How to Be an IC (Plus! Job-market Tips for Everyone!)

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

2. 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 How did I become an IC ?

3. Open Source Consulting Traditional 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

4. 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 Outline

5. 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

6. 1980s 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

7. “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.”

8. 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...

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

10. 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

11. 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”

12. * 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

13. * 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 Broker

14. * 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

15. * 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) Business Model - Example #4 Experts Contracting thru Vendor

16. + “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 !

17. 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

18. (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

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

20. 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 !

21. 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

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

23. Assuming 1-person S-Corp * 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 ? Good Rate = 2 * FTE Salary Marginal = 1.5 * FTE Salary

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

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

26. 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 $80,000/yr $60 What CP gets $120,000/yr Most Brokers key on reducing your rate ! Is this Broker worth $80,000 / year ? Brokers get 10 - 60 % typical 33%

27. Why You Care About the Broker’s Mark-up (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 ! Susie SE = $225/$60 You (brokered) = $100/$60 Joe “Pure IC” = $80/$80 Assuming all are equally useful... Who they gonna keep ? (and why does Susie SE accept a rip off ?)

28. 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%)

29. (see A. Zanevsky, Contract Professional) * 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 you made $120k ! ) * Superior knowledge yields manipulative power Why are many Brokers / Recruiters Unethical ? Client Techie

30. * 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

31. * 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.com $27 Broker or CP Firm Client IC Client IC

32. * 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 Client IC See: www.pacepros.com or www.contractorsresources.com

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

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

35. H1B IT Professionals Lose ! IRS 1706 IT Labor is: * Young * Non-political * Unorganized * Lobby-less in DC UCITA “Special Interests are the greatest threat to democracy in America” -- President Jimmy Carter

36. Rules : Hiring -- IT Manager’s 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 Don’t lose good people X Hire attitude & related skills (not exact skills match) Results :

37. 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 !

38. 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 30 minutes Resume : “Here’s proof of what I can do for you”

39. Joe SA * 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) Certification ? It’s up to you to determine Cert value for your area Inexperienced -- use it for instant credibility Experienced -- another hoop to jump through See coriolis.com, certification.com

40. * * Avg contract consultant lasts 6 years * By age 40, < 22% of IT technicians still do technical work You Need a Longevity Plan Why ? -- Technical change -- Burnout -- Business model change -- Industry change + Choice + Career evolution Involuntary Voluntary Change will happen, be prepared to handle it! * As as per Computerworld

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

42. Business Skills (Taxes, liability, finding clients, selling yourself) Rule 2: Technical skills plus other skills yield greater success than technical skills alone Skills for Optimal Success Technical Skills Personal Skills (Psychological, Sociological, Leadership) Corollary: Technical skills are only the necessary precondition for larger success New Technical Skills

43. You have legally agreed to what your contract says ; Nothing anybody says matters. * They are serious * You better understand them * Everything is negotiable * 2-party versus “brokered” or “subcontracted” (3-party) Contracts 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. Insurance 1-person Corp Larger Corp * General Liability (GL) * Errors & Omissions (E&O) ($300 - $500) * Workman’s Comp * Employee Liability * Fidelity Bond * Other Bonds * Company Auto * Etc. ($ thousands) See www.ccbsure.com www.techinsurance.com

45. $0 cost to Plantiff to launch lawsuit Why Liability Predominates Yes No Plantiff wins Defendant pays $$ to you, you share with lawyer $0 cost to Plantiff Defendant pays $$ 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 !

46. * 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 How Do You Pay Yourself ? “I didn’t know!” Your S-Corp payroll all income You FICA (2 * 7.5%) Fed WH Tax State WH Tax Corp expenses All Corp accounting must be separate from your personal finances

47. * Learn how to invest (or pay someone to do it for you) * Investments determine how well you’ll 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. Finances & Retirement “I quit !”

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 can’t do * Clients come to you due to your visibility gig me, baby !

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

50. 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. Where to get Direct Marketing Info