[LRUG] Switching from solo contractor to being a development company

Sidu Ponnappa ckponnappa at gmail.com
Fri Feb 17 02:37:01 PST 2012


> I like doing a range of stuff, for example managing client
So is it fair to say you enjoy managing entire projects, and that this
is what is motivating you to consider starting a company?

If yes, then here are a few thoughts off the top of my head.

Why start a company:
* You should figure out goals for your business; remember, a business
is best run based on a set of principles rather than on implementation
details. The implementations (and consequently the role you play as a
founder) change based on market situations, but principles will remain
broadly constant. What you've outlined in your response is what *you*
want to do; as someone already pointed out on this thread, as a
business owner, you'll find yourself having little to do with the
execution of projects once you grow even a little bit. Pre-sales,
sales, strategy, recruting, client satisfaction and employee
satisfaction will take up *all* your time. Hacking open source is
something I now do over weekends as a hobby. That's just how it is.

* Define success criteria. "I know my company is successful when foo
happens in a regular and measurable manner." If you don't define
success criteria, you won't know if your business is stagnating.

* You didn't mention making more money than you are now as a goal.
Even if your business isn't about increasing your income, it still
needs to be sustainable. This means that you *have* to set revenue and
profitability targets for the business, or you will stagnate quickly.
Stagnant businesses find it very hard to survive in poor economic

* Try to play the devil's advocate; question your every motive and
decision, and come up with alternatives that provide the same outcome
without starting a business. Evaluate each of those alternatives very
honestly, because, maybe they're actually a better fit - starting a
business is a risky proposition. And if they don't, they'll help you
understand your own motivations better, which in turn will help you
understand the principles around which you want to build your company.

* Start small, use sources that build trust like odesk and elance -
treat them as your marketing arm. The 6% to 10% you pay them is your
marketing budget.

* Your next objective should be to get *off* these sites as quickly as
possible. That way, you force yourself to do branding, positioning and
marketing, channeling that same budget toward these activities.

* How you do your marketing is a function of whom you're selling to.
How big are your clients? How much revenue do they make? Whom do you
speak to in their hierarchy - the founder/CEO, middle management, or
engineering? All of these questions will help you determine how you
present yourself and your company to them. To some prospective
clients, you'll be the experienced engineer who happens to run a
company. To others, maybe you need to be the CEO of a consultancy.
However it plays out, market segmentation is absolutely critical.

* Identify sales channels. IRC, mailing lists, meetup groups,
conferences, hoardings, TV ads - it all depends on what your budget is
and which market segment you're targetting.

* You can't be good at everything. Understand and accept that the
moment you start a company, you are a manager, and a good manager
knows when he/she needs help. Don't hesitate to hire people to fill
roles that you're no good at yourself (remember the 10k hour rule -
you just don't have the time to become good at everything). So long as
these people increase revenue and profits, you're fine. In my
experience, one or more  trusted, competent co-founders who complement
your skills can make a world of difference (and make your life less

* Services revenue is a function of hourly rates * no of hours worked.
There are two ways to succeed at this in a financial sense - the
McKinsey model, and the Infosys model. One increases rates, the other
increases the number of hours by hiring large numbers of people. Be
clear about which model you want to apply to your company. If you do
neither, your profits will suffer, even though you may have
significant revenue.

* The McKinsey model will force you to push rates up steadily, and
also to hire increasingly better talent. Branding your business to
increase rates and recruiting top talent are the core problems to be

* The Infosys model will force you to hire more people. Maintaining
acceptable quality while keeping rates low, and recruiting sufficient
people are the core problems to be solved.

* Build up a cash buffer. Services sales (well, all sales :)) are
cyclic and if you hit a slump, it will hurt. In the beginning, hedge
by hiring contractors until you've got (say) three months salary in
the bank. Then start hiring employees. Remember, you can't do enough
to keep the people who work with you happy. Step one is them knowing
that their salaries are not constantly at risk.

* Study. There are three lines of work that (off the top of my head) I
can think of that require constant study and reflection - medicine,
programming and business. You don't have to get an MBA, but you do
need to have a steady stream of books that you read and people that
you learn from. The bare minimum I would recommend is getting a
subscription to 'The Economist' and reading it religiously every week.
Try to also find semi-formal or formal advisors with industry
experience that you meet with (say) once a month to review your

Phew. Long post. I think that's a fair distillation of what we've
learned building our business over the last couple of years. Feel free
to ask questions if you want me to drill down into anything in greater
detail. I'm happy to also cite practical examples if it would help.


On 16 February 2012 19:16, luke saunders <luke.saunders at gmail.com> wrote:
> On Thu, Feb 16, 2012 at 12:42 PM, Sidu Ponnappa <ckponnappa at gmail.com> wrote:
>>> At some point I would quite like to run a development company, which
>>> might handle several projects at a time, employ other developers etc.
>> I think my very first question would be "Why do you want to run a
>> company instead of doing contract work?"
>> What you wish to achieve through running a company will shape the kind
>> of company it is, which in turn affects your other questions around
>> lead generation etc.
> I like doing a range of stuff, for example managing client
> requirements to deliver a stable platform, on time, which does not
> require much maintenance. And dealing with designers and UX people,
> pushing back on things which have negative technical implications. I
> am doing this for my current contract and I think I'm pretty good at
> it. So I'd like to continue doing this for future projects and
> starting a company which delivers whole projects seems like a good way
> to achieve that.
> My current client would be okay with a company dealing with ongoing
> maintenance as long as they were dealing with me. But I would never
> have got that job in the first place if I'd replied to them saying 'I
> am the CEO of X' rather than just being an independent dev.
>> On 16 February 2012 17:59, luke saunders <luke.saunders at gmail.com> wrote:
>>> Hi all,
>>> For several years now I've been a contract developer, usually working
>>> for a single client at any one time and often for a couple of years at
>>> a time. Sometimes I get projects which are short term to fill some
>>> specific requirement, like now I'm redeveloping a site, which will be
>>> done by May. I think I'm a pretty typical contract developer.
>>> At some point I would quite like to run a development company, which
>>> might handle several projects at a time, employ other developers etc.
>>> But it's not clear how to best approach making the leap, when I am
>>> employed by clients they usually want to employ me and only me, if
>>> they need other developers or a designer they'll find them themselves.
>>> So probably the companies I have relations with now would not be my
>>> target market then.
>>> Has anyone made the jump from solo contractor to development company?
>>> And if so do you have any advice on how to achieve this? How do
>>> clients find you and do you have a lead gen / sales process?
>>> Thanks,
>>> Luke.
>>> _______________________________________________
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