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Are You a Contractor or a Consultant? What’s the Difference?
[NOTE: This post is part of a series on Entrepreneurship 101 to give a kick-start to those who are thinking about starting their own business. Our regular Job-Seeking and Career-Improvement programming will continue soon!]
As most of you know, I spend the majority of my time working with IT folks. And the most common way for an IT guy to start his own business is to set up shop for himself.
In fact, in 2007, with just about any industry, the easiest way to start out is to be your own company doing whatever it is you did for a big corporation.
So, you become a contractor. Or a consultant. But, which is which? And does it matter?
Let me give you a little hint: It is vitally important to your business and your customer which you are. Pick the wrong one and you could kill your small business before it gets started.
IT’S ALL SEMANTICS, ISN’T IT?
That’s the question that I usually get. The answer is no. And picking which one you are drives how you present yourself, your sales & marketing, and, in the end, your level of success.
So, here are the basic, non-obfuscated definitions:
A Contractor DOES something. That is, s/he will build a house or code a program or capture a fugitive. As you can see, there are contractors of all sorts, but they all have a specific job that they do for their clients.
A Consultant TALKS ABOUT how to do something. They tell you the best way to catch a fish or sink an oilwell or become president. There is a lot of talking involved, plenty of advice, but not any “nose to the grindstone”.
Why does it matter? And can’t you do both?
The reason it matters is because both you and your client need to know exactly what your role is going to be. It matters because it affects how you price what you do. And it matters because your personality is only appropriate for one of these positions.
Here’s a simple primer on each:
PROFILE OF A CONTRACTOR
Remember, Contractors are doers. So, here’s your profile:
Personality: Generally, contractors are very good at getting a specific task done. They are less interested with the “people side” of a business than the “task side” of a business. They are very concerned with getting whatever it is they do done right. An implementation problem, even if it isn’t the contractors fault, bugs the contractor because it means that something isn’t being done right.
For this reason, they are not very good at taking direction, other than, “Hey - go do that!”. They are, on the other hand, very good at making their skill happen correctly, no matter what it takes. Successful contractors have, as the report cards say, “excellent attention to detail”.
Contractors generally hate the politics in the workplace and do their best to avoid them or, at least, pretend they don’t exist. Being “doers”, the politics doesn’t enter into their lives very much since, once it has been decided to hire someone to do something, the politics usually don’t dictate how it’s done.
Experience Level: Truthfully, as long as you have some experience, you can be a contractor. Clients need 1-year skilled people just as they need 5-year experienced people. In other words, you need not be an expert in the field, just skilled.
Payment: Contractors are almost always priced out on a dollars-per-hour basis. The rate charged is going to be dependent on the number of people with the same skill level in the same geography, the demand for that skill level, the general “market rate” for those skills, and the term / notice of the contract.
So, if a Java developer “market rate” is around $50/hr and the client is looking for specific experience in Java Beans development in a retail environment, and there aren’t many people with that skill (which there aren’t), the actual rate charged could be $75/hr. If they needed that same skill tomorrow and only for 2 weeks, the rate could climb to $100/hr.
And the reverse is also true. Longer term contracts in a market with more of the skill set would depress the rate paid.
How They Get Work: The primary ways that contractors get work is either directly from clients or through personnel agencies that specialize in their skills. The quickest way to get work is to go through agencies since they have a sales force out in the field constantly finding work.
Going directly to the client can make you more money (since there’s no agency middleman), but you’ve got to hit a lot of clients before you actually find work.
You Would Do Well As A Contractor If… you are good at what you do and prefer that task to interacting with people. You are more of a perfectionist than a political operator. You don’t mind working long, hard hours to complete a task you’ve started. You get bored with the same task over and over.
You Will Do Poorly As A Contractor If… people frequently find your work to be incomplete, inaccurate, or just plain wrong. You can’t see a task through to completion. You’d miss seeing the same people at work every day. You enjoy routine. You need to see the long-term results of your work.
PROFILE OF A CONSULTANT
Consultants are the talkers of the world.
Personality: A consultant will often come off as a salesperson because they are usually rather full of themselves. They like to interact with people and give advice. These people have gotten over the “do it right” syndrome. If the client follows their advice, great. If not, great. Just hand over the money, please.
Also, most successful consultants are excellent at reading between the lines and incorporating political realities into their advice. They have to be able to detect when, for instance, the CEO would really like his cousin in place as the Assistant Director of IT and incorporate that into his advice back to the company. All that without the CEO explicitly saying anything.
One other thing that consultants are particularly good at is producing paper. Consultants can seemingly produce a 100-page document on just about anything at a moment’s notice. As a result, they have to be good with words / grammar and be able to turn a 2-sentence answer into pages and pages of words.
Experience Level: You must be a true expert to be successful as a consultant. That is, you’ve got to know your subject inside and out AND have in-depth experience in the industry. If you want to be successful, I wouldn’t recommend attempting to be a consultant if you’re under 40 unless it’s in a “new” industry (new trends, new fashions, new technology, etc.)
I’m not saying that you can’t know your stuff or give good advice if you’re under 40. I’m just saying that the marketplace is unlikely to take you seriously. And give you money.
Payment: Consultants can either be on a retainer, where they’re paid a certain amount a month for continuing advice, or in a lump sum for their advice. Rates are usually dependent more on “alternative cost” than an hourly rate.
For instance, advice on how to shut down a nuclear reactor that has started to melt down would get a high rate. And the rate would increase as the reactor got closer to melting down. The reason is that the alternative cost (really bad publicity, deaths, land unusable for 100 years, etc.) is even higher.
Advice on how to improve an oil well’s productivity by 50% has an alternative cost of receiving much less money for the oil. Hence, the consultant’s fee is based on how much that 50% more of oil is worth on the open market.
How They Get Work: The Consultant is already well-known in their industry as an expert before they set out on their own. So, a lot of work comes from that proven reputation. However, most of a consultant’s non-fee-generating life is dedicated to networking and other ways of making their name known to others.
You Will Do Well As A Consultant If… you enjoy being around people. You can negotiate the toughest political labyrinths. You have excellent verbal and written communication skills. You are well-known (in a good way) within your industry.
You Will Do Poorly As A Consultant If… you don’t like people. You can’t stand paperwork. You can’t be constantly networking. You aren’t sure of yourself. You have a need to actively do the work. You will worry about your advice being ignored, implemented improperly, or scorned by people with another agenda.
So, there you have it. If you’re going out on your own, know what you’re suited for and give it all you’ve got!
Next In The Entrepreneurship 101 Series: How About Starting A Franchise?
Enjoy the Search!
-Dan
Photo by: jimmyharris
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