Managers love the idea that contractors can be fired more easily than employees. Except that this flexibility comes at a cost; people insist on being paid more to have an insecure job.
The uncertainty never goes away. You can pay someone else to suffer it, but it will always cost more than dealing with it yourself.
And that can be ok. Just don't fool yourself into thinking you're getting a bargain.
> Managers love the idea that contractors can be fired more easily than employees. Except that this flexibility comes at a cost; people insist on being paid more to have an insecure job.
This is true, but it's not the whole of it. In some cases the manager goes to a cabin in the woods to drunkenly shoot at moose with the head of the contracting company.
It's a saying that "the purpose of a system is what it does". I think it's a pretty dumb saying. But it is often worth talking a look at a system and see if the "mistakes" it makes (such as wasting money on contacting companies) aren't in fact desired by some people in the system.
There’s a tricky variable called trust. As an employee hiring consultants, how do I build trust that you and your consultancy is going go deliver and make me look good? It usually involves building a relationship, activities like hunting or golf are classic examples of these activities.
> if the "mistakes" it makes [...] aren't in fact desired by some people in the system
This process goes both ways. The people in the system align to the process. So maybe the "mistake" wasn't desired to begin with, but once it's there someone things: if that's the way they want it let's change our ways to fit. That's why these things seem to dumb from the outside.
This doesn't happen nearly as often as people think. I'm involved in multiple single digit million contracts with vendors, and not once has anyone at our company even met the vendor AMs in person. If I choose a vendor that is twice as expensive as a competitor I am going to have to justify that to the VP I report to and "we had fun on the golf course" is just not going to cut it.
There's always going to be a slight mismatch between the supposed aim of any organisation and the incentives of the management and every single employee unless they're all shareholders and even then...
> Managers love the idea that contractors can be fired more easily than employees. Except that this flexibility comes at a cost;
I noticed this early, and spent the first half of my career leaning into it. If you negotiate every gig as a contract, you get to double (or more) your salary. And the only thing you're trading away is job security which, if you pay attention, you'll notice doesn't actually exist for your salaried counterparts either.
To nitpick, you also have to pay for your own health insurance. So subtract $200/month from that extra $15,000/month for the sort of catastrophic coverage plan that a 27 year old needs.
What happened that made you switch away from contracting?
The problem was that every time I stopped contracting for somebody, they stopped sending me money. Building software products fixed that:
https://expatsoftware.com/articles/guy-on-the-beach-with-a-l...
I remember your blogabond posts from way back when on HN. I think you were the first to really popularize the "coding while traveling" idea.
I didn’t get to use any of the cool terms for what I was doing though. FIRE and Digital Nomadding hadn’t been invented yet.
I've seen this happen because of accounting/corporate finance policy.
Payroll is an ongoing commitment. Consultancy is a temporary service. Moving people from payroll to consultancy means they can reduce overhead in financial projections. Even though consultancy costs more, and employs the same people, it makes sense to do if it means you can convince shareholders and analysts that Opex will shrink in the future, and therefore profitability increase, and therefore the share price increases.
The problem arises when moving someone from payroll to consulting creates the illusion they are not necessary.
That's not Accounting's problem.
This is one of the many situations where counting beans creates idiocies, because GAAP has no concept of context, and management can play games to make the numbers look good while destroying real value.
That's Level 1 of the problem.
Level 2 is conscious fraud, either of investors or by investors. There are always startups that look suspiciously like their only purpose is to extract money from investors based on future promises that are... unlikely.
You can spot them because the promises keep being delayed, and/or they pivot to some other activity, but keep pretending to be a serious viable business with Exciting Plans™.
Level 3 is the one described by OP, where startups are cynically used by an incubator to extract fees and other income. This can overlap with genuine investment. It can be a triple win. No IPO? A nice cut of investor money. Unicorn IPO? A nice cut of a different kind of investor money. Successful business? A nice cut of the income stream.
Level 4 is straightforward investment fraud by banks and brokers. There are many, many variations on this, from "questionable relationship practices" to risk washing, to outright pump 'n dump, and even the occasional classic Ponzi.
The bottom line is that capitalism is inherently corrupt. There is no free market of rational actors inventing wealth and value for a glorious shared future.
There's an infestation of opportunists, fraudsters, and hucksters at all levels, and governments regularly have to step in to hide the mess and glue the pieces back together - sometimes because the people involved own parts of the government too, and it's better to make millions of working people poor than to go to jail.
> capitalism is inherently corrupt
People are inherently corrupt. That's just life. The Soviet Union was corrupt as hell.
If you want to put down capitalism, feel free, but don't blame it for something that isn't unique to it.
At a glance, maybe. But we also see this in government. The US has outsourced 10s of thousands of “permanent” jobs over the decades. The entire DC metro economy is based on this.
Also because of corporate policy. I know of a company where the VPs are heavily targeted on headcount reductions. Contractors are not headcount.
> if it means you can convince shareholders and analysts that Opex will shrink in the future
Isn't that just fraud?
No. Fraud is a much higher bar than making a prediction about your plan for the future that may or may not pan out. There’s no deception here, management fully intend to end the contractor relationship in future, whether they’re able to or not.
A vague promise which you pretend to beleave and can make believable to other is just business advice unfortunately.
It doesn't actually make sense tho. It just "makes sense" within the rules of a fundamentally nonsensical system.
That system however is no law of nature. It's just broken nonsense no one bothers to fix because we haven't yet run out of money.
I wonder if this explains why I hear about this more from Europeans than from the SF tech scene. California is at-will employment, so you can fire an employee as easily as a contractor. Ironically this makes companies more willing to hire and retain employees, since they're not worried about getting stuck with a bad one — and most employees aren't bad, and are better for the company than contractors.
Its not about employees being bad, we have 6 month trial periods over here in the EU where you can be fired quite easily. Thats the excuse they use to keep at will employment. In reality they want to be able to reduce Opex costs which looks great on their end of year budgets. If you can then offload that cost into a project run under Capex, even at a higher cost, then its budgeted differently and the shareholders get their payout.
A stable environment with a great culture has lower costs.
But then they have to hire good managers and for that you need to be a good manager yourself.
The cynical me believes that there's not way kickbacks are not involved. A lot of times a third company acts as an intermediate on hiring those contractors, and their fees and markup easily make the same worker costs sometimes 2x their original salary.
The usual excuse for that is that labor is classified as OPEX, while hiring consulting companies can be classified as CAPEX, and the stock market likes when companies lower their labor costs to "invest" more.