Some major differences between agency consulting and independent consulting.
High demand and the lure of big bucks may draw technical professionals into the trenches of contracting and consulting. Gartner Institute predicts that half of all ecommerce developers will turn to professionals outside the company by 2003.
But there are several factors every techie should consider before leaving the comforts or tortures of corporate life for the freedom or chaos of independence. If you're a tech professional looking to score some points on your own, take a hard look inward and determine what you're willing to take on, experts advise.
By a narrow margin, agency-bound technical consultants outnumber the mavericks. A 1999 survey conducted by Contract Professional, a magazine for IT consultants and contractors, found that 50 percent of responding subscribers work for an agency, while nearly 42 percent are self-employed. Three percent of the respondents work out some combination of the two options for themselves.
Experience
Expert status is what gets a client's respect. Of the independent Contract Professional subscribers surveyed, greater than 81 percent have worked in technology-related fields for 10 years or more, compared with a 71 percent of agency workers.
The most common career path is working through an agency for some time, then going solo after building up contacts and experience.
Money and benefits
According to the Contract Professional report, independent IT contractors make more money than contractors who work through agencies. Over 62 percent of the independents surveyed made over $100,000 in the preceding year. But only 31 percent of agency contractors made as much in the same year.
Consulting firms can set salaries for their agents. At a firm, you get a set salary or bonus plan, says technology-marketing consultant Eric Shropshire, which may or may not be influenced by the price of the contract. "But working on your own," he says, "you don't have people holding artificial limits on what you can earn."
"That first check can be hypnotic," Shropshire says of independent contracts, but a lot of it will end up going toward expenses, he cautions. Nearly the same proportion of indies and agency consultants has benefits such as dental insurance, paid vacation, paid sick days, and tuition reimbursement, according to Contract Professional.
To make up for the extra costs, independents have to charge more for their services, says Michelle Goodman, a Seattle freelancer who has done technical writing and editing.
Over 90 percent of the independents surveyed by the magazine have to pay for their policies out of pocket – with their higher incomes, no doubt. In fact, 79 percent of independents pay for their own health insurance, while 17.9 percent rely on their spouses, according to the magazine. Only 60 percent of agency contractors pay for their own health insurance, and about 18 percent rely on their spouses.
Agency-bound consultants have an employer to look out for them: 25 percent of the agency workers surveyed say their companies pay for their health insurance. Ninety-three percent of independents pay for vacation time on their own, while 31 percent of agency contractors can rely on their companies to pick up the tab. Ninety percent of independents pay for their own retirement 401(k), while 37 percent of agency contractors have the assistance of their employers.
"Companies are responsible for their employees' benefits," Shropshire says. "All the work is done for you." When working on your own, however, choosing insurance and benefit plans is your responsibility, he says. "You're responsible not only for paying for them, but also which plans to go with – who's got the best deal."
Taxes
Independent contractors have to consider their own tax formulas as well. An indie must estimate federal taxes at the beginning of the year and pay them in quarterly chunks, because there will be no payroll office to withhold the appropriate sums from the paycheck. Indeed there are no bimonthly paychecks for indies.
There are many ways to set yourself up, Shropshire says, but you'll need discipline to go it alone. And you'll need a good accountant and a good lawyer. "People you can trust," he says. "If you don't have those two things,you will fail." They may seem like an added expense to the struggling entrepreneur, but their absence could be far more costly, he warns.
An article in "Free Agent Nation eNewsletter" in 1999 warns indies that while the full amount of the premiums businesses pay for their employee's health insurance is tax-deductible, only 60 percent is deductible for the self-employed. There is hope ahead, however: By 2007, the deductible is scheduled to rise to 100 percent.
Authority and autonomy
Probably the most notable benefit of working independently is that you can call your own hours, says Shropshire, based in Chicago. But one of the biggest problems independents have is blocking out their days properly, he adds.
"If you're working for a firm, when you're at work you're at work, and when you're at home you're at home," he says. But when you're on your own, "you have to carve out time for work and stick with it."
For example, Shropshire has given up working on Fridays. With so many errands and family-related distractions in a week, he says, what's worked for him is to work enough hours during the week so he can take Fridays for himself.
It's important for an indie to figure out what works, says Shropshire, who goes to a coffee shop a couple of days each week to sit and work without distraction for a few hours. "I get more work done there than I do at home." The presence of other people is a comfort, and during the middle of the day, the cafe isn't terribly crowded.
Indies have to be very self-motivated, Shropshire adds. "Coworkers can motivate you," he says, and a lot of people don't do well in that situation. Whether they think they will or not, most consultants new to being independent will miss their interaction with coworkers.
As part of a team in a corporate setting, consultants feel some protection, too. "You can be shielded by staff or coworkers because you're not the only one responsible," says Shropshire.
Finding work
Experts warn indies that they will have to sell their work tirelessly and seek the next job even before completing the current one. If you go free-agent, you're responsible for keeping in touch with contacts. And marketing may be more of a chore when you're on your own.
An established firm will have more resources immediately at its disposal, says Shropshire. Its credibility will attract the higher-paying contracts. But it can still be challenging for consultants to get the work they want and the money they're worth.
It can be harder to advance yourself as an independent, too, Shropshire says. Everyone is going to end up marketing themselves through word of mouth, he says, and it all hinges on your experience. "Your reputation is what you have to protect."
Procrastination may be one of the most difficult habits to overcome when you strike out on your own, say the experts.
"You have to be realistic about it," Shropshire cautions. Some independents set themselves up for too much work. You have to remember why you went on your own in the first place, he says. "If you're doing it because you wanted to work less, then figure out ways to work less." Otherwise, he says, what's the point in giving up the corporate life?
