[HN Gopher] So you have decided to start a Free Software Consult...
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So you have decided to start a Free Software Consultancy
Author : rapnie
Score : 78 points
Date : 2022-08-11 08:39 UTC (14 hours ago)
(HTM) web link (ariadne.space)
(TXT) w3m dump (ariadne.space)
| benjaminwootton wrote:
| The article misses the thing that most people will have problems
| with - generating leads, getting a proposition agreed and selling
| that to the wider organisation and budget holder.
|
| That's the hardest part of running a professional services
| business by a factor of 10.
|
| The second hardest part, almost as hard as the first, is
| attracting and recruiting good and reliable talent who won't mess
| up your customer engagements.
|
| Negotiating prices as per this article is right at the end of a
| very long process. If you get there you are almost home dry on
| the deal.
| tepitoperrito wrote:
| Hmmm, I cofounded the company I'm at now specifically because
| companies trying to grow in my industry are tired of chasing
| "qualified leads".
|
| So what we do is the work of getting to a request for bid or
| quote with target customers and forward those off to our
| clients.
|
| A lot of "engineering types" including myself can be semi blind
| to the value of the MBA types. Or even just sales in general.
|
| However, I think the content in the article addresses all that.
| They mention to:
|
| - frame a value proposition as value creation by solving a
| problem for your customer
|
| - set appropriate pricing, charge your worth
|
| - and to network professionaly
|
| If you're an individual running a FLOSS consultancy thats great
| advice to get going with sales, marketing, and B2B credibility.
| YMMV but for someone starting out they might not be able to
| afford a digital sales team or a large enterprise contract with
| an agency to drive growth.
| rad_gruchalski wrote:
| This. This is a full time job. Trying to get leads via
| LinkedIn? Twitter? Ain't going to work - preaching to the
| choir. One needs to reach outside of their network. This is all
| about meeting people in real world and talking to them. Events,
| conferences, paid introductions.
|
| Alternatively, one does contracting sourced through headhunters
| but that's not really consulting.
|
| It's all about talking to people, building rapport,
| establishing trust. Often talks lead nowhere for months or
| years. Talk to people about their problems, suggest solutions,
| show your value, but don't share how.
|
| Next point, without people on standby, some engagements are
| unreachable because the client will not engage if: a) you have
| no perm employees, b) you are too small, as in, what if you go
| under 6 months down the line or some bigger client paying more
| comes around.
|
| It can be rewarding but it's a tough market to be in.
| Competition is huge and there's always someone with prices
| lower than yours but positioned better than you at a given
| point in time.
| nibbleshifter wrote:
| > For serious engagements, pricing should be defined as a
| function of the value gained for the client from the engagement.
| For example, if the client saves $250k as a result of the
| engagement, then you should charge a percentage of that savings.
|
| Optimyze (later acquired by Elastic) initially tried this pricing
| model and found that enterprise orgs simply wouldn't go for it,
| despite the cost being effectively "free".
| benjaminwootton wrote:
| I agree it is extraordinarily difficult to pull off. I have
| seen it attempted hundreds of times in technical professional
| services deals and never once seen it get past procurement.
|
| You can however incorporate into your pricing by charging
| $high_day_rate or $high_fixed_price if you have established the
| value.
| karaterobot wrote:
| Can't really blame them. They just want to know how much it's
| going to cost them. Somebody is trying to allocate a budget for
| this project, and they ask "what's it going to cost?" and the
| answer can't be "the result of a function whose inputs are
| undefined at this time".
| R0b0t1 wrote:
| Nah. You can definitely blame them. As a vendor you should be
| able to put some kind of error bars on the potential savings.
| If they then refuse because they think your cut will be too
| high, move on and let them flounder. The major malfunction a
| lot of executives have is that they overestimate the value of
| not only their own labor and their company's position in the
| current market, but they underestimate how hard it will be to
| get a competent replacement.
|
| I don't really know why. It's partially hubris. But I think
| it stems from not being able to separate the superficial
| understanding that happens when being told something from the
| true understanding of synthesizing that understanding
| yourself. Most executives seem to go through life thinking
| they are amazing just because they can understand what people
| are telling them and attribute it to themselves, when in
| reality they can make nothing of value.
| gnramires wrote:
| I've come to the conclusion that estimating "value" can be
| quite tricky. Is it the difference as to what their profit
| would have been without _your specific consultancy_ , without
| _any consultancy_ , without _a specific solution_?
|
| To illustrate why, consider the "value" of a (1) a toilet,
| (2) nuts and bolts (sorry, I'm not great at examples). You
| couldn't live well without a toilet, the differential cost of
| having/not having a toilet in your home is immense. That
| doesn't mean it's reasonable to spend thousands of dollars on
| a single toilet -- even if you would if you absolutely had
| to. The cost isn't that high. The same goes for nuts and
| bolts in a product: they can be essential for the
| functioning, but it doesn't really cost much, nor makes sense
| to use uber-costly nuts and bolts. So a naive differential
| definition of value can be just a rent-extracting
| proposition, which I think most orgs would try to avoid.
|
| If you're sure no one else in the world could deliver this
| solution (i.e. it's extremely scarce and non-reproducible),
| then the value proposition starts to make more sense (because
| your time and attention is also limited). I tend think that's
| rare.
|
| So it seems more natural to adapt to each situation: you need
| to estimate your (operation) costs and target revenue, and
| then charge with a healthy margin on that; and if your
| service is highly unique or in high demand, you adapt by
| increasing your pricing accordingly.
| ghaff wrote:
| >That doesn't mean it's reasonable to spend thousands of
| dollars on a single toilet -- even if you would if you
| absolutely had to. The cost isn't that high.
|
| Check out Toto washlet prices. :-) e.g.
| https://www.totousa.com/washlet-with-smart-
| toilet-g450-10-gp...
|
| But I agree with your point. If you have some specialized,
| almost unique, knowledge, have plenty of demand, and are
| hard to substitute for--and it's something high value--you
| can charge a lot.
| mitchell_h wrote:
| Value based pricing as been tried a bunch of times. I've only
| seen it work to lower the price.
| brilee wrote:
| I find that if you're getting this response, you're not talking
| high up enough in the org chart. Eventually, somebody does care
| about the overall good of the company, over the turf
| wars/budgetary bureaucracy of the middle management layer. But
| your project also has to be worthwhile enough to invoke the
| higher-ups.
| claudiulodro wrote:
| Big companies hate rev share, which is essentially what value
| based pricing model is. Rev share pricing is great for getting
| small, money-conscious people in the door, but there is a
| threshold as you get larger where it becomes more cost-
| effective for the client to go with standard billing.
|
| Substack's been running into this problem, where it's easy to
| get people to try it out, but as a content creator gets popular
| the rev share amount becomes greater than the cost to hire an
| agency and "self-host". Someone making $1mm/yr is going to
| chafe at a $200k rev share when an agency at $50k/yr retainer
| can do a similar job.
|
| Unrelated to that but related to the main topic: it's
| interesting that people treat FOSS consulting as a weird beast
| and ignore the thousands of successful WordPress/Drupal/etc.
| consultants and agencies. There's a lot to be learned from
| analyzing their strategies!
| [deleted]
| R0b0t1 wrote:
| It's not more cost-effective for the client if the work just
| never happens. Further, I don't care what is more cost
| effective to them. I want to capture some of that value.
| That's the mistake these businesses are making and what you
| need to inform them of.
| poulsbohemian wrote:
| I was once part of a consultancy (not related to free software)
| that proposed this kind of pricing. The challenges became:
|
| -- Companies couldn't / wouldn't quantify the savings, or
| refused to share that information.
|
| -- Companies weren't willing to pay it. They would rather have
| thrown their employees at the problems or paid for the cheapest
| contractors around, even if it didn't actually solve anything,
| IE: the illusion they were doing something and at an
| "affordable" price, regardless of outcomes.
|
| I've had more than one customer argue with me over the years
| that they would rather pay hourly than a fixed price (however
| that fixed price was calculated) because it "felt" like they
| were more in control of the costs, IE: they could micromanage
| the hours. I've had these same customers spend many multiples
| of what it would have cost them had they agreed to that
| retainer or fixed cost.
| sumtechguy wrote:
| If I were to guess accounting rules the company uses do not
| account for that sort of pricing. Lets say I install software
| X. It lets me take 3 people and put them onto something else.
| Do I really save '3 peoples worth' of money installing this
| project? Maybe I now need 2 to run the thing? Oh and you have
| to get this info out of a manager who probably is not really
| managing that sort of thing and lets 'the money people handle
| it'. Also it was explained to me once 'why do we have so many
| contractors even though they cost wildly more' 'we have two
| budgets, one I come up with every year and I have to stay
| inside of that, the other I can change at any time, care to
| guess which one the contractor budget comes out of?'
| Software/hw expenditures are not discretionary usually, and
| usually have some sort of depreciation schedule. A rev
| sharing scheme would put a damper on that sort of tax games
| they play. What you are seeing is a side effect of our tax
| system.
| derf_ wrote:
| _> I 've had more than one customer argue with me over the
| years that they would rather pay hourly than a fixed price
| (however that fixed price was calculated)_
|
| Hello, I have been one of these people.
|
| If I agree to a fixed price, then the goal of the contractor
| becomes "do the minimal amount of work possible to deliver
| something that can be argued to meet the letter of the
| contract (and no more)."
|
| If I agree to an hourly rate, then the goal becomes "bill as
| many hours as possible while demonstrating at least some
| plausible incremental value for those hours."
|
| Unless I am _really_ good at specifying a precise deliverable
| (and who among us in the software world is?), the second set
| of incentives looks much healthier, both for me and for the
| contractor. I think this is particularly true for open source
| deliverables. Maybe it costs more, but bounding that
| precisely is easy ("cannot charge more than X hours in Y
| period").
|
| I don't want to micromanage your hours. I don't have time for
| that. Mostly the fact that when you send me an invoice you
| might expect the question of "What did you actually do?" to
| come up is sufficient to make sure you really did something
| (and if not, pretty easy to resolve).
|
| Frequently in the fixed-price contracts I have done, even
| with reputable people with whom I've had a previous
| relationship, that "argue" bit above is not hyperbole. Then
| it falls on me to demonstrate why what you did does not meet
| the requirements, or is flawed in some other way, and I don't
| have time for that either. That was why I was paying you. Now
| the relationship is adversarial and asymmetric: it is easy to
| not understand a problem, and hard to both understand it and
| convince another party who is not invested in understanding
| it to understand.
|
| Whereas if you are billing hourly, you are more than happy to
| be told about problems that you can then charge me to fix. I
| get something I can actually use that way, too.
| phphphphp wrote:
| You're describing a dysfunctional arrangement in both
| cases. If the only way to ensure that your requirements are
| met is by paying hourly so that you and the provider have
| the shared expectation that you can say "just do it, I'm
| paying you to do it so do it" then you're working with bad
| people.
|
| The problem with hourly is that it is a totally different
| way of running a project from fixed cost: fixed cost front
| loads the challenges and provides a great opportunity to
| assess the suitability of your provider, it demands
| clarity, a shared understanding, it is immediately apparent
| if a project is going to go to shit: a fixed cost project
| (managed properly) can't start without understanding the
| end.
|
| If someone can't give you a fixed cost that you can rely
| on: find someone else. If someone can't give you the
| confidence that they'll actually deliver what you want:
| find someone else.
|
| As a software engineer, I bill a day rate for most of my
| clients because that's their preference, and it's easy
| money for me so I don't refuse the work, but I actively
| discourage it because it is terrible economics for clients:
| it's burning money. On a fixed cost project, 100% of my
| time is spent delivering. On a day-rate project, 50% of my
| time is wasted -- because if you're paying for my time, the
| dynamic is exactly like that of an employer employee
| relationship... and to spend a day in any office anywhere
| in the world, and you'll find at least 50% of everyone's
| time is wasted.
| solar-ice wrote:
| The assumption/trick here is that you are experienced enough
| that you can make a guess as to how much money the company
| thinks they will save by contracting you, and you bill them
| appropriately, without actually telling them what you're doing.
| d883kd8 wrote:
| Straightforward, sensible business advice. Not much to say about
| it or opportunities to flame anyone.
| jononomo wrote:
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