Consulting 101 (or “So you wanna be a consultant…”) – Part 1

Ok, I’ve been asked, and as of next week I will have worked as a consultant in all three different types of arrangements.  I thought it might be a good idea to explain the pros and cons of different consulting positions.

To sum it up, there are three different types of consultants.   The W2 (Or Salaried), The 1099 Direct, or the 1099 Corp-to-Corp.

 In this post, I’ll discuss the first type.

The W2 or “Salaried” Consultant

The W2 consultant (or “Slave”) is one who works for a firm and who gets the full benefits package.  While this can be a good thing, the drawbacks can and usually are many.

Pros

Salary – Having a salary is great during low periods or lulls in work.  Maybe you can get the company to spring for a refresher course or two to keep you marketable, etc. during this time, but it’s nice to know that no matter what your paycheck is coming in. 

Benefits – healthcare being what it is, a family can always depend on the Consulting firm to provide health benefits.  They may be more expensive than a “joe-job” but it’s good to have around.

Cons

Salary – Yes, this is a pro as well as a con.  Salaried employee gets paid a fixed amount per week / two weeks / pay period.  This means that any overtime he works is on him.  Since the firm is usually billing hourly for the consultant’s services, there is a lot of motivation to push consultants into overtime.  Of course, the consultant can say no, but that doesn’t keep you employed for long. 

Non-Compete – The most painful part of any Employer/Employee agreement is the “Non Compete Agreement”  Now in most states it’s largely unenforcable.  An employer can’t keep an employee from working in their field of expertise.  However, most consulting firms will require that you sign one and it will be horribly restrictive. 

I’ve been in the situation with a my first consulting firm, CTS, Inc. (who I have no problem naming as they don’t exist under this name any longer) where I had to move across the country in part because the non-compete I signed specifically said that the agreement was (to paraphrase) “restricted to the metropolitian area where services have been performed”  Well I was a consultant in California, and during that time had worked in Los Angeles, San Diego, Burbank, Phoenix, AZ, and Denver, CO.  I moved to Washington DC.

I still got sued by CTS for breaching the non-compete agreement, and it cost me over $8,000 in legal fees (as I had to defend myself in a Georgia Court) before they blushed and effectively said “Oops, sorry, my bad.” and withdrew their complaint.  They knew they had no case but wanted to make leaving painful, probably as an example to others who might leave.

The same thing has happened with the most recent one I worked for, though in this case, since I went to work for my previous employer (not as a consultant.)

The non-compete is used to bully employees from making positive career moves (which are definately not going to happen as long as a consultant is billable, see my point below.)

Career Path – A Salaried consultant who is consistently billable has no career path.  I say it again – NO CAREER PATH.  There is no motivation to keep the consultant moving forward, because moving a billable resource into a management position makes them increasingly less billable.  Therefore, it’s the people who don’t/can’t cut it as consultants who end up managing the ones who can.  As long as you’re bringing in the cash, you’re career is dead in the water, and of course, as to the above point, it’s not like you can quit and go to another consulting firm for the promotion can you.

Anyway – In my next installment I’ll profile the 1099-Direct, and why this can be one of the best ways to consult.

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    • on August 14, 2007 at 1:52 am
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    I have some more PRO’s and CON’s being a consultant on 2 of the three types your are discussing (the last one will happen soon enough). There are some intangibles you missed out on:
    PRO’s
    1. Camaraderie – In a salaried position, depending on the size of the company, you get a sense of friendship and mutual responsibility that you don’t get in any other of the ways of consulting. You can also get a knowledgebase from the other people without stepping on toes.
    2. Training – Salaried employees have to be making money all the time. It;s in the best interest of the company to keep their people trained (obviously this doesn’t happen as often as we like but as a 1099, training is a losing proposition. OJT or nothing!
    3. Bonuses – No chance of ever getting one as a 1099.
    CON’s
    1. Internal Politics – SANGOD has many good examples of that.
    2. Limited Vacation – Some companies only give 2 weeks of vacation until 5 years of service.
    3. Whim of Management – This kind of goes with Internal Politics, but I think there is a difference between interpersonal relations and the business side of things. In one year, I was trained on Cisco Networking and Veritas Netbackup and ISS Security Suite. None of those skills were ever used at that company. The sellers could never land those jobs, which leads to…
    4. Whim of Sales people – If they don’t understand it, they can’t sell it. If they don’t sell it, you don’t work. If you don’t work, you get fired. The hardest thing in the world is training a sales guy to sell something they can’t wrap in a box and ship somewhere. And many kudos to those sellers who can sell IT services.

    I definite could go on, but I think I would wander off track. But SanGod, you hit on the nose with Career Path and Benefits (Health and other fringe stuff)

  1. I love the comment about the sales people, to quote:

    “If they don’t understand it, they can’t sell it.”

    Couldn’t be more wrong. I have come across more sales people who couldn’t sell in my career.

    One of my more recent tasks was described by EMC sales as a “Quickstart” installation, that is, connect four hosts to a Clariiion and you’re done. At least, that is how sales sold it. When we have our opening kick-off call with the customer, this is how it’s described.

    IBM Bladecenters (With McData integrated switches)
    Cisco MDS core switches
    provision storage, plan for SnapClone even though you’re not implementing it.
    16 hosts per site, two sites, one of them a 5 hour plane ride from here.
    It has to be completed by the 24th of August.
    Oh – yes, it’s a boot-from-SAN installation, which means we don’t even have existing OS to work with.

    I would list this as a CON of consulting period. You have to slide in and somehow make what the sales team sold fit into what the customer expects.

    Oh – and in 18 months of being a W2 salaried employee, I got one week of training, training that was a “gift” with our Veritas NetBackup purchase, and the only week it was available was the week my family had scheduled to go down to Virginia Beach on vacation.

    I’ve got more chance of getting training as a consultant, because then I control the schedule and *I* decide what I need.

    • on August 20, 2007 at 8:19 pm
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    It’s difficult to say which is better these days.
    In the financial industry being any type of consultant can be equally as bad if not worse than being a W2-full time employee.
    I have been a consultant for about 7 years now. Being on your own is definitely much better than a W2-consultant but it has its own issues as well. Most of the companies I interviewed with recently don’t pay overtime anymore. Everyone has a professional day which is usually 10 hours. Sometimes they pay OT after that, but most times they don’t. You get comp time.
    Now what’s better, get hour for hour comp time or a crappy bonus as a full-timer? 🙂 One way or another it sucks. Sometimes I even prefer the bonus because you get a lump-sum which you can then spend on something useful.
    The rates are not as they used to be and all of them have preferred vendors so the 3rd party strips away so much off the top for not doing anything, it’s not even funny.
    Mounting cost of medical insurance… as a corp-corp consultant, you get hit with it hard and plans are usually not as good as if you go through a bigger company. All is still fairly well if you’re single, god forbid you have a family and wife doesn’t work.
    If they decide to kick you out, they can tell you goodbye and tomorrow you receive no salary. You *usually* get a package as a full-timer.
    Beside the above, the negatives being a consultant is that with reduced rates, you cannot afford training on your own because it costs you money for training and money for being off work. Same thing with vacation.
    As a consultant, last few years I’ve been treated like garbage. You have basically no benefits, and companies go as far as not inviting you to a Christmas party. Some renew your contract on the last day so it’s not as fun as it used to be.
    I like being independant and not having to write quarterly BS reviews and other garbage, I like to tell them my advice and if they don’t like it reply with “It’s nothing personal, that’s why you pay me a lot of money – to consult you” and so on, but the negatives are starting to outweight the positives.

    My advice is to not be a W2 consultant, if married have wife work a state job or one that pays full benefits for the whole family. That’s when it really pays to be a consultant. If you’re the only source of income, it just doesn’t. Just extra hassle and IMHO not worth it. I’d take less money, more free time and less responsibility over it any day.

    And I’m afraid that management might be the only way to go as you get older. The equal opportunity employment is BS 🙂 Nobody’s gonna pay you more because you have more experience (read: you’re older), maybe if you do consulting in Fortran or VMS or some of those other dying, hard to find skills.
    Cheers

  2. I guess that’s why I’m considering staying in the short-term implementations. I’m working one right now for a major telecomunications provider, and we’re installing a Clariion CX3-20F as the boot/data volumes for 16 IBM Bladeservers. Three weeks, in and out and we’re done. I don’t have to worry about which one of them is going to stab me in the back, which one of them does or doesn’t want to work with me. I am there to do a job, and I do it well. Site one is almost done, on schedule I might add, and they changed the requirements (and I changed the design) 4 times in 10 days.

    And once I’m out of here I’m on to the next fiasco. 😉

    My wife tells me I enjoy being the “white knight” swooping in to save the day and riding off into the sunset. (How’s that for a mixed metaphor)

    The financial part of it scares me. My current contract states that the contract can be terminated by either party with two weeks notice given. I would have wanted at least a month personally, as that’s about how long it would take to get something lined up. I really wasn’t in a position to do the full-time 1099 yet, my financial situation isn’t as good as it could have been, especially with dramatic the pay-cut I took to waste the last 18 months of my life at EduCap/LoanToLearn.

    I took that for primarily the reason in the original post. I was looking for the management track. The told me they had a strict ‘promote from within’ policy (that turned out to be complete crap since they hired the biggest idiot on the planet to fill the Director position that was vacated when my boss got promoted.

    Well I’ve pretty much given up on the management track. I have a bad habit of making myself indespensible and the bottom line is this:

    If you can’t be replaced, you can’t be promoted.

    • Ron Woodward on October 27, 2008 at 7:46 pm
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    What are industry statistics for for financial consultants in Phoenix, Az. I am considering taking a salaried executive operations mangement position with a small firm in Phoenix, and would like to know if this is a good move considering this economy?

    • Jesse on October 29, 2008 at 7:44 am
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    I think that as with any consultancy (and I’m not sure because I’m much more of a nuts&bolts consultant) the salaried job will provide security at the expense of Salary. So at this time, in this economy, if you can afford to take the hit I would recomend moving into a job that provides benefits and at least some hint of protection.

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