In this session, Danilo discussed:
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So welcome everyone. For those of you who are joining or watching this for the first time, BCC Bites are those quick chats we run every other week. They're open for everyone. We talk about a specific topic, which is usually something that members suggest, and have a quick Q&A about it, really.
And today we're going to talk about the freelance consulting ladder. So what it is, how to identify where you are and how to move across it. And I believe it's a great framework for any consultant, solo consultant or solo advisor. If you have any questions, please put them in the chat and we'll go through them at the end. But let's start.
So the source of the ideas we're going to talk about here came from a great book called "The Art of Gig" by Venkatesh Rao. Venkatesh has been writing and speaking about the independent freelance world and the gig economy for years. He has an incredible capacity of always bringing a new insight, new perspective to the conversation. I'll drop the link of his blog in the chat. And if you have just started your consulting practice, or if you want to follow the solo advisory road, I highly recommend you to read this. He actually put together his essays in two volumes. I'll drop the link in the chat if you're interested. But let's start.
The starting point here is the idea that freelancers are not all the same, right? It's natural for us to categorize people and organizations into groups. But when we take a deeper look at everyone we label as freelancers, we quickly realize this group is not homogeneous at all. They are very different people with very different needs, desires, running very different consulting practices in this group. Now, Venkatesh divides them into these three groups. He doesn't call this diagram a ladder. This is my interpretation of it. And I'll get to that in a minute. But first, let's start with some with some definitions.
You are an indie consultant, here on the top, if you don't have to deal with gatekeepers inside your client organizations. Gatekeepers could be, for example, the procurement department, purchasing department, or HR people. Of course, you may still need to do some basic paperwork with them like sharing documents, filling forms, but this have little control over whether, little impact over whether you get hired or not. Because the call is being made by an executive or a manager who are high in the ranks. So if the company, if you're working with a company for example, that just announced cost control measures, cost cuts, your point of contact is senior enough to authorize an exception to hire an external consultant. Or you are irreplaceable enough to get some some kind of exceptions. This also might be the case for some hyper specialized and technical consultants, but these are on the top of the ladder here, independent consultants.
Now, contractors. You're a contractor, according to this framework, if a procurement or HR department has significant power to vet you out and say no, based on whatever criteria they decide. Your point of contact or your relationships with the people you are talking to, they can't do anything to help. They might have invited you to pitch a service, for example, they might have invited you to explore an opportunity, but they don't have enough power to override, let's say, decisions from the purchasing department. If they say "we can't hire him, there's something wrong. We can't hire this consultant". That's it.
Now, You are... this last group here, the third group, are the platformers. And you're a platformer if you get work mostly from demand-aggregator platform or a talent platform. There's little to no human interaction, right? You see the projects listed there. If they fit your qualifications, you might pitch to be hired for one of them. So there's very, very little interaction with another human. You might get invited to a first chat for the people who work for the platform, for the talent platform to decide if they let you in or not. And maybe you might get invited to a couple of interview chats from those companies who are hiring you. But that's it. That's the amount of interaction that you have with your clients. It's not really a relationship, right?
Now, how are these... So these are the breakpoints on this framework. Now how are these three layers different?
It's all about this trade-off, the risk and return trade-off, really. The higher you go on this ladder, you decide to take more risk for bigger returns, right? If you succeed, you gain more independence in the process. The source of this risk is the need of selling yourself.
Platformers here at the bottom, they are pitching and competing for existing demand. So companies who are already in the market for their services. Those consultants on the top, they need to proactively generate demand. They need to go after buyers, promote themselves, challenge them, educate them to create interest for their expertise. And that difference is the key that drives all the other differences between those three groups. As a platformer, you don't need to worry about marketing or selling yourself. You can directly pitch to opportunities, which by the way, there are a lot of hidden dangers in this position, but this is not our topic. I'll add a blog post I wrote some time ago about this, the hidden dangers of being a platformer. But you are... you have less risk involved. You're more dependent on those platforms for sourcing work.
Now, what Venkatesh did, and I want to explore here in this chat, and later we can talk about it in the questions, is to list the differences across 10 other different dimensions. These are the 10 other different dimensions. It's important to say that we're generalizing here. And you might find your consulting practice is somewhere in between those categories. But what I want you to do for now is: As I go through each category, I want you to take note of which one would reflect how your consultancy is today. So am I behaving as a consultant, as a contractor or as a platformer, right? Let me quickly go through them.
Competition mode. Consultants compete with each other, with other consultants and advisors. Contractors compete with employees, so internal teams. Platformers compete with the platform. Okay.
Social perception. Consultants are seen as partners during engagements. Contractors are seen as hired gun. So they are there to deliver a specific outcome. Platformers are invisible. People, most of the people inside the client organization don't even know your name.
Next, contracting structure. So consultants, they structure their own engagements. They are clear about how they work, what's negotiable and what's not negotiable. Contractors often respond to formal RFPs, request for proposals. So you need to show that, "OK, I fit in the basic requirements that the company or the client is asking for the job." Platformers, they have some collective bargaining leverage. And here, I believe that Venkatesh is referring to, for example, If I'm a market researcher and I source work from a platform, if most of the people are charging at least 50 Euros / hour, it would be absurd to expect to buy it, to give me an offer paying 20 Euros / hour, because it's so below the market rate. That's what I believe Venkatesh is putting here as a collective bargaining leverage.
Now next, rate setting. So consultants set their own rates. That's how much I charge, It's non-negotiable. In the contractors, they index the rates to market rates. So you take a look at what other people In the same industry or offering similar services are charging and you try to calculate the scope of work you try to to package your services to be at least competitive. "Yeah, I want to be competitive. So I want to charge at the same level or a bit below what competitors are charging." And platformers, they don't set their own rates, really. And you can see it a lot: "Okay, there's a client who's requesting for a service, a specific service and he says, my budget is 2,000 euros." If you want to do it for 2,000 euros, then pitch me. If you can't do it, then feel free to look for other opportunities. So you don't set your own rates. Those who are setting the rates are the clients.
Next, and again, take note of how, of which category your current behaviors are aligned to.
Okay, bidding dynamics and haggling. So, indie consultants they rarely haggle. So they don't get into bargaining conversations. They say, "Ok, If you want to hire this service, that's how much is going to cost you. That's non negotiable." If you can't pay that, and you want to review the scope of work, or you want to hire a different service, then that's okay. But the rates are non negotiable. That's how indie consultants or advisors act. Contractors haggle, or they get into competitive deals, they might discount much more easily to get some kind of price advantage in competitive deals. And platformers can't haggle. They can't haggle because there's rarely a real chance for dialogue with the clients on those platforms.
Demand structure. So consultants create their own demand. They go after their ideal clients or they attract the interest of those companies or people who would be potential clients, they challenge them, they show... They try to create interest, they try to create curiosity. And in the process, they show how much value they can add to the business. Contractors serve fragmented demand. So sometimes these are services that companies cannot do due to lack of internal staff or lack of internal expertise. And so they, they release an RFP, they release a note, they put it out there: "Ok, we need help to get this outcome, to perform this kind of tasks. We need specialists to do this." This is what he's calling fragmented demand here. And platformers serve aggregated demand. So in this platform - and this is the whole business model behind it - you're bringing together different companies, different organizations who are looking for the same kind of services. And you can easily list, and you can easily see which people and companies are potentially... potentially not. Are actually, at the moment, interested in the services you provide.
Selling model, consultants must sell themselves. Usually, almost always for boutique consultancies or solo advisors, the partner or the founder is the one who's leading the sale because it includes a lot of consultative conversations. You need to have expertise to guide the discovery. You need to have expertise to demonstrate the value you can add. So you are the one there sitting at the table talking to prospects, or on a Zoom meeting talking to prospects, talking to potential clients. Contractors, they can sell themselves, but they can also use agencies or intermediaries. And here is where partnerships come in. Some consultancies may even, for example, marketing consultants, might white label services, or might have referral agreements with other bigger consultancies to take in some part of the work. Since it's much more standardized work, it's less strategic. You can do that. And it opens the door for a good volume of work. It opens the door. It's one of the avenues for new client acquisition, right? Platformers don't need to sell because demand is visible. So, you can see who's in the market. There's no convincing, there's no commitment that you ask for the buyer. They're already committed to hire those services.
Positioning. So, according to Venkatesh here, consultants, they adopt an identity-based positioning, contractors adopt quality and skill-based positioning, and platformers don't position at all. They just made the qualifying criteria. Let's finish this list of components. And I'll give my thoughts on that.
Generic strategy. And here is... We're talking about the famous Michael Porter's strategy concept, the strategy categories. So consultants, in theory adopt a differentiation strategy. Contractors a focus strategy. So only selling to specific market segments. And platformers, a cost leadership strategy. So they compete on price.
And finally branding. Here, consultants lead with their personal brand, solo consultants. Contractors, they use a lot of... They rely a lot on their track record, industry specific, sector specific, vertical specific track record to show that they know what they're doing. They have worked with similar companies solving similar problems. And platformers. Here, the branding is all about ratings and comments. So this is the main way talent platforms use to rank and categorize talent. It's based on the amount of jobs that you did and the feedback from your previous clients. If you have 5 stars or 4.5 stars you will be shown... or you have an advantage over the consultant who has 3.9 out of 5 stars. The number of projects you deliver and the ratings of your previous clients are a heuristic to determine the quality of your work.
Now, I hope you have categorized yourself there on how your consulting practice looks, how it aligns across these 10 different dimensions. Let me just give you a few thoughts on them. My personal thoughts.
I do not agree 100% with how Venkatesh broke down this dimensions. But I think it's a very useful framework. Most of you, and I have done this exercise in group workshops before, most of you are probably somewhere between contracting and consulting. And your behaviors or your strategies are in this first two lines, probably. What I think it's interesting is... If you're in the middle here, Venkatesh actually, he actually suggests a tiebreaker. If there's a tie to define what your category would be. And that is the haggling dimension. If you haggle you're a contractor. And if you don't haggle you're a consultant. That would be the defining dimension, the tiebreaker. Bargaining, giving up to bargaining conversations, discounting very often, it does not mean that your practice is bigger or have better margins. This is, I think something it's interesting.
Several solo consultants who classify themselves as contractors, they make more as those who fit in the category above. Platformers not. Platformers, they are usually paid far less than the two other categories here. And this is, I think it's fairly obvious for for most of you. They are usually offering commoditized services. Anyone who wants to hire, let's say, a web designer, for example, can post the job on 10 or 20 talent platforms and will likely get more than 500 pitches. So the only way you can sustain higher than average fees is by demonstrating strong deliver and track record through client ratings, as I mentioned. And to get those ratings in the first place, you will need to effectively work for free. So that's the cost of tapping into existing demand. You need to build those ratings, build those trust heuristics inside the platform. And if you're offering the same services as everyone else, the only factor that would differentiate you is price. So you can't really avoid the price competition.
Now what I love... Yes, some good comments here. What I love the most about this framework is that you can... It makes us realize how some of those strategic choices here, they they don't go well with others, right? If we look, for example, how he divided the three categories into this generic strategy types, according to Michael Porter's model. Each of them, they require different business models, different practices, different founders' behaviors. For example, if you decide to stop bidding competitively, but you continue to rely on RFPs as a source of new opportunities. You will be worse off, right? You say, I won't haggle, but I'll continue to respond to RFPs. You will be worse off. Chances are that change will weaken you as a contractor. When you try to move from contractor to consultant, changing this behavior here, but you're still doing that, you will be worse off and the opposite is true.
This is why there's not much mobility in the ladder. When we look at freelance consultants or those freelancing, so on those three groups, there's not much mobility really. If you are a platformer or if you rely on talent platforms to source work, chances are you will continue to rely on platforms for as long as you freelance. I would love to see some statistics on this. I couldn't find them. But if you have them, this is based on observational data, really, conversations. The same is true if you're a contractor. You would likely stay as a contractor for as long as you freelance. So the question here is, how do you move up? How do you move up?
And the answer, at least my answer is with what I call strategic high effort initiatives. To move from a platformer to any contractor, for example, you can specialize. Narrow your positioning. You can consistently invest in content marketing, start to write about your work, about your industry. Maybe join and get active in a trade organization, trade association. Now this takes time, but it will likely allow you to build relationships and a reputation as a specialist. If you're always writing about those topics, you're writing about your industry, you are narrowing your positioning so your messaging is tight. You're not promising to deliver everything to anyone. If you stay on that road, you will likely go up this ladder, but it's high effort. High effort, long term initiatives.
The same is if you're a contractor and want to move to a consultant, for example, you could write a book. That's the typical high effort initiative. There's a lot to be said about how the publishing industry is changing, and how those changes affect the book as a credibility signal. But it will, without a doubt, strengthen your personal brand. And as we saw here, consultants usually lead with the personal brand, solo consultants, solo advisors. So a book will differentiate you in the marketplace, that's for sure.
The answers of what strategic high-effort initiatives you could implement, of course, they will depend on the specifics of your practice. But that was it. That's the framework to keep in mind if you're a solo consultant, solo advisor. Now I want to open for questions because I already see there are a few ones here.
Right, So let me just answer this:
"What exactly do you mean by haggling?"
To haggle is to engage in a long bargaining conversation. So a dispute over the price of your services. So you make an offer, the buyer makes a counter-offer, you counter that... until you find an agreement or not. I think it's quite interesting that Venkatesh used this as the main tiebreaker to determine whether you're a contractor or a consultant. And as I mentioned, the distinction, it doesn't reflect on your earnings. If you quote a prospect, for example, $600 an hour, that's my fee. And they bargain it down to $400 an hour in a negotiation, you are a contractor according to this framework. But if you're a specialist who set your rates at $200 / hour and say: "OK, my rates are non-negotiable", you are a consultant. So it's not about the earnings, it's not about the margins or the revenue point. The point is, if you have successfully positioned yourself as a consultant, as a trusted partner, most prospects will either say yes or no when you quote the price.
Of course, the price needs to be rooted on the value delivered. But the advisors who get to this point here, what Venkatesh labels as consultants... there are a few things that usually happen. First, they offer a service that is too bespoke. It's too bespoke to be compared with alternatives. And we see that, and we saw that with branding. The clients pay to work with you, personally. So if you cultivate a strong personal brand, there's very little, very limited supply. There's only one of you in the world, right? So it's too bespoke. You cannot replace, you cannot compare it with other solo consultants or the solo advisor. If they want you, they will have to pay your price. That's one thing.
The other thing is: when you get to this point, when you're advising, or you're a solo consultant working on strategic issues, you're solving complex problems, right? And it's very difficult to estimate the exact value of your contribution. Even if you try to estimate value, and you should do that, your fees will likely be a fraction of the value you deliver because you're affecting so much, you're impacting so much in the organization. And this, all of this reduces haggling, I believe.
Now, if someone, if you're a consultant, and if someone makes a counteroffer that for your fees that is too low for you, something that's even insulting, then it's a sign that one of two things are happening. You either fail and communicate the value you're bringing. So you didn't help them visualize the value, you didn't help to measure or estimate the value you're bringing, what you're affecting, the impact that you could bring to the organization. Or the second option is you're overestimating how much you are worth.
That's why I think it's important for every solo consultant, solo advisor to review your prices at least once a year. Of course, when you're doing, for example, bespoke projects, they will require custom pricing decisions. But in general, at least your main services, they must have a clear pricing. And you should never engage in haggling.
And by the way, in October we will have a BCC Bites about this, related to this topic. I think the title is "Alternatives to discounting". I'll put the link in the chat. We'll talk about practical alternatives boutique consultancies can use to address discounting requests without reducing their fees. So I think it's a very, very interesting conversation. There are some good ideas there that you might want to consider for your practice. And I'll put it in the chat so you can add it to your calendar now.
Next question. Okay, here's a good one:
"How worried should consultants be with the growth of talent platforms?"
Now, if you're in the higher levels of the ladder, I don't think you should be worried. I think you should be informed. Some of you may have had a few experiences with these platforms. Some of you maybe have used those platforms to go through a cash flow emergency, find quick work when things were tight. But the reason I think everyone should be informed of what's happening in those talent platforms is simple. This here, the bottom of the pyramid, is where most of the freelancers are. So when things change, and things are changing fast in this space, you can look for opportunities to leverage in your consulting practice.
It doesn't need to be related to client acquisition or sourcing work. Maybe platforms allow you to build more and better relationships with those in your industry, for example, You can use that. Or maybe they allow you to sell training and certification to other freelancers, to other consultants. So this could be a potential new revenue source. The possibilities are many.
That's why I said "don't worry, but be informed." If you're capable of sourcing opportunities, if you're capable of selling yourself, finding work by yourself, the people here, the platformers, the people in those platformers, they are not your competitors. You don't need to worry about them. But what happens here can and probably will impact your practice in other ways. So that's what I usually say. Don't worry, but be informed. Understand what are the main platforms, how they work, how companies are sourcing work or sourcing talent from those platforms. And just explore if you could also leverage them in some other way for hiring talent yourself, for short term projects, for identifying potential future clients, whatever it is.
Ok, I'm afraid I need to end this chat here. The next BCC Bites will be in two weeks time, so on the 20th July. And we're going to talk about mindset, mindset traps for consultancy founders. It's a great topic, I think. I did not choose it myself. But I think it's a great topic. We'll talk about some of the most common beliefs and behaviors that hold founders back and also provide some ideas to help you change those behaviors. But that was it. Stay safe. We wish you all a great end of the week.
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