19 ms·

So you have decided to start a free software consultancy

126 points by rapnie 4y ago

hosteur 4y ago
Lots of good stuff in this article. However, this bit I find odd: > When you are starting out, you will also want to focus on recurring revenue. This provides two key benefits: first, you have a bottom line greater than $0 if you aren’t able to close larger engagements, which happens from time to time, especially during the summer months, as managers tend to go on holiday. Second, the recurring revenue customers, assuming that you provide them with good service, will recommend your consultancy to others, including large businesses. The second point here is that recurring revenue customers will recommend you to other businesses. Why does that have anything to do with them being recurring revenue or not? Do I miss something here?
nibbleshifter 4y ago
> For serious engagements, pricing should be defined as a function of the value gained for the client from the engagement. For example, if the client saves $250k as a result of the engagement, then you should charge a percentage of that savings. Optimyze (later acquired by Elastic) initially tried this pricing model and found that enterprise orgs simply wouldn't go for it, despite the cost being effectively "free".
- poulsbohemian 4y ago
  I was once part of a consultancy (not related to free software) that proposed this kind of pricing. The challenges became: -- Companies couldn't / wouldn't quantify the savings, or refused to share that information. -- Companies weren't willing to pay it. They would rather have thrown their employees at the problems or paid for the cheapest contractors around, even if it didn't actually solve anything, IE: the illusion they were doing something and at an "affordable" price, regardless of outcomes. I've had more than one customer argue with me over the years that they would rather pay hourly than a fixed price (however that fixed price was calculated) because it "felt" like they were more in control of the costs, IE: they could micromanage the hours. I've had these same customers spend many multiples of what it would have cost them had they agreed to that retainer or fixed cost.
  - sumtechguy 4y ago
    If I were to guess accounting rules the company uses do not account for that sort of pricing. Lets say I install software X. It lets me take 3 people and put them onto something else. Do I really save '3 peoples worth' of money installing this project? Maybe I now need 2 to run the thing? Oh and you have to get this info out of a manager who probably is not really managing that sort of thing and lets 'the money people handle it'. Also it was explained to me once 'why do we have so many contractors even though they cost wildly more' 'we have two budgets, one I come up with every year and I have to stay inside of that, the other I can change at any time, care to guess which one the contractor budget comes out of?' Software/hw expenditures are not discretionary usually, and usually have some sort of depreciation schedule. A rev sharing scheme would put a damper on that sort of tax games they play. What you are seeing is a side effect of our tax system.
  - derf_ 4y ago
    > I've had more than one customer argue with me over the years that they would rather pay hourly than a fixed price (however that fixed price was calculated) Hello, I have been one of these people. If I agree to a fixed price, then the goal of the contractor becomes "do the minimal amount of work possible to deliver something that can be argued to meet the letter of the contract (and no more)." If I agree to an hourly rate, then the goal becomes "bill as many hours as possible while demonstrating at least some plausible incremental value for those hours." Unless I am _really_ good at specifying a precise deliverable (and who among us in the software world is?), the second set of incentives looks much healthier, both for me and for the contractor. I think this is particularly true for open source deliverables. Maybe it costs more, but bounding that precisely is easy ("cannot charge more than X hours in Y period"). I don't want to micromanage your hours. I don't have time for that. Mostly the fact that when you send me an invoice you might expect the question of "What did you actually do?" to come up is sufficient to make sure you really did something (and if not, pretty easy to resolve). Frequently in the fixed-price contracts I have done, even with reputable people with whom I've had a previous relationship, that "argue" bit above is not hyperbole. Then it falls on me to demonstrate why what you did does not meet the requirements, or is flawed in some other way, and I don't have time for that either. That was why I was paying you. Now the relationship is adversarial and asymmetric: it is easy to not understand a problem, and hard to both understand it and convince another party who is not invested in understanding it to understand. Whereas if you are billing hourly, you are more than happy to be told about problems that you can then charge me to fix. I get something I can actually use that way, too.
- solar-ice 4y ago
  The assumption/trick here is that you are experienced enough that you can make a guess as to how much money the company thinks they will save by contracting you, and you bill them appropriately, without actually telling them what you're doing.
- karaterobot 4y ago
  Can't really blame them. They just want to know how much it's going to cost them. Somebody is trying to allocate a budget for this project, and they ask "what's it going to cost?" and the answer can't be "the result of a function whose inputs are undefined at this time".
  - gnramires 4y ago
    I've come to the conclusion that estimating "value" can be quite tricky. Is it the difference as to what their profit would have been without your specific consultancy, without any consultancy, without a specific solution? To illustrate why, consider the "value" of a (1) a toilet, (2) nuts and bolts (sorry, I'm not great at examples). You couldn't live well without a toilet, the differential cost of having/not having a toilet in your home is immense. That doesn't mean it's reasonable to spend thousands of dollars on a single toilet -- even if you would if you absolutely had to. The cost isn't that high. The same goes for nuts and bolts in a product: they can be essential for the functioning, but it doesn't really cost much, nor makes sense to use uber-costly nuts and bolts. So a naive differential definition of value can be just a rent-extracting proposition, which I think most orgs would try to avoid. If you're sure no one else in the world could deliver this solution (i.e. it's extremely scarce and non-reproducible), then the value proposition starts to make more sense (because your time and attention is also limited). I tend think that's rare. So it seems more natural to adapt to each situation: you need to estimate your (operation) costs and target revenue, and then charge with a healthy margin on that; and if your service is highly unique or in high demand, you adapt by increasing your pricing accordingly.
    - ghaff 4y ago
      >That doesn't mean it's reasonable to spend thousands of dollars on a single toilet -- even if you would if you absolutely had to. The cost isn't that high. Check out Toto washlet prices. :-) e.g. https://www.totousa.com/washlet-with-smart-toilet-g450-10-gpf-and-08-gpf https://www.totousa.com/washlet-with-smart-toilet-g450-10-gp... But I agree with your point. If you have some specialized, almost unique, knowledge, have plenty of demand, and are hard to substitute for--and it's something high value--you can charge a lot.
- mitchell_h 4y ago
  Value based pricing as been tried a bunch of times. I've only seen it work to lower the price.
- brilee 4y ago
  I find that if you're getting this response, you're not talking high up enough in the org chart. Eventually, somebody does care about the overall good of the company, over the turf wars/budgetary bureaucracy of the middle management layer. But your project also has to be worthwhile enough to invoke the higher-ups.
- claudiulodro 4y ago
  Big companies hate rev share, which is essentially what value based pricing model is. Rev share pricing is great for getting small, money-conscious people in the door, but there is a threshold as you get larger where it becomes more cost-effective for the client to go with standard billing. Substack's been running into this problem, where it's easy to get people to try it out, but as a content creator gets popular the rev share amount becomes greater than the cost to hire an agency and "self-host". Someone making $1mm/yr is going to chafe at a $200k rev share when an agency at $50k/yr retainer can do a similar job. Unrelated to that but related to the main topic: it's interesting that people treat FOSS consulting as a weird beast and ignore the thousands of successful WordPress/Drupal/etc. consultants and agencies. There's a lot to be learned from analyzing their strategies!
  - deleted 4y ago
    [deleted]
  - R0b0t1 4y ago
    It's not more cost-effective for the client if the work just never happens. Further, I don't care what is more cost effective to them. I want to capture some of that value. That's the mistake these businesses are making and what you need to inform them of.
- benjaminwootton 4y ago
  I agree it is extraordinarily difficult to pull off. I have seen it attempted hundreds of times in technical professional services deals and never once seen it get past procurement. You can however incorporate into your pricing by charging $high_day_rate or $high_fixed_price if you have established the value.
d883kd8 4y ago
Straightforward, sensible business advice. Not much to say about it or opportunities to flame anyone.
benjaminwootton 4y ago
The article misses the thing that most people will have problems with - generating leads, getting a proposition agreed and selling that to the wider organisation and budget holder. That’s the hardest part of running a professional services business by a factor of 10. The second hardest part, almost as hard as the first, is attracting and recruiting good and reliable talent who won’t mess up your customer engagements. Negotiating prices as per this article is right at the end of a very long process. If you get there you are almost home dry on the deal.
- rad_gruchalski 4y ago
  This. This is a full time job. Trying to get leads via LinkedIn? Twitter? Ain’t going to work - preaching to the choir. One needs to reach outside of their network. This is all about meeting people in real world and talking to them. Events, conferences, paid introductions. Alternatively, one does contracting sourced through headhunters but that’s not really consulting. It’s all about talking to people, building rapport, establishing trust. Often talks lead nowhere for months or years. Talk to people about their problems, suggest solutions, show your value, but don’t share how. Next point, without people on standby, some engagements are unreachable because the client will not engage if: a) you have no perm employees, b) you are too small, as in, what if you go under 6 months down the line or some bigger client paying more comes around. It can be rewarding but it’s a tough market to be in. Competition is huge and there’s always someone with prices lower than yours but positioned better than you at a given point in time.
  - As_You_Wish 4y ago
    >This is all about meeting people in real world and talking to them. Events, conferences, paid introductions. Right. I've always told people to do 2 things to always have a job and lots of job offers all the time: 1) public speaking at events and conferences. 2) public writing. I know a guy, did SQL stuff, and if there was a group of 2 people that got together for a local users group, he'd travel 200 miles to give a presentation in front of them. He'd been doing it for years, as in decades. The guy got 4 - 5 job offers every day. He had his computer there and showed me the offers coming into his email. And of course, if you do a lot of writing for any kind of journal or blog, and get published, that's also going to explode your contacts. . When you publicly speak or write, it establishes you as an industry leader, even if there are people more technically knowledgeable than you are.
jononomo 4y ago
zander312 4y ago
What are some real world examples of FOSS consulting contracts?
xivzgrev 4y ago
i read this first as a sarcastic title, like you plan to consult on software for free. kind of like "So you have decided to start a free IT support business" (by offering to help family / neighbors with their computer problems). i think a much better title would be "So you have decided to start an OPEN SOURCE software consultancy"
- andrewflnr 4y ago
  "Free software" and "open source" are somewhat famously not quite the same thing.
  - jraph 4y ago
    The free software definition [fsd] and the open source definition [osd] are different in wording and spirit, but Free Software and Open Source designate largely the same set of licenses, save for a few odd ones like the Sybase Open Watcom Public License which is considered as a non-free software license by the GNU project [1] / FSF [2] and most Linux distributions (including Debian, which uses the DFSG [3], which is essentially the same text as the Open Source Definition) but as an Open Source license by the Open Source Initiative [4]. Free software does not mean free as in beer. The confusion caused by the word "free" in English is unfortunate but the world is not perfect. [fsd] https://www.gnu.org/philosophy/free-sw.html.en https://www.gnu.org/philosophy/free-sw.html.en [osd] https://opensource.org/osd https://opensource.org/osd [1] https://www.gnu.org/licenses/license-list.html#Watcom https://www.gnu.org/licenses/license-list.html#Watcom [2] https://directory.fsf.org/wiki/License:Watcom-1.0 https://directory.fsf.org/wiki/License:Watcom-1.0 [3] https://www.debian.org/social_contract#guidelines https://www.debian.org/social_contract#guidelines [4] https://opensource.org/licenses/Watcom-1.0 https://opensource.org/licenses/Watcom-1.0
vemv 4y ago
What is FOSS consulting? Aren't many developers "FOSS consultants" since they will introduce at least a few OSS libraries to a codebase?
- pabs3 4y ago
  FOSS consulting is simply working on FOSS projects for money. Integrating FOSS libraries into a proprietary codebase usually doesn't result in work on the FOSS libraries themselves, so doesn't count as FOSS consulting.
pabs3 4y ago
Has anyone here hired a FOSS consultancy before?
pabs3 4y ago
Apart from RedHat, a couple of successful FOSS consultancies include Igalia and Collabora. Interestingly Igalia is also a co-operative, owned by the employees. https://www.igalia.com/ https://www.igalia.com/ https://www.collabora.com/ https://www.collabora.com/ There are more listed in the employers section of the FOSSjobs wiki: https://github.com/fossjobs/fossjobs/wiki/resources https://github.com/fossjobs/fossjobs/wiki/resources
- imaltont 4y ago
  I think SUSE have some positions focusing on consulting as well.

126 points by rapnie 4y ago

Lots of good stuff in this article. However, this bit I find odd: > When you are starting out, you will also want to focus on recurring revenue. This provides two key benefits: first, you have a bottom line greater than $0 if you aren’t able to close larger engagements, which happens from time to time, especially during the summer months, as managers tend to go on holiday. Second, the recurring revenue customers, assuming that you provide them with good service, will recommend your consultancy to others, including large businesses. The second point here is that recurring revenue customers will recommend you to other businesses. Why does that have anything to do with them being recurring revenue or not? Do I miss something here?

nibbleshifter 4y ago

> For serious engagements, pricing should be defined as a function of the value gained for the client from the engagement. For example, if the client saves $250k as a result of the engagement, then you should charge a percentage of that savings. Optimyze (later acquired by Elastic) initially tried this pricing model and found that enterprise orgs simply wouldn't go for it, despite the cost being effectively "free".

poulsbohemian 4y ago
I was once part of a consultancy (not related to free software) that proposed this kind of pricing. The challenges became: -- Companies couldn't / wouldn't quantify the savings, or refused to share that information. -- Companies weren't willing to pay it. They would rather have thrown their employees at the problems or paid for the cheapest contractors around, even if it didn't actually solve anything, IE: the illusion they were doing something and at an "affordable" price, regardless of outcomes. I've had more than one customer argue with me over the years that they would rather pay hourly than a fixed price (however that fixed price was calculated) because it "felt" like they were more in control of the costs, IE: they could micromanage the hours. I've had these same customers spend many multiples of what it would have cost them had they agreed to that retainer or fixed cost.
- sumtechguy 4y ago
  If I were to guess accounting rules the company uses do not account for that sort of pricing. Lets say I install software X. It lets me take 3 people and put them onto something else. Do I really save '3 peoples worth' of money installing this project? Maybe I now need 2 to run the thing? Oh and you have to get this info out of a manager who probably is not really managing that sort of thing and lets 'the money people handle it'. Also it was explained to me once 'why do we have so many contractors even though they cost wildly more' 'we have two budgets, one I come up with every year and I have to stay inside of that, the other I can change at any time, care to guess which one the contractor budget comes out of?' Software/hw expenditures are not discretionary usually, and usually have some sort of depreciation schedule. A rev sharing scheme would put a damper on that sort of tax games they play. What you are seeing is a side effect of our tax system.
- derf_ 4y ago
  > I've had more than one customer argue with me over the years that they would rather pay hourly than a fixed price (however that fixed price was calculated) Hello, I have been one of these people. If I agree to a fixed price, then the goal of the contractor becomes "do the minimal amount of work possible to deliver something that can be argued to meet the letter of the contract (and no more)." If I agree to an hourly rate, then the goal becomes "bill as many hours as possible while demonstrating at least some plausible incremental value for those hours." Unless I am _really_ good at specifying a precise deliverable (and who among us in the software world is?), the second set of incentives looks much healthier, both for me and for the contractor. I think this is particularly true for open source deliverables. Maybe it costs more, but bounding that precisely is easy ("cannot charge more than X hours in Y period"). I don't want to micromanage your hours. I don't have time for that. Mostly the fact that when you send me an invoice you might expect the question of "What did you actually do?" to come up is sufficient to make sure you really did something (and if not, pretty easy to resolve). Frequently in the fixed-price contracts I have done, even with reputable people with whom I've had a previous relationship, that "argue" bit above is not hyperbole. Then it falls on me to demonstrate why what you did does not meet the requirements, or is flawed in some other way, and I don't have time for that either. That was why I was paying you. Now the relationship is adversarial and asymmetric: it is easy to not understand a problem, and hard to both understand it and convince another party who is not invested in understanding it to understand. Whereas if you are billing hourly, you are more than happy to be told about problems that you can then charge me to fix. I get something I can actually use that way, too.
solar-ice 4y ago
The assumption/trick here is that you are experienced enough that you can make a guess as to how much money the company thinks they will save by contracting you, and you bill them appropriately, without actually telling them what you're doing.
karaterobot 4y ago
Can't really blame them. They just want to know how much it's going to cost them. Somebody is trying to allocate a budget for this project, and they ask "what's it going to cost?" and the answer can't be "the result of a function whose inputs are undefined at this time".
- gnramires 4y ago
  I've come to the conclusion that estimating "value" can be quite tricky. Is it the difference as to what their profit would have been without your specific consultancy, without any consultancy, without a specific solution? To illustrate why, consider the "value" of a (1) a toilet, (2) nuts and bolts (sorry, I'm not great at examples). You couldn't live well without a toilet, the differential cost of having/not having a toilet in your home is immense. That doesn't mean it's reasonable to spend thousands of dollars on a single toilet -- even if you would if you absolutely had to. The cost isn't that high. The same goes for nuts and bolts in a product: they can be essential for the functioning, but it doesn't really cost much, nor makes sense to use uber-costly nuts and bolts. So a naive differential definition of value can be just a rent-extracting proposition, which I think most orgs would try to avoid. If you're sure no one else in the world could deliver this solution (i.e. it's extremely scarce and non-reproducible), then the value proposition starts to make more sense (because your time and attention is also limited). I tend think that's rare. So it seems more natural to adapt to each situation: you need to estimate your (operation) costs and target revenue, and then charge with a healthy margin on that; and if your service is highly unique or in high demand, you adapt by increasing your pricing accordingly.
  - ghaff 4y ago
    >That doesn't mean it's reasonable to spend thousands of dollars on a single toilet -- even if you would if you absolutely had to. The cost isn't that high. Check out Toto washlet prices. :-) e.g. https://www.totousa.com/washlet-with-smart-toilet-g450-10-gpf-and-08-gpf https://www.totousa.com/washlet-with-smart-toilet-g450-10-gp... But I agree with your point. If you have some specialized, almost unique, knowledge, have plenty of demand, and are hard to substitute for--and it's something high value--you can charge a lot.
mitchell_h 4y ago
Value based pricing as been tried a bunch of times. I've only seen it work to lower the price.
brilee 4y ago
I find that if you're getting this response, you're not talking high up enough in the org chart. Eventually, somebody does care about the overall good of the company, over the turf wars/budgetary bureaucracy of the middle management layer. But your project also has to be worthwhile enough to invoke the higher-ups.
claudiulodro 4y ago
Big companies hate rev share, which is essentially what value based pricing model is. Rev share pricing is great for getting small, money-conscious people in the door, but there is a threshold as you get larger where it becomes more cost-effective for the client to go with standard billing. Substack's been running into this problem, where it's easy to get people to try it out, but as a content creator gets popular the rev share amount becomes greater than the cost to hire an agency and "self-host". Someone making $1mm/yr is going to chafe at a $200k rev share when an agency at $50k/yr retainer can do a similar job. Unrelated to that but related to the main topic: it's interesting that people treat FOSS consulting as a weird beast and ignore the thousands of successful WordPress/Drupal/etc. consultants and agencies. There's a lot to be learned from analyzing their strategies!
- deleted 4y ago
  [deleted]
- R0b0t1 4y ago
  It's not more cost-effective for the client if the work just never happens. Further, I don't care what is more cost effective to them. I want to capture some of that value. That's the mistake these businesses are making and what you need to inform them of.
benjaminwootton 4y ago
I agree it is extraordinarily difficult to pull off. I have seen it attempted hundreds of times in technical professional services deals and never once seen it get past procurement. You can however incorporate into your pricing by charging $high_day_rate or $high_fixed_price if you have established the value.

d883kd8 4y ago

Straightforward, sensible business advice. Not much to say about it or opportunities to flame anyone.

benjaminwootton 4y ago

The article misses the thing that most people will have problems with - generating leads, getting a proposition agreed and selling that to the wider organisation and budget holder. That’s the hardest part of running a professional services business by a factor of 10. The second hardest part, almost as hard as the first, is attracting and recruiting good and reliable talent who won’t mess up your customer engagements. Negotiating prices as per this article is right at the end of a very long process. If you get there you are almost home dry on the deal.

rad_gruchalski 4y ago
This. This is a full time job. Trying to get leads via LinkedIn? Twitter? Ain’t going to work - preaching to the choir. One needs to reach outside of their network. This is all about meeting people in real world and talking to them. Events, conferences, paid introductions. Alternatively, one does contracting sourced through headhunters but that’s not really consulting. It’s all about talking to people, building rapport, establishing trust. Often talks lead nowhere for months or years. Talk to people about their problems, suggest solutions, show your value, but don’t share how. Next point, without people on standby, some engagements are unreachable because the client will not engage if: a) you have no perm employees, b) you are too small, as in, what if you go under 6 months down the line or some bigger client paying more comes around. It can be rewarding but it’s a tough market to be in. Competition is huge and there’s always someone with prices lower than yours but positioned better than you at a given point in time.
- As_You_Wish 4y ago
  >This is all about meeting people in real world and talking to them. Events, conferences, paid introductions. Right. I've always told people to do 2 things to always have a job and lots of job offers all the time: 1) public speaking at events and conferences. 2) public writing. I know a guy, did SQL stuff, and if there was a group of 2 people that got together for a local users group, he'd travel 200 miles to give a presentation in front of them. He'd been doing it for years, as in decades. The guy got 4 - 5 job offers every day. He had his computer there and showed me the offers coming into his email. And of course, if you do a lot of writing for any kind of journal or blog, and get published, that's also going to explode your contacts. . When you publicly speak or write, it establishes you as an industry leader, even if there are people more technically knowledgeable than you are.

jononomo 4y ago

zander312 4y ago

What are some real world examples of FOSS consulting contracts?

xivzgrev 4y ago

i read this first as a sarcastic title, like you plan to consult on software for free. kind of like "So you have decided to start a free IT support business" (by offering to help family / neighbors with their computer problems). i think a much better title would be "So you have decided to start an OPEN SOURCE software consultancy"

andrewflnr 4y ago
"Free software" and "open source" are somewhat famously not quite the same thing.
- jraph 4y ago
  The free software definition [fsd] and the open source definition [osd] are different in wording and spirit, but Free Software and Open Source designate largely the same set of licenses, save for a few odd ones like the Sybase Open Watcom Public License which is considered as a non-free software license by the GNU project [1] / FSF [2] and most Linux distributions (including Debian, which uses the DFSG [3], which is essentially the same text as the Open Source Definition) but as an Open Source license by the Open Source Initiative [4]. Free software does not mean free as in beer. The confusion caused by the word "free" in English is unfortunate but the world is not perfect. [fsd] https://www.gnu.org/philosophy/free-sw.html.en https://www.gnu.org/philosophy/free-sw.html.en [osd] https://opensource.org/osd https://opensource.org/osd [1] https://www.gnu.org/licenses/license-list.html#Watcom https://www.gnu.org/licenses/license-list.html#Watcom [2] https://directory.fsf.org/wiki/License:Watcom-1.0 https://directory.fsf.org/wiki/License:Watcom-1.0 [3] https://www.debian.org/social_contract#guidelines https://www.debian.org/social_contract#guidelines [4] https://opensource.org/licenses/Watcom-1.0 https://opensource.org/licenses/Watcom-1.0

vemv 4y ago

What is FOSS consulting? Aren't many developers "FOSS consultants" since they will introduce at least a few OSS libraries to a codebase?

pabs3 4y ago
FOSS consulting is simply working on FOSS projects for money. Integrating FOSS libraries into a proprietary codebase usually doesn't result in work on the FOSS libraries themselves, so doesn't count as FOSS consulting.

pabs3 4y ago

Has anyone here hired a FOSS consultancy before?

pabs3 4y ago

Apart from RedHat, a couple of successful FOSS consultancies include Igalia and Collabora. Interestingly Igalia is also a co-operative, owned by the employees. https://www.igalia.com/ https://www.igalia.com/ https://www.collabora.com/ https://www.collabora.com/ There are more listed in the employers section of the FOSSjobs wiki: https://github.com/fossjobs/fossjobs/wiki/resources https://github.com/fossjobs/fossjobs/wiki/resources

imaltont 4y ago
I think SUSE have some positions focusing on consulting as well.