Self Employed Engineers-How did you make it happen? 16

[cm566]

I know lots of you are self employed in various capacities. I'm at sort of a crossroads professionally and would like to hear any anecdotes you're willing to share. I'm mainly interested in:
-How did you first make the leap from employee to business owner/consultant/whatever else you might classify yourself as?
-What kind of work do you do and how did you decide you were qualified to do what you do on your own?
-How satisfied are you in terms of enjoying your work, work/life balance, income, etc.?
-Anything else interesting you feel like sharing.

 

[imagitec]

I'll try to respond with a longer post, but briefly:

I'm 46. I started consulting part time (moonlighting) in 2006. My first client was a former employer that I had left in 2004. I used one of their available SolidWorks licenses to do the work. Building and maintaining excellent relationships with colleagues, employers, vendors, clients, and other contacts that you make during your career will be critical to your success and longevity as a consultant.

I have very specialized and deep expertise (in precision machine design and optomechanical engineering) that I apply to a variety of industries (horizontal specialization). Specialization will be key to your success and longevity as a consultant.

In 2008, I formed an LLC and purchased my own license of SolidWorks Premium (still my biggest single investment). The amount I consulted varied wildly in the following few years (by my choice).

I started consulting full time in 2011 and couldn't be happier with the life it has enabled me to lead, despite typical ups and downs.

Even though my first job as a consultant paid better than any salaried job I held then or since, I was undercharging. My rate increased steadily through that period. It's more than 2X what I started at. I suspect it would be higher than if I didn't still succumb to the classic dilemma of neglecting marketing/business development to do fulfillment, but I'm getting better. I am also experimenting with value-priced services that have a much higher effective rate while still providing tremendous ROI for clients. Understanding the value you provide and charging accordingly will be critical to your success and longevity as a consultant.

Consulting is incredibly cash-flow positive and profitable. And you will get yourself into trouble if you do not manage that cash flow; set money aside for the eventual big tax bill; set aside money for large, necessary future purchases (e.g., software renewals); avoid unnecessary large purchases that you tell yourself are necessary or will really help you grow your business but aren't or won't; and avoid unnecessary small purchases that can really add up. Doing so will be critical to your success and longevity as a consultant.

To help implement that last point, I recommend Profit First by Mike Michalowicz. While many of the examples in the book relate to businesses who charge too little and spend too much, as noted above, that likely isn't the problem you'll face as a consultant. But the book is helpful in getting you to think like a business should think and to distinguish between:

[ul]
[li]Profit (the reward for the risk you take as a business owner) and the purposes it is meant for[/li]
[li]Compensation (the money you get for doing the work in your business[/li]
[li]Money set aside for taxes and other big, irregular needs[/li]
[li]Expenses - The money you allow for yourself to use to operate your business[/li]
[/ul]

In 2012, my largest client at the time declared bankruptcy on very short notice, not long after they had asked me for even more of my time, which I obliged to do, while falling behind on my invoicing. So many painful lessons in that one experience. Once the bankruptcy court was through, they actually asked me to pay them a substantial amount, never mind what they owed me for work done and expenses accrued in their name. You obviously want to avoid being in that situation, and you want to have a contingency fund.

I rambled on a lot more than I planned to. I hope it's coherent.

- Rob Campbell, PE
Learn precision engineering at [link practicalprecision.com]practicalprecision.com[/url]

 

[HCBFlash]

Imagitec's post is telling. It's obvious that he learned from his experiences as they happened. To succeed as a business, you must think and behave as a good, competent businessman. If your only employee is mediocre, your challenges will be greater, but one way or another, you've got to take care of business. Business is not rocket science, business is business. You know that, but will you actually take care of it when it's time? Seriously, talk with and get close with at least one small businessman that does something altogether different than you/us. That way you won't confuse business with your profession. There isn't, or needn't be any conflict, but some people get confused and think they can somehow compensate for errors or omissions in one by overdoing something in the other. The story about a key customer's bankruptcy is sort of an example. You can survive some such mistakes, but they are expensive on many levels.

Do you really know your competition? Do you really know their fees/rates? Do you REALLY understand the components of those rates, and why they add up to that? Do you really, honestly, accurately know what sets you apart and are you willing to market that (instead of what you'd rather be and sell)? Just do it! Have fun when the time is right.

.

(Me,,,wrong? ...aw, just fine-tuning my sarcasm!)

 

[lacajun]

To Rob Campbells' point, ask around for information on your potential Client. Many service providers call vendors I use to determine the character, integrity, seriousness, ethics, pay on time, can they pay for the project, ease of doing business with, etc. of potential Clients. I learned that by getting crosswise with a Client, my first.

I knew what I could deliver and negotiated the contract to my deliverables. They were responsible for the mechanical installation and wanted that to avoid paying an electrical contractor. They insisted that they were the original do-it-yourselfers. They insisted a lot of things about themselves.

As I got into the project, I heard from vendor after vendor that they were cheap, wanted discounts and not just any old discounts but large discounts, looked for freebies often, weren't serious about investing in their own company, etc. Red flag #1 but I didn't recognize it. I was accustomed to large companies complaining about the investments in the company so it was normal to me.

Red flag #2: They didn't want to do the mechanical installation and asked me to do it, which I did and at my cost because they complained about the quote from the contractor. The project was already behind schedule because they were not doing their part so I sucked it up to be a good engineering company and keep the project moving forward. I learned I can function as a GC. I learned I need to not function as a GC at my cost.

Red flag #3: Within a month of contract signing, they changed the scope.

Red flag #4: They had no business processes and were running their company more blindly than I realized.

Red flag #5: They have trust problems.

Ultimately, because I was running behind schedule we got into a contract dispute, which was never repaired. They threatened to sue me over a litany of problems, which were false. I had to take it seriously because they're much, much bigger than me and have a high powered law firm, which sent me nasty letters. I interviewed several attorneys and walked in with a notebook of reports, emails, invoices, etc., which had been provided to my Client every step of the way. All of the attorneys had some choice words, choice observations, and advice except the one I hired. The one I hired told me what I looked like, at first glance. That was a useful perspective and I appreciated his honesty. As he became familiar with the case, he began issuing choice words, choice observations, and advice, which sounded familiar. Some of the attorneys offered the observation that I had been bullied each step of the way. Interestingly, a college friend said the same thing.

Each attorney said there are good companies and bad companies. I had run into a bad company. When I defended my Client, each attorney emphatically replied that they are bad people, a bad company, and I need to identify the good ones and leave the bad ones alone. Good companies are interested in investing in their business and their suppliers. They don't push for discounts and, when problems arise, they fully support and work through problems with their suppliers. They understand their suppliers are there to help them make their businesses better and cannot work for little or nothing and don't expect them to do so. They believe in everyone making a fair profit. They said to never go into that plant again because they'll just run over me again. If they do it once, they will do it again. These were experienced attorneys saying these things.

My former Client called a supplier of mine for all emails, POs, invoices, etc. My supplier refused because that is a breach of ethics and the contracts were with my company. That call sent shock waves throughout management, in my supplier, and I had phone calls and emails from more than one person alerting me. My former Client wanted a recommendation for another company to finish the project, from that supplier, who didn't want to provide one. Their reasoning, "Look what they did to you. What could we say? They did it to you; they'll do it to someone else. We cannot send another company in there knowing what they did to you." That was a new lesson for me, too. Ask! Vendors are more than willing to tell, if they know.

The sad aspect of the POs, invoices, etc. was that my Client had all of that anyway and didn't understand what they had. They hired a CFO, with little experience, who didn't understand the documentation I had given them either. I was shocked at their ignorance. They had such trust problems I volunteered to be completely transparent. I didn't think it mattered but I learned, at the end, it does matter. I will never be transparent again.

When I read Character Disturbance by George Simon, Ph.D., I saw my former Clients and understood then what each attorney had told me and what I had been up against. It pays to understand human behavior, yours and others'. That experience is another reason I highly recommend people read Character Disturbance. It is accurate and good knowledge to have.

It is good to understand what kind of reputation one is building with each interaction. I warned my former Client about that but it was not understood or well received. The experience provides another background view of what goes on in business.

Pamela K. Quillin, P.E.
Quillin Engineering, LLC
NSPE-CO, Central Chapter
Dinner program:

http://nspe-co.org/events.php

 

[berkshire]

To follow up on Pamela's post,
I ran into the same kind of client on a custom fiberglass molding project, Constantly pushing the schedule up, forcing overtime to meet the schedule. Changing the scope and detail of the contract, and then holding up payment because he said I was late on delivery.
To make a long story short he got $25,000 worth of product out of the door without paying for it.
All the time making me feel bad because I was not meeting his expectations.
Later I found out he had done exactly the same thing to other suppliers, always chopping it off at around $25000 which was at that time too large to go to small claims court , and not a big enough amount to get a lawyer interested in recovering it for you.
B.E.

You are judged not by what you know, but by what you can do.

 

[lacajun]

Berkshire, have you developed a technique for getting out of such problems, when you see them coming?

My former Client beat me up pretty bad, too. They had an incident in the plant, which they blamed on me because I was running behind schedule. All of my unanswered questions, which were documented in reports and emails, and the huge addition to my deliverables were irrelevant because their true goal was to blame shift. If someone does no wrong, in their own eyes, it's time to leave.

Pamela K. Quillin, P.E.
Quillin Engineering, LLC
NSPE-CO, Central Chapter
Dinner program:

http://nspe-co.org/events.php

 

[berkshire]

La Cajun,
I got a lot more cagey about taking on jobs that seemed to be too good to be true, because I found out that they were. I also learned to beware of customers who threw money around like it was no object, then bullied you because you were small fry, and they were rich. I also developed a tingling sense for customers who paid cash on the barrel head until they established credit, then would let payments slide. My least favorite customers were insurance companies, although to be fair, it was the individual insurance adjusters who were the problem here. There were two types, one would take your estimate or quote at face value, cut you a partial check, say send me the balance when you are done, and move on. The other type would look over your estimate , tell you it was too high and demand a 20% cut.
It did not take long to figure out who was who, so when you got a cutter in the door you padded the estimate by, you guessed it 20% . The other problem with insurance companies was getting the final check. I used to just tell the customer that he or she could not have their aircraft until the bill was settled in full.
Even at that some insurance companies would not pay for 180 days.
Remember for the most part I was providing a service ( a repair) or a product ( manufactured goods.)
My final solution to all of this was to retire some 8 years ago.
B.E.

You are judged not by what you know, but by what you can do.

 

[MFJewell]

The other type would look over your estimate , tell you it was too high and demand a 20% cut. It did not take long to figure out who was who, so when you got a cutter in the door you padded the estimate by, you guessed it 20%.

You were still giving up money (4% overall). You should have been padding it 25%. Then when you cut off 20% from that padded number, you would be back to your original number.

 

[berkshire]

MfJewell,
That is true, but on a repair estimate , you were never that close anyway.
B.E.

You are judged not by what you know, but by what you can do.

 

[lacajun]

Berkshire, I'm glad you were able to retire.

I provide engineering services, repairs/maintenance, and products. I finally arrived at no discounts. I am a business not a charity for someone else's business. I learned good companies don't ask discounts of small companies like mine. Whatever I quote, they pay. I learned on products the manufacturer always gets their margin and its the reseller or representative that takes the hit. I'm too small to take any hits.

I talked to some engineering companies that deliberately escalate the cost of a project for companies they know to be a problem. They don't want the business and there are some companies they refuse to do business with due to ethics. If they know you've been bad to them in the past or another company, they walk away. If only I had been so smart.

Pamela K. Quillin, P.E.
Quillin Engineering, LLC
NSPE-CO, Central Chapter
Dinner program:

http://nspe-co.org/events.php

 

[berkshire]

lacajun,
Yes I made it out ok, I now sit back and try to tell those who will listen what I know if it will help them.

One thing I learned with insurance companies and customers was make sure that your name and the customers names are both on the check/ or draft as co- payees. About halfway through my career repairing aircraft, I had a repair for a fixed base operator.
At that time the insurance companies had a habit of making the final draft payable to the customer, so that they had the funds available for you when you delivered the aircraft.
Ok so I deliver the aircraft ,set it up, make sure the customer approves it, they say "Very good ,come in and get the check.", I go into the office and get presented with half the amount of the final bill. The first question of course is " Where's the rest?" the answer comes back , " I spent it.", it then turns out that he was struggling with the loss of revenue from having the plane out of service, and had spent part of the insurance settlement to keep the doors open.
We then made an agreement that he would pay me monthly until the bill was settled, which he did. This was a good outcome , which could have been far nastier had I just taken the plane back to the shop.
B.E.

You are judged not by what you know, but by what you can do.

 

[rotw]

berkshire,
I got this interesting bottom line, thanks for sharing.
Its I hope a good lesson for me (or us).

 

[lacajun]

berkshire, thank you for sharing that. I'm paying attention.

Pamela K. Quillin, P.E.
Quillin Engineering, LLC
NSPE-CO, Central Chapter
Dinner program:

http://nspe-co.org/events.php

 

[HCBFlash]

Are you aware of the common payment arrangement for (other) construction work? Yes, engineering is construction. In any case, an initial payment as part of the issuance/acceptance of a contract is set forth in the bid. monthly invoices are sent for progress/percentage of completion. Those invoices are paid, less an agreed upon percentage (again, specified in the bid). Upon completion of the work (as bid), a final invoice is submitted, as well as a demand letter for payment of the retained percentage by a certain date, typically 60-120 days later, or upon approval for occupancy or declaration of substantial completion. There are often bonds issued and used for security of funding and payment.

That system is used, or a variant of it, by most competent business people where specified tasks are being performed, or items created or modified for others who will possess the finished product. Certainly differing types of projects and timelines and schedules require different payment schedules and security, but customers unwilling or unable to execute and adhere to such contracts are showing themselves to be a risk, and not behaving in a trustworthy fashion.

Those elements must be present for the secure execution of business; bid, progress, completion, both of the work and the payment. Don't let your project work interfere with your business work! These are like the laws of nature. Look at your own experiences of things gone awry, and figure out where they departed from that flow. Most often it was very early in the process.

.

(Me,,,wrong? ...aw, just fine-tuning my sarcasm!)

 

[Ron]

cm566...I've done it twice. The first time, I saw an opportunity to start a business because a couple of my clients only wanted me to work on their projects. They expressed that to me and I went to my boss and said I wanted to go out on my own and xyz and abc clients want me to do their work. It was far enough off the beaten path of the company's general work that my boss said good luck (he also told me "I hope you make just enough money to keep from starving!" )

I started and ran that business for 6 years and sold out to a former employer. I worked for that company and another until I just became tired of corporate BS.

The second time, I was relatively high in the company (Sr. VP, one of 4-person COO team) and the Board of Directors fired the President without (in my opinion) probable cause. I submitted my resignation a half hour later. I hate corporate BS, so in our company, we have none of that. I have only brought those into the company that need little or no supervision, have a like-mind with regard to corporate BS, are self-directed and self-sustaining. Each of them I've known for at least 10 years...most for 15+ years. We have been in this one for 12 years and remain busy and profitable.

 

[SNORGY]

How I started?
I had no choice.
Corporations and engineering companies alike basically treat employees as disposable commodities, and this trend worsens in direct proportion with increasing age and, by association, salary and value that one can otherwise bring to the table.
I figure, as long as those are the rules of engagement, then I’ll play the game on my terms.
rotw said it best.

Who is right doesn't matter. What is right is all that matters.