Competing with Software Consulting Companies

Thanks, everyone, for sending in your reader questions!  I’m flattered by how many folks have submitted and definitely have a healthy backlog from which to choose.  Today, I’m going to answer one about competing with software consulting companies.

I believe this question came from a post I wrote two weeks ago, about speaking to your buyers, rather than to peers.  We as software developers seem to love to speak to our peers.  We speak at conferences and write blog posts for the love of the game, without realizing that impressing peers is unlikely ever to pay the bills.  So in that post I talked about how to speak instead to buyers through your blog.

Here’s the follow up question.  (He actually provided more context, which I’ve elided)

What motivates buyers to buy? In my experience, the big companies buy from other big companies — ones with infrastructure and support in place. Starting off, lest we share the fate of Ahab, we NEED to chase the smaller fish to cut our teeth in business. So, for the beginner chasing smaller fish, isn’t it more important to compete on price, given small fish don’t have the capital of big firms?

There’s a lot to unpack here, in terms of explanations.  So let me start out by drawing a meaningful distinction.  In that previous post, I talked specifically about freelance software developers.  But here we seem to be talking instead about consulting.  Or, at least, we’re talking about someone with a defined specialty.

Generalist Freelancers Don’t Compete with Firms… or Really Anyone

Why do I infer that we’re talking about someone already specialized?  Well, first of all, that was the whole point of my previous post.  But, beyond that, getting work as a generalist freelance software developer is too generic for the question to make much sense.  You might as well talk about how every maker of bottled drinks in the world could compete for a guy named Steve who’s in a gas station right now and thirsty.  It’s too generic a transaction to bother considering it as appropos of anything beyond the moment.

If you’re a software developer that does web apps using ASP MVC, Javascript, and C#, you’re conceptually competing with hundreds of thousands of people for every gig that you get.  And, worse, you’re competing with all of them via the interview process.  And job interviews basically just amount to picking people randomly and retroactively convincing yourself that there was a method to the madness.  So, as a freelance supplicant to the interview process, you’re kind of just playing game after game of roulette until your number comes up.  Or, you’re one of a hundred soft drinks and iced teas, hoping that Steve feels like something grape flavored and carbonated.

To put a more emphatic point on it, think of it this way.  As a generalist freelance software developer, you needn’t bother thinking about your competition.  Your competition is too nebulous, and low leverage opportunities too plentiful to bother.  Just play a numbers game.  Throw your resume at contract matchmakers and recruiters, and line up regular interviews for yourself.  That gets enough people into the gas station that one of them feels like grape soda.

People with a Specialty Compete

Alright, with that out of the way, let’s move on to the meat and potatoes of the post.  I particularly like the Moby Dick imagery in the question.  For those of you not familiar with the story, a vengeance obsessed whaling boat captain named Ahab pursues the whale who took his leg, one Moby Dick.  He pursues the whale with such reckless abandon that he kills himself and those around him in the chase.  So the idea here is that a specializing freelancer/consultant could doom himself financially by pursuing too fearsome a conquest.

And that’s true.  You could wind up in that position if you aren’t careful.

But first, let’s address the subject of competition.  If you’ve specialized, you do now worry about competition.  And you worry about it because you have a non-generic buying proposition that falls outside of normal operations.  For any company with more than a handful of software developers, interviewing and hiring developers is standard operating procedure, whether they’re contractors, freelancers, or staff employees.  But bringing in a specialist?  That furrows brows, causes meetings, and requires approval.  A person (your buyer) now has to choose you rather than the mindless hiring machine.  And the person doesn’t want to hire an unknown, risk-laden commodity unless properly incented.

The Danger of Software Consulting Companies

So now you’ve specialized.  Let’s say that you’ve made yourself known as the guy that replaces SOAP web services with RESTful ones in .NET.  And let’s also say that you’ve learned how to articulate why this matters, and you’ve planted seeds by blogging and speaking about it.  You’re now well positioned to offer this to clients and their buyers.  So you do it.  You create a pricing structure for doing this sort of thing and you go out to sell it.

Have you ever heard the phrase about IBM?  Nobody ever got fired for buying IBM.  This article describes the trouble for startups, but the same idea applies to specialized freelancers.  Buyers may like what you have to say, and they may consider hiring you.  But they know that if they call some large, established software consulting companies, they’ll hear, “oh, sure, we can do that.”  And they’ll also get the work done with tons of resources at their disposal and an implied guarantee of service.  The buyer regards this as a blue chip purchase that will probably be fine.  You, on the other hand, represent an unknown that could be amazing… or terrible.

The danger then arises from buyers believing in your value proposition, but, for whatever reason, relying on large(r) software consulting companies to deliver that value proposition.  The most common reasons are the blue chip angle and the prior relationship angle.  Any sufficiently seasoned buyer will have worked with these types of firms in the past, just as you probably have a landscaper, handyman, lawyer, or accountant.

Reduced Rate for the Win?

The natural thing to think next is that you should compete on price.  These juggernaut firms will do SOAP to REST conversions and bill them as custom app dev.  This means they’ll take a $200/hour delivery manager and a team of $160/hour developers and quote a blended rate of $175/hour with an estimated time to complete of 600 hours.  This makes the conversions $100K a pop, time and materials, when done by Massive Consulting Inc.

So if you want the business, you should price them at $60K.  Right?  And/or go after companies that don’t have the resources to hire Massive Consulting?

Well, you could do that.  But that’s not the route I’d advise, really.  I say that for two main reasons.  First, clients that go with the naive model of “do an RFP, pretend to carefully deliberate, then hire the second cheapest option” tend not to make great clients.  Secondly and more importantly, the sorts of people saying “no one ever got fired for buying IBM” are not price sensitive.  In other words, they’re not saying, “nobody ever got fired for buying IBM…. but look at those bargain basket deals!  At that price, I can’t afford not to buy it!”  You won’t sway those buyers with the discount rack.

Buyer Motivations

Before talking about how to compete, let’s examine who buyers are and what motivates them.  Buyer roles will vary by company size and structure, but a buyer is a person that can write you a check without clearing it with anyone.  No matter how large or bureaucratic the company, you can always find a buyer if you go up high enough.  Someone, somewhere can decide and override processes below them in the organization.  They can say, “yes, here’s $100K, now make our SOAP into REST.”

As for motivations, let’s put those into some loose buckets.  I’ll put on my technical executive/VP hat and phrase these in the first person.

• Task execution — I’ve decided we’re going to switch from SOAP to REST and I want to hire a firm to execute on that so I don’t have to worry about it.
• Due diligence —  I think we should switch from SOAP to REST, but I want someone to validate that hypothesis so that I don’t make the wrong call.
• Personal branding — I want to run a department that follows best practices and modernizes, which means going from SOAP to REST.
• CYA — My boss is overly interested in personal branding and wants to go from SOAP to REST, so I want a consultant to do it or to arm me with a reason we shouldn’t.
• Damage control — I tried to do this internally it went terribly, so I now want an expert to do it.

How to Compete

You can probably come up with other executive buyer motivations (and I invite you to do so in the comments), but let’s work with these.  None of them, except perhaps task execution, really hints at price sensitivity.  These types of buyers will have fairly large budgets at their disposal — budgets way larger than your SOAP to REST transformations at $100K a pop.  If you go up to $110,K they’ll just push the department wide REST training out 2 months into the next fiscal year and lose no sleep over it.  If you go down to $60K, they may actually think, “that looks good, I guess, though I need to find a way to spend this $40K so I don’t have my budget cut next year.”

Understand that corporate buyers don’t spend their budgets the way that you spend your money.  Get in their head more by contemplating how you spend the $2,000 per year self improvement budget that goes toward developer training.  When December rolls around and you have $400 left, you just start randomly buying books without paying attention to their cost.  You don’t say, “gosh, I’ve never heard of this guy before, so is this book really worth $30 when this other, well known one costs only $22.”

So you don’t compete with price.  Instead, you compete with trust.  If you look at the motivations above, trust is really the key.  The buyer doesn’t sweat the cost too much, but she does place some degree of her reputation and her career prospects in your hands.  If she passes over you in favor of Massive Consulting, it’s not because she cares too much what each of you charges.  It’s because nobody ever got fired for hiring Massive Consulting.

So Make an Offering Ladder

Compete on trust is, admittedly, a little vague.  So let’s get concrete.

It’s tempting to chase little, unsophisticated companies in a dance that resembles two people who can’t find dates settling for each other.  That may pay the bills and it may result in some tepid references (remember, they’re settling for you as well).  But, remember that when you want to go after Moby Dick, he’s not going to be impressed that Podunk Drain Supplies Inc, says, “he was alright, I guess” on Yelp.  So don’t cynically go after small fish.

Instead, aim to secure the trust of all fish of any size.  And you do this with an offering ladder.  The first rung on that ladder is your blogging and speaking content, because you give that away for free.  But you want to have some rungs in between free and $100K.  For instance, you could write a utility that estimates the difficulty and suitability of SOAP to REST conversions and offer to do a consult like that for $1000.  Or, for $50, they can point your utility at their own endpoint and see for themselves.

Competing on Trust

This has power because it opens you up to a whole array of different buyers.  At the $50 price point, some architect or software developer might just pay out of pocket.  At $1000, a dev manager can authorize without much fuss.  And this can happen at Giganticorp or at Podunk Drain Supplies.  These buyers of your lower tier offerings get them, find them useful, and start to sing your praises.

Is your goal to develop a stream of these small sales?  Probably not.  It’s a nice revenue stream, but you still have your eyes on the big, custom, consultative engagements.  However, what you’ve done is create lower end buyers that act as de facto marketing for your bigger ticket offering.

So to conclude, I’ll circle back to the reader question about small clients, price, and competitive software consulting firms.  Should you chase smaller buyers to get established?  Absolutely.  Should you compete on price for consultative work?  Not directly, no.  When you build an offering ladder and use it to establish trust, you won’t need to.  You’ll compete by earning trust instead.

No Fields Found.

And, by the way…

If you like the wisdom here, such as it is, you can get a whole lot of that more in my recently released book, Developer Hegemony.  If you want a sample of that, you can sign up to download some chapters below.