Data Consulting Patterns with Joe Reis

Explore the key insights and strategies from Shane Gibson and Joe Reis on this episode of the Agile Data Podcast, focusing on building and managing a successful data and analytics consulting business.

They discuss:

• Starting a Consulting Company: Many data and analytics professionals start consulting companies by accident, often transitioning from full-time employment to contracting and then gradually expanding.

• Entrepreneurial Mindset: The importance of an entrepreneurial mindset, which involves a different perception of risk compared to being an employee.

• Building a Client Base: The significance of leveraging existing relationships and networks to secure initial clients and projects.

• Business Models and Revenue Streams: Various business models for consulting, including the pass-through model, flat-rate billing, and the differences between contracting and consulting.

• Managing Finances and Cash Flow: Key financial aspects like managing cash flow, setting aside taxes, and preparing for irregular income streams are highlighted.

• Importance of Reputation and Ethics: The criticality of maintaining a good reputation and ethical practices in the consulting business.

• Partnerships and Certifications: The benefits and challenges of forming partnerships with larger companies and acquiring relevant certifications.

• Sales and Marketing: The role of sales in a consulting company, including how to sell services effectively and ethically, is discussed.

• Hiring and Managing Employees: Challenges related to hiring and managing employees in a consulting setup, including the impact on company dynamics and culture, are explored.

• Personal Work-Life Balance: The importance of maintaining work-life balance, taking regular breaks, and managing the pressures that come with running a consulting business.

Read along you will

Shane: Welcome to the Agile Data Podcast. I’m Shane Gibson. 

Joe: What’s up? I’m Joe Reis. How’s it going? 

Shane: Hey, Joe. Good to have you on the show. , today we’re gonna do a really interesting one. We’re gonna talk about patterns, but this time patterns when you run a consulting company. So before we rip into that, why don’t you give the audience a bit of background about yourself?

Joe: I’m Joe Reese. Geez, I’ve been into the data space for 20 plus years. Worked across the spectrum, data science, analytics ML architecture, data engineering, and so forth. Along the way I guess ran a consulting company. Sidu wrote a bestselling book on data engineering.

Also do podcasts and a lot of speaking around the world. So yeah, it’s a little bit about. 

Shane: And just for background, I founded my own consulting company many years ago in the data space. I still own half of it

So that’s what I wanna talk about, this idea of running a data and analyst consulting company. Lots of people do it, but there’s not a lot of information out there about what works, what doesn’t work, what’s the different business models.

So if I think about mine, how did I start a consulting company? It was by accident. I’d had full-time jobs. I’d always wanted to be entrepreneurial, so I always had side hustles, experimented with things that I could do while I was full-time. And then I decided to go contracting for a whole bunch of reason.

I landed into, a project with a large corporate customer where I was just an independent contractor, one of the team. And then we needed more people on the project. And I had some good relationships in the marketplace. So I got a bunch of people I trusted to come on the project.

And then after a while I realized that actually there were a bunch of people making money by me bringing these people I trusted onto the project. So I said, why don’t I. And so that’s how I, started, that was my first business model was the passthrough model, you’ve got a bunch of people, you introduce ’em to somebody that wants to work for them, and then you clip the ticket on the way through, and that’s all you’re doing , is just an introduction and a clip, the ticket model.

How about you? How’d you start your first consulting company? 

Joe: Similar-ish story, I would say, I’ve done consulting for quite a while offering, various, back in the day, more analytical type services and stuff. This is in the kind of two thousands, early, two, early 2010s and so forth.

It’s always found it as a good way to supplement my income and get to, be exposed to problems outside of my day-to-day nine to five. So that was cool. I didn’t really take it seriously around 2017. I was at a machine learning startup. I think I was just bored outta my mind there, so I decided, I’m gonna go on my own and.

I guess do consulting which we’ll get into the nuance between contracting and consulting. I think these are two separate things that we need to lay out here. But my first client was actually my old employer, helped him out for a bit and then got other clients and in those situations it felt I was doing data engineering work at the time, a data engineering contractor, and it was like having a, a nice nine to five type of a job.

It’s working half the hours and making more money. So that was cool to see. And I was like, okay this isn’t a bad gig. At the same time, it really felt like I had a job where I had no benefits and, and so that was a, the downside to it. But yeah, that sort of evolved from there.

I met my business partner, Matt Housley about a year later. And we partnered up and started RY data, which was a it was a boutique data engineering, data architecture consulting firm in the us we should talk more about, but yeah, that’s the journey into it.

When I talk to lots of people who run contractor consulting companies, or I guess sis as they’re called in the states to some degree and it’s not like anyone gets into this. Intentionally. It’s not like you’re you’re a child and you’re like I really wanna be a data consultant when I’m older.

It’s just through a myriad of ways. It just happens, one thing leads to another and suddenly you’re on your own and, it’s contracting, consulting is fairly good money. You can make it work and it’s not the worst lifestyle in the world. 

Shane: There’s a patent there that you mentioned that I see a lot, which is the leave the company you’re working for and go back as either a contractor or a consultant.

See that a lot as a way of people starting their journey into the consulting business. And that’s a good pattern, as long as you do it well, as long as you do it politely, as long as the your customer, your company is happy for you to exit and come back in to start your consulting career.

The ones I’ve seen go badly is when somebody holds their company to rent them. They haven’t documented everything. They get grumpy, they leave, and then, the company’s begrudgingly paying them to maintain something that should be maintainable without them. So I always say to people, don’t do that one.

Do it in a way where the company’s happy that you are adding value. And maybe it’s becomes more of a fractional relationship where know they’re paying less for you to do that work knowing that you’re building this practice and they’re helping you. Cause people love to help.

Joe: Oh yeah. I think it’s definitely a dick move to, to hold people ransom like that. I think that’s just like really bad form. You gotta remember. In your career in this field, the world is very small, especially as you move up the I guess the career scale and so forth

the world gets a lot smaller. There’s not as many people and memories are long the stuff you did several years ago people remember this kind of stuff. So I would say, just be mindful about, how you act towards other people and.

You don’t wanna be that person that’s, is known for being, a douchebag. 

Shane: It’s not a sustainable business model. Eventually it’ll bite you in the bun, you end up with what you know, typically called the cash cow,

this one large customer that you are aligned on, and actually now what you are as an employee with higher risk. And if I come back to that often, I talk to people and I describe to them that you ever got an employee mindset or an entrepreneur mindset, and it’s about a perception of risk because as employees, as we’ve learned over the last 12 months, you’re not safe, 

your job’s not safe. You can lose your job at any time. If the organization has to let you go, they will let you go. So we can look at it from a risk point of view and pretend that, and be an employee is. But being an entrepreneur, being a consultant is different, it is a different kind of mindset.

There’s a whole of things you have to worry about that are differently and, not being based in the us myself, over here in New Zealand and in a lot of the world, when you’re a consultant, when you’re a contractor you still get the benefits from the state. Like in New Zealand, we still get healthcare for free

there’s a bunch of things that we still get that we don’t we don’t lose when we stop being an employee. But in the US that’s not true. Is it? In the US you use things like medical, so your costs to be independent are way larger in some countries, and you gotta be really aware of that.

Otherwise you get bitten 

Joe: in the bum. Oh yeah. The states. It’s yeah, we’re one of the few countries that has like no safety net whatsoever. So if you lo, if you leave your job, you’re on your own. That means you’re you’re actually paying more money in social security taxes. So in the states, it’s six and a half percent for your employer kicks in, you pay the other six and a half percent, 

but then you’re on your own. You get to pay all that so that’s the first thing a lot of people don’t realize. Second thing is healthcare, under the us Obamacare mandate you have to have health insurance and you pay for that. The estate doesn’t provide you for that unless you’re desperately poor or old.

So you get to pay for that. And healthcare is insanely expensive in the states. I wager. It’s infinitely more expensive than New Zealand for the same treatment. And the other complexities of that is if you’re out of network and you have, you get injured, out of network with your insurer something happens, injury, sickness or whatever, and you’re in a different hospital, that becomes insanely expensive.

That could be a bankruptable situation. And so there’s just a lot of complexities that you have to be aware of. As an employee, you don’t really think about, you’re not thinking about your health insurance. You think about network costs, but it’s you ain’t paying for this stuff as an, as a self-employed person.

You get to do that. Oh, plus business insurance. Plus all the other fund stuff, right? Your retirement, you gotta figure that out. There’s no state pension. You’re on your own in the states. 

Shane: . New Zealand’s a little bit different. If we go out independent, we still get our state pension.

We have a thing over here called ACC Accident Conversation, which is workplace cover. So if we get injured, then the state pays for us to get back as part of that. And our healthcare is free, although a lot of people top it up , cause it’s starting to get a bit stretched.

But there are costs that people forget about, even in New Zealand. Over here, the way it works when you go out on your own is you don’t pay tax in the first year because you don’t know what you’re gonna earn. But the problem is in the second year, you get whacked with the tax bill for the last year and what’s called provisional tax.

So you’ve gotta estimate your tax for the next year and then pay that in advance. Now in New Zealand, there’s some other ones just come through, which means you can pay as you go, but in the past what happened was everybody saw this money came in. They weren’t used to holding one third tax.

They’d spend it goes, woo-hoo, we’re in the money, honey. Yeah. Yeah. And then second year you get whacked with effectively 60% of your income out the door in that year for the previous year and the pro tax. Same with acc, even though it’s free in New Zealand, if you get injured every organization, every company has to pay a percentage of the employee salary.

Into the ACC fund to cover it. So again you get billed year in, in retrospect so once you work out what you earn, then you get this new bill coming in that you’ve gotta pay, and so again, people forget when they go out on their own to actually go and figure out what the costs are and the best thing they can do.

Go talk to somebody who’s done it for a couple years, don’t talk to somebody in year one. Yeah. Talk to somebody in year three or five and just say to them, you don’t worry about what the actual numbers are. Worry about the percent. So we talk about, , 15% of any money that comes in the door in New Zealand as an independent should go into your G S T fund just straightaway.

Just bang, on top of that, 33% should go into your tax fund, and then once all your taxes are paid, if there’s money left in the pot, good on you. That means you’re not earning enough. Spend it, but don’t spend it upfront or you’re gonna get kinded. It 

Joe: hurts.

Yeah. Yeah. I always say, pay yourself first, but that means invest your money, preferably into something that’s helps with taxes, right? So in, in the us like you can put it into a in tax-deferred IRA, for example, or a 401K plan and pay yourself first, but do it in a way where you’re not gonna pay taxes.

The other thing too is, it’s probably the same in New Zealand, like expense. So if you need a new laptop at the end of the year, I always wait for Black Friday. And I go on, a pretty insane shopping spree at that time. And a lot of that’s business expense. I think a lot of people do this and, but it’s good to, to keep track of your money.

Like I, I look at my money every week, see where we are, kind of project it out. That’s how I, it’s how I’ve always done things and, but again you, you don’t have a reliable paycheck, especially in the consulting and contracting biz, so here’s how that works,

You gotta always think of cash flow. If you’re a solopreneur, Good on ya. Not a lot of complexity there. If you’ve got employees this is where it starts getting complicated. Let’s talk about the solopreneur case, right? So let’s say it’s just you you’re getting contracts, you’re signing deals, that’s great.

Look at the payment terms, so some companies are gonna be, on receipt, others are 90 days, some are six months, some are more. So now you get to be your own collections agency, and the number one rule is get paid and you earn a charity. Figure out your account’s receivable practices.

Look at your aging reports. Use late, stay on top of this. I know people that don’t look at this stuff. It’s the craziest thing, and they’re like, oh, I don’t have any money. And I’m like, that person has your money. You better go get it, what I always try and do and we talk about employees in a bit too, but my contracts are set up where, you pay 50% upfront.

You pay 50% upon completion. I give you a 10% discount if you pay everything upfront. 

Shane: That’s the key, if you can get paid upfront. Now, the problem is if you’re a solo or you’re a company with staff and you are running your business model based on effort

hours charged the problem with that model is you can’t get paid upfront, most organizations won’t pay you upfront for the hours you haven’t done if you’re on an hour basis, if you are effort based, and the other thing that people forget is large corporates, their processes are crap

so you might say, yeah, I want to get paid. I’m gonna bill you on the last day of the month. And if you’re in that model bill on the last day of the month, never send it on the first day of the next month because their processes will whack you to a month later. They don’t care. And remember, it’s not the person you are working for that’s paying you, it’s the finance.

Large corporates if that’s where you’re working, they have processes and those processes of crap. The second thing is often you won’t get paid on time. Not because they’re being dicks and they don’t want to pay you and they’re being mean. It’s just that their processes are rubbish and that your key stakeholder that you’re doing the work for, they now have to go and talk to their finance department and figure out where that invoice is.

They can’t find it or it’s sitting on somebody’s desk score the key person who’s gotta sign it off cause it’s over a certain budget is on leave for two weeks. There’s a whole lot of internal processes in that customer that you don’t know about.

You will often get paid a month late. And the other one is you always get paid late on the first invoice for the new customer cause they have to set up the whole supplier, validation, bank account validation if they’re getting paid

so there’s a whole lot of processes for every time you’re first for that customer. And that one, in my experience, always takes longer than payments after that. You’ve gotta do that and you’ve gotta chase that money 

You have to be polite. , but you’ve gotta be dogmatic it’s just where’s my money in a polite way. Because cuz they owe you for it. . 

Joe: I always make it a point to try and get friendly with the accounts payable teams especially the clerks, right?

Because they might be able to work some magic, your invoice gets bumped up, cuz I don’t know if you ever, worked in accounting offices.. I did and I got to see how that works. And it’s like the accounts payable teams the accounts receivable teams, they’re usually overworked and and they feel underappreciated

and so anything you do to make their day a bit brighter and just treat ’em like a person and treat ’em with respect, that’s gonna go a long way towards you, probably getting what you want, which is your check. So that’s kinda the general rule too. I always make it a point to just, treat people, treat the customers, especially, the people who are on the front lines with respect.

You don’t have to be a jerk to people, they’re just trying to do their job. And the, I think the easier you can be to work with and the nicer you are the more they’re gonna be willing to help you out. If you’re a jerk about everything guess who’s not getting paid?

Probably and it doesn’t matter how much of a Karen you’re gonna be about it. The AP clerk’s yeah I’ll get to your invoice when I get to it. Which is gonna be probably a really long time now, so good luck unless you wanna change your tone so these rules apply.

Yeah, definitely. Whether you’re solopreneur, whether you have a team, if you have a team, the thing you gotta think about is just cash flow, right? That’s why we moved more towards a flat rate billing cycle just cuz it made it a lot easier to make sure you’re getting paid hourly is one of these things where I think you just have to make a judgment call.

Is that something you wanna charge? By, what’s your business model at the end of the day, so we would sell blocks of hours, for example, if we’re gonna do hourly, but then we, that means you’re also getting some money so at least you can pay your employees. Cuz guess what?

They need to get paid whether you like it or not. That’s how that works. And and we can talk about the pros and cons of that approach in a bit, cash flow is key. This is the thing

you’re now running a business, so you gotta understand basic accounting. What’s a p and l, what’s an income statement? Same thing, right? And so what’s a balance sheet? What’s cash flow statement? Cash flow statement’s probably the one thing that I think people don’t look at enough, but basically what’s your cash on hand at any given time?

And can you pay your bills? That is the most important thing. Cash is your lifeblood. You’re not VC funded, you’re not probably gonna get loans from the bank, so it’s like you have to pay attention to cash. 

Shane: At some stage you’re gonna go to your bank and you’re gonna want an overdraft, you’re gonna want some kind of loan facility because it just gets spiky, it gets lumpy and you go, look, if we had a little bit of just leeway sitting there, when a customer pays us late, we’re not gonna panic as much.

And what happens over here is the banks want your house, they’ll give you an overdraft on your company, but they want you to actually guarantee it with your house, that’s a personal loan. It’s, yeah. And it’s just brutal, my answer to everybody is don’t do it.

Don’t put your house on the line. That’s the other thing. If you’re gonna start your company up, you need some form of separation you need a way that if it does go tits up, and do everything to make sure it doesn’t, but if it does, you need to keep your family safe.

If you’ve got a family , you need that way of doing it because you are taking a risk, there is some stuff that can happen to you that is not fair. We have a whole lot of vanity awards over here and one of them was Deloitte’s 50 top, 50 or 500 or something.

I dunno. It was like a top 50 in New Zealand. And then there was a 500 pack. And what we worked out was that effectively you had a income cap. I can’t remember what it was like half a million dollars. Was when you started the ticket, ? And then you had three years. And then it was the growth of revenue over those three years Got you.

The award, so you have percentage growth. And as you probably know, as a consulting company, you can grow your revenue in a heartbeat, if you’re good, because all you do is you get a lot of team, more people, and then effectively your margin might not go anywhere

you might go negative on your profit, but your revenue can go through the roof. So we did that game and just before we go into the award for Bean, I don’t know what it was like number 32 or something in New Zealand. We hit a wobble and I ended up using my credit card to pay the payroll that week.

And I was like so embarrassed. We got flown up to Auckland for a two day shindig by Deloitte’s and the award company . So there was 50 of us there that the top growth companies in New Zealand. And I was like, okay, I’m gonna go ask and I, shit you not, the majority of them had used their credit card to pay payroll at least once.

So it’s gonna happen to. You will wobble. You need a way of getting cash to pay your staff. That is the most important thing you should do. And just plan for that upfront, whether you’ve got a line of credit, whether, there needs to be some way for you to get that money and then pay it back outta the company as soon as you can, but it’s gonna happen.

What about you? Did you ever wobble? 

Joe: No, we never wobbled, but I’m, pretty good with money. The thing is, for the longest time it was just Matt and me too. And our living expenses were both insanely low and We manage a stockpile away quite a bit of cash.

And so by the time we needed to hire people, it’s like there wasn’t a lot that could probably go wrong except the business dried up. But then if that dries up, then you just, you have to cut people. And that’s how that is. So I, I think we were just in a spot where we we had a very large cash reserve that could hold us over for a very long time.

That allowed us, to be a lot more thoughtful about the business and where we wanted to go. And for the audience too, like we, Turner grew to several employees.

And what happened was we decided we really didn’t wanna be in the services game anymore. And so we actually traded all of our employees over to, one of my friend’s services companies and he’s absolutely killing it. But I just realized like that model wasn’t for me.

Like I didn’t want to have employees at a services firm, cuz what you start realizing is the growth is very linearly scalable at best there’s this game called Feeding the Beast. And so what happens is you have employees you have to start taking on more projects in order to keep ’em utilized.

And so there’s a metric in services called utilization, which is the amount of hours you have allocated to an employee and the amount of hours are working, so 40 hours a week maybe in the States and maybe 60, whatever. But what percentage of the time is being utilized on billable client work?

That’s, that is a magic number. Usually it’s around 70% is the ideal. Maybe sometimes higher, sometimes lower. You find yourself having to I guess not make as good a decisions Because you have to keep these people paid. I just didn’t like that.

I like businesses where, it’s exponentially scalable or solo stuff where you just have a lot of liberty and that’s, but I just felt like running a services firm with employees was just something that I just wasn’t happy doing it. And so Matt and I made the decision we are, not gonna do that anymore.

We are happier when it’s just the two of us running it. And, that’s how we’re doing it now. I, cause I feel like, especially in the services game, right? So we’re talking contracting, so it’s just button chair hours, cling on keyboards, doing deliverables. For that, I think if you really wanna make it a go, at least in the states, like you gotta go big.

There’s not a lot of room for middle of the road. A few employees, at least in the states. Like you, you gotta be focused on growing your business to hundreds of employees. Cuz at that point, now you have options, , organizations take you seriously, as from a services angle, it’s oh, you have a team you can implement.

If you wanted to sell. It’s a lot more attractive, than if it’s just two people, so what Matt and I, what we do a lot differently and what we always did differently was we focused on providing more of a coaching model because we were so small and we started We weren’t able to come in and do a lot of data team as a service work or services work in general in nor did we want to.

I think that the, what we found, and I’d love to hear your thoughts in the Shane what we found is, when we go into a client and data teams see us, if you’re trying to do services work, there’s a tendency for data teams, the existing, the incumbent data team to have a bit of animosity towards you.

Cuz you’re just a higher paid version of what they do. You don’t know as much as they do about the business. I think there’s a lot of tension there. If you come in and you try and coach people and try and make them a better version of themselves, which is what we did a very teaching oriented angle to this.

People really like that approach and we felt that was a very good move. It’s a model that we, you know, when we went into services we deviated from, but we’re back just to that model And we’re just really happy doing it. It’s just, it’s, I don’t see a lot of people doing it this way and it’s just, it’s a lot different, but I don’t know.

What was your experience running a service firm? . 

Shane: I started out with very opinionated on consulting practices. I wasn’t gonna do. Cause I thought they just, they didn’t feel right. I ended up doing some of them for the company to survive.

And so for me it was like the business model was broken, and I don’t like the business model of consulting companies. And then the second thing was I decided that I was not particularly good at managing people and I did not enjoy it. I and it was a personal thing, 

I got to the stage where I was lucky enough that in the beginning I hired people I knew I’d worked with before or somehow somebody I knew them and they were just awesome. The people I worked with were some of the best people I’ve worked with my entire life. And they were self-sufficient, 

They knew their job, they were experts at their job. They didn’t mind working for a consulting company and being on site and helping customers. And so it ran itself, they were great. And then we started getting people that you pay a fortune and you gotta hold their hand,

and you got hold of the problems. And I was like, okay that’s not me, I don’t wanna do that. And then there was a bit of tension between my business partner and myself, which didn’t help. And, two people, consulting companies.

I, I tend to tell people a bit of advice around that is think about it as a form 

Joe: of a marriage. Oh, it is. And in fact it’s stronger than a marriage in some ways. Yeah. 

Shane: Yeah. And that’s what you’re committing to, for a number of years to be successful. Like you, I’ve as well as the startup I’ve fallen into this pattern of coaching data and analytics teams, and I love it because I come in and my business model is help them be more successful and get the hell outta Dodge.

And I love that model I love working with teams. I love watching them be successful and grow. And then I love the fact that I know that actually my business model means I can’t stay there. There is no way somebody can keep me there full-time for five years because it just, it, it doesn’t work that way.

I just wanted to loop back on a couple of patents you talked about. So the first one is the one that I didn’t do, and I highly recommend that everybody does it, is this idea of building up a war chest, if you are gonna start a consulting company and you think you’re gonna grow, you think you’re gonna hire more than yourself or more than you and your co-founder what you wanna do is you’re gonna see this money coming in

because you’re going do it because you’ve found some gigs that are highly profitable normally. And so you’re gonna start getting this money coming in, and you’re gonna have more money than you’ve ever been paid. What you want to do is pay yourself what you used to get paid as an employee or less.

Yeah. Or less start doing, or less, right? To start doing a monthly salary or fortnightly salary to yourself as if you’re an employee of the company for as little as you can. And then keep the rest of the money in the company. Now the key thing is it’s still your money, right? It’s just in the company,

you’ll get it later. And then when you’re ready to go and expand, now you’ve got a war chest of cash that you can use to expand. And think about it that way. It’s an investment, you’re using it to build your business. The second thing is I dunno how it works in the US but in New Zealand, when you buy big items and the number’s gone up,

in the old days used to be 500 bucks, but now it’s a couple grand. You hit a threshold where you know, if you’re buying a really cool MacBook Pro, cuz we all, sometimes people like me like to buy the best thing that you can, cuz you got all this money. You flip over into that becoming an asset and depreciation.

And what that means is, again, finance 1 0 1 is, it means the total cost of that asset doesn’t come off this year’s income. And so you have a bit of a mismatch now because you are effectively have to have cash to fund that asset and then you get it back over the next three to five years.

So be careful of that. , probably not so relevant in covid these days, but if you’re doing a massive office fitout cuz you’re moving into this cool office, and you’re gonna go drop a couple hundred k to put in the pool table and the space machine and that kind of thing that money comes outta the company, upfront. But you only get it back via that depreciation over a long period. So again, you need to work with an accountant or a finance person if you 

Joe: don’t understand this. Yeah. A good accountant. That’s one of your best investments and good, a good lawyer too. These, I ideally, if it works, these people are helping you make money.

That’s the whole point. . 

Shane: The one that I got is a bit of advice was find the best employment lawyer. And hire them on a retainer. Because that way if you ever get taken to employment court, you’ve got the best lawyer and your employer can’t.

So I thought, ah, that sucks, but what we did do was we got a good employment lawyer to get templates to be a good employer, so there’s a bunch of templates that you should have, policies as an organization you should have speak in on day one, and you can approach an employment lawyer and pay them a reasonably small amount of money for those templates,

and now you’ve got two things. You’ve got a relationship with somebody, that if you can go to, if you need to because that’s the other thing. If you need to go to employment lawyer, you’re gonna need to do it quickly, so have one that you know you can go do that you have a relationship with and then if you ever get into that horrible situation, you can go see them.

The other one that you touched on, utilization, 70, 80% there’s the patterns that the massive global consulting companies have where they actually expect their staff their team to be a hundred percent chargeable, a hundred percent utilization.

, that’s 40 hours out on site, fully chargeable. And then, 20 hours in their own time doing the internal time sheet and all that drossy and business building. And don’t do that. Don’t be a dick, right? If you’re paying somebody for 40 hours, they work 40 hours and you need to manage your business.

But the other one is there’s an idea of around fully loaded costs, so the way I always understood it was you take the person’s salary, you times it by, and then you figure out what the hour rate is, and that should be your charge out rate because you’ve got the salary, double that for overheads and then put one more on top.

That’s your margin, so you should be taking the salary and you should be getting three times the hour rate back as a reasonable charge out rate for a standard consulting company if you are effort based, time materials, effort based. What about you? Did you use some kind of ratio around that?

Joe: Yeah, I always had a set like margin percentage that I would use. So very similar. There’s different ways of price, right? So there’s value-based pricing, which is you figure out what the project’s worth to a client.

There’s cost plus pricing, what you describe, where it’s, here’s a cost tech on some margin and so forth. I blend the two together, like I always have, definitely a floor for margin that we have to hit regardless. And our margins are I think, much higher than they would’ve been.

At most services firms. I think a lot of services firms I talk to they’re lucky if they’re getting 10%. We’re much, much higher. But, and again, it is mainly cuz we’re selling more productized type services where the revenue’s a lot more predictable and so forth.

My advice though, if you’re just starting out, especially don’t get employees, like this is like the last resort thing. Figure out a good business model that works for you. I think that you should be able to get to a million dollars, as a solo entrepreneur. And if you need to hire more people, like maybe get an admin, maybe, but with chat G B T and stuff these days, and generative ai, I think you could probably get a lot done now in an automated fashion for, a very cheap price.

Figure out how you can like, automate and outsource things. I think that all too often, they’re, there’s the goal like, oh, I’m gonna build a giant consulting company. And I was like, everyone I know that’s done this. It’s just, it’s so much work. There’s so much friction in it.

And again it’s at best linearly scalable, you add another person in and they can only do x number of hours of work, and so think about that business model. It’s crap, actually. There’s a reason that, Matt and I decided to scale it back, 

I like the employees are all great people, but at the same time it’s just a very expensive way to make money. And at the end of the day, Matt and I, we were just happier making more money when it was just the two of us. And now I’m obviously out off doing my own stuff and so is Matt.

I enjoy the solo lifestyle. I’ve managed people before. I’ve, been a leader of organizations and such, and I like that aspect too. But for where I am in my life, it’s just, being solos. It’s just a lot of fun, right? There’s a lot of freedom. You can do what you want, you’re not accountable to.

Much of anything except maybe stakeholders and clients and so forth, , there’s a lot less stress, right? And so you can do your best work, look in the mirror and just understand what’s gonna make you happy at the end of the day. You’re going on your own for a reason.

Figure out what you’re really good at, figure out what you suck at. Figure out what you suck at is you have to have very honest conversation, but that’s really gonna dictate the type of business you build. Like one of my friends, he, Scott Bright, another, he built Brooklyn Data Company, which is a, a very successful analytics engineering shop here.

And Scott’s, he went to business school. He is really good at running businesses and, being an operator. And I think that showed in his business. I think he just sold it recently. And, hats off to him. But, every time I talked to him, it’s like he added 20 more people to his business and it just kept growing like ING Busters.

But that’s what he wanted. That’s what made him happy. I’m the exact opposite. I don’t wanna grow a services company. It just, it seems like a lot of headache. I just feel like there’s easier ways to make money. In a way that’s fits my personality. You’re obviously, you’re your own person, Shane, and so is all the listeners out here you’re your own person at the end of the day.

So figure out like what’s gonna make you happy? , why are you even doing this? Should you be doing this? That’s the other question. I don’t think a lot of people should go out and do business, frankly. I think that it’s a lot of people are not caught out to be an entrepreneur. That’s just a fact.

There’s so many different things you have to concern yourself with that, if you’re stressed out as an employee now multiply that by all the other things you get to work on and think 

Shane: about. Yeah. There’s a lot of patterns in there. Again, so one of the most important patterns you just talked about is if you enjoy working with data or analytics,

you enjoy doing the work. Soon as you get over 10 to 20 people, you’re not gonna do the work anymore, you’re now gonna manage the business unless you bring somebody in to do it for you. The other thing is as you scale, there are a repeatable bunch of patterns you’re gonna hit that are problems.

And one of them is if you’re gonna build your consulting company to sell it is more often than not, you can’t sell it because it’s not a product company. So yes, we see people like Brooklyn DataCo and we’ve seen some people in New Zealand sell their consulting businesses, but it is rare to be able to sell a consulting practice for anything like the multipliers 

Joe: you get for a product company.

Oh, it’s usually one or two times revenue. 

Shane: Yep. And it’s typically somebody you’ve worked with, in New Zealand there was a RFT of them, but it was because the overseas companies wanted to come into New Zealand and it was cheaper for them to actually buy a small company in New Zealand and New Zealand as a base than actually start their own one.

So if you think you are building to sell, then you need to run your company in a very specific way to get to that end goal. And you have a time window, you have a period of a certain number of years where after that, you’re no longer attractive to people that want to buy you. The next one is that scaling pattern.

So you’re gonna start off typically by accident, because actually I knew I knew a couple guys that came out of some of the shiny set consulting companies. I think they were ey, kpmg, cg, one of those, and hats off to them. They were really successful. What they’d do is they would build a business plan for their consulting company.

They would then go and sell that business plan with themselves to some other company that funded them. They would build that consulting company for a number of years and then, They’ll come up with a new business plan and then go sell that business plan again and do it again. Ah, I tell you, they, yeah, they do the what we call golden handcuffs as well.

Business plan, build the business, get sold two years, golden handcuffs, bit of a holiday, do it again. That is very rare, my experience. , nine times outta 10, it’s an accident, or a semi thought, you’re leaving your big company and you’re gonna do consulting, or you’re going as an individual contractor and you see a, an opportu.

But as you start to grow, you get to five and five’s a lovely number, because it’s normally you and your co-founder or you, and there’s three or four really good people and you’re just kicking ass, right? You’re just awesome. You get a great brand. People want you, you can charge what you want.

Then you get to 10 to 20, between 10 and 20. You’ve gotta start bringing in the hierarchies. You start bringing the team leads, you start bringing in the overhead. You start losing touch with all your customers for the work being done. From there, you gotta go from 20 to 50 or a hundred,

the 30 30 is death, you don’t have enough to be dominant in your market, you’re still too small. You’re not making enough money, cuz your overheads are killing you. So you gotta get to a hundred, and then after a hundred, it’s 500 and then a thousand. So there’s a pyramid scheme and you talked about when you have a hundred consultants working for you, if we wanna think about that, 

if we think, say we are paying, I don’t know, just make easy numbers for me. We’re paying a consultant $120,000 a year, that’s 10 grand a month. We got a hundred of them every month. 1 million in real cash is getting ripped outta your business to give to those people to do the work. . That’s the stress you’re signing up for.

And I think people really underestimate that. They don’t look at that as numbers, a hundred people, $1 million every month coming outta the bank, regardless of whether your customer pays you or not. So as long as you wanna do that, great, but just be really conscious of that pattern. 

Joe: Yeah, you gotta think about inputs and outputs, right?

So the outputs are the work that your team’s doing. The inputs are the deal flow that you have. So you gotta have a very sales oriented mindset, and and this is not a natural tendency for a lot of people, especially data people, to get out there and sell and hustle and market like this is exactly what you have to do.

To me it’s something I’ve always, I guess been somewhat good at is getting out there and hustling. I used to promote club nights and stuff and all that kind of stuff, so I’m just naturally good at it, but but selling is just one of those things that you’re gonna have to get used to it, 

that’s how you make money. The build it and the people just magically show up is not how that works, so here’s some tips too. And in fact, this kind of goes back to having a model of a company that makes it more sellable, so get partners work with companies. Some companies don’t want partners, that’s totally fine.

What we did early on was we realized, okay we’re two guys. But there are big companies out there that wanna work with us so we can help build each other’s businesses and they have sales teams. They can work on our behalf and refer us business, we refer them business and so forth. So early on we partnered with Amazon, Google Cloud came knocking at our door like super early on and that changed a lot of stuff for us, 

google Cloud was building their business in the Rockies. We were just starting out and we helped each other out a lot. And I think that was a very symbiotic relationship. And so we did that with other partners. And that, that’s a model that I think works, especially if you’re really small, is.

Partners. They have their sales teams. As long as you got each other’s backs, as long as again, it’s energy and energy out, so you gotta be able to refer them business, get them into doors, they refer you, but I think it works really well. Pick partners. You’re working with the technologies anyway,

so if you’re working with GCP a lot, working with aws, snowflake, AWS is pretty big, though I probably wouldn’t recommend them. They’re just too big, but, and gcps gotten a lot bigger, but figure out partners that work, especially technologies that you’re already working with. Here’s the secret too.

You can get paid referral fees in the back end, this is good. Bonus money. And it just helps you get more embedded into the, the sales cycle, because otherwise you’re having to go out and get all these deals. If these companies are in there, sometimes they wanna work with you.

And sometimes if they don’t know who you are, they may actively try and work against you. So you wanna make as many allies as you can to get into deals. That is how this works. And there is a certain way that these deals work. So you gotta understand why are psychology, you gotta understand seller psychology.

Who else is in the room that you don’t know about? You gotta have situational awareness. And this is just And this is something that you just develop over time, unless you’ve been doing this stuff, it’s it’s not gonna come naturally. But you gotta think of, your needs, your customer’s needs, who else is involved,

if a company’s looking at some sort of a data transformation, say they’re looking at a new infrastructure, a new stack you’re not the only one in there. There are technology vendors in there. You’re gonna have to think about there’s probably other competitors,

and who are they partnered? So if they’re going to market with, company X, Y, or Z partners, you gotta think about that dynamic. Who’s gonna have the leverage, there’s a lot of things to think about, but in terms of partnerships, if you can grow your team, say that you do wanna grow your team,

this is where having partners is very advantageous. Cuz now you can get to say, snowflake premier partner status, if that’s worth a lot of money a w s Premier partner status, like that’s worth a lot. I know one company that sold to a very big services firm here because they had a w s Premier status and a bunch of specializations and a bunch of competencies.

That’s worth a ton of money. Somebody will buy that. And you’ll probably get a pretty decent multiple off that too. So 

Shane: something to consider. , I think that’s I think that’s one of the key things. If you are looking to build and sell, you need to figure out what people are gonna buy you for.

And it’s not because you’ve got 20 consultants and you, nobody cares about that. No. Nobody cares about that. The reseller ones a really interesting one for me. . When I first started out, I looked at it and I said I don’t feel comfortable with that.

Joe: . 

Explain reselling to the audience here if they don’t know what that is. . 

Shane: The easiest way to explain it is you somehow influence a customer to buy a product or a technology and you somehow get compensated for that. There’s the typical reseller model in the old days especially when we’re doing on prem you’d have a, I dunno, you’d have a software vendor like click and, a customer to pay a couple hundred thousand dollars a year for those licenses.

And they were your customer and they didn’t know about Click, and you introduced click you did some of the work for that customer to buy that product and click would pay you 20, 30, 40, 50% of that first year license fee. And then typically there’s some kind of support engagement where you do the first cut of the support for that customer.

And so you get a percentage of the renewal, those are the upfront ones. There’s some kind of, what I still think is dodgy, where, there’s clawbacks, there’s ways you get paid that doesn’t look like a percentage margin for the sale you did.

And I’m not a great fan of those, if you’re taking the reseller margin you’re taking the money, just make it clear. Now I always thought, the problem with that is you’re not independent. What I didn’t realize is actually a lot of consulting companies that margin is a difference between them being successful and going under.

It can be a substantial amount of cash. The second thing is actually you are always biased. You may not be biased from a financial point of view that you’re getting paid by those vendors. But your team, to, to use the movie terminology has a very specialized set of skills.

If your team is experts in Azure you are unnaturally gonna bias any conversation towards Azure because that’s what your business is based on, so there’s always bias in the way you behave. 

Joe: There is. So if you like those companies, then I would say go figure out a way to work with them.

We like gcp, we like aws we like Snowflake and Databricks and we just partnered with them, and it just works. And Five Tram’s been a great partner of ours and many others, right? And so it’s just who do you vibe with and who would you work with anyway if you weren’t partnered with them?

So here’s the other thing though, you gotta put some time into getting certifications. Depending on the certs, these may not be easy. They may be very hard. Especially as how certifications work is, you have associate level then specialization or pro level specialty certs.

These are not a walk in the park like, but. You’re probably gonna have to get ’em, you personally as one of the founders will probably have to get ’em early on if you wanna go to the partnership route. So that’s time you gotta spend studying now and taking these certs and then you gotta go through all these other hoops, so you gotta figure out what’s it worth you at the end of the day.

But as you say, Shane, , if you’re already somewhat of an Azure shop get the certs. Get the partnership. I think that the certs also have the advantage. They teach you how that particular platform or technology wants to be used. You may have your own opinion about how Azure works.

Azure certainly has your own opinion about how Azure works, and I think one of these wins out At the end of the day, it’s probably not your opinion. It’s probably how Azure wants you to think about it. So just understand the philosophy and you can uncover a lot of this in the certs. And it’s just as you point out too, at least in the States there’s two ways you can work with a company.

You can be a referral partner, which means you just get a cut, say a deal closes, you get cut at that. They can refer services work to you. Sometimes they have their own competing services orgs too. So you gotta think about that. There’s also resale in the case for us, resale means you’re taking on the client.

So the client can sign up through the vendor or they can sign up through you, and then you basically take on that responsibility of having that client pay you on your paper, which also means you gotta pay the vendor as well. You get somewhat of a discount and that passes through. But in some cases, what you need to be careful of is say that you have a client that is experiencing cashflow issues and they can’t pay you.

Your vendor doesn’t care. They still want to get paid, come hell or high water, especially if it’s AWS or GCP or a big one, they’re gonna come at you if you aren’t paying. So you gotta think of that risk assessment is this client viable that I’m passing through on this reseller agreement?

Cause if they can’t pay, I’m so l now I gotta shut this person off. Which is your leverage. Basically, you can just say, flip the switch and say sorry, your entire Cloud platforms done for until you pay us. That’s a nuclear option, but you just gotta think through that, that, what’s the risk there

There’s a lot of different angles. And the other option is, I know that there’s companies that just don’t partner with anybody at all. And that’s the other option. Maybe you don’t want to do that. 

Shane: I think the key is making a conscious decision and be transparent about it.

So if you can turn to your customer and say, we have a straight face. Yes, I’m getting a margin on this deal. That’s okay. You’ve been upfront about it. One of the other ways I always think about it now, and I have changed my thoughts a little bit over the years is so say your team is experts in.

And your customer’s going down the AWS route, is it actually fair that your customer’s paying to retrain your entire team on a bunch of technologies they don’t know? Yeah. The pans are similar, but it’s not the same. So think about it that way. You have a bias, you have a special set of skills.

So focus on those, and therefore, you need to disclose that. I think there are some dodgy models, there are the hidden pass throughs, where it, it’s not clear that you are getting incentive. You are pretending to be highly independent. But actually you are not.

There was a company in the financial software space that was notorious in New Zealand for running RFPs, the government. Then a certain technology stack always won. And then they did the implementation. Now, at the time that technology stack actually was the best in the market for New Zealand for those customers.

But it was this perception of you did the evaluation and you got the services, and that one always won. It came across as dodgy. I remember when I tried really early on which is a common one people use, which is a referral permit scheme for people when you’re running a consulting, You will typically have a blend of permanence and contractors,

you’ll need to burst your resources and you don’t want full-time equivalent. So you will typically have a bench of contractors who are independent that you trust, you’ve worked with, they’re great people, they just don’t wanna be employees, and so you’ll use them on a project,

because they’re great, they’re good for the customer and they’re good for you, and you’ll pay them more than your team. But then they’re not there for the whole time and you don’t worry about overheads and all that kinda stuff. One of the ones I tried really early on was a referral fee.

My contractors got a percentage of the early rate for any other contractor that they recommended that worked on a project. We have the situation where one of the contractors stopped working for us cuz he found his own gig, which is fine. But he still wanted to be paid the percentage of the early rate for the ones that were still on the project.

And the rule we had was if you stopped working with us, then actually the people that still were working with us got that rate . You lost it, it went back to the people. We just gave it back to them. We didn’t keep it ourselves. And this person got really grumpy about that. And I said you could have a conversation with them and if they want you to keep your margin, that’s fine.

And they said, oh, but they don’t know I’m getting a margin. And that for me, that’s the conversation you have with yourself. You look in your mirror and you go, okay, yeah, I’m hiding something. And I’m hiding it because I think it’s. Then have a really clear conversation about whether you want to do that.

If you can tell everybody you’re doing it and you’re like, this is what I’m doing. Like it or lump it. I’m holding on this one then you’re Okay. And that takes us on to salespeople, so again, one of the patents I see is you typically start off selling through relationships, 

you’re really good at it. You good, you do great work. You may decide that actually you want to grow. You’ve got a bunch of people that you can’t sustain the finding the opportunities in that sales cycle and you don’t like doing it anyway. So you’re gonna bring somebody in as the salesperson to do that work.

The first problem that I see consulting companies have is they don’t have a clear statement of their value, the founders are great at talking to a customer, finding a pain, convincing you and solving it, and then go and solving it, but your salesperson doesn’t have those skills, so you need a very clear sales message, 

we go after these types of companies with these types of problems. This is how we solve it. And if you don’t give them that, your sales people are gonna fail. 

Joe: They’re gonna fail and they’re also gonna, sign up for deals that you really don’t want. And so your team is going to potentially be doing a lot of work that just doesn’t fit your model 

You gotta understand what’s the incentive and what’s the outcome for the salesperson, what, what are the incentivized to do? What are the guard rails, as you say this is what we sell, this is what we don’t sell. You gotta be very clear about that. Cause the last thing you want is salespeople is, they’ll, they’re paid to sell

obviously. But if they don’t have the guard rails available to sell anything, and they I’ve seen a lot of situations where salespeople will make up a bunch of stuff to get that deal cuz they wanna get paid how it works usually is like pretty low base salary. And typically high compensation through commissions

If that’s your incentive structure, you’re gonna do everything you can to close deals. And if you aren’t clear as one of the founders of the company or one of the leaders about what the expectations for salespeople are, then you’re gonna get what you get. You gotta be crystal clear.

Shane: And one of the key things is don’t ient them on revenue. You gotta figure out how to incent them on success because salespeople are great at selling. They’ll sell big revenue deals, but you might make a hell of a loss on it. You might get caned, and that as a business is not sustainable.

So you need to figure out how to incent the conversation for a salesperson that aligns with the goals of the organization and the business model you are running. If you are running bums on seats then that’s okay as long as you’re not promising anything other than this person for 40 hours, that’s nice and clean.

But as we’ve said, it’s not a great model. You want to get to something which is more sustainable, more value-based patterns, and therefore there’s more risk. So now you want some kind of success. And again, as you scale, you end up with hunters and farmers, you end up with people who are good at going and finding the opportunities.

And then you end up with people who are good at making the customer happening and delivering those opportunities, and then reselling more services over time. So you start to see your sales team split, and now you get some tension, or you have the poor consulting delivery manager, 

because you’ve got 200 people and the sales person’s gone out and sold this thing, and the delivery manager’s gone to the drinks or the virtual party to celebrate this, 5 million deal. And then on Monday they’re in and the customer’s told them I got promised this, and this, and now that person’s picked up.

This horrible thing. Think about aligning it with your business model. And so one of those business models we see a lot is the idea of land and expand, so the way that works, and typically you’ll do that when you’re a founder, is you’ve got a set of expertise.

So you’ll drop in as the expert, and then it requires more work than yourself. So you’ll start bringing your team in, so you are landing, you’re finding the work. You might be doing a strategy, you may be doing initial prototype, something like that. And then you’re gonna bring your team in.

Again, think about how you scale that, because the key thing with that model is you can’t stay on site after you’ve landed and expanded. And then you start getting to that again. I think it’s a dodgy practice, which is what some of the big consulting company do, which is the old switcher Rooney.

The consulting partner goes in as the expert, the customer buys the consulting partner, then the senior person comes in, they’re there for a short period of time, and then you start bringing in your juniors, because that’s where you make money and you just flood it with juniors, and then the partner and the senior will come back in every couple of months to fix it, when it starts to crash

and again, I’m not a fan of that, if we think about the customer, that’s not what the customer’s buying, they’re buying expertise not effort. 

Joe: Well, and again, it’s about reputation too. What do you wanna be known for, if you wanna be known for, doing dodgy stuff, then that’s your prerogative.

But again, this industry is so small. Especially , as you move up the food chain, , assuming you’re able to move up the food chain, you might stunt your own growth and you might kneecap yourself because you’re doing dodgy stuff and nobody wants to deal with you. And I’ve seen plenty of companies that do that, and word gets out, and they find success in their own ways, but it’s not success, that. I personally would be proud. I always tell my team , reputation’s everything. If you lose money that’s one thing. If you make a mistake, that’s one thing.

If you lose a shredder reputation for us, like I will be quite ruthless, and this is something I’ve learned from Warren Buffet, before every shareholder meeting starts he shows a video of him talking the Congress about the Solomon Brothers incident. So he was temporarily in charge of Solomon Brothers and he had some very shady things that happened,

and so he had to go apologize. And he said exactly that. It’s lose money for the firm and I’ll be understanding, lose a shred of reputation, I’ll be ruthless. And that’s that’s something I’ve always been ironclad about. Cause his reputation is everything to me. It’s the only thing that matters.

So you always gotta think about that whether it’s you personally or your employees or any deals you take on, so you gotta be willing to understand , does this deal make sense for my reputation? Or, is there potentially a time bomb here that’s gonna potentially disrupt your reputation?

Because again think of this , you can spend years building up your reputation. You can get, you can destroy it in about five minutes. That’s how that is. And it’s so hard to get back if you can. 

Shane: And remember, as you scale, it’s not you doing the work, it’s your team that, that’s holding your representation, your brand.

I always struggle with the really large consulting companies. The ones, the global ones. Yeah. I’m, yeah, Sam. Yep. Because they do the Swapout model every day, all the time. Yeah. Somehow they have a reputation as being the go-to people for strategic advice, it’s, I can never reconcile the behavior on the.

What the representation of the company globally. 

Joe: I’ve never met people that have used these big companies that are, totally stoked on ’em. I can’t understand why. I guess maybe you reach a certain size where you’re just so big, you’re invincible too.

Maybe that’s just it. But you gotta get there, right? These companies have, hundreds of thousands or millions of employees that’s, these campuses especially in India, they’re like cities, lunch breaks is 80,000 people going out for lunch.

And that’s just how it is. You have these big firms, but you’re not that firm, you’re competing against these firms. And I would say you need to be strategic about how you plan to compete against them. And this is one thing you gotta realize with services, like you are competing against these big firms and you’re competing against Upwork, you’re competing against fiber, you’re competing against all these kind of race to the bottom scenarios.

And you gotta understand, is that what you want? Is that what you wanna compete with? Or do you want to try and find a different avenue that’s not necessarily race to the bottom, but maybe a, a race to the top, or at least there’s a floor in terms of how low you can go, I always say this to people , figure out a way that you can leverage advice if you can,

otherwise, when the moment you touch a keyboard the moment you put a cap on how much you can make. Because think about it now, if you’re an engineer and you’re doing data engineering services, now your rate’s comparable, I can go onto Upwork, I can call, all the, any of the big firms or whatever, and get a pretty good idea.

Okay? So here’s how much it’s gonna cost to this project. If you’re coming and offering something more value add, flat rate pricing and so forth might be a, an option. But something that’s more advice-based or more productized like you, you can charge I would say substantially more money with a lot less risk of being compared to , people that might be offshore, people that would cost you a lot less money than you.

And so there’s just something to consider. . 

Shane: I wrote a blog a little while ago called The Fives. And I think about it this way. So the bottom of it’s effort, this is where you are doing work for a time, so Ali rate, it doesn’t mean who you charge for it, but you are, they’re expecting you to do 40 hours worth of work and somehow you receive value for that 40 hours,

so you’re going in and the pattern is effectively they’re controlling the work you do, they’re directing you, they’re telling you what to do. You’re getting paid per hour. The next one up is expertise, you have done this time and time again, so they need somebody to do some work, and you are recognized as an expert and they’re hiring you because you are the expert,

they expect it to be done a little bit quicker. They may pay you more than an early rate would take, because of the expertise. But effectively, you are known to be able to solve that problem, so they go, here’s a problem. You go solve it. Go away. We’ll pay you to solve that problem. Next one up is experience.

This is where they have a problem and they can’t find an expert. Their team can’t do it. And so they’re looking for somebody that has experience in that area or around that area and they’re gonna bring you in to work with them and solve that problem with them together. And again it’s an unknown.

You can never really fix price it because you don’t actually know what it’s gonna take cause you haven’t done it before. And then the last one is efficiency, which is effectively, you’ve done it so often or you are automated in such a way that you can actually run it more efficiently than they can.

And that’s the one that a consulting company should strive to get to for a percentage of their business, in my view. And typically it looks like a support fee, it looks like a healthy system. You are charging some form of fixed monthly fee or fixed fee for a period of time for a known outcome.

And you are just far more efficient at doing that because you’ve got scale, you’ve got automation, you’ve got something that, that they don’t have. That’s when you can start charging upfront, you can start saying, actually, you’re gonna pay me in advance for that support fee, 

and so again, as a consulting business, you should be aiming for some of that. It’s almost like service is a product. But it has to be automated, it has to be efficient. You can’t manual tur, you can’t actually have people back on the bench doing early rates and pretending that it’s a efficiency play.

So again, be honest to yourself about where that sits. What’s interesting is if you’re picking up their stuff so they’ve been running for a while, their systems are a mess. You’re gonna go in and tidy it up and support it for them. There’s a massive cost upfront to get that stable.

And what will happen is customers are happy to pay you a monthly support fee cuz you’re tidying up the stuff, you may charge ’em a upfront fee to say is a cleanup fee or one that I used to use was, I’d say, show me the documentation and then I’ll tell you how much it’s gonna cost to write it.

Because if there’s no documentation, it’s far more expensive for us to figure out what the hell’s going on. Also check the documentation against the system to make sure the documentation’s up to date. But what happens is after a while, the system’s running healthily. You are charging them this fee, they’re gonna come back to you and go, what are you actually doing for the money?

And you’re gonna go, I’m running you a service and it’s working, and they’re gonna go, but we don’t see you doing anything. And again, you’re gonna have another round of conversation about value, because , people naturally go back to effort. They always go back to effort. And when they see you not doing anything and they’re paying you for it, even if they’re getting an outcome, they struggle with that value proposition.

You found that? 

Joe: Yeah, somewhat. Again, I think our model is just, it’s a lot different. We’d sell a lot, like a lot of architecture reviews and assessments and stuff, and that’s very turnkey for us. So there’s the system’s all laid out basically here, expect X, Y, Z, et cetera, et cetera.

I would say just be transparent as much as you can, especially in your agreement, right? How we have our proposal set up as a proposal is the contract and so forth, but it lays out here’s what you can expect. Here’s how it’s gonna be, here’s how long it’s gonna take, and so forth.

If you can clear up a lot of the guesswork upfront with people, that provides ’em with a lot of clarity. And the deal with proposals too, that I found is , proposals get sent around a lot, and so you always wanna make sure, proposals just crystal clear about the deliverables, price, scope.

So if they do get sent around to people, there’s no question. So some books I’d recommend reading. Alan Weiss he did Million Dollar Consulting, the Consulting Bible and Million Dollar Proposals. I would say just get all three of those books utilized what he says.

It’s more geared towards solo practitioners, but I think there’s nothing wrong with that. But his whole thing is figure out a way. To, come with the productized services, don’t do hourly try and have as much predictability, in, in your agreements as possible.

And just, do really good work. And I think reading his book saved us a ton of time and money. Like those were really good. There’s a lot of really bad advice too, I would say, in terms of how you should go about providing optics to people. Some people, for example, I think, they try and be very secretive with a client.

Don’t tell ’em much. I think it’s a horrible idea for me. My approach is be more transparent than you need to be. Clients will appreciate that. I think that level of candor and just respect and so that’s always how I’ve done things. Maybe I’m overly transparent, but again, I always find that’s, it’s just a better policy at the end of the day.

You don’t want people guessing what they’re paying for, it’s just how would you feel about that? You, hire somebody, and then they don’t tell you what they’re doing. I’d be pissed, , if I have a contractor, I’m having landscapers show up in a bit, and I, we’re very clear on what we need.

They’re very clear on what they’ll do, and I don’t think there’s any surprises., , I just think , keep it really simple, be really honest, charge, fairly and just, again none of this stuff is that hard. The other thing that you gotta do is just make sure you’re scoping, and ask good questions.

All of it comes down to scoping. And so you gotta be really thorough. I always have a set list of questions that I ask. These are diagnostic questions, and you gotta pay really good attention and listen to what people are saying. There’s always gonna be like that one sentence or that one word that’s the trigger thing.

And you’re like, that’s an okay, so that’s why you’re talking to me, right? And it’s gonna be, it was always really subtle. It’s rarely obvious what the true issue is. And this again , you have to be really good at listening to people and reading between the lines. And it’s important to listen to what they say as to what they don’t say.

But again, scoping is your number one thing. This is how you de-risk your projects. And if you have questions and there are too many questions, the best thing you can do is probably walk away. I always say, the only thing worse than no deal is a really crappy deal. And a crappy deal is something you got yourself into, by the way.

It’s not like somebody put a gun to your head and said, look, you better sign up for this. You know where else . You did this. And so you, need to be very cognizant upfront about listening, scoping, providing very crystal clear what you’ll be doing in your proposals.

And I think just being very transparent with a client this is what to expect. And the other thing you gotta keep asking is there anything we haven’t talked about that we need to talk about? This has to be asked. Oh, throughout the project too, and the other thing I like to do is send out surveys.

Like a CSAT score, just a scale one to five. How do you think we’re doing that? That’s a good way to assess like, how the project’s going. Cause again, you wanna make sure your customer’s happy. That’s how you are able to do land and expand, for example, if you customer hates your guts you ain’t gonna be asked back.

It’s pretty simple. 

Shane: unless you got them over a barrel, which isn’t a healthy relationship, you don’t want that. So one of the good pattern in there is in your proposals, make sure you’re very clear about what you won’t do. So customers expect that you’ll do everything

. They think they’ve told you everything important and therefore you understand what needs to be done. When you know there’s something you won’t do, make it very explicit in that proposal because that’s the point that gets you in trouble. The other one is, it is okay to fire your customer.

Do it politely. There are times where you’ve gone into a relationship with a customer and it’s not working, and it may be them, and it may be you. It’s probably both. You think about how you’re gonna exit politely, because if it’s toxic, it’s not working then it’s not healthy for either of you.

I got two more I wanna get on before we finish off. So again, as a purist, I had this idea that, day one would build this awesome consulting practice, this manual, that all my consultants would run because it was the rule book, this is how we do consulting.

And funnily enough nobody ever used it. How’d you find it? Did you find that you managed to get a playbook that everybody followed on your team, or you had a set of principles that they followed and that’s what you cared about?

Joe: I just kept it really simple. I was like, just reputation’s key. Don’t lose it, right? That’s about it. I always find if you keep things really simple, there’s not a lot of loopholes you create. If you have too many rules and regulations and all this other stuff, people find ways to work around it.

So I, again, I just I take inspiration from Warren Buffett and how he runs Berkshire. It’s very decentralized and he doesn’t have any rules really. He’s only rules don’t lose reputation. That’s it. Good enough for him, probably good enough for anyone else. So just keep it simple. And he does this on purpose,

He said, the more rules you have, just the more chance somebody’s gonna find a way around it. So just keep it very open-ended keep it very simple and the rest will take care of itself. 

Shane: Excellent. And I got one last piece of advice. So when you’re an employee, You get given things called holidays

and you get forced to take them. Typically, when you’re an entrepreneur, either on your own or when you’re running a company, you don’t. And so it becomes key that you actually bake in a pattern of taking holidays, taking breaks every year. Cuz if you die, you’re gonna burn. And if you’ve got a family or you’ve got, friends you’re gonna not spend time with them cuz you’re gonna be working more than you’ve ever worked before.

And you’re gonna be worrying about things you’ve never worried about before. So you’re gonna be distracted. And so that idea of a holiday of having a time every year where you treat it as if you’re an employee and you take a holiday, it’s critical to your mental health. 

So do it. It’s my one big of advice, oh yeah. I completely agree. 

Joe: And I would say, you have the liberty, because you’re not an employee, you have the liberty to set up your schedule in a way that makes sense to you. I think as long as you’re servicing your clients, as long as you’re very transparent about what your schedule’s do, you can do things that you didn’t have the ability to do, like for.

I usually take meetings on I try and front load meetings into Monday. That’s when I do all my admin stuff, maybe part of Tuesday and that’s it. Unless it’s a very important meeting those are the only times that I dedicate to talking to other people. Cause I, I need now the mental space to, work on whatever I’m working on.

And so that something that I. I do, cause I feel like I can do my best work. Again, you’re doing this work, you’re out on your own because you want to provide a different outcome for yourself, right? And you can set up your lifestyle in such a way that you can be most effective.

Obviously you need to be attentive to your client’s needs if you’re doing consulting, but figure out what you wanna do. Figure out what the, what type of consulting do you wanna do, or contracting con contracting and consulting are not the same thing, by the way. Consulting is very much advice-based.

Contracting is very much service-based. And so figure out what makes you happy. And you have the opportunity to set your lifestyle, like Shane says, where it’s like you can take breaks, when you want. Your time is yours. The problem is your time is yours, right? So you gotta figure out how you’re gonna maximize that time for money.

And the other thing you gotta realize is, again, you’re not getting a steady paycheck, the money doesn’t come in regularly. The money comes in a very lumpy fashion, typically. And that’s just the other thing you’re gonna have to get used to. So your lifestyle is gonna have to drastically change.

Again, , Matt and I our living expenses were so low to begin with. It didn’t matter. We basically live like college kids and still, and that’s how it is. If you have a very expensive lifestyle, you’re gonna have to figure that out. I’ve seen people that I’ve tried to go out on their own , and they’re making like, two 50, 300,000 us, at their jobs and they couldn’t afford to leave.

Cuz it’s like they’re, that’s their living expense too, by the way. Is that amount of money. And for you to try and accumulate that amount of money. And try and take breaks in between, like that ain’t gonna happen. You figure out if this is even what you wanna do. There’s nothing wrong with working for other people.

I think that is what most people should be doing. You gotta be a maniac to want to go out on your own. There’s so many things you gotta consider. You gotta be insane. But if you figure insane, then do it. , if you’re feal like Shane and I and somewhat insane like us, then this is probably the lifestyle that you want, man.

It aint for everybody. I’ll tell you that right now. There are gonna be days when you’re gonna doubt yourself. There are gonna be days when you’re gonna probably cry. That’s how it is. 

Shane: And there’s some things that you’ll learn that you should have asked questions of somebody else. And once you know them, don’t do them again.

, if you’re an independent contractor take three months worth of your salary and hold it in the company because at some stage you’re gonna have three months of no work, and that money needs to be there. If you are running a consulting company with a team at the beginning, pay yourself a small salary.

whatever you need to live. And then at the end of the year, you can pay yourself a big bonus if the money’s sitting there. Don’t pay it out all cuz you’re gonna need some for payroll next month, but treat it as a bonus. Don’t treat it as a salary and that way it’s a great way of managing those spikes because an unhappy customer, you can go in and fix it code that doesn’t work. You can go in and fix it. Yeah, there’s a lot of things that you can go as an individual, as part of your consulting business and go and fix when you have no money. . There ain’t no fix for that. . You’re a wall . That’s the thing you focus on.

It’s a money game. 

Joe: Yeah, you’re gonna have to go back and get a job probably. Yeah. You’re gonna have to go back and find employment. That’s 

Shane: just, you have to tell the 20 people that rely on you for their bills, who believe they’re employees, that actually they just got the consequences of the risk that you took.

And they’ve got three months of no 

Joe: work now to the Caius King man. Caius King, especially right now, recession is on the horizon. Everyone talks about it, which means it’s a self-fulfilling thing typically. And you just gotta be really frugal with money. I’ve always been frugal, so that, I think it’s a bug and a feature at the same time, but it means also when things get tough you ain’t worried about anything,

Or at least not worried as much, it would take a lot to, to knock you down. If you’re skating on the edge of cash every month and then the economy goes south, you’re screwed. As you point out, Shane there ain’t anything you can do about it.

You can go fix code, you can go fix whatever problem for the customer, but you’re not gonna just invent money out of thin air, it’s, it forces you to do dumb stuff too, is what it does. Now, it forces you to do stuff that you probably don’t want to do. 

But it’s a lack of money means you have a lack of options and it more, it forces you to be desperate. So cash is king. You’re running a business. Warren Buffet saying is, don’t lose money. Rule number one. Rule number two is don’t forget rule number one. 

Shane: Yeah. I’d have rule number three, always pay the tax man.

Yeah, pay your taxes too. It helps always pay the tax men, because that’s the one person that never gives up coming after you. Yeah, make sure you pay them first and pay yourself second, maybe. Not the other way around. Excellent. Hey, look that’s been awesome. It’s not often you get to have a chat about patterns that aren’t technical or ways of working ones, 

so running a business, you are running a business, that’s a skill. So excellent. Hey, look, thanks for having you on the show and anytime. Yeah. Hope everybody has a simply magical day. 

Joe: Thanks everybody.

And 

Shane: that Data Magicians was another Agile Data podcast. If you’d like to learn more on applying an Agile way of working to your data and analytics, head over to Agile data.io.