Workaholism: Hazards and Benefits

Isn't it interesting to observe that typical North American homes have 2.55 children and 2.73 televisions in them, and these 2.73 tellies can have a serious adverse effect on the 2.55 children's health?

Similar adverse effect can be observed on many IT companies' financial health based on their methods of hiring subcontractors.

They fail to maintain a pool of reliable subcontractors, but when they are hit with the large project, they go on a hiring binge. But this binge is distorted by the view of "The less we pay them, the more can keep". So, they advertise on Craigslist in search of sufficiently cheap subcontractors.

Instead of focusing on getting the biggest bang for their bucks, they get so obsessed with minimising the buck that the expected bang very often is nothing more than a barely audible dull thud.

Yes, the budget is saved but nothing gets accomplished. And who do you think clients blame when something doesn't get done? Yeah! The main contractors. Always.

In my experience buyers and sellers behave similarly. Buyers buy the same way they sell as sellers. So, it's fair to say that a company this hires subcontractors on price, sells its services on price. And premium companies hire premium subcontractors.

Now imagine a high school graduate who wants to become a world-class brain surgeon, and the question comes up...

"Jamie, what is your next step of becoming a world-renowned brain surgeon?"

Then Jamie says...

"Well, I'm searching for the cheapest medical school where I can study to become a world-class brain surgeon."

I may be slow in the head but something just doesn't add up here for me. And this is exactly how too many purchasing agents in IT companies operate.

They create requests for proposals, send them out to lots of potential subcontractors, and then hire the lowest bidder.

The other criterion besides being cheap is being 100% obedient and pledging unconditional servitude to the main contractor.

So, it's a master-slave relationship. One problem: Self-respecting companies would never enter such relationships. So, our main contractor, by default, is stuck with the sludge of the industry.

This situation is even worse with governments, but let's not go there right now.

But it's worth noticing that the "lowest bidder" mentality creates certain attributes in companies. Just like in governments, in companies with the low price obsession we can see chronic financial problems, low morale, high levels of pilferage and absenteeism, rock-bottom performance, endless miles of red tapes and indestructible bureaucracy.

How does this play out in the business world?

Simple.

"We want to do a bang-up job on this contract, so let's hire the cheapest subcontractors to help us to achieve it."

Or, on a slightly stronger note...

"I want to have a great romantic relationship, so let's go the city's slum and find the cheapest hooker in town."

Here are a few reasons why you should run very far and very fast from the lowest bidding subcontractors.

1. Poor Mental and Emotional Preparedness

Lowest bidders operate on volume. They have lots of low-margin projects and switch their time and attention between them. The attention per project ratio is very low. So, this is where the ultimate quality of their services suffers. They run around like headless chickens and busily perform tasks.

They run from appointment to appointment, and are always hyper busy. They are the people who are "stuffed" with all sorts of electronic gadgets that keep them permanently plugged into the world. They have no time to relax and recharge their batteries.

Their brains are always racing, they are always in hyper mode. Their states of mind undermine their creativity, so the quality of their services is barely mediocre. They are always busy and exhausted. They are the prisoners of their professions, after all they work on high volume to earn a living.

Also, lowest bidders operate from the subconscious perspective of "I don't deserve more". Their lives and work are riddled with fear, guilt, need and the desire of proving themselves. It means this is what they instil in their clients, so they end up operating out of the same negative paradigm.

In contrast, premium subcontractors work on fewer but higher margin projects, so they can sustain their earning potentials without becoming workaholics. They work with a small and appreciative clientele.

This allows them to dedicate plenty of time to their families, friends, hobbies and skill building. In doing so they become more relaxed and present themselves for their clients in better "quality". They also have more time and money to invest in learning new skills that they can turn into client value in various shapes or forms.

Also, since their personal needs are fully satisfied, they don't project their own needs onto their clients. Have you ever had a service professional told you things like, "I spent the whole Sunday working on your project without spending time with my family". This is a projection of unmet needs. These people are toxic, and you had better run from them very fast and very far. Their ability to help you is blocked by their own unmet needs.

And this is pretty rampant among low bidders.

2. Constant Neediness

Lowest bidders usually have cashflow problems. They are operating on a hand-to-mouth basis, and when they work with their clients, their neediness often overshadows their intentions to help.

They have the dollar sign vibrating in their eyes because they are concerned about their ability to pay their bills. This approach can't lead to healthy relationships. They always do their best to please their clients because they have to hang in for dear life to pay the next bill.

It's like most salespeople who discover that some of their prospects would become bad clients, but they can't turn down those clients because they need their commissions. So, they try to convert bad prospects, well, sometimes even dead cockroaches, into clients in order to get paid, and then the technical people can struggle with these toxic clients.

Premium subcontractors have healthy financial reserves, so they are likely tell both clients and their main contractors what they need to hear, not only what they want to hear. And of course, idiotic main contractors fire them in droves for their honesty. That's human nature. The ego can't stand honesty.

Premium subcontractors become truly helpful not merely friendly. The ugliest form of prostitution is when low bidder professionals "play the client's game" to make sure they get paid whatever it takes.

They try to please their clients and in their fear of possibly losing a client they say whatever they have to say to make their clients nod in agreement.

Only when your subcontractors have independent wealth, they can be of serious help for your clients. They can truly focus on your clients' issues, without being wrapped up in their own financial difficulties.

3. Inferior or Obsolete Skills

Lowest bidders operate on wafer thin margins, and that wafer thin margin goes towards paying bills and operating expenses. So, how much do you think they have left to invest in skill-building? Nothing really. More scientifically, not a sausage.

So, what quality of work can they offer to your clients? Well, poor quality. Not poor quality by botching things up but applying their obsolete skills.

Building a client a turntable may result in an excellent turntable as far as quality goes, but the fact that turntables are gone by the way of the dodo bird renders the achievement useless.

Charging premium fees for a service also means that subcontractors can invest more in their own skill building. Let's face it, you are likely to hire a subcontractors for complex projects where up-to-date knowledge is vital.

Who is a more valuable subcontractor? One who charges low fees and struggles on the project or the one who charges high fees and works on your projects effectively and proficiently, delighting both you and your client?

In both cases you pay pretty much the same on the surface, but when you dig deeper, the difference is dramatic.

4. Poor Physical Health And Fitness

Lowest bidders carefully consider every penny they spend, and are highly unlikely to invest it in improving their physical health and fitness.

Now, some may say that fitness is not an important factor. Some see it differently. I definitely do. So does Mike Shafer of Shafer Consulting (http://www.shaferconsulting.com), a premium IT consulting firm in Pittsburgh, Pennsylvania, an avid cyclist and martial art practitioner.

According to his own admission, his good health plays a huge role in self-esteem to turn down inappropriate opportunities. As he says...

"Money is good, but unless I enjoy the process of earning it, I don't want it."

The funny thing is that his subcontractors - when he uses them - love him for his selective approach.

But I guess, this selective approach would make him a horrible subcontractor (if he worked as a subcontractor, but he doesn't) for other IT companies that accept anyone as clients.

In my experience, poor physical health and fitness are merely the reflection of what's going on inside a person. When people let their health slide, it tells a loud story about their self-images and self-worth. That is, they are damaged on an emotional level which manifests itself in the form of health problems.

The desire to stay healthy and fit is natural for every self-respecting person. 300-lb doughnut- and French fry-munching lardbags may disagree, but the fact is fact.

So, what can you expect of subcontractors who can't even go through significant work without drinking buckets of coffee, because otherwise they would fall asleep from exhaustion?

We know there is a very tight correlation between physical health and fitness and a subcontractors' quality of work. Exercise floods the brain with oxygen, blood and endorphins, which drastically improve the person's overall creativity, mental alertness and effectiveness.

What is the point in engaging a subcontractor who is likely to drop dead on a client half-way through a project due to a heart attack or a stroke?

This is where you win with premium subcontractors who take care of themselves. They charge premium fees partly because they put premium value on themselves and the work they provide. But the good news is that they can see your clients through their projects and provide long-term support if necessary.

5. Exposure To Limited Perspectives

Low bidders work on volume, so whatever time they have left, they have to dedicate it to their core competence. And that's not much time. It also means they can't develop peripheral competence, thus they can never see their clients' businesses as a holistic entity. They see their expertise in isolation. But life doesn't work in isolation.

For instance, the previously mentioned Mike Shafer is a sought-after IT guy but not merely for his IT knowledge. No. He's sought after for his ability and expertise to link technology solutions to business results. Unlike most IT professionals, Mike treats IT as means to achieve specific business results.

He doesn't install faster servers for the sake of having faster servers. He does that, so the company's clients can be better served, which in turn increases client retention, repeat- and referral business, so his clients make more profit and their clients are happier.

Since premium professionals spend less time doing client work because they don't work on high volume, they can expose themselves to seemingly irrelevant activities, which they can turn into value for their clients. Several clients have hired me because of my military and skydiving backgrounds.

They translated them as my being a good decision maker and action taker. And since at that time they needed a ruthless disciplinarian to blast through the hopelessly thick wall of inertia and maintain momentum, they hired me. And it worked.

And the funny thing is when clients ask me, "This is a great idea. Where have you learnt it?"

And they are shocked when I say "I learnt from a fellow gravedigger when I worked at a skull garden" or "I learnt from a fellow slaughterer when I worked at an abattoir". I have learnt over the years that the more peculiar the experience you have gone through, the more valuable you can be to your clients. After all, you are bringing in a broad range of rare perspectives.

When you are willing to pay more, you can get someone whose expertise goes way beyond business school text book buffoonery. Just look at one of the greatest innovators of history, Edison. He had only three years of schooling, and many years of real education.

The other funny thing is this recession thingy we're in.

Look at the big companies in the USA that have gone to Parliament with begging bowls in their hand, asking for some alms to bail them out. What they have in common is that most of the people who steered those companies to the brink of bankruptcy all have Ivy League MBAs or other prestigious schooling.

So, in spite of the tons of academic geniuses, these companies are in trouble.

In contrast, look at the self-educated renegades, like Dan Kennedy or Jay Abraham. With their high school schoolings topped up with a lifetime of education and tinkering (plain English for R&D) they are having a good time and barely acknowledge the existence of the recession.

6. Preponderance of Clients

Low bidders are forced to work on high volume of clients to put food on the table. Since premium firms have fewer clients they can dedicate higher level of focus, attention and support to their projects.

Sadly, many IT companies are still hiring substandard subcontractors for hourly wages.

Why substandard? No competent professional would accept a payment structure that penalises effectiveness, while rewarding incompetence and slow work.

As Verasage Fellow, Ed Kless is fond of saying...

"If you suck at what you do, then you'd better keep doing hourly pricing."

Let's take many web design and web hosting companies. They are pathetically poor at communicating the value of their services, and most of them are competing on price. As a result, they work with lots of clients, but in doing so they sacrifice the quality of service.

If we want to maintain high quality, there is a limit on the number of clients we can offer quality work to.

Call many IT companies and you will end up on their voicemail system with no hope in hell to ever have your call returned. Email is the same. You receive automatically generated messages, saying that you have been queued up in their customer ticketing system.

They could hire some girls with the right character traits straight from high school who could handle phone calls. Then they could raise their fees on this "premium service", and the new money would pay for the girls' salaries. The whole initiative wouldn't cost a bean for the company.

But this goes against conventional wisdom, according to which technology companies are supposed to treat their customers like dirt at arm's length. Isn't it surprising that CRM (Customer Relationship Management) companies have the highest level of customer attrition? Hm.

I heard this phrase in 2000 on the recording of a Jay Abraham seminar...

"Hire the best and cry only once."

Although the phrase was relating to employees, but hiring subcontractors is the same.

So you can either hire subcontractors that are competitively (cheaply) priced, but stretched to the hilt with an army of clients or you can hire premium subcontractors that handpick their clients, provide preponderance of skill building opportunities for their people, hence deliver great value to IT companies.

7. Competing Client Selection

One huge problem with low-bidding subcontractors is that they work with many IT companies at any one time, so very often they work with direct competitors.

However, because of the way their operations are structured on competitive(ly low) fees, they are forced to accept any client, and can't walk away from conflicting businesses. So, while a subcontractor help one client to develop something, the same afternoon the same subcontractor takes that idea to the direct competitor and start working against the client he helped a few hours before.

The factor that makes premium subcontractors "premium" is that they work with carefully selected companies and in most cases don't accept direct competitors within a given time frame. In my case, as soon as I start working with an IT company in Vancouver in a specific area of IT, I don't accept another one until and unless I get the green from the first firm.

They may be doing different kind of work. One may do IT consulting while the other may do CRM system design and deployment. So, they are not competitors.

When hiring low bidders that compete on volume, you often find that the same subcontractors are engaged in projects with your fiercest competitor.

While you may enjoy the competitive price from subcontractors, you may not appreciate the fact that they help both you and your competition at the same time.

Premium subcontractors work with a small select group of companies with deep relationships, so working with direct competitors is highly unlikely, which makes industrial espionage a bit harder in the fiercely competitive IT industry.

8. Seriously Limited Access

Since low bidders are forced to operate on high volume, their clients have very limited access to them. This causes unnecessary delays and creates a fertile breeding ground for miscommunication. Little mistakes are hard or even impossible to correct. Contingencies cannot be planned because there is a very limited time to correct errors.

Premium subcontractors offer ample access for their clients, knowing that it will take a few tries to get things right. You may be shocked here, but by getting it right only 30% of the time, Babe Ruth became a Hall of Fame baseball player.

So, don't even think of getting things right the first time. Hey, do you know that for most couples it takes several "tries" to conceive a baby? Anything that is worthwhile doing takes a bit of effort and hardly ever happens on the first try. That is why it is important for clients to have generous of access to their subcontractors.

Summary

The problem is that most companies kick up a fuss when their subcontractors do the work in high quality but in a shorter than expected time frame.

Most IT companies are more comfortable with low-priced subcontractors who come in, diligently start working on the project, tinker with problems for weeks on end at a competitive(ly low) hourly rates. So, eventually, the more expensive subcontractor costs less.

Let's take subcontractor Joe and subcontractor Jack. They both are being considered for a contract. Joe charges $100 per hour and estimates to take 100 hours to do the work. Jack charges $200 per hour and estimates to take 45 hours to do the work.

You know what? Most companies, while blissfully ignoring the total cost of the work, hire Joe because he has lower rates. Most companies fail to pay attention to the extra 55 hours of inconvenience, not to mention multiplying the two numbers and make a sane comparison.

And where does this lunacy lead to? To disasters...

Disasters like the 12 February 2009 plane disaster, when Colgan Air's, Continental flight 3407 crashed upon landing in Buffalo, NY. All 49 passengers, four crew and one person on the ground got killed.

Colgan's was intention to keep costs down by hiring cheap pilots.

Captain Marvin Renslow was paid a dismal $55,000 a year (the equivalent of a McDonald's Operations Supervisor) in a world where experienced captains get paid around $150-200,000 a year.

Rebecca Shaw, the co-pilot, was earning an amazing $16,300 a year (the equivalent of a McDonald's burger flipper), which forced her to take a second job, so she was seriously sleep-deprived?

The disaster was waiting to happen. It was just a matter of timing.

And now Colgan Air will pay millions in lawsuits initiated by the relatives of the victims. Colgan Air merely got what it paid for.

And similar fate that waits for IT companies that try to cut costs and corners through low-bidding subcontractors.

Tom 'Bald Dog' Varjan, engineer/buyer-turned-seller, is a B2B business development strategist and copywriter, helping privately information technology companies to develop automated client acquisition and retention systems and build minimum headcount and maximum firepower business development teams to sell their solutions to premium clients and premium fees and prices. For a broad range of articles, white papers, including "Ten Warning Signs of Dysfunctional IT Business Development Departments", visit his site at http://www.varjan.com