Model - Example #4 Experts 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)

16. 16 Why be an IC ? What are Your Goals ? + Be my own Boss + More interesting Work + More Money + Its 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

17. 17 Ways to Work Vendor IT Shop Contract Firm Brokered IC FTE W-2 (hourly) 1099 Corp-to-Corp PTE PTE Corp-to-Corp 1099 W-2 (salaried) Pure IC For Illinois business booklets and legal forms see www.ilsos.net

18. 18 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.)

19. 19 Subchapter CSubchapter S -- Taxed Twice + Large Companies + Taxed Once + < 50 Employees Corporations Forms of Business Corp Employee Taxes Liability 1. 2. + Limits Liability

20. 20 Rates * The contractor version of employees salary * There are no rules * Everything is negotiable * Know typical rates * Know clients target rates Knowledge is the key !

21. 21 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 !

22. 22 Rates Vary By... Training Small Shops Documentation Name Experts Large Shops PC / LAN Support DBA / SA Support Architects Design Architects Super Tech Specialists $$$ lower higher Government where you work, and what you do Mgmt Consultants Help Desk

23. 23 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 Salary Marginal = 1.5 * FTE Salary

24. 24 Rates and Salaries ? Sources computerworld.com informationweek.com datamation.com earthweb.com realrates.com dice.com (Blue = online & print) many others... itworld.com

25. 25 How Contract Programming Firms Work President/ Founder Brokers / VP Placements Contract Programmers 1099s W-2s (hourly) Corp-to-Corp 1 3 + 1 60 Billing and Legal Treatment W-2s (salaried)

26. 26 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 spread between what client pays and what youll accept. Most Brokers key on reducing your rate ! Is this Broker worth $80,000 / year ? Brokers get 10 - 60 % typical 33%

27. 27 Why You Care About the Brokers Mark-up (1) The spread may be too large (youre making less than you could!) (2) Client bases all retention decisions on their cost (not what youre making) Example: Time to reduce contractor costs ! Susie SE = $225/$60 You (brokered) = $100/$60 Joe Pure IC = $80/$80 Who they gonna keep ? (and why does Susie SE accept a rip off ?) Assuming all are equally useful...

28. 28 How Recruiters Make Money New FTEs 1st-year salary = $90,000/yr Recruiter @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 negotiating thoughts to the Recruiter ! Recruiters get $10k - $40k per placement (20% - 33%) Example:

29. 29 Why are many Brokers / Recruiters Unethical ? * 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) * Its 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

30. 30 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

31. 31 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) ClientIC ClientIC Broker or CP Firm Book on 1706: www.icca.com $27

32. 32 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 ClientIC Umbrella Firm See: www.pacepros.com or www.contractorsresources.com Umbrella Firm : * Employer of record * Billing, Admin services * Group-rate benefits

33. 33 Microsoft Perma-temp Lawsuit * $100 Million cost * Plus legal costs * Big impact on IT * AVLs and Brokers everywhere !! yuck, yuck!

34. 34 AVLs * Shields IT shop from potential IRS 1706 Liability * Liability is the real reason for AVLs Client AVL CP Firms Brokers ICs CP ICs Firms ICs Subcontracting = What a mess !

35. 35 IT Professionals Lose ! IRS 1706 H1B 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

36. 36 Hiring -- IT Managers 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 cost X Dont lose good people X Hire attitude & related skills (not exact skills match) Rules : Results :

37. 37 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 !

38. 38 One Way to Sell Yourself Rule : Specialization sells Exercise : Define your Calling Card Prioritize, define your 3-part pitch 10 seconds Your Calling Card = quick Trump Card Summary : Who I am and what I can do for you Resume : Heres proof of what I can do for you 2 minutes 30 minutes

39. 39 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 credibility Experienced -- another hoop to jump through Its up to you to determine Cert value for your area See coriolis.com, certification.com Joe SA

40. 40 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

41. 41 How Skills Become Obsolete -- Example Primary 2ndary Obsolete 1981 1991 2001 MVS DOS MVS VM DOS OS/2 Linuxes Unixes Windows (desktop & server) Exercise: map your chart for OSs, DBMSs, Pgming Languages, etc.

42. 42 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 precondition for larger success Rule 2: Technical skills plus other skills yield greater success than technical skills alone

43. 43 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 understand them 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 and icca.com

44. 44 Insurance 1-person CorpLarger Corp * General Liability (GL) * Errors & Omissions (E&O) ($300 - $500) * Workmans Comp * Employee Liability * Fidelity Bond * Other Bonds * Company Auto * Etc. ($ thousands) See www.ccbsure.com www.techinsurance.com

45. 45 Why Liability Predominates $0 cost to Plantiff to launch lawsuit Defendant pays $$ to you, you share with lawyer Plantiff wins $0 cost to Plantiff Defendant pays $$ 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 ! YesNo

46. 46 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 all income Your S- Corp You Corp expenses payroll FICA (2 * 7.5%) Fed WH Tax State WH Tax I didnt know! All Corp accounting must be separate from your personal finances

47. 47 Finances & Retirement * Learn how to invest (or pay someone to do it for you) * Investments determine how well youll 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 !

48. 48 How to Get Gigs / Jobs Pay Someone to find them Direct Marketing Indirect Marketing Brokers (Recruiters) * Do what Brokers do (Be your own bork) * Do what Brokers cant do * Clients come to you due to your visibility gig me, baby !

49. 49 How to do Direct Marketing ID Companies ID their Technologies ID Contacts * Where * Its business * Its structure * Software * Hardware * Size * IT dept. structure * Who * Titles / positions / roles * Phone #s / email addresses Create/maintain Relationships * Takes time * Difficult due to changes * The hard part !

50. 50 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.

51. 51 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

52. 52 -- 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 Indirect Marketing Long-term survival is a sociological endeavor

53. 53 Vocational * Biz partners, leads, CPs* Company co-founders Institutions -- Teach a Class Research Experience : -- 0 leads ? Yours ? -- Pay low + Satisfaction high Indirect Marketing

54. 54 -- 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) Indirect Marketing

55. 55 -- 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 Indirect Marketing

56. 56 -- 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 ? Indirect Marketing

57. 57 -- Give Presentations A Public Job Interview * Users Groups * Conferences * For-profit organizations + Great visibility + Establish you as an expert Experience -- + Good Leads ? Your results ? Indirect Marketing

58. 58 -- 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 ? Indirect Marketing

59. 59 -- Write a Book How to Get Published ==> Produce the book ! + Expertise (She wrote the book on it!) + Satisfaction -- Effort Required -- Pay -- Obsolesence # of authors 1 2 3 4 # books written # of authors $$ Indirect Marketing

60. 60 -- Internet Discussions A Public Job Interview * Pick right forum (topic, size) * Dont flame / be professional * What you say could be held against you * Youre not talking to a person, youre talking to the world ! Experience -- + Good leads + Friends and learning, too! -- Brokers/Recruiters scan them -- Spam Indirect Marketing

61. 61 -- Develop Freeware A Product displays your talents plus provides the foundation for your company ! (If youre a Web Developer, make your resume a wow website) Oracle Examples : * Alertview * TOAD * Statspack Viewer Indirect Marketing

62. 62 Resources The only Association for ICs www.icca.org www.icca-chicago.org They sponsor GO CONSULT on Compuserve 800-779-8911 for info Dues $175 - 275 / year Chicago $30 - $45 / meeting Annual conference: St. Louis in June ICCA (Independent Computer Consultants Association)

63. 63 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 Consultants Association (ICCA) * National Assocation for the Self-Employed (NASE) Magazine * Contract Professional Books * Janet Ruhl * Computer Job Survival Guide * Answers for Computer Contractors * Computer Consultants Workbook * Computer Consultants Guide * Herman Holtz * How to Succeed as an IC * The Business Plan Guide for ICs * Consultants Guide to Getting Business on the Internet * Gerald Weinberg * Secrets of Consulting * Peter Meyer * Getting Started in Computer Consulting

64. 64 To Learn More... FTE ? Read Ruhls Computer Job Survival Guide Read Ruhls IC books -or- Peter Meyers book Check out ICCA and PACE Check out websites like realrates.com etc. Yes No

65. 65 ? ? ? ? ? questions... ? ? ? ?