Tomicide Solutions, Nov 2017

What I Wish Every IT SMB Leaders Knew About Hiring Independent Tech Contractors

By Tom "Bald Dog" Varjan


TThe place was the United States and the time was 1910. There was a raging meat shortage, and the US government decided that it would solve the problem in a rather innovative way. The idea seemed to be both an ecological blessing for the environment and an agricultural blessing to the American people.

The plan was to import hippos from Africa and let them loose in the great swamps and bayous, so they could fatten themselves on food they find in the wastelands and then they could be hunted and eaten by the starving Americans.

And since Louisiana Congressman, Robert Broussard, had a major problem with water hyacinths, he thought the idea was perfect.

He hired freelance adventurer Frederick Russell Burnham and Boer con artist Fritz Duquesne.

Eventually the great hippo plan fell flat on its face, and it was industrial agriculture that solved the great meat shortage.

I've mentioned this ferociously formidable factoid because from time to time, IT SMBs too try to implement their own hippo plans that often fall flat on their faces, having IT business owners fall flat on their arses between two hippos.

One of the areas riddled with hippo plans is hiring contractors.

The IT industry is one of those industries that extensively use subcontractors for its projects.

Many IT projects are riddled with areas that require highly specialised expertise on a situational basis, and it just doesn't make sense to keep that expertise on the payroll on a full-time basis just in case the need for that expertise shows up one day.

It's like keeping a full-time COBOL programmer on the payroll in case there is a COBOL project down the road.

While large IT companies benefit from the situational use of consultants and contractors, many SMBs are obsessed with putting as many people on the payroll as possible regardless of their utilisation.

For some inexplicable reason, they think business growth is all about headcount.

The main reason why SMB owners are worried about independent professionals is that they may work for the competition too or they have several clients and split their time and attention between them.

The exact practice worrying business owners follow.

The irony is that they are not worried that their accountants, attorneys, dentists and hairdressers serve several clients, but they are worried about it with technical professionals.

So, this month we look at some industrial dogmas which prevent IT SMBs to find and engage quality tech subcontractors for specialised work.

Before The Engagement

Industry Dogma #1: Always Negotiate (a. k. a. Haggle) With Subs

Reality: Good contractors are willing to negotiate, but not to haggle.

Let's clarify the difference:

Negotiation is a sophisticated give-and-take discussion to establish a new project scope under new price and terms.

"$120,000 is a bit high for us. Can we discuss what we could get done for $85,000?"

Haggling is one-way demands from guileful buyers.

"Your price is outrageous. Either you drop it by at least 25% or we give this project to your competition."

Note that the contractors worth their salt have minimum project values under which they don't even talk to buyers. They know how much it costs them to run their businesses and how much value their work means to their buyers. So, they are not famous for being the cheapest.

Oh, and they don't tolerate hagglers. They know hagglers represent the rock bottom of the industry, so they don't even talk to them.

And what happens when a haggler meets a professional?

Something similar to what happened when Lieutenant Caine explained Miami Justice to a gang member in an epic scene of CSI: Miami. All right, with less blood.

Volume-based contractors value any work that comes through their doors at any price and they don't mind hagglers.

The problem is that they work long hours to make ends meet, so they are likely to make mistakes and use inferior bits and bobs to keep their costs in alignment with the low prices their clients pay them.

But if you want to hire quality, margin-based contractors, then you have to open your piggy bank a tad more.

But if you consider that, as the main contractor, it's your reputation on the line, you may not mind paying a bit more for quality.

Industry Dogma #2: Hire Someone With Competitive Hourly Rates

Reality: Good contractors work fast and know that hourly rates would punish them. As Ed Kless, one half of the Soul Of The Enterprise podcast (one of my favourite podcasts) is fond of saying...

"If you suck at what you do, keep charging hourly rates."

The fact is that hourly pricing penalises expertise and effectiveness and rewards incompetence sloth.

  1. Someone with one year of experience charges $100 per hour and can solve a given problem in 10 hours.

  2. Someone with two years of experience charges $200 per hour and can solve a given problem in five hours.

In both cases, you're $1,000 out of pocket.

But in #1, the problem existed for 10 hours, so for 10 hours you couldn't use that faulty system.

In #2, you lost only five hours of downtime.

If that something that has a problem is a computer system for a manufacturing plant whose productivity is $100,000 per hour, in case of #1, you lose $1,000,000, but in case of #2, it's "only" $500,000.

Hire someone who can solve your problem, not someone who charges you for the passage of time. Your business problem has nothing to do with the passage of time.

Industry Dogma #3: Use An Agency To Find A Subcontractor

Reality: Good contractors that are worth their salt don't work through agencies. They work directly either with their own clients or main contractors.

When you look at contractors, you find both wholesale and retail contractors.

Wholesale contractors work through RFPs from several agencies because they regard the effort of getting their own clients as a waste of time and money.

Their operation is best described by Wal-Mart's low-price, high-volume approach.

But...

Not always but often, the allergy to business development comes from general inferiority, including technical incompetence.

By contrast, retail contractors acquire their own clients, and they hardly ever respond to RFPs and don't even consider working through agencies.

They are staffed with top-notch tech talents are more than happy to do their own business development and seller their services at premium prices.

They know that their expertise wouldn't be properly appreciated and compensated through agencies and RFPs, because qualification and selection are done by non-technical bureaucrats with an obscene focus on low-price and obedience to the agencies' whims.

When good contractors are contacted for projects, they insist on talking to real decision-makers, and stay away from procurement agents and other self-important flunkies.

They know from experience that non-decision-makers are likely to drag them along, milk them for information and then, based on this new information, hire the cheapest contractor to do the work.

Industry Dogma #4: Check Academic Credentials

Reality: You may have a problem here because some of the most qualified subcontractors are escapees from other, often seemingly unrelated professions.

My clients work with a broad range of independent professionals who studied music, liberal arts, graphics design and hell knows what else in college.

One of the women is a part-time emergency physician and part-time database programmer. She designs and builds databases for private medical facilities.

And you know what? Smart clients hire her because she understands the private medical industry, and no one cares that she's an autodidactic programmer and database expert.

Actually, the problem is that main contractors often seek subcontractors with tool-based knowledge, instead of presenting their problems and letting the experts solve them.

Buyer: "I need someone who can swing an Estwing E3-16C hammer at a minimum of 47 strikes per minute and has a certificate to prove it."
Seller: "Why do you need that skill?"
Buyer: "Because I'm getting a new house built and need someone who can nail things together pretty fast."
Seller: "I'm sorry for you. I can't do that."
Buyer: "What do you mean."
Seller: "I use a nail gun and can build a house 4-5-times faster and in better quality than the fastest hammer swinger."
Buyer: "I don't care how effective you are and high high your quality is. I need someone who can swing an Estwing E3-16C hammer at 47 strikes per minute."

And guess what? At this point most buyers still insist on hiring a slow hammer-swinger. Human nature for you.

Most people are more willing to give up on their goals than on their methods of reaching them.

Industry Dogma #5: Have A Watertight Contract

Reality: Heavy-handed corporate-looking, lawyered-out contracts scare solo professionals, and they probably dump you. Remember, there are thousands of main contractors and only a few of narrow specialists.

Many main contractors love using contracts that are stacked in favour of the main company and against the subcontractor. But the words of French sociologist, Emile Durkheim...

"When mores are sufficient, laws are unnecessary. When mores are insufficient, laws are unenforceable."

One of the US military's mores is that they don't leave fellow soldiers behind.

It's not a law, rule, policy or procedure, but a norm, a value.

Scumbag people can game any contract no matter how heavy-handed it is.

The other problem is this. How much trust do you think exist between two parties that use their respective lawyers to draw up contracts?

I tell you. None.

And a solo professional is not going to hire a lawyer to interpret a client's legalese contract. He will pack his bag, don his hat and walks away, leaving the main contractor high and dry.

Yes, I agree with having a contract between buyer and seller, but it should be free of legalese and should never be read or fiddled with by a lawyer.

The contract would be a template for successful completion of the project not for beating up the subcontractor.

Industry Dogma #6: Find A Contractor Online

Reality: Shortlist contractors based on their online presence, but don't choose based on that alone.

Do a Google search and you can find lots of "me too" type contractor websites. Take away their names and logos, and they look virtually identical... name, rank and serial number.

And the usual platitudes...

"We are global industry leaders setting the pace of the whole industry."

Now, this is how you recognise low-end vendors.

Now the only selection factor is price.

But cream of the crop contractors don't even look the same. One point is that cream of the crop contractors, as narrow specialists, usually work as self-employed individuals. They don't feel the urgency they have to belong to a corporate entity.

At one of my joint venture homesteads where I do custom butchering, the owner's daughter is a veterinarian. But not just any vet. She's a goat specialist. She graduated from vet school only three years ago, but gets paid way more than generalist vets with 20 or more years of experience.

She would be a lunatic to get "gainful employment" in someone else's clinic for a small fraction of the salary, professional fulfilment and recognition.

She may open her own goat clinic one day, but she's not going to join someone else's clinic.

Specialists usually work alone and are very good at their crafts, so there is high demand for their expertise.

It means your courting process must be very refined and delicate because these top talents get easily startled and leave you.

And since they work on a few projects, if possible, most of them insist on face-to-face/webcam interactions. They want to talk to you because they want to "read you". Well, just as you want to read them. And all this because they operate on a peer-to-peer basis.

The worst thing you can do is to treat them as subordinates. They don't take it well.

So, it may take you a couple of face-to-face meetings to meet your top five candidates, but don't skimp on these meetings.

Oh, and stay away from Craigslist, Upwork or similar dump heaps. Just like eagles, top-notch experts don't flock together; they tend to soar alone, so you have to find them one by painstakingly one.

Industry Dogma #7: Establish Penalties For Missed Deadlines

Reality: Establish prompt communication practices for times when hitting deadlines is in danger.

The essence is that the deadline is not missed yet, but something unexpected has come up that can cause delays.

Inflicting penalties is a douchebaggy practice because if you collaborate with your subcontractor, you know well in advance that there will be delay.

And if you micromanage your subcontractor, as traditional contracts dictate it between superiors and subordinates, you should know in that case too, especially because you, as the micromanager might be the cause of the delay.

But if you insist on the penalty, unless you're a communist who believes in working his people for free, make sure you also include an early finish bonus.

If your subcontractor stands to lose money, she must also stand to gain money.

But if all you have is a penalty clause, you instantly repel the most qualified subs, and you end up with someone from the mediocre bunch, which can be a bit of a problem for you with your clients.

Industry Dogma #8: Demand Itemised Bills From Contractors

Reality: You engage contractors to solve specific problems, not to buy a certain number of line items.

Have you ever received itemised bills from your car dealership, from the hospital on your surgery or from the restaurant on the ingredients of your meal? I doubt it.

Do you offer itemised bills to your clients? If not, then why do you ask for it. If you do, you have a bigger problem than non-itemised bills from your subcontractors.

When you ask your subs to itemise their invoices, they know they are treated as proverbial ditch-diggers to perform a list of pre-defined tasks and you pay them for those tasks.

But, a list like...

...is a far cry from reliable transportation.

Good contractors are likely to give you a fixed price to fix problems that they've fixed many times. And the ones who are willing to fiddle with itemisation are not worth hiring.

During The Engagement

Industry Dogma #9: Micromanage Subcontractors

Reality: Collaborate with your subcontractor as a peer or she will dump you faster than you can say Zaphod Beeblebrox.

There is a world of difference between collaboration and micromanagement.

While low-qualified people with an employee mentality need to be micro-managed, real experts with entrepreneurial mentality don't.

What they need is collaboration.

Most of the projects I've rejected over the years are related to micromanagement. Many buyers, especially in Canada, insist that I work out of their offices during normal office hours.

What makes it so funny is that at the same time they are frustrated because their clients demand more "face time" from them to deserve their fees.

I guess, they sell face time and physical presence to their clients, so that's what they demand from their subs.

And similarly, they buy professional services based on face time spent in their offices. Poor bastards.

Oh, another thought.

In their book, Why Work Sucks and How to Fix It: The Results-Only Revolution, authors Cali Ressler and Jody Thompson posit that micromanagement is essentially shifting your attention from the work to the people.

That is, instead of focusing on that the work gets done on time, on budget and at the promised quality (managing work), focusing on the individual steps people take to get the work done (micromanaging people).

Good subs are good because they are good both at the tech stuff and managing their work. They don't need unwanted scrutiny from supervisors.

Industry Dogma #10: Maintain Master-Slave Communication

Reality: Communication must be established at the same level both ways. Make sure the same availability criteria and response times apply to all communicating parties.

It's just not fair that main contractors expect subs to respond within 90 minutes, but when subs ask questions or request something, main contractors can take a whole week to respond.

Since so much can stand or fall on communication, it's vital to have documents operating procedures for this area. These procedures can help you train new subcontractors with personally teaching each and every one of them.

When they join your operation, you give them access to your cloud-based communication training materials, so they can prepare themselves to work with you.

After The Engagement

Industry Dogma #11: Shake Hands And Run To The Next Project

Reality: Run a full After-Action Review (AAR) and throw a farewell party/dinner, for your subcontractors.

You want to make the work memorable for your subs, so next time you call on them, they give you priority.

The AAR is a very detailed debriefing session for all parties involved. It has four main ingredients.

  1. Planning

  2. Preparing

  3. Conducting

  4. Following up (using AAR results)

And here are some of the questions to discuss with allotted time frames

And after the AAR, let a farewell party/dinner bring closure to the project.

And once everything has been wrapped up with your subs, you have to do you internal AAR with questions like...

Summary

Seth Godin writes in his blog, Start with a good agreement: "But your future depends on doing agreements with good people." I've read somewhere else that you can't straighten out crooked people with detailed contracts full of legalese.

Finding good subcontractors must be an ongoing effort because just as eagles don't flock, nor do available subcontractors.

Just as eagles soar alone, so do good subcontractors. You have to find and "seduce" them one by painstakingly one. Yes, it's a painstaking process because the ones that are worth working with are already pretty booked and most probably are not interested in ho-hum, middle-of-the-road offers.

So, you have to offer them something above average. But the only way you can afford to work with above average subs if you can pay them above average rates and offer them above-average terms and conditions.

Many IT firm leaders make the mistake of trying to skin their subs. Sometimes the cause is greedy firm leaders, but in most cases, it's because the main contractors can't price and market their own services.

Sometimes in 2005, a local firm wanted to hire me for some copywriting.

The client created a contract according to which I would get no flat fee but only a 2% commission on whatever that can be proved that it was sold using my copy.

At the same time, he was paying base pay + 15% commission to his salespeople. I asked him about the difference.

His reason was that his salespeople were working very hard, whereas I was just sitting by the computer typing words, and according to him, any idiot could type words.

He thought that generating $2.3 million annual revenue with 17 salespeople, he was winning.

Well, that came to $92,000 gross revenue per salesperson.

After deducting 10% for commission, we had $172,500.

From this the owner also paid a base pay, let's say, $50,000, which after costs of employment became about %75,000. Now we're below $100,000.

So, our proud owner had $1,200,000 to make payroll for the other employees and run the business.

I don't envy him.

Actually, that was the reason why he couldn't pay me more than 2%.

He had a pricing problem, and after generating more sales volume, he still had a pricing problem.

Oh, well.

Anyway, if you've worked with good subs, you know how much depends on them. You also know how much you can lose if you bet your farm on substandard subs.

Remember, when the shit hits the fan, it's you who gets freckles not the subs. It's your reputation that gets kicked in the teeth; it's your brand that suffers.

In the meantime, don't sell harder. Market smarter and your business will be better off for it.

Attribution: "This article was written by Tom "Bald Dog" Varjan who helps privately held information technology companies to develop high leverage client acquisition systems and business development teams in order to sell their products and services to premium clients at premium fees and prices. Visit Tom's website at http://www.varjan.com.