Managing Your Subcontractors
Let's say you're setting up a consulting practice or other service business. You realize that from time to time, your clients will need you to perform services you yourself cannot perform. You don't want to hire employees, because they're too expensive. You're left with only one alternative: working with subcontractors ("subs" for short) on a job-by-job basis.
Pretty straightforward, right? Well, here are some of the things that can (and often do) go wrong:
- The client doesn't realize the sub is independent of you, then the subcontractor makes a mistake, and the client sues you as the sub's "employer."
- Your sub has finished her piece of the job and wants you to pay her "net 30," your client is 90 days past due on your (combined) invoice, and there isn't enough money in your checking account to pay the sub.
- You allow the sub to call and meet with the client directly, and all of a sudden, the client is giving new assignments directly to the sub without giving you a shot at the business.
When working with subs, you're sometimes caught between a rock and a hard place. If the sub performs below the client's expectations, it reflects badly on your competence (after all, you picked the sub). On the other hand, if the subcontractor performs above expectations, the client may fall in love with the sub and you may lose the client relationship. How to navigate this minefield?
Someone who's mastered the subtle art of "sub management" is Lee Esposito of Lee Esposito Associates, a public relations firm in Columbus, Ohio, that specializes in publicity and national media relations. While Esposito's firm has two employees, he uses subs (primarily writers) on many if not most consulting jobs.
Esposito believes a lot of consultants get into trouble by not performing enough "due diligence" on their subs before hiring them. In their eagerness to delegate work, he explains, consultants often practice what he calls "dump and run": "They get assigned a project, dump the work on the subs and move on to the next project, without really knowing if the sub can do the job or not."
So how do you "kick the tires" when dealing with a new sub? At a minimum, Esposito says, you want to see samples of the sub's work and talk with the sub's previous clients. Esposito also believes you should explain the client's project to the sub in great detail at the outset "to make sure they're following you closely and understand what the client wants."
The key to developing good relationships with subs, according to Esposito, is to make sure they know that you, not the client, are their customer. This means never allowing your subs to meet with your client unless you yourself are present. Esposito also feels you should pay your subs directly within 30 days and not make them wait until your client pays you. While acknowledging that this may cause some financial pain if a client pays you more slowly than you expected, this is the price you must pay if you insist that subs treat you as the customer.
Here are some other sub management techniques Esposito says has worked for him:
- Guarantee your subs X amount of work each month from you. (Esposito says, "This makes me more comfortable letting the sub talk directly with my clients.")
- Have business cards printed up for the sub with your company logo and a title, such as "of counsel" or "independent representative," that clearly states to clients and others that the sub is not your employee.
- Make sure the sub plans to stay independent for the long run and isn't just marking time until the economy improves and he or she can get a full-time job.
When dealing with subs, Esposito says it's important to remember your ultimate goal--making the difficult transition from a "practice" to a "business." In a practice, Esposito explains, you're involved in every sales pitch, and then when you sell a client, you do all the work yourself, whereas in a business, you're managing relationships with clients and overseeing project teams that can interface with the clients. Esposito feels it's impossible to make this transition without developing long-term relationships with subs who can rely on you, not your clients, to provide them with a steady cash flow. "Ultimately," says Esposito, "that's the best way to keep your subs loyal to you. Nobody wants to kill the goose that's laying golden eggs on a reliable schedule."
Cliff Ennico is host of the PBS TV series MoneyHuntand a leading expert on managing growing companies. His advice for small businesses regularly appears on the "Protecting Your Business" channel on Small Business Television Network. E-mail him at email@example.com. This column is no substitute for legal, tax or financial advice, which can be furnished only by a qualified professional licensed in your state. Copyright 2003 Clifford R. Ennico. Distributed by Creators Syndicate Inc.