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Note: This is part one of what I think is going to be a two-parter.
From the early-1990s until 2006, I co-ran a small consultancy firm with two business partners. This went at the same time terribly badly, when compared to my ambitions and expectations, and quite well, according to most other measures of success. I am proud to say that we must have done something right, because the business is still there and thriving. If you need some consummate IT professionals in the Netherlands, please give them a call and tell them Jos sent you.
The origin story of my life as an entrepreneur is that I wanted to move abroad, but couldn’t, a story that has been told in another Wednesday Wisdom article and one that is worth reading if you are trying to realize a dream but seem to be running into a wall. To prepare for my big move abroad, I had resigned from my job and was sitting at home, waiting for a call from a foreign consultancy firm with which I had been in touch. The call never came. Eventually, my savings account ran dry, and so I had to do something else. That something else turned out to be setting up shop as an independent consultant and teaching HP-UX courses at Hewlett-Packard through an agency.
After some time, I found out that the agency took about 42% of my hourly rate. When I found that out, I thought it was quite a lot. But, I was green as grass and did not have a network and no other offers on the table, so I did not have a good negotiation position.
Lesson learned: Always give yourself a good negotiation position. In my case, my lack of a negotiation position was mostly because of a bad information position. I did not know anything, not who was hiring, not what the rates were, not if there were any alternatives, nothing. That is the worst possible position to be in.
Lesson learned: Agencies are mostly a*holes that will fleece you. They are usually ran by sales people and at the end of the day, their entire business model is being an intermediary that exploits your lack of access to business opportunities (because you are a nerd and have no stomach or talent for doing sales) and the end-customer’s desire to talk only to a small number of people in a suit, rather than to dozens (if not hundreds) of individual geeks or small consultancy firms. Agencies always talk a great talk and try to convince you that they do all these great things for you. Undoubtedly, I will get some responses from agencies to this article claiming to do just that. The good agencies offer transparency and take only a moderate cut. The bad agencies are worse than second-hand car salespeople. If you are dealing with an agency, ask what they are charging the customer. If they don’t want to share that information or if it is more than 15%, run away! If it is more than 5%, negotiate.
Side story: Once, I did a job for a large bank through a well-known consultancy firm that had hired me from our own, by then somewhat established, company to then send me to the bank. When I asked the bank why on Earth they did business with said big consultancy firm (because they were paying dearly for that privilege) they answered: “Well, it’s about continuity. They are a big company with hundreds of employees. When you run under a bus, we will just ask them for another consultant.” My answer: “Obviously, if I run under a bus, they can easily find another excellent Unix, C, Java, storage, TCP/IP, and High Availability expert from their own ranks. They have lots of them just waiting to work for you. That’s why they had to hire me as an external consultant, because they have so many themselves…”
Unfortunately, for small companies and individual consultants, agencies are a fact of life until you get some size and the ability to position and sell yourself as a bigger outfit.
Unwinding the stack a bit: I got my first contract through this agency to teach HP-UX courses at Hewlett-Packard. But, here there was the snag: I didn’t know the next thing about HP-UX and I really didn’t know a lot about Unix either. What I did know at the time is what I remembered from college (which was not a lot) and from looking at the Minix source code in my spare time. But, I had taught operating systems at a college for a few years and so I could credibly sell myself as an excellent teacher of the subject. Fortunately, as part of the deal, I got to attend a regular class after which I would be thrown in front of the next group of students. I took the course materials and some other manuals home with me (remember kids: This was before the Internet), studied up, and delivered.
This obviously required some chutzpah and I am happy to say it worked out. I have done this many times over the years and I must honestly say that it didn’t always work out. One of the disadvantages of this approach is that I spent a lot of time on things that I wasn’t very good at or which didn’t give a reasonable return on investment. A certain Microsoft User Interface Design course that I delivered exactly once comes to mind. That course is also an example of me signing up for things that, all things considered, I had no business getting into. Given my experience as a teacher and an operating system expert it was not unreasonable to think that I could wrap my head around HP-UX. But I am not a UX or UI person and I have and had no business delivering a User Interface Design course. I spent a lot of time preparing and it went reasonably well, but I did also get myself into gigs where I did not do so well because I basically was not qualified for the job.
Lesson learned: Some self-confidence and audacity is needed and it is totally fine to oversell a bit if you have good reason to believe that you can do well, but don’t overdo it. If you have no business being in a particular field, do not go there, unless you invest first by building up the required knowledge, skill, and experience.
Side story: As computers became more and more essential to running public services and businesses, a demand for High Availability clusters arose. Hewlett-Packard’s answer to that was MC/ServiceGuard, a hardware architecture and some software that would allow services to migrate between machines. Think of it as a two or three node Kubernetes cluster (“avant la lettre”) with shared SCSI disks and HP-UX’s Logical Volume Manager to manage logical disk partitions and mirroring. By then, my business partners and I knew a lot about HP-UX and eventually, we were hired by HP to go to one of their customers and implement MC/ServiceGuard.
Here’s the problem though: We had never actually toyed with a ServiceGuard cluster yet and because of <reasons> we hadn’t had time to dive deeply into the subject matter before the project was set to start. No problem though: The customer was located in the deep south of the Netherlands, which means a 2 hour drive during rush hour. The morning of the first customer meeting, my business partner hired a driver so that he could sit in the back and read the manuals before showing up at the customer as Hewlett-Packard’s expert on the topic.
The reason I said “yes” to a lot of gigs, even if I was not actually qualified, is explained by a combination of hubris and fear. Hubris, because I thought that I could do everything that involved computers. Fear, because as an independent consultant, if you are not working, you are not earning money, and I have a deep seated fear of being poor. By then, I had a family, a mortgage, and business expenses, and the need to make money was foremost on my mind.
That need also translated to me not negotiating hard enough when it comes to hourly rates. Kinda weird if you think about it, because you would think that if you are worried about money a lot that you would go to the jugular every time, but I was often afraid that if I didn’t take this (sometimes way too low) offer, I would be doing nothing and I would go bankrupt.
Lesson learned: Make a decent financial plan to assuage your fears and do not sell your valuable knowledge and skills too cheaply. Agencies are great at telling the end-customer that they need to pay through the nose and telling you that there is no room for a rate increase. Demand transparency from them. If you are dealing with the customer yourself, make sure you know what the going rates are and do not shy away from asking what you are worth. This also holds for salary negotiations!
In his book Predictably Irrational, Dan Ariely demonstrates that people often value a product more if they have initially been anchored to a high price, a phenomenon he calls arbitrary coherence. This is because humans don’t have an internal value meter and instead make decisions based on relative comparisons. Once an initial anchor price is set, all subsequent prices are evaluated in relation to that anchor, making a high initial price seem to increase perceived value.
Talking about money: As I described above, my first gig as an independent consultant was teaching HP-UX courses through some agency. After each training course, I sent an invoice to the agency, who sent an invoice to Hewlett-Packard, who would pay the invoice to the agency, who would then not pay me. After a few months, the outstanding amount had become quite sizable. Every time I called them and asked for my money, there was some sort of excuse. Eventually, on a Tuesday, the agency called me and told me they had gone bankrupt.
Lesson learned: Be strict in invoicing and payments. If you don’t get paid within the customary 30 days, stop working and put an attorney on the case. Only work with reputable agencies that have good payment practices. Do not accept the standard tactic that the agency pays you only after their customer has paid them. Part of the percentage they charge as their fee is a capital risk premium for exactly this situation. Make them earn it!
My second customer was another intermediary not paying their bills and there I went the other way: Becoming too aggressive too early, but that is a story that was already told somewhere else so I will leave it for the moment. There is a good lesson in there though, so if you haven’t read it, you might want to queue it up for later.
Talking about money some more: Eventually, the Internet came but nobody knew anything about it. My business partners and I knew something courtesy of a history of using UUCP, understanding TCP/IP, and just generally being nerds who were always tracking the next big thing. One afternoon, we were drinking beer with Chris, the head of the Hewlett-Packard Education department in the Netherlands, and we discussed how cool it would be to make and sell a 1-day “Introduction to the Internet” course. Chris had a keen business sense (hint: we did not) and the next thing that happened was that he had created some amazing looking flyers and was scheduling and selling that course. One problem though: The course did not exist yet.
So, my business partner and I locked ourselves into the office for a weekend and we created an Internet course that touched on all the basics, including the then fledgling World Wide Web with its amazing Mosaic Internet browser. Over the course of the weekend we created slides, exercises, a handout, and some other course material. My rule of thumb is that if you are very good, it takes about a day of work to create an hour of course material. We created an entire one day course (let’s say six-seven hours of material) over a weekend in our office in Huizen.
Fun fact: Many years later, I took a lovely young woman from Huizen out on a first date. When we drove past our old office I pointed it out to her and said: “Look, that’s where my office used to be.” She cast a glance and answered: “It is now the office of an attorney, actually, the attorney that did my divorce.” After such an auspicious start it is no wonder there was a second date…
The course did phenomenally well, which is kind of amazing if you imagine that all the students were using X-terminals to connect to a PC with an 80486 processor and 16 MB of RAM, running Yggdrassil Linux and using a dial-up connection to the Internet. If memory serves me right, we sold the course material to Hewlett-Packard for 5,000 guilders lump sum. Not bad for a weekend’s work, but nothing compared to the boat loads of money HP made on it, running the course umpteen times and reselling it to their training departments in the rest of Europe. We made some money delivering the course as well, but that was just our regular trainer’s daily rate.
Lesson learned: Never sell intellectual property like that for a small lump sum. Always negotiate a royalty schedule that makes it a win-win situation. You will need to take on some risk that if it doesn’t sell well, you earn nothing, but on the other hand if it does go gangbusters, you want to share in that!
Talking about the Internet: When the dot-com boom really got going, new companies were formed overnight and rose to prominence quickly. A bit like what is going on right now in AI. This caused us no end of grief and frustration because, even though we had grown steadily and had assembled a nice and fun group of deep experts in Unix and all things related to it, we were still kinda, you know, just solid. No exponential growth for us. No Formula 1 car in the lobby. This was quite frustrating as we were sure that we understood Unix and the Internet better than most. We felt a bit as if we were in the right-most lane on the freeway of company success, being overtaken by companies that didn’t exist two years ago and that were doing 300 kilometres per hour while we were keeping to the speed limit.
Fast forward two years: The dot-com boom had turned into the dot-com bust and all of these fast companies were involved in a huge pile up. We on the other hand were still ambling along quite nicely. As it turned out, we were not in the right lane at all! We were probably in the travel lane just next to lane 1, doing a decent speed and overtaking many companies that were in the right-most two lanes. But all this time we hadn’t seen that, as we were so focused on the upstarts in the left-most lane.
Lesson learned: This lesson is kinda obvious I guess. Do not feel bad because there are other companies that are doing better. They might have more ambition, they might be willing to take much more risk, they might have a bit more luck, they might have connections that you don’t have. It is not really a race, unless you make it one…
To be continued…
