The Business of Freelancing

S03 EP 02
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[00:00:00] Reuven: Hi everyone. And welcome to another episode of the business of freelancing podcast. Today. We're going to be discussing, laying the groundwork for your freelancing practice. With me here is Erik Dietrich.

[00:00:11] Erik Dietrich: Hey, everybody.

[00:00:12] Reuven: And I'm Reuven Lerner. And this time we're going to be able to tell you both how we got started, what we would do differently and what you should keep in mind when you're actually starting up your practice.

Eric, how did you start with the whole independent freelancing thing? How did it go for you?

[00:00:28] Erik Dietrich: I did it in the most gradual way imaginable. Like I'm actually risk averse from a financial perspective. So basically I started out my career throughout my twenties as a software engineer and while I was working as a software engineer in my mid to late twenties. I actually started a master's degree in computer science that I did at night.

And as you can imagine, this took a lot of time working full-time while getting a master's degree. So around age 30, I finished that degree and it left this whole chunk of free time that I had. And I decided to build a website, start a blog.

And along with that start a freelancing practice. this was from a pure moonlighting perspective. So I was basically swapping in Moonlighting and doing this blog and stuff instead of grad school. And this led me to getting a few moonlighting clients. Like I started to pick up some steam. I would do work, nights and weekends earning some extra money, little bit of consultative work.

I did some training videos for pluralsight.com all under the umbrella of the LLC that I had created. Now, speaking of which I don't know what prompted me to do this. Exactly. But I was extremely formal about how I approached all this. Like for all I can remember, I might as well have written out a business plan, but like before getting any of this off the ground, I incorporated it.

I did all kinds of research on what it meant to be in business. I designed a site, I had my wife, who's good with graphic design, make a logo, lock business cards, all sorts of stuff. Cause I think I looked at it and. you have to do all this stuff to go into business. in retrospect, it was like comically formal.

wound up dotting a lot of I's and crossing a lot of teas that probably eventually would have had value, I mean, it's 11 years ago now that I first started doing this, but I don't remember how much waste there was and probably things that weren't necessary. And like for early moonlighting clients that I was doing, application development for, I was creating these elaborate, like statement of work, scoping documents.

And was just kinda, pretty intense, I guess, but I feel like part of that was almost like courting that to like gain applied experience as a business person or something. So that was the beginning moonlighting I did moonlighting for. three, four years. And while this was going on, I was actually climbing the org chart.

So my last salaried role was as a CIO, but by this time I was doing side consulting, I was doing training videos for Pluralsight, and I decided to leave that role and go off on my own. So I think three and a half, four years elapsed between deciding to do some moonlighting and being full-time independent.

And then I guess to close out, the very first thing I did was flip around to doing some fairly it wasn't full-time but like extensive consulting for my former employer. So that gave me some runway along with the Pluralsight videos. I also had some runway, but that gave me some initial business.

And from there, I started doing miscellaneous opportunistic things, but also a fair bit of contracting. And then gradually over the years did less subcontracting and more independent work on my own. So that's kinda what I mean about it being incredibly gradual. It was probably a full six years of going from the decision to Moonlight, to doing very little subcontracting and just winning all of my own business.

[00:03:30] Reuven: I'm curious, like at any point sounds like because you did it gradually, there was no point where you said, oh, like this isn't working out. Because you're able to sort of slowly move in that direction. But were you freaked out at any point?

I don't know. You said, you mentioned your wife. Was she worried about this? Or because you had planned it and you always could sort of undo what you were doing. weren't too nervous.

[00:03:49] Erik Dietrich: My wife was never worried. And I think, cause she's an advocate of like balance, she's an advocate of mine and like my, mental health and I was pretty unhappy with some things that were going on at my last job. So I think she was in my corner for making the job, but we weren't too worried about finances.

She at the time had a full-time job. biggest moment that I might've had of, oh my goodness, what am I doing? Was that jump where I said I'm leaving this job and I have no plans to get another one even though I had a lot lined up that was anxiety inducing. I don't think I ever had any moments of anxiety when I started to Moonlight.

Cause it was all almost found money. I was just doing this in my spare time. It presented no risk to anything that was happening. There were moments after going off on my own, over the course of a couple years, actually, maybe even more than that, just because of my risk aversion, where I had this feeling of like even after some years of success, it took a long time before I didn't have these moments of this is all going to fall apart.

Like I'm on borrowed time. It's been going on for a long time, but it's going to fall apart, completely irrational that had no basis in reality. But at some point after I had been purely on my own, not really subcontracting anymore.

And the business just kept coming eventually that worry went away. so I guess there was this early moment after leaving my job of whoa, what did I just do mitigated somewhat by, I didn't have any doubt that I could get another job. And then occasional moments of. Irrational panic.

[00:05:09] Reuven: I mostly had rational panic as I'll describe a little bit.

first of all, I had always had. This thought of, oh, I should have my own company. So like when I was a kid, I was talking about like, I was going to learn her publishing and I was going to have all these products and I knew nothing about it.

I'm just sort of interested in business. I'd read the business paper, but I heard about consulting and freelancing in various forms. And my big opportunity was I'd always planned to move from the U S to Israel. so I went to college I graduated I was working.

And then I had a first job at HP and then I had a second job at time Warner. the plan was, and like, they knew this at time Warner. I was going to leave there after about eight months and I was gonna come move to Israel. So someone asked me well, what are you planning to do when you go there? I said well, I'm going to try out freelancing because I figure, I'm young, single lots of high-tech opportunity, at least in theory, although Israel's high-tech then was not at all, what it is now.

I figured this is a good chance for me to try it out. Worst case scenario we'll get a real job. Now. I'd never run a company before, So I really knew nothing about what I was doing, but I was very fortunate that my boss at time, Warner said, oh if you want, we can be your first client.

So basically, before I'd even opened the doors of my business, I had a client exactly. For how much is that for a long, it wasn't entirely clear, but I knew that I could do that. So I arrived in Israel and then I through many mistakes ended up incorporating

comical how poorly I handle all of that . And I let people bamboozle me into all sorts of things. I started off doing basically anything. I was doing some of that work for time Warner. I was doing some web development. I was doing some sort of general technical consulting.

I helped this woman down the street with her computer every few weeks. And it took a while to sort of fall into a group. so this was already 25 years ago and the real sea change for me came much later I've been doing projects. I've been doing like a whole mishmash of things, including some training.

I was just really frustrated that every single project I finished ended rather abruptly and bitterly either because they ran out of money or they went out of business or, okay, we don't need you anymore. Like rarely was it. Wow. You really helped us.

Thanks so much. Now we're gonna like go on our own power to you, power to us. And so I told someone about this and he said well, you should go back to school, do a PhD. You'll come back. You'll have lots of good ideas. You'll have met lots of new people.

So I did that. And while I was still finishing it up someone suggested that I do. And I'd always done some training. And that was the real sea change where suddenly I started to just do training first through a training company while I was working on my dissertation and then on my own.

And that has like completely changed my life. Whereas before I was, rationally I don't know, worried, depressed, had all these fluctuations, I had five, six people working for me. And then the.com implosion happened in 2000. I had to lay them off and I had debts.

was very poor planning, everything. And the fact that I've now decided it's just going to be me, the fact that I'm doing training, the fact that I'm doing products online, all of this has been a complete change in how things work.

And it's been good am still to this day amazed that like we paid off our mortgage, we go on vacations. We're actually able to say, but what do you know, it's from, all my work.

[00:08:04] Erik Dietrich: What was the lead time between the situation where you went freelance and then you had employees.

[00:08:08] Reuven: I started in like December, January 95 freelancing on my own. And I lived in that apartment for four years and I had an employee there. So I'm going to guess it was like two and a half years in we're starting to have enough other work. And it was basically time Warner was sort of, the seed funding as it were for my consulting business.

they basically paid me enough that I was able to then go off and try to do other things as well. So I hired one person part-time to work for me. And I was like, oh, okay. This is like the natural way things work. I'll just keep growing my staff.

it was really that experience in 2000 then. So it was like over, a five-year period that I grew from having one part-timer to, I guess it was like five full-timers working for me. I guess you could argue that I couldn't have known that everything was just going to implode and I was gonna have to lay people off.

Cause lots of companies have that problem at the same time. I could read, the writing on the wall a little bit earlier. I could have planned a little better, saved a little more, but it seemed like, okay, we got this money. We pay everyone's salaries. We're back to zero at the end of the month on we go not the smartest way to run a time business at the same time.

I learned them. I don't want to have full-time employees. And so after we came back from Chicago and with grad school, I did have employees, but they were all part-time or paid hourly. So that if clients did not pay or if clients dried up, that was it, I wasn't balled into them for anything.

I was willing to pay the more perhaps hourly than they would get otherwise. so I wouldn't have to worry about that. And that, ended up working out. Okay. And then, I guess it was about two and a half years ago that my last employee, like I had one with me for a while.

Part-time actually moved to the U S started work there and we parted actually I'm very good terms. And that's it. I don't plan to have anyone working for me anymore, unless it's like doing specific part-time work.

[00:09:43] Erik Dietrich: So I had to go back and get my self advice, It's 30 or whenever that was that I first started moonlighting. Assuming, I don't remember when this book was written, but go read this book, the lean startup. And the reason I cite that book in particular is because it's about applying the scientific method to business and figuring out how for kind of the least amount of activity or cost or whatever you can learn the most in order to make important decisions. And book in particular, because I think of just the sheer number of things I did that were either not necessary when I did them or never became necessary.

Like the giant pile of business cards. I still have sitting in a drawer somewhere that I barely ever gave out. I think I gave out more business cards to those fishbowl things at restaurants to get a free lunch. Then I did So I think that like the broadest level, I would tell myself to consider a lot of the trappings of business, almost like guilty until proven innocent, do something.

If you can make a pretty good pragmatic case that you're going to need it out of the gate, like an invoice template or something, you're going to need that the first time you want somebody to pay you. Versus some of the other things that I did, like designing a logo or something. If I was in the mindset that I was doing that to like acquire experience, playing a business then sure.

Maybe, but like none of that was really necessary for the practice. I think the other thing I would give myself advice to do would be to shrink the timeline over which I was moonlighting and go into business for myself earlier. I think I was maybe too risk averse. I don't say this to give anyone pause, if you are risk averse, that's fine.

And I was, it's more than looking at things in retrospect. I could have gotten off on my own earlier and started a better trajectory earlier. I was actually just talking about this with somebody. I think yesterday, when you are a salaried employee, you have a pretty set path of the additional income that you can earn.

You're going to have a merit increase every year, and then maybe every three to five years, you have some kind of promotional type increase and sure you can jump jobs or get like unexpected, large promotions. There are things that happen, but mostly you're just gradually increasing your income.

Whereas when you go on your own, you can more dramatically impact either your income or your work-life balance. Meaning if you go off on your own and you hang out, you're single and say, I'm gonna charge a hundred dollars. If that's going well, and your book of business fills up, you can just say, I'm going to charge 125 an hour.

And if people pay that, you've just given yourself a massive raise. Likewise, you could also just, do that same amount of work, but accomplish it in 30 hours a week or something like there's so many more levers you can pull. And I think I would have told myself to, take the plunge earlier so that you can get experience, get off on your own and start pulling those levers earlier on in your careers, since that's the way it's going to go.

Obviously hindsight is 2020, but I think those would be the big things is be less cautious judiciously. So but don't wait so long and also don't do a bunch of activity just so you feel like you're business person or something.

[00:12:37] Reuven: Yeah. That's the thing. We have these visions of people like this, is a serious business person because they look like X and they bought Y there are lots and lots of different types of businesses, lots of different business people I've printed up business cards.

on, I guess it was like 500 before I went to a conference two years ago where I had a booth. Cause I figured, okay. If I both, clearly people are going to take my card and I still ended up coming home with I dunno, 400 of those 500, even though I was like pressing them into people's hands.

I actually was walking around the conference and I met someone and I said, oh, let me give you my card. And I realized, oh, he's from LinkedIn. That's like all the people to give my card to. That's probably the worst person to do it for. Look I made tons of mistakes and I got tons of bad advice and some good advice.

But I would say that the one big piece of advice that helped me that I got. Is exactly the opposite of the bad advice that I got early, which I, actually took. And that was from someone when I was first living in Haifa who said, oh, you're starting your own business. That's fantastic. Let me give you a piece of advice.

And he had been business for himself for a while as a lawyer, which is not exactly the same. And he said, listen, if someone comes to you and they want to do work and they're willing to pay you, take it, absolutely take it. I was like, oh, I think that's really good. Nice that way, my business will do well.

And, so that's what I did for a good number of years. someone would call me up and say, do you know technology X I'd say absolutely. I know technology X. And I would order the book on technology X and go meet with them the next week. And I would sound pretty good about it.

Usually, you know, there was some mess ups. And so I was gaining lots of shallow experience in lots of many different fields, which was fun and exciting and interesting, but what I realized later on, thanks in part due to Fort Morgan and other people is I wasn't. Establishing my niche.

I wasn't establishing a reputation, any one particular area which meant that it wasn't clear who should be calling me. It wasn't clear what sort of work anyone should ask me to do. Do you do web stuff? Yes. Do to link system restoration. Yes. Can you teach us Pearl? Yes, it can you just Python? Yes. You name it.

And I was basically willing to say yes to it with rare exception. And it was really when I started doing the training with this training company that I was like, oh yeah, this is the stuff I really like to do. And wait a second. I can actually get paid better for this than I was doing the development and I can schedule it, like everything fell into place.

so the moment I left them and I started branding myself as like the Python training guide at each stage, as I became more specific on what I do. And thus could say what I don't do my rates. how well people knew who I was, went up everything improved just dramatically.

So if there's something that's gonna go back and tell myself back then it would be two things. One is find an issue. It doesn't matter what it is so long as it's reasonable and stick with that. And number two, don't think that you need employees in order to be successful because you can be successful without them as well.

And both of those would really have saved me a lot of heartache and trouble over the years.

[00:15:25] Erik Dietrich: those are all of the, so by the way topics that we're going to have upcoming episodes on both scaling the business and positioning. didn't really mention it, but in the beginning I was doing training videos.

I would do application development. Sometimes I'd do consulting and that was fun, but you're not really stacking things on top of yourself that way. So I think what I'd say to myself now that I think about this from this angle is have an idea of where you're going and try to stack experience instead of going broad and shallow.

Although I would also give former mayor a little time to dabble figure out where to go. Cause that can be a hard thing right out of the gate, but yeah, it's, all easier when you have the advantage of hindsight, I suppose.

[00:16:03] Reuven: have one more thing, which is, I started my business, as I said in 95 and I got married about four years later, almost exactly. And when my wife and I were engaged. at some point she said to me, so how much do you make per month? I was like, it depends. And she said, What do you mean? It depends. I was like sometimes there's a lot and sometimes it's a little and there were two parts to that. One is more obvious to me now, like then it was obvious to me like, Oh, being a freelancer is very different from being a salary employee because you do have those ups and downs.

But the other thing is I kept hearing from established consultants that there are ways to avoid those, the feast and famine that you could really straighten it out. You can really have a good idea, more or less of what you're going to earn per month. And I was like, no, that's not possible.

And guess what? Now I'm more or less in that place. Like I'll know. Okay. So August now that people do training in August, I was supposed to get vacation. I didn't fine, so that's going to be a pretty slow month September when we're recording now. All right. Lots of holidays in Israel this time, not going to be watched, but aside from those like predictable times of year where they're going to be ups and downs, I know roughly what I'm going to be earning each month.

And I can predict it months in advance. Thanks to the fact that I have clients who are scheduling these in advance. So what sounded then like totally crazy. And no one can really do. If they're freelancing turns out to be possible. If you have the right systems in place,

[00:17:18] Erik Dietrich: Yeah, a hundred percent. I can relate to that too, right down to the conversation of what is your income like? And gosh, I don't know. you get those systems in place and you also get like prior historical data. So if you've been at it three, four years what do you typically make in the farm?

Look back at the last three or four years in the fall. And that's probably about what you can plan on adjusting for cost of living or increasing your rates or something. But yeah,

[00:17:40] Reuven: that's right.

[00:17:40] Erik Dietrich: so. What say we go through a blow by blow basis. If you're hanging out, you're single laying the groundwork for the practice.

Like we've got a list here of things that people might be thinking of doing. And I guess we can give our takes on that.

[00:17:54] Reuven: Excellent.

[00:17:55] Erik Dietrich: So first up we have, do you need to have clients lined up when you go into business for yourself? What do you think about that one?

[00:18:02] Reuven: I think it's, a good idea. Even if it's a small initial one, you don't need to formally say you're consultant to be a consultant. You don't need to formally incorporate. So first Talking to people and finding potential customers and clients is going to give you a lot of insights into what people are going to value from you.

So I'd say you want to have them, need the clients in order to start the business Don't start the business and then say now that I'm a business, I'm going to find clients.

[00:18:24] Erik Dietrich: Yeah, I'm with you on that one. obviously there are circumstances where let's say that you just got, let go from your job and you're planning to be on your own then, maybe you can't, but I think that's one of the ones that I would have a bias toward saying, yeah.

I don't see any downside, especially if you're working as a salary employee line up some clients and, once you get that first engagement or two, then leave them rather than leaving now and you don't have anything lined up. So I think that's one of the probably more no-brainer ones, in my opinion, although it's probably not one that a lot of people think of because I think people like, who are maybe salaried employees that want to go into business for themselves, have this almost.

Cut over, mode of like, I'm leaving, I'm done, and now I'm going to do this new thing. And so maybe they don't even appreciate that you can, in your spare time line of clients. the more you can fill up your dance card in advance the better.

And if you're not imminently going to leave your position, then see absolutely no downside to lining up those first few clients.

[00:19:18] Reuven: I'll add one thing to this also, which is part of consulting is talking to people about money and it's one thing to say, I love helping people. I want to help them with their problems. That's great. you gotta be able to do that, but then saying, okay, I help these people with their problems.

And now I'm going to ask them for money. That's hard. It was hard for me at the beginning, it felt icky and weird. And so starting to talk to people even before you formally start your business, gets those juices flowing of, oh, it's okay to talk to me about money and how much I'm going to charge. And then you can do the calculations of can actually survive charging this amount.

[00:19:51] Erik Dietrich: Yeah, that's a good point. Flexing the muscle around doing it, having those conversations, learning what a negotiation is like. And you'll get some market research in there too. So if you're going and saying I'm going to do whatever kind of activity in this tech stack that or the other, and if you get nobody who's interested, you can learn even before you get started.

Oh, I shouldn't think about doing something different. I don't seem to be able to get clients. What about having runway or cash reserves? What do you think about.

[00:20:17] Reuven: Always good to have, right? Because it will take time. Let's even assume you have clients lined up. They're not going to pay right away. Especially companies typically pay like net 30, net 60. So even if it's like a fantastic client, they might take two months to actually deposit the money in the bank.

And you're probably not going to have the biggest, best full-time client right away. So yeah, have some money in the bank. I've heard people talking about having six months around. maybe that's more idealistic than not, like the more you have the better.

And if, you have the option of staying on a little longer, I'd say at your full-time job and socking away some money in a savings account, so that you'll have that runway. would definitely make that trade off. Wait a little longer. Be patient

[00:20:53] Erik Dietrich: Yeah. So this is In contrast to what I was saying about going like much leaner or whatever on this second one, I'm also going to weigh in and say, yeah, I would do this. to me, the biggest thing is you need a way to say no to bad business or bad fits. You need a contingency plan in case, that first client you lined up just decides not to do business with you because that could happen.

You need a way not to need business for awhile. Now, for some people that could be having a partner with a really good full-time job and you don't actually need to be earning income, that's entirely possible. For some people it could be that you banked a lot of runway. It could be any number of things I suppose I can account for every situation.

I think cash reserves is the most tangible, easiest to reason about way of accomplishing that. you need some way you're not desperate for whatever first piece of business comes along, because it's going to be bumpy in the early going people will cancel. the pay cycle is a lot different when you go into business for yourself.

So you need to be able to weather that stuff. I see no downside to having a bunch of runway. I don't have a magic number for it, but yeah, I'd be able to go without business for a while now.

[00:21:53] Reuven: Yeah I'll add by the way. So like when the pandemic started and it was not at all clear what was happening with my clients and everything like Even if all my classes, cause that point was like February March 20, 20, several of my clients said, okay, we don't know what's going on.

So we're canceling the courses. And I started to see my income, like trot out from under eight. turned to my wife and said, don't worry. We have like cash reserves in the bank. Like worst case scenario. have enough for salary for the next year. And I don't think it's going to be worst case. And having that sort of peace of mind, knowing that we were like, okay, on that front was such a relief and such a stark contrast to how I was running my business for.

So many years where if one client didn't pay, oh, like now I'm really stuck.

[00:22:32] Erik Dietrich: Yeah, definitely. I'm with you there. you can make better decisions with that kind of peace of mind if you're.

Flailing around for like the next thing that comes along. You can look at this objectively. Should I take on this client? Should I not, should I pivot my business the wake of this event that's happened?

Or should I hold on and see how things are going to go? Because if you had needed that income to start hitting your bank account immediately, you might've, try to swing around to a whole different kind of business, even though that proved on to be necessary. So what about budget for expenses on the business side before you get started?

What do you think there.

[00:23:04] Reuven: it would be smart to do, but I am terrible about budgeting personal life and my corporate life. and it doesn't have to be a brilliant budget. Just have a sense. a number of years ago, my son is now like almost 16. So he and his friend went out to sell lemonade at a local, like shopping center and they came back.

We were like, oh yeah, we made, so much. And I, of course was a killjoy and I was like you didn't have to pay for the inputs and you don't have to pay salaries and you don't have to pay taxes. They were like, oh my God, we can't believe you're saying these things. But like when you start a business, you do have to think about those things. And so at least having a sense of, huh, if I charge $150 an hour, I worked for 10 hours, great. That's $1,500, but I have to pay for any internet connection. I have to pay taxes. I have to pay, in the U S social security, all sorts of different things.

So have at least a good sense in mind of how these calculations work. Even if it's not down to the dollar.

[00:23:57] Erik Dietrich: For me, this is another one, like I'm continuously saying yes to things. I don't know about a budget in the way that you think of, either a large company or maybe even a household having a budget where this is how much we spend on groceries and this, all these expense categories, because in the early stages of freelancer, it's a service based business.

There aren't a lot of expenses, but what there are, that makes things complex. And I'm speaking mainly about US-based freelancer, but this is probably true. In other places you have more, either quarterly or annual expenses than you might expect. So you're probably not signing up for a lot of monthly like software services or you're probably not out of the gate paying employees or anything else, but what you are going to have as, $800 or a thousand dollars once a year to pay the tax prep person, or you are going to have to actually make quarterly estimated payments in the U S so when I think of a budget, that might be a little bit of overkill, but you need a scheme for setting aside money to make sure that you have it when you need it.

And to make sure that you're, maybe amortizing these expenses out over the year, or at least just setting them aside. So I think that at the bare minimum, you want to take a realistic accounting on an annual basis of what all your expenses are going to be, because that's the longest expense cycle you're going to have. And then make sure you're setting aside enough money for those. And actually there's a book, I'll throw it out there and picks too. I haven't read it, but people swear by it. And I understand the principle, how it works, which is called profit first. And it talks about a way for somebody who's going into business for themselves to set up a few different like bank accounts in your business banking.

And basically just heuristically putting money into each of those accounts as it comes in to make sure that you've set aside enough for those things. So I think that in the beginning, rather than a budget, you could get away with something like that. I would advise you not to make the mistake that I think a lot of freelancers do of saying quarterly has to paint in payments.

What is that? self-employment tax? What is that? could wind up owing the IRS a good bit of money if you're not careful there. So I think, a budget would be ideal, but like at the bare minimum, you want to be accounting for all the expenses that you're going to have because there will be. So, How about incorporating?

[00:26:02] Reuven: so this is messy, right? Like, don't have a good sense of how it works in the U S actually did incorporate in the U S about two years ago, I put together an LLC, which is, I think actually. And S-corp, and my counter takes care of all that stuff. And I signed the paperwork and all is good. basically I know in the U S if you get income, you can just declare it on your taxes and then you can pay taxes on it in Israel that doesn't exist. No one files taxes. Basically only rich people are corporate owners file taxes. That's true. Like most of the world actually.

So if you want to be working on your own, then you basically have to register with government as being self-employed. I guess it's like similar to. One of those things that I guess like an LLC in the U S and then you owe taxes, you have to pay them, you have to file things. And I was told not to do that just because it also is a complications as a us citizen living outside the U S if I did it on that front, then I would have to like, pay both sides of social security, the self-employment tax.

So I right away incorporated, and the advantage beyond all the like weirdo tax international stuff is that now I have this entity and I have this entity that can buy things and it's shield, you know, out of the corporate veil. So I can't be sued if something happens with a company, at least in theory. And I've gotten used to having a, very clear separation between me and the company. So I'm very happy with that, but it's much heavier, more overhead, slower to react to things. I had to hire an accountant to do things if you have to, you can do it, but it seems like overkill, unless you really know you're going to be doing this.

If you can get away with just like doing a little freelancing, moonlighting, getting some extra money and filing the taxes on your own. As I know you can in the U S would say that's probably going to be easier, but if you're in it for the long haul, there are some benefits. Like we can expense all sorts of great stuff the newspaper or the car through the company, which would not be able to do as easily.

If I were self-employed

[00:27:49] Erik Dietrich: So that's an interesting bit of nuance because like I can speak foreign in the U S and this is another one. Like I keep running. Counter to the wisdom that I was offering myself earlier, but this is what I'd say in the U S you want to do. And the main reason I would do it is to establish the corporate veil.

So in the U S if you specifically go and file for an LLC, it may seem daunting to do that. But the paperwork for that is actually not a big deal. In most states, it doesn't cost very much, like in Michigan, it's like $50 or something. And Illinois, these days, it's like 120. I don't know all the different states.

It varies, but it's neither expensive nor complex. You basically fill out a form, you enclose a check, you mail it somewhere, and then you get, articles of incorporation back. I'm over simplifying slightly, but not by much.

[00:28:31] Reuven: signed things like with my accountant here and with lawyers in the U S and it was roughly what you're saying. Like I paid some fee, they had some boiler plate they filled in and bam, we were incorporated.

[00:28:40] Erik Dietrich: yeah, so like the LLC, then you go and you get your federal tax ID and you set up. Business bank account. And that is what I would recommend doing LLC and a business bank account in the U S because you're establishing that corporate veil, meaning if somebody comes after your business with a lawsuit, it doesn't carry through to your personal finances and situation.

Whereas if you're a sole proprietor, there's no sole proprietor, meaning you just do businesses, yourself in U S you then can be personally sued. And now that's real likely, companies are probably going to Sue you personally, but like it's possible. So that's one where I think it's worth doing mostly because of the low friction, like the LLC corporate entity in the U S is really designed to be.

Low friction and easy. I would say that there are a couple of other entities you can incorporate as in the U S there's an S Corp and a C Corp. There might be some other more exotic ones. I wouldn't do any of that. There you have to essentially form a board of directors, issue shares. You have to do all sorts of stuff.

also, for anyone listening, that's thinking of doing this, I wouldn't worry about things where people are like, you should incorporate in Delaware. Don't do that incorporate in your own state because you're going to have to receive mail. You're just adding complexity. So that's my nuanced advice

I would definitely create the LLC, but I wouldn't do anything

[00:29:49] Reuven: that makes sense.

[00:29:51] Erik Dietrich: But it's interesting to think of the nuance and I don't know if the two of us are covering, what it might be like in Europe or south America, Asia. So for people in other locales, this might not be covering it. So I dunno if there's good heuristic advice here, but for me it would be like, make sure you can't be personally sued, ideally.

that's kinda the primary thing.

[00:30:09] Reuven: I'll add by the way that when I signed up for my corporate bank-owned first of all I fight for a corporate bank account. They made me sign a whole bunch of paperwork and one of those papers is, oh, and by the way, if the corporate bank account runs out of money, you are personally on the hook for it.

you basically in Israel, signed away the corporate veil more or less right there. I'm sure every country has its own different ways of doing these probably even states in the U S like everyone has its own nuance and ways of doing things to some degree. you want to have a distinction between your personal life and your corporate life, but make that, I liked your description of like low friction as possible, I'll also add that. At some point I had my corporate account and my personal account in the same bank here in Israel.

And at some point I wanted to ask for a credit line for our company. they said, no, because we see like what you're doing in your personal account. we're not so thrilled with that. Now, of course that's like a gross violation of banking, at the advice of someone who I really then instill respected, she said, get your corporate account out of there.

She said she had a long standing rule of keeping them in different banks. And as soon as I moved them out to different banks, then each one would say, oh, don't you want to move your other account to us? I'd be like, no. no, no. My accountant has a policy not allowing that. And it doesn't really matter whether that's true or not keeping them separate, kept them in the dark about, my corporate count.

Doesn't have to know what my personal account is and vice

versa.

[00:31:21] Erik Dietrich: That's interesting. Cause I actually, over the course of time. From separate banks to a unified one, Actually, I get some pretty nifty perks because of the joint balance over the two of those. But, it's interesting food for thought because I've never applied for all that substantial credit with the business.

[00:31:36] Reuven: might be better now that I'm positive in both accounts.

[00:31:42] Erik Dietrich: you're gonna go off on your own, do you need to go full-time freelance right away versus part-time like, what do you think there

[00:31:47] Reuven: I would do it. Part-time If you can Moonlight, like if you're going to hold a full-time job and then do some moonlighting there, that's a fantastic way to stick your toes in the water, make a little bit of money, see what you're good at, what you like, or if you like this at all, and then slowly but surely pull back.

[00:32:02] Erik Dietrich: Yeah, I'm with you there. So if your current employer, like maybe if you resign and you wind up striking a deal with current employer where maybe instead of this for six months, I'll go down to 30 hours a week or something like anything you can do to mitigate risk.

I would say do, although I wouldn't drag that situation on forever. At some point you know, make your decision. But I don't think it's all or nothing. You get a lot of valuable experience. So if you are going off on your own, should you establish a contract that you use with your clients?

What do you think their.

[00:32:28] Reuven: No, I didn't. and that was kind of foolish, but like really thinking back now, the clients where I had trouble with them, either they didn't pay, or they were just like terrible to deal with. None of that was stopped invited me having a contract with them. so I don't see, any real reason to rush in having contracts.

I didn't even know what a statement of work was until I think I was like 10 years into consulting. were

[00:32:49] Erik Dietrich: you. That's a hard, no, for me too. anything you want to prevent with a contract? Won't work, you're dealing with companies that are much bigger. Have more lawyers have more resources than you. I think a lot of people think of contracts as particularly ironclad, but like, let's say for hypothetical example sake that you were, doing freelance work for a company with the size and resources of a fortune 500 company, and you had a clear contract and that company absolutely violated play this out in your head.

What's going to happen is you're going to. Go to court and Sue them with your lawyer or by yourself. And then what are they going to do? They're going to throw an army of lawyers at you with motions, and they're going to bleed you dry. That'll never even make it to any kind of court. It just won't happen.

The reason large companies don't, you know, screw you over on pay or whatever. talking about here. Isn't because you have a contract with them. It's because it's not a good look for them. So

yeah.

[00:33:41] Reuven: It's not worth it for them. Right? Like it's more worth it for them just to have you like everyone else in the system and pay you on time. And not standardized, that's a pain, by the way, I'll tell you. have a fortune 500 company, that I did, of course, for sort of recording September.

I did it for them in October of last year, then December of last year, I think in like March of this. And I still haven't been paid not because they're trying to screw me over just like the bureaucracy and it got lost and oh, we don't accept your electronic invoices. You need to send in the mail and it got lost in the mail.

Like every possible thing that has wrong now, have they violated the contract? Yeah. Am I going to Sue them? No. For exactly the reasons you just said, I'm going to keep emailing the trading manager and saying hi, so the pay, check it as, oh yes. yes. I'll check into it. And you know, one of these days I'll get the money, which would be rather nice, but until then, I'll just nice to them.

[00:34:30] Erik Dietrich: one other thing I'll say as a freelancer, especially when you're new. you know, People have a sense of that. And most companies, unless you have a specific niche and you personally are in really high demand, They're going to have you sign their contract.

They're not signing yours.

[00:34:43] Reuven: That is such a great point. Absolutely. think like the only people that were signed my contract or tiny entities, everyone else had their own. And anytime I asked them to make any sorts of changes. So like two years ago I was in the bay area and I did some work for a big company. And part of their standard contract.

Was in order to go work there, get auto insurance. And I said, but I'm not going to be driving there. I will not have a car. I actually, I was the only person in all of California who walked to work so far as I could tell, like I got a hotel walking distance from their office and I walked there every day and they were like, no, no, you absolutely need to get cartridges.

I said, it's ridiculous. So finally they agreed to put an addendum to the contract saying that on the assumption that I do not rent a car and I only use public transportation or taxis numbers that I would not need it. But to actually changed the body of the contract. Under no circumstances.

And that was for something like completely preposterous. That was unnecessary. So good luck on something substantive.

[00:35:41] Erik Dietrich: So what about having a website? Is that something you need to go into business for yourself?

[00:35:45] Reuven: It's nice. You don't need it. I mean, Demands, are you playing to get work through your website? If so good luck. You're probably, You're probably going to get way more work through word of mouth. Even now, Like I have a website, all of our courses are on it and it is super common for a training manager to call me.

We'll have an hour long conversation. and they'll say, well, can you send me a syllabus of Python? I'll say, well, it's just on my website. Really? You have your syllabus on your website. They didn't even check my website before calling me. So what random people on the internet going to check it? So yeah, put together a website, don't put too much on.

[00:36:20] Erik Dietrich: Yeah, I would say I'm a little bit torn here. think strictly speaking, no, you don't need a website and you can even kind of lean into that. Like, If you are talking to people and you're getting referrals for your word of mouth in the early days, you could say, haven't really decided on my exact nature I'm waiting to put up a website until I do that. That's all the explanation you need. Nobody's going to hear that and say, what do you mean you don't have a website? Like the only people that will go to your website are people you send there. And when you do that, you're kind of inviting them. Evaluate you based on the website, my recommendation would be is there is, utilitarian or practical purposes for having a website.

So I don't see any reason not to, if it would just take you an afternoon, but wouldn't really view it as particularly necessary. Once you nail down your positioning and you know, kind of hitting your stride there, you might do content marketing. You might direct people back to your website from conference speaking or what have you.

So eventually you'll probably want it, not something I would really worry too much about when first going into business for yourself.

[00:37:12] Reuven: Does that make sense,

[00:37:13] Erik Dietrich: having a lawyer?

[00:37:15] Reuven: In Israel that you actually need to have a lawyer help you with incorporation? I probably now speak to a lawyer about once every year and a half, two years to drop a contract or ask a question, but like when you're starting off, other than if you really have any legally mandated things, no, don't worry about it.

Especially if you're in software, like what are they going to do?

[00:37:34] Erik Dietrich: I don't think you need a lawyer. Although, what I would suggest is if you have time, at least know who you might call in the event that something came up,

[00:37:41] tbof-season-3-episode-2_recording-2_2021-09-14--t06-10-37pm--guest684919--reuven: Oh, that's good.

[00:37:42] Erik Dietrich: because if something were to come up, I don't know that you'd want the added headache of like furiously Googling lawyers. So maybe if you have a friend that's a lawyer or something like at least who that first like piece of outreach would be to. but unlike Israel in the U S you don't actually need a lawyer So. There's like legal zoom and then lawyers will do incorporation for you. My advice would be don't do that to incorporate it's just money or setting on fire. So again, in Israel, you must have an accountant. If you're in corporate. I would say the big deal for me is I know nothing about bookkeeping. I'm terrible at it. It goes hand in hand with my like, not understanding budgeting. . And so from day one, I had an accountant not only to give me like, do the legal minimum, but also do my bookkeeping for me that every month I give him the stack of papers and they then sort of give me advice I would argue that, a good accountant also going to be like a good business coach and sounding board. So I actually should take more advantage of my accountant than I do. but if you're, feel comfortable with bookkeeping and you don't need it legally sure.

[00:38:39] Reuven: Do it yourself.

[00:38:40] Erik Dietrich: Yeah. So in the U S and based on my experience, with all the formalism I did in the beginning. I never had anyone else do accounting or taxes for you. at the time I started moonlighting it was a pretty natural transition for me because I had been using bookkeeping software to keep books for years and in the U S and LLC is, not all that different from being a sole proprietorship tax wise. So you can DIY this, if you're really bad with finances, then yes, I would consult an accountant. If the IRS and state taxes make you nervous, then you would at least need tax accountant to, prep your taxes each year. So this one is really kind of like what your personal comfort is.

If you are like me, then I'd skip it. okay, here we go. How about business cards?

[00:39:22] Reuven: Yes, print up the absolute positively minimum number you can, and it will still be too many, but you should have them because someone somewhere at sometime is going to ask for it. And you don't want to say, well, I don't have any, but I don't think I've ever gone through more than a hundred, 200 of like any business card I printed up just a few days ago.

I had to take my daughter to the hospital for something minor. And I brought my backpack because I had my computer in there and I opened up one of the pockets. I was like, oh my God, this is where my business cards are. And like I literally had known for two years, I guess last two years, maybe I wouldn't have used it, but not really.

I know.

[00:39:57] Erik Dietrich: for

me, this one's a no, I mean, do it just in time. So if like I had something coming up thought it would be beneficial, but I mean, like who's gathering in person these days and would skip it unless I were doing something like attending a conference How about any like certifications or degrees do you think that helps you going off on your own?

[00:40:13] Reuven: maybe I think it depends on what you're doing. Right. So if you're trying to establish yourself, as like a, consultant in a certain area that has certification. So I can know red hat certification, AWS certification, Oracle certification. So you probably do want to be certified in those, if you want to or something similar, if you want to do it. But if you're just doing like general, programming and stuff, experiences what's going to drive people to it. Look, I went and I got a PhD. took me 11 long, difficult years, I have a bachelor's in computer science. Do those help get me work? Maybe they did at the beginning, but don't think that many people pay attention to it now and I think really, especially the computer industry, people are more interested in practical knowledge and experience than what fancy diploma you're hanging on your wall.

[00:40:58] Erik Dietrich: Yeah, I agree. with the nuance of being like a platform specialist or a channel partner in the mix, I'd kind of say like, if you need a certification for the style of consulting or work you're doing, you would probably know that, you know, if you're going to be like an AWS partner or a HubSpot partner, and that's what you're planning to do then. Yeah. That's your specialty. So go do that. But yeah, apart from that, it's not like. You're a salaried employee where they might look at stuff like that. More like if somebody is hiring you to do a spot of consulting or app dev work, like nobody's going to look and see where you earned your degree from 10 years ago.

Like about that. It's a different thing than being a salaried employee. So don't see a lot of upside there. how about having an office outside or a separate room inside of the house? What are your thoughts there?

[00:41:40] Reuven: I think it's separate room in is a good thing to do. that was advice that I got when rented my first apartment when I incorporated in Israel. And the theory was, you'll have your office, you'll have your bedroom. And then you can

like

shut the door and finish working at night. Okay. That was nonsense. But in which I could really

like have it as an office instead of have my office thing. maybe even meet with people. So that was super rare. I think that was nice. If you can get away with it.

[00:42:01] Erik Dietrich: Yeah, I think that's a yes for me, but, it won't stop you from doing business, if you don't have it, especially if like maybe you're doing staff augmentation on site or something, but, I mean, I think that's something you ought to think about as having a workspace unless you're doing everything onsite, like if you're selling services, you're going to have calls. it's going to be a weird look to do that from your bedroom. So it's not a prerequisite, but if you can do it, will.

[00:42:22] Reuven: add something here also, because you also have to about like an office outside of the house. When I had a bunch of employees and it was nice to like leave the house and go to the office. There was definitely a sort of difference in feeling there. But if you have your office in your house, then you can almost certainly expense a bunch of your house things from your business. in some ways, reducing your own personal expenses, but if you have an office outside the house and suddenly you can't do that anymore, or you can't do that as easily and you have this added expense of rent and then, you know, water, electricity, whatever else you have to pay for. honestly have no idea how much these things cost. Some of these places like we work, or like, you know, shared office space might be a good sort of halfway measure if you really don't want home. And some of them, I know like offer the sort of community of other freelancers that you can get to know them and trade ideas. definitely measure the expenses first think of the cost benefit analysis. You're just, starting off. I think you'd stay at home and no, one's going to think of the worst of you.

[00:43:13] Erik Dietrich: How about, specific equipment, computer, internet, that kind of stuff.

[00:43:17] Reuven: Yeah. You need that, but I don't think you need anything special. I mean over time you might discover what you want, but nowadays most of us have good internet service at home. is there any special you think people I

[00:43:27] Erik Dietrich: If I were going into business for myself, I mean, the only thing I can think of is if I had had a corporate laptop or something for a long time, and I was doing like application development work, that was sort of resource intensive, maybe my own personal equipment. Isn't up to the task then. Yes. especially if you're, doing, development with like paid tools, you might need to switch over from your employer paying for some of those to you, but basically you're just securing the kind of things I'm talking for application developers here, but like, it could be designers. You're going to need to flip over the expense of the software and hardware. That you're used to using to bring, to bear for your clients. And that's really the only thing I can think of. I wouldn't skimp on that because you don't want to rush out of the gate doing substandard work cause your processor can't handle it.

[00:44:09] Reuven: right. That's true. Like your business is that computer. So you want to make sure it can handle it. Also. Don't skimp on backups. your computer will die at some point. And if it's your own, computer at home? It's just for personal use. fine. but if it's your business, bad news, if you lose things. So whether it's onsite, offsite, whatever,

[00:44:26] Erik Dietrich: How about having a portfolio? can't really do that when you're starting, but it probably doesn't hurt. Like I never really had a portfolio per se. Maybe it would've been better. Maybe would've been easier. I don't know. I feel like It's nice to have some like social proof and testimonials, but it's not deal breaker if you don't have it.

Yeah. That's a marketing asset that you typically build as you could do is kind of create a portfolio if you've been a salaried employee out of your historical work. So go through like the projects the years kind of summarize those you could bring that to bear in some kind of, thing that you're describing, like just on a sales call or even like, you create a little piece of collateral, but that's not probably where I'd spend my time right out of the gate.

I just don't really see that being super valuable. I guess the other thing would be on the subject of testimonials. There, you could maybe get people to speak almost as references on your behalf, but again, like testimonials, like you see on people's websites or like a portfolio of prior work there's a chicken and egg there. I wouldn't worry about having that right away personally.

[00:45:24] Reuven: also there are a lot of testimonials out there. Like this person is the most brilliant person I've ever worked with, or they're really nice. No, that's not what you want. you to want the. Because of this person's work. My business made more money and spent less money.

Preferably both worst case one of the two. That's why you're going to spread your name through word of mouth.

[00:45:44] Erik Dietrich: Well, I think that's everything we had on the checklist of stuff to go through, apologies to listeners if we missed anything or didn't think But, you know, hopefully that gives you some takes on the different things you do and don't need , considering hanging out your shingle and getting started. Shall we then move into picks?

[00:45:59] Reuven: yeah. let's do picks what do you got this I will throw out the two books. I mentioned passing during the course of the episode. So, That was the book, the lean startup, which can help you reframe your thinking on like maybe what you do and don't need for a business and how you can, place the smallest bats the most about, your potential positioning and other things you're doing.

[00:46:19] Erik Dietrich: And then the other one was the book profit first, which I haven't read, but a lot of people I have rave about it and I'm familiar with what the methodology is and how it works. So I'll throw that out there as something to consider. If you're thinking about how to handle it, like your bookkeeping, budgeting and finances, it's worth it.

[00:46:34] Reuven: As, so I've got a simple practical pick, for this time. just got a new computer it was having problems, and I decided the time would come also for maybe to get a new keyboard. And I'm a big fan of mechanical keyboards. I've been typing for a long time. I type fast, like all day and I want to feel that like, sort of. kickback, whatever it is.

So I'd had a dusk keyboard for a long time. and I decided to try something else, something new, and I got the code keyboard, and the code keyboard was designed, in part by, uh, jeff Atwood, who was one of the co-founders of, stack overflow. And he basically spoke with this keyboard company. It was a w a S D keyboards. And he was like, let's design a keyboard that programmers will love. So I got it, I guess,

about a month ago and I love it. It is fantastic. My only complaint is that when you are ordering the keyboard, it gives you because this is for programmers, a huge number of options that you don't really know, like what to choose. Do I want the MX green or MX clear or MX brown or Amex blue or the Zellie us. I don't know. and each of them has like a ever so slightly description, so I got them and, they do also have a noise reduction thing that you can add, so that you get to enjoy your mechanical keyboard and you don't drive your,

spouse and children crazy. not that I'm speaking from experience, oh my God. They would ask me to close the office I've been very, very happy with the keyboard. It has all these cool little touches on it. like, you know, the it's a USB cable slot in the middle of the keyboard and a long cable that comes with it on and on and on.

So anyway, big thumbs up on that. And with that, I guess we are done with this episode. Thanks everyone for this. if you have suggestions, questions, topics we should cover, please do be in touch with us. And until next time we will talk to you soon at the business of freelancing.