benchwatch

What We’ll Cover In This Piece:

• Why the business world is moving away from full-time employees.
• Why being an independent business is better for you and consulting firms.
• How to get your independent business set up and running in an afternoon.

Estimated Time to Read: 8 minutes

One of the major economic trends of the 21st century will be the shift to what many are calling the “Individual economy,” in which work that is currently done by full-time employees will be done by contract workers.

You’ve probably seen this dissected in business articles with titles like “The Death of The Full-Time Employee,” but for all the drama and speculation, no one’s answered the most important question:

What does the “individual economy” mean for you as a consultant or contractor?

The short answer is this: If you’re a consultant or contractor, you’re a business now.

Let me unpack this. In the past, you’ve almost certainly been part of an employee-employer relationship. You’ve worked full-time for one company, trading your time for a salary.

In the individual economy, however, the standard employer-employee relationship is gone. In its place is the client-contractor relationship, in which professionals like you operate as independent businesses, servicing as many companies (clients) as they like.

This shift should seem familiar to you. If you’ve ever called an Uber or hired a TaskRabbit, you’ve been on the client side of the contractor relationship (though most people would call this the “gig economy” the basic idea is the same).

Services like Uber and TaskRabbit are just the beginning. The change is only going to get bigger, and it’s going to expand to other parts of the economy, like professionals. In fact, as the individual economy grows, most professionals—lawyers, accountants, consultants, etc.—are going to be independent businesses.

A lot of consultants are afraid of this change. We disagree with them. We think consultants should be excited. If you are a consultant, we think this is the best thing to ever happen to you professionally.

Why You Should Be Happy You’re A Business

I understand why so many consultants are nervous about becoming independent businesses. We traditionally associate the phrase “full-time” with stability. As a full-time employee you typically have benefits, a predictable salary, a 401k, severance pay if you’re fired—it’s a lot to give up.

Fortunately, you don’t have to. By being an independent business, you can have the same stability, make more money, keep more money from the government, and be happier in your work than were you were as a employee.

How You Make More Money As A Consultant/Contractor

If you are an employee taking a regular salary, you’re leaving money on the table. Your salary doesn’t change regardless of how many hours work.

However, if you are an independent consultant or contractor, you set your own bill rate and hours worked. The firm that connects you to your client will take some percentage, but your billed hours still translate directly to your income.

You work more, you make more. It’s that simple.

The other financial benefit to being an independent business is the money you save on taxes.

The entire U.S. tax code is built to incentivize business ownership. There is no better way to lower the amount you pay in taxes, and keep more money, than to start your own business.

As a full-time employee (as I’m sure you’re painfully aware), all of your income is taxed. If you make $250,000, you pay taxes on $250,000.

As a business, however, your business expenses are not taxed. If your firm makes $250,000, but you invested$150,000 of that back into the business, you only pay income taxes on $100,000.

What makes this amazing for you is that when you’re a business, you can include business purchases that also benefit your personal life in your write-offs. This includes:

• Office space in your home (effectively tax free rental income to you)
• Cars
• Technology (computers, TVs, phones, wireless routers, iPads, etc)
• Business-related dinners
• Business-related travel

The steep discount the government gives on these business expenses is the single greatest tax benefit you’ll find.

But the benefits of being your own business go beyond the financial. The personal benefits of being a business are incredible.

Why Owning A Business Makes Your Personal Life Better

You don’t accidentally become a professional. If you’re a successful consultant, you spent years developing your skills and making the connections you needed to succeed.

You did grunt work, you studied hard to learn new industries and functions, you took tough feedback from your mentors and pushed yourself to develop new skills.

You should be proud of that.

In order to achieve all those things, you must be a person who takes control of your life. You make the major decisions about where your life goes, you put in the work required to make things happen, and when you’re done, you get to look back and take pride in what you’ve achieved for yourself.

Owning your own company takes that pride and amplifies it.

You control who you work for, what services you offer, and how you build your business. When a client hires you, they’re hiring all of those experiences, skills and relationships that you’ve invested to build.  

I’ve never met a person more fulfilled or proud of their life than a successful business owner. Someone who can look back and point not just to the career they forged, but the business they built from the ground up.  Even if it’s a one-person business.  

The other side of owning your own business is that your work-life balance is completely up to you. Maybe you don’t take meetings after 4 pm so you can spend time with your family.  Or maybe you don’t work on Fridays.  

If you’re working for someone else, that’s a conflict. If you’re a business, those are your hours.

Why Staffing Firms Want You To Be A Business

This is where a lot of consultants get hung up. They can see the upside to being their own business for them, but they can’t see why a firm would want a contractor instead of a salaried employee.

Think of it from a consulting firm’s perspective. If the firm is paying you a consistent salary, then the cost (and risk) you represent to them doesn’t change. If they bill a client 200 or 10 hours for you in a month, you cost them the same amount of money.

Every single consultant the firm brings on as a full-time employee is, to some degree, a financial burden to the firm. If the firm suddenly loses work, they have to pay severance, lay people off, and deal with the expensive inconvenience of downsizing.

Alternatively, if the firm brings on a bunch of new work, they have to weigh stretching their current workforce thin versus hiring a bunch of new talent they might not need in six months.

Simply put, full-time employees make it impossible to be flexible. That’s why most consulting firms have adopted flexible workforce solutions (FWS), which are teams comprised of contracted professionals who each operate as independent businesses.

Firms can scale on-demand now, hiring consultants as needed and paying them on a project-to-project basis.

If you’re looking for work as a consultant or contractor, it’s actually going to be harder for you if you’re not an independent business. The best thing you can do for your career is to set one up now.

How To Set Up Your Business

Many find the idea of registering themselves as a business daunting. Follow the steps below to make it easy There are only three critical steps to setting up your company, all of which can be done in an afternoon:

1. Register A Business Entity

There are few ways to do this, but the best way to register a small business is to use LegalZoom.

LegalZoom is a service that provides legal services online at a low cost. To set up your company, simply go to their website and under “Business Formation” select “LLC.”

You want to set up an LLC and elect to have it taxed as an S corporation.

A Subchapter S (S Corporation) is a form of corporation that meets specific Internal Revenue Code requirements, giving a corporation with 100 shareholders or less the benefit of incorporation while being taxed as a partnership. The corporation can pass income directly to shareholders and avoid the double taxation that is inherent with the dividends of public companies, while still enjoying the advantages of the corporate structure.   

2. Open A Business Bank Account

You want to keep your business banking activity separate from your personal financial activity. In order to register a bank account for your business, you need your company to have a Federal Tax Identification Number. This is a 9-digit number which identifies your business to the IRS.

If you register your business through LegalZoom, you will have the option of letting them issue a Federal Tax Identification Number for you, which I’d recommend you do.

3. Get A Business Credit Card

Every independent business needs a credit card that feeds directly into their business bank account and integrates into their accounting system. Beyond that, the perks of specific credit cards can benefit your business.

After trying almost every credit card, we’ve settled on two that we prefer. We recommend the American Express Platinum card to businesses that do a lot of travelling, and the American Express Green card for those who don’t.

Aside from their rates, it’s their perks that make them so useful. For example, we get deals on flights, upgrades, and access to members’ lounges because of our Platinum card. That may not seem like a big deal, but when you fly as much as we do, it’s incredible.

If you don’t travel, the Green card is cheaper. Both cards offer protection on rental cars and other benefits that help your company.

There are other considerations to take, like handling your insurance and benefit plan, but these are the bare essential steps to getting your business off the ground.

The Future Is All About Independence

The old school view of employment is over. The 30 year job doesn’t exist anymore, the notion that it’s a company’s duty to employ the world is dying.

Instead, our future is one in which every professional is independent, responsible for their own success, free to live on their terms, and capable of achieving so much more.

Being an independent business is the best thing that can happen to you professionally, and it only takes you an afternoon to become one.

What We’ll Cover In This Piece:

• Why expertise is the key to becoming indispensable.
• The three fundamental concepts you need to understand about expertise.
• How to apply each concept to your career today.

Estimated Time to Read:  8 minutes

When you’re first starting off as a consultant or contractor, finding work can be a grind (BenchWatch helps a ton!).

You spend that first year marketing yourself like crazy, just trying to get your foot in the door with companies. Slowly, you start landing projects, start getting referrals, and build relationships with clients that go beyond individual projects.

Then something amazing happens. You get a repeat client. Someone liked working with you so much that they want to do it again.

Then another client rehires you. Then another.

All of a sudden, you have to turn new work away, because you’re fully booked with repeat business.

That’s the way the consulting industry works. If you do a good job, after a couple of years consulting full-time, you can expect over 90% of your work to come from repeat clients. In fact, many consultants spend their whole career consulting for one main client.

You want this to happen. Working with repeat clients means you already have a relationship. They don’t have to evaluate you like a new hire, because they know you can deliver. You don’t have to learn a new company’s culture and processes, because you’re already familiar with them. Everything is easier.

From a repeat client’s perspective, you’re reliable, already up to speed, and have a track record of success. In a word, you’ve become indispensable to your client.

That relationship is the closest thing to job security you’ll find as a consultant, and developing it only requires you to do one thing:

To become indispensable, you have to become the expert in your field.

If you’re just a warm body who can operate the software or process your client uses, you might be able to find work, but you’ll be easy to replace.

But if you know everything there is to know about your client’s company—both the industry they’re in and the specifics of their organization—then you have something they can’t just replace. You have expertise, and expertise makes you extremely hard to replace.

I’m going to walk you through how you can become indispensable to your client by becoming an expert. It all comes down to understanding three key ideas.

The 3 Core Concepts of Expertise You Must Understand

There’s no magic to becoming an expert on something. You don’t have to be a savant or have grown up in the industry. You also don’t have to be the single most informed person on Earth about a topic.

Being an expert simply means you have a mastery of a topic, and know the most up-to-date information about it.

For example, I work in the oil and gas industry. I own a consulting firm that services that industry, and I’ve been a part of countless projects for Fortune 5 companies in that space. I know a heck of a lot about my field, but there are lots of people who know  ten times as much as me. They could write you a complete history of the oil and gas industry dating back to how fossil fuels first came to be our primary energy source.

That’s great for them, but my clients don’t care if I know who dug the first well in East Texas. They care that I know what’s happening in the industry right now, where things are heading, and how best to navigate them. That’s what being an expert is all about.

The fundamentals of expertise can be broken down into a few easy to understand ideas that you can take action on today.

1. Expertise Requires Interest

You can’t be an expert in a field you aren’t interested in. It’s that simple.

The science on this is very clear: people will put in much more effort, and be much more effective, when working on things they enjoy. Since being an expert requires constant learning, you must pick a field you like learning about.

If you don’t, you’ll dread your work, you won’t do a good job, you won’t put in the right effort, and you won’t ever become a real expert. Or, even worse–you’ll become an expert in a field you hate. Who wants to do that?

This is one of the reasons why it’s so important to clearly define your niche according to what interests you.

How Can You Apply This To Your Life?

If you already have a niche and love your niche, that’s great, consider yourself lucky and skip over this section.

Most of us are not in that situation. But that’s OK, you can find a niche that is interesting to you.

Before you even think about landing consulting jobs, audit yourself thoroughly and honestly. Don’t start by asking yourself what field seems the most lucrative, ask yourself three questions instead:

1. List out EVERYTHING you are interested in. Make this list by asking yourself the questions below. Don’t worry about lining these up with work subjects yet. Think about this stuff in the broadest terms possible, give yourself the most room to explore:
   1. What general subjects am I interested in?
   2. What do I read about in my free time?
   3. What problems do I like to solve?
   4. What do I want to learn about?
2. Look at that list and ask yourself honestly, “What am I good at?” Make another list that are marketable skills you know you have.
3. Now the final question: Is there combination of a subject you enjoy and a marketable skill and fits into a legitimate business niche?

The combinations you have left once you answer question 3, are the topics you can become an expert in, and can be your field.

Using myself as an example again, let’s break down my list:

1. What general subjects am I interested in? Oil and natural gas (No seriously, I really do LOVE learning about this fascinating industry.  I see it as foundational to our current standard of living, and love the complexity of the technology and geopolitics that impact it.  )
2. What do I read about in my free time? Business news and the energy sector (also, Texas Longhorns football).
3. What problems do I like to solve? I like executing difficult projects that create value and productivity for companies — and impact lots of people.
4. What do I want to learn about? What’s going on in global business and politics, and specifically what macro-trends are impacting the oil and gas business.  

Looking at that list, it’s clear that I need to be involved in the oil and natural gas business. Now I have to ask myself what I’m good at that people in that industry will pay me for. To do that, I break down my relevant skills:

1.  Business Strategy. I’ve spent years working in and studying business, particularly as it relates to oil and natural gas, and know how to plan for success.
2. Team Management. I know how to put people together and get the best results from them, and I’m a natural servant leader.
3. IT Solution Implementation. Microsoft 365, Sharepoint, Salesforce, Trading and Risk Management Systems—if it’s a relevant piece of software to the industry, I’m interested in it and know how to implement it for the whole company.

Looking at that those skills, and comparing them to my interests, it’s clear that I should be focused on developing my expertise as it relates to project management for the oil and gas industry.

Becoming an expert in this world isn’t hard for me, because it’s what I want to be doing with my time.

2. Expertise Happens Through Experience

Despite what you heard in school, formal education does little to make you an  expert on anything. You can take a course and become knowledgeable on a subject, but there’s a difference between being knowledgeable and being an expert.

Being knowledgeable means you have very specific knowledge about a subject that makes you functional. For example, if you took a course on commodities, you’d learn the basics of how to work in that industry. But no one would call you an expert.  Similarly, an engineering degree doesn’t prepare you to drill seven miles deep under the ocean floor for Chevron.  

Being an expert means you have a mastery of your subject, and mastery only comes with experience.

Using the commodities example again, an expert would know how to handle every real world situation that arose—and if they didn’t, they’d know how to learn quick.

Faced with a crisis, an expert wouldn’t reference a case-problem they worked in college, they’d think back to a similar crisis they’d seen before. 

The only way to acquire this experience is by getting out into the wild. You develop a mastery of a subject by living and breathing it, not by taking a course on it.

How Can You Apply This To Your Life?

Wherever you are in your career, you can always get more experience.

If you’re an experienced consultant with years under your belt, find someone above you in your field and make them your mentor.

No matter how many years you’ve spent in your industry, someone who has been around longer than you and has worked their way higher than you has experience they can share.

If you develop a good enough relationship, they’ll even become a resource you can use when you face new crises (see what I said before about knowing how to learn quick.)

If you’re a young consultant just starting out, I have slightly different advice for you: Pick a field you want to be in, and then take any job in it. Even if you have to take less money (or significantly less money).  

If you work two years in an entry-level job in your chosen field, learning skills that apply to what you want to do, you’ll be two years ahead of someone with an MBA.

You’ll have not just hands-on experience, but you’ll have spent time meeting and working in front of senior people from your industry.

Senior level professionals are much more likely to take you under their wing if they’ve seen your work ethic and they have some working relationship with you. They don’t care what school you went to.  Trust me, I hire lots of people and so do my clients.  One of the biggest misconceptions is how important your university is.  Nobody cares after you are 25 years old.  

3. Expertise Never Stops

I started my career at Arthur Andersen, a firm renowned for the way they developed their talent. During my first performance review, I asked “What’s the one thing I can do to go to the next level?”

I got a very simple response, which changed my entire life. They told me to get a subscription to The Wall Street Journal.  I was shocked.

They knew that I needed to immerse myself in the world of business and develop a real feel for how it works, for how one thing affects another in the business world. It was one of the biggest steps forward I took as a consultant.

But I didn’t stop as soon as I’d developed that feel. The world kept changing, and there was always more relevant information for me to find. To this day I read everything I can.

Everyday, I pick up a new bit of information, or just further develop my feel for the way businesses work.  I’m using myself as example, but this is what I see other successful consultants and contractors doing.  

Here’s another way of thinking through this. If you were an expert in the technology sector in 2007, you probably thought the following:

• BlackBerry had a great position in the mobile phone market
• HD-DVD was going to grow and compete with Blu Ray
• Twitter was just a neat idea for a niche audience

Fast forward to now. No one you know owns a BlackBerry, HD-DVD is all but gone, and Twitter has a market cap of around $10 billion.

The point is, expertise is a fluid, changing thing. There is always more to learn, and the only way to stay on top is to keep moving

How Can You Apply This To Your Life?

Get yourself some newsfeed software. Personally, I use Google News, but you can use Feedly or whatever newsfeed you prefer. You want to compile your information from a few sources:

1. Major news outlets
2. Industry-specific outlets/trade publications
3. Stock reports and analysis from your industry
4. Thought leaders and experts in your field

When I have time throughout my day or before I go to bed, I check my feed and read everything that has been published that day. I don’t tell myself, “Today I’m going to learn about shale oil.” I plan everyday to learn whatever I can about my industry.

One day, that might mean I read a new stock analysis of a major oil company, and get some better insights into their inner workings and plans for the future. On another day, I might read about emerging technology in the field, or macroeconomic trends that could potentially affect the industry.

Because I’m so deeply entrenched in all of this information–and most importantly, I LIKE learning about it–I become an expert without really trying to. That’s the only way to become an expert.

You’re Indispensable Because You Love Being There

I’ve written about the importance of servant leadership before, of how working to serve your team makes you more valuable to your clients. Expertise has a similar kind of value.

You can’t be an expert without loving your field. Staying on top of all that information, obsessing over it night and day, it would be absolutely exhausting if it wasn’t so meaningful to you.

Not only does that make you a greater asset in terms of the skills and knowledge you bring to the table, it lets employers know that they can trust you. You aren’t there to punch a clock or because this was the most lucrative field you could think of.

You’re there because you want to be, and that sets a client’s mind at ease. Companies can’t put a price on that kind of reassurance.