don’t like to think about the amount of money i’ve lost on projects. Let me go back, it’s not exactly true. I haven’t lost money so much as eroded margin.
That’s the thing with pricing. So long as there is a gap between your internal hourly rate target and your hourly cost, you will always have a margin of error in your projects wherein they’re still profitable, but simply not as profitable.
I wrote last week about why I believe flat rate projects are better, and this is one of the many reasons that it’s doable.
I never expect to earn much, if any, money on the first round of any type of project. When my firm executed our first on-prem to cloud domain migration project, we definitely reduced our margin down to nothing. After talking to our PM I realized that it was based on the fact that we hadn’t calculated the cost of migrating user’s workstations. We went back and ran an analysis of the time on that and reworked the scope for future project to include an extra hour per user in subsequent projects.
The next one, we lost a little less, and we found ways to be more efficient so we didn’t have to adjust the quote or the scope. By the third project we were hitting right around our target.
Was each subsequent project perfect?
No.
Did we get close to our target within an acceptable range of 5% up or down?
Yes.
There is no reason that you should be able to produce a consistent deliverable on something you execute often. You should be able to have a well scoped profitable project after working towards the same deliverable 3 times.
Thoughts? PM’s out there, am I on or off with this assessment?
Why I Don’t Like Talking Hourly Rates
Let’s talk about an hourly rate on work and why I don’t like to talk about it. 🙂
Well, the issue is not that I don’t like to talk about it. The issue is that it’s a red flag for a client’s posture towards the value of services.
First let’s talk about the pros of T&M:
1) Risk Reduction -> Your risk is greatly reduced as the provider since you’re paid for your hours.
2) Cost Sensitivity -> Client saves money since they pay for the exact amount of time the job takes.
3) Financial Flexibility -> When the scope is unclear this allows for the flexibility needed to adjust based on the needs required to attain the desired deliverable.
The problem with those pros is that they aren’t the value add they look like on the surface and most of the resistance to the issues that T&M mitigates against can be easily overcome.
1) Risk Reduction -> Risk should be mitigated by the nature of clear scopes. If something goes beyond the scope there is a change order for the unknown issues. Putting more risk on the client for a deliverable that the provider is responsible for will simultaneously tie the provider’s hands.
2) Cost Sensitivity -> There’s nothing about billing by the hour that will reduce this dynamic and I’ve never seen a T&M guestimation produce a situation where the hours did not increase past an original guestimation of the work. If you are able to bid that accurately so that you don’t have to go back and ask for more hours, then it really makes sense to introduce a flat rate.
The best answer to cost sensitivity is tell someone “Here’s the deliverable that you want, here’s the cost to get there based on these assumptions. If those assumptions don’t change, then it will not cost you another penny past this number.”
3) Financial Flexibility -> This is not a distinct value add between flat rate and T&M. Flat rate does not mean turnkey and you can include an assumption of scope that the client will take to add flexibility. Every time I’ve seen this in the wild it’s produced is a continual negotiation with a client where they feel they’re being nickeled and dimed because each moment you hit your guessed hours you’ll need to go back to the client and ask for more. While there’s nothing about a flat rate quote that reduces the need for discussion the moment the assumptions the quote is based on change, it definitely reduces the need for disucssion down from a potential many to a single.
I’m interested in pushback for this. Has anyone founf that using T&M as a standard method did not produce the problems i’ve listed above? How did that work for you?
Projects are Really a Math Game
Every business and function has a few levers that make a difference on the business. In terms of make the operations run better, everything else that doesn’t lead to the moving of these is a distraction. Let’s talk about this in the context of Project based work. Time is a huge lever.
There are two options:
-Time and Material
-Flat Rate
Projects are an interesting function for a business that is primarily MRR based revenue. They’re the one part where the model setup is that the more work you do the more money you make. That reality sets you up for failure from the start. Unless you can gain some efficiencies. How do you do that?
Flat rate deliverable based projects. e.g. We’ll have this result delivered to your business by this date regardless of how much time it takes. The value is the deliverable, not the hours worked.
The other option is Time and Material basis. I do not like these. There are unique circumstances where they make sense. Your margins are capped to whatever the difference is between your hourly rate and the hourly cost of your project team. The issue is that there is no incentive of efficiency for your project managers or team on these.
Is there risk with flat rate? Sure. The entire thing is a risk/reward discussion and you need to price it accordingly. You might even lose a little margin on the first project (flat rate allows you to build in a margin buffer so you can mitigate against the risk of losing money entirely). There’s no reason that a good project manager, after running 2-3 projects with the same defined scope, shouldn’t be able to increase the margin of this type of setup significantly.
More to be said on this. I’ll post more late this week. Are you a business owner or a project manager? Which finance structure do you prefer and why?
Markets Both Benefit and Constrain
Years ago I was in a conversation with someone who was asking some curious, albeit weighted questions around the subject of using the Office365 product suite over GSuite. It was a decision made in this organization prior to my coming on-board, but honestly I felt it was a good decision and supported it. One train of questioning was about some feature set related to cloud first solutions and collaboration features. The unfortunate part of the conversation is that, unless there’s a genuine intellectual curiosity about the subject, going into all the ins and outs of cost analysis and directionality is generally useless since it won’t be heard well.
It didn’t matter that the year was 2016, Satya Nadella had just started 2 years prior, the consent agreement that constrained much of their product development had ended only 5 years previously, and they were consistently retooling towards a cloud first posture. It didn’t even matter that the O365 was, even then, a greater ROI in terms of cost/feature comparable to GSuite. The person did not understand the market situations that led up to that moment and were just trying to get through their job.
It makes sense. So many times i’m in the same boat and judge a tool harshly without knowing further context into the whys and hows.
Obviously, we’re in a different world now. Not saying Microsoft is THE way, that very much depends on individual use cases. It is A way, and their innovation chops have been proven over the past decade. Full disclosure on my cards, in terms of use i’m at a 50/50 split. There are 2 organizations I work in that use GSuite and 2 that use O365. There are specific reasons you would use one or the other but none of those reasons are that one is better than the other.
Here’s the big idea: judging a product maker without a further understanding of the market dynamics that drove their product in one direction or another doesn’t help you understand something in a nuanced way where you can capitalize on it for greater returns. At the end of the day, a hard stance on a product isn’t the job. Making good decisions and understanding the nuance of those decisions in order to produce value for an organization is.
I’m interested in who else has run into this problem. Is there a “succesful” tool (good TAM, SOM, SAM) you look at that you think is THE WORST that you might need to re-underwrite?
Simple Explanations Show Understanding
Something I’ve noticed in some conversations is when a person tells me something is complex and difficult to explain it has become a red flag for me. I try to go by the napkin rule. If I can’t draw it out on a diner napkin over lunch with someone then it’s possible I don’t really understand the first principles of the subject.
To be clear, there are some things that truly are complex. Any discrete structures and algorithms class will teach you that is true. Even so, that same subject can be broken down to foundational elements that can be explained.
W2 multiple is a great example of this. I’ve seen very odd calculations of this. Things where someone looked at all the time a person was putting that was billable and non-billable, etc. The measures i’ve seen this way and their use case made sense because the term was being used as a descriptor of how hard someone was working. The thing is, that is not a W2 multiple.
Simply put W2 multiple is how much revenue you get per W2 payout. e.g. if you earn $120,000 and you pay out $60,000 then your W2 multiple is 2 because $120,000/$60,000=2. If you use any other calculation and call it W2 multiple then you’re saying the wrong thing and there is a high potential that others are hearing the wrong thing.
I’m using W2 multiple as the example, but we can say the same thing about many areas like this. When you say EBITDA, don’t say “community adjusted EBITDA” because that’s not a thing <cough>WeWork</cough>. If you’re “full stack”, please understand hardware too. Containerization is needed but it’s not the full stack.
With industry standard terms it helps to use the industry standard definition. If you don’t know how to define some of those things then it’s possible you don’t know your job as well as you think you do. I’m still there many times. What’s the goal then? Not to not discuss, the goal is to be aware, curious, and questioning. As questions and approach as a learner not as a learned. For me this has to stay true. My current thing i’m learning is containerization so I can increase my BS meter when talking to devs. Let’s all stay curious.
What about you? Please comment, what are you learning?
Best Time to Build a Business is Now
Had a conversation with a friend the other day who works for a municipality. There is a software that they use, basically every county uses it. There’s one vendor for everyone. It’s a monopoly. Support is bad (days for the initial response), product is bad (still requiring windows 10 and haven’t began testing for deployment in windows 11), and prices are high (no market competition = high prices). The issue is anytime a new company begins to disrupt they buy them.
To be clear, i’m not against monopolies if you got there through innovation. I’m not even against M&A as that is a solid strategy that fuels startup funding and what folks like Lina Khan are doing is showing how little some understand about the free markets and game theory. However, in this instance it’s a clear case of anti-competitive behavior and the reason it hasn’t become a case is because the acquisitions aren’t large enough to garner attention.
Back to the conversation with my friends, one was saying they didn’t know how to code this. My case to him was that it was unnecessary. He had the right knowledge.
1) problem set
2) deliverables and requirements
3) understanding of current constraints
4) industry experience and relationships
In this case, the issue would be the why to build. If the real core why is to disrupt by adding competition, there are risks there and they’re all surmountable. Just have to be clear enough on the why to not sell when the money is a high multiple and look for a better exit with good partners to keep the competition alive.
Given the state of tech today, it’s the easiest time to build a company with $0 in funding so long as you’re willing to put in the work. What about you? Feeling the itch to innovate? What’s stopping you from starting as an intrepreneur where you’re at? Whats stopping you from starting as an entrepreneur and launching out? Now that you know what’s stopping you, you’re a very powerful person so what’s the plan to remove those obstacles?
The Journey So Far
Been talking about work and life. Wanted to present some stages for how this worked for me.
College -> Worked full time while schooling full time. Worked flexible jobs so I could do school. I felt busy (laughable now). Developed several skills for post college career. Helped start a non-profit during this time that I worked in alongside my career for the next 12 years. Got my first 8-5 job 3 days after graduation due to work I was already doing and relationships I had formed.
First 5 years -> Wanted a different career. Was paid low, worked long hours but was non-exempt with an unlimited overtime due to my role. Had to consistently be on-site and thought working remotely was what I wanted. Got next job because of a particular skill and someone I knew.
Next 6 years -> New job, first year I thought this was a stop gap. Turned out I loved the team and stayed for 6 years. Was empowered to help build teams. Was paid better because of the first 5 years pushing myself into expertise in key job functions. Started managing others and realized that leading, coaching, and building teams was a skillset I enjoyed. I also had to be in the office most days and was still learning to love what I was doing. Really enjoying my work kicked in the last few years here. Left here to go work in a global non-profit because of the non-profit work I mentioned back at college stage.
Next 3 years -> Worked at a non-profit overseeing global technology and some security functions around that. I was able to come and go. No requirement of office hours specifically. I realized I liked having an office to go to and also liked the flexibility of not having to go there. Most days I was there and found that was easier. I thought this was my dream job. Turns out getting your dream job in your early 30’s is a bad idea. 2 friends bought 2 businesses and asked me to help merge the thing together. I left to go do that.
Next 5 years -> Worked for some friends helping build out an MSP by integrating 2 together. Learned more skills on business functions and found I like working on the overall operations to make something healthy. Went through my first sell side transaction with a PE backed firm. Stayed on for a few years to help move towards integration and learned about negotiation in a larger org.
Last 2 years -> First job, that didn’t immediately form from a pre-existing relationship. Moved to another PE backed technology firm. Used lessons from the past 2 decades to help grow the firm. Began work to redesign our Professional Services Automation system. Helped with the integration efforts of 4 acquisitions in the first 6 months. Began to learn about building a true 24/7 operating team. Said yes to some things I regret saying yes to. Said no to some things I should have said yes to. Have learned much in the past year.
3 points:
1) Everything you do is training for the next thing you will do.
2) Relationships are key to your growth.
3) It’s a wild ride. Enjoy it.
Nerdy AI Post
Nerdy AI Post. I’ve always thought the best way to talk about anything is to at least understand it well enough that you might do it. Doesn’t mean you have to be the best, but you should at least know how all the dots connect.
I had some spare time recently, and have been wanting to grow my understanding of the underlying stack to get a to a GPT Chat Screen so I worked towards the install. In that address the 127.0.0.1 address means this is an GPT Chat running locally on the computer. Was an enlightening task that not only required me to learn more about models, but also about containerization. The other odd thing I did, was actually point this to an Intel i7 to really see what the performance hit is. Now I know. You DO NOT want to run this on an i7 ever. This is why everyone uses GPUs.
If you want to know something, sometimes the lowest cost option to get there is to simply roll up your sleeves and play for an afternoon.
Like if you agree. Comment if you want to change my mind.

Everything has a transaction cost.
Any time we add speed and flexibility there is a simultaneous introduction of new fragility. When we think we’re safe do to all our advancements, it’s helpful to keep this in mind.
Learn DNS. It’ll help you.
I try to avoid technical posts these days in lui of financial posts. Not because I don’t understand the tech. Honestly, it’s because I understand it to the point of boredom, cash flow and financials are much more interesting and so my goal has shifted to be able to help translate the technical things in light of overall business context. This is where true value is added. That said, Warning. Geek Post:
One truth I’ve discovered over years.
Anyone who thinks they understand DNS, probably doesn’t understand DNS. This function is a foundational layer of the internet. Even if you aren’t a technical person, your business depends on this to work right. If it doesn’t, then your apps don’t work and your email doesn’t send. At this stage in the game understanding the concept of it just a little below the surface will help you tremendously when your email is broken and the tech guy is throwing a bunch of jargon at you.
Please read a few articles on this.   👇
This should help:
https://jonahdevs.com/youre-closer-than-you-think-the-only-6-dns-concepts-you-really-need