Consulting vs Ownership

I had a meeting a few days ago where I was looking to do some subcontracting though a company. The owner/founder of the company pitched the idea of joining the company as an employee. They are an employee owned company, so every employee has a stake in the company. The owner has a fairly good track record. He said said something that stood out to me. I recently passed it along to a fellow uISV and thought I would share it here as well.

As a consultant, you will typically start out making more money (figure about 2X your normal salary) than you would owning a company (or uISV in my case), but you can only bump your rate a little bit every year or so. If you price yourself low, you might have big jumps initially, but soon you will hit your limit. Even during the late 90's there was a maximum price that you could get out of desperate companies. And this is the limit of your income. You can only work so many hours in a day and that is all you can earn.

But as an owner, even of a uISV, your income is not tied to the number of hours you can work. It is tied to the number of people who buy your product or service. Initially you will probably not make anything near what you can make as a consultant. This is especially true with uISVs where revenue can sit at 0 for quite a while. But long term, you can make substantially more if you are successful.

There is risk that your business will fail and you will earn nothing for your valuable time. That is the risk/reward of being a business owner. This is a sample graph and is the ideal situation. Here is some real world data compiled by Neil Davidson last year that doesn't paint a really happy picture. But I think there is a small percentage of owners who see this type of scenario come true. And there is still a lot of space above the consulting line where many uISV's would be happy to find themselves.

And it isn't really an either/or model. I'm doing both at the same time. This pushes out the time frame on the success of the uISV, but it reduces the risk.

-- Side Note -- The graph was created using Google's Chart API. Its pretty cool to use. The graph took way longer to create than it would have in excel, but there was a learning curve involved.