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+---
+title: "So you've decided to start a free software consultancy..."
+date: '2022-08-11'
+---
+
+Recently a friend of mine told me that he was planning to start a
+free software consultancy, and asked for my advice, as I have an
+extensive background doing free software consulting for a living.
+While I have already given him some advice on how to proceed, I
+thought it might be nice to write a blog expanding on my answer,
+so that others who are interested in pursuing free software
+consulting may benefit.
+
+## Framing the value proposition
+
+There are many things to consider when launching a free software
+consultancy, but the key aspect to consider is how you frame the
+value proposition of your consultancy.  A common mistake that new
+founders make when starting their free software consultancies is
+to frame the value proposition toward developers.  Rather than
+doing this, you should frame your value proposition towards
+management.
+
+For example, my friend described the value proposition of his
+consultancy like this:
+
+"I help people manage their open source server stuff for money."
+
+This is not a good way to frame the value proposition of a
+consultancy, because the manager will inevitably ask a question
+like:
+
+"Why can't we just hire an intern to manage that?"
+
+In this case, the manager is right to ask a question like that,
+because the value proposition is not correctly framed.
+The purpose of a free software consultancy is to *augment* the
+business' IT competencies by leveraging the consultant's gained
+experience working in FOSS.  When you frame your value proposition
+this way, it becomes more clear to the management why they
+should engage with your consultancy.
+
+When pitching your value proposition to a prospective client,
+you should try to empathise with the needs of the client, and
+tailor your value proposition around how your consultancy can
+satisfy their needs.
+
+## Pricing for services
+
+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.
+
+Proof of concept engagements should be priced lower than your
+standard rate, as they represent higher risk for the client.
+Since they are priced lower, the scope of work should also be
+reduced verses a normal engagement.  A common strategy is to
+split proof of concept engagements into phases, so that the
+client does not have to commit budget for the entire engagement
+up front, which can provide an opportunity to charge a little
+more for the overall engagement.
+
+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.
+
+These types of engagements should be priced according to what
+you believe to be a fair value for X hours of your time per
+month.  As a general rule, most consultancies charge at least
+$100 per hour for prepaid consultancy services.
+
+An example of a recurring service would be something like
+server maintenance for a small business.  In this case, you
+are augmenting the business with IT services, but the engagement
+is likely to not require a large amount of time, meaning that
+with automation, you can build out a customer portfolio of a
+few hundred of these engagements.
+
+## Professional services networks
+
+It is critical to pursue certifications like the RHCE.  The
+value in these certifications are the access to the professional
+services networks they provide.  They will also help with
+customers who have compliance requirements that state that
+the engineers working on a project have to be certified.
+
+Larger firms like Red Hat largely outsource their professional
+services engagements to consultancies which have passed their
+certification and joined their partner network.  These types of
+relationships are critical: you get to leverage the power of
+the larger firm's sales capability to acquire new engagements
+by bidding on them.
+
+Similarly, you should seek out partnerships with other
+consultancies, as doing so will expand the range of capabilities
+that your consultancy has.  For example, you might not have
+familiarity with enterprise networking equipment, but if you have
+a relationship with a consultancy that does have the ability to
+take on managing enterprise networking equipment, then you can
+join forces and bid on contracts which have that requirement
+in their success criteria.
+
+All of the companies from Red Hat to AWS have professional
+services networks.  Find the ones relevant to the skills your
+consultancy has and join them.
+
+## Invoicing and payment
+
+Larger engagements will **always** be NET-30 at the least, where
+NET means no earlier than X days.  This allows the client the
+ability to check your work and ensure they are satisfied with
+what you have delivered.
+
+If you need the money sooner, there are a few options.  First
+you can offer a discount for paying early, an industry standard
+is a 10% early payment discount.  Another option is to use a
+factoring company.  Factoring works by selling the obligation
+to a third party, which collects on your behalf for a fee and
+advances you the payment.  If you use a payment platform such
+as Quickbooks or Bill.com, these platforms have integration with
+factoring companies, allowing you to get payment sooner.
+
+## Negotiation
+
+An engagement will always consist of a written contract with a
+Statement of Work, frequently called an SOW.  The SOW lays out
+the success criteria for the engagement.  SOWs can be open-ended
+or they can be highly precise.  There are advantages to both
+approaches when authoring an SOW, but an open-ended SOW can wind
+up creating problems during the engagement, as it provides
+flexibility for both you *and* your client.
+
+Always negotiate deals in writing, never take an engagement on
+an oral promise alone.  If a deal requires a third-party to provide
+some of the success criteria, get their commitment in writing,
+or you may be left holding the bag.
+
+## Following up
+
+An engagement should ideally be thought of as a free-flowing
+conversation that results in the resolution of the success
+criteria stated in the SOW.  Accordingly, it is *vital* to
+keep the conversation going.
+
+This means that you should follow up with the client on a
+regular basis to keep them informed of the progress of the
+work being done as part of the engagement, and to solicit
+feedback early.  It is far easier to change the course of
+an engagement earlier than after hundreds of hours have
+gone into the work.
+
+When discussing the engagement, it should be considered an
+active listening exercise: you lay out what your team is
+building, and then the client provides feedback based on
+your presentation.  From there, the conversation moves into
+defining what forward progress looks like.
+
+## Takeaways
+
+These are just my observations from nearly 20 years of doing
+professional consulting around FOSS.  There is no singular
+right way of running a consultancy, but these are the key
+aspects that helped me to maintain good working relationships
+with my customers.
+
+Running a FOSS consultancy is hard work, but can result in
+a sustainable business, if you are willing to put in the
+work.