/ Product Management

Observations of a year of Contracting

The Dude has been a product manager for, well, an embarrassingly long time. Seriously, more than two decades. Yet, his latest gig is unique. He is a contractor at a pretty large company, and has been so for about a year now.

When he got the call from the recruiting agency, oh so long ago, it was an intriguing opportunity. Something new. An entirely different field. But with a twist. I was to be a contractor. 40 hours a week, at a defined rate.

At first The Dude was thinking 1099 contractor1 where I would be paying both halves of the payroll tax, and all the other sundries, so the hourly rate seemed low. However, as is increasingly common, larger companies in particular use contracting agencies, or "head shops" to keep everything clean and legal. Thus it was actually a pretty fair hourly rate.

The terms were for a 3 month period, with options to renew (or extend), a W2 position2 and some mix of benefits (401K, medical and dental, and - required in California - sick time).

The Good

The Interview - Since the contract is for a fixed term - 3 or 6 months - there is less risk of hiring the wrong person. If you've ever been a hiring manager, looking for Product Managers, you certainly can sympathize with this. Tons of résumés, most lousy fits (no technology, poor experience, garbage really). Rich Mironov talks about stacks of résumés that don't even have "Product Manager" listed.

If you have a good contracting agency, and you give them good guidance, they are specialists at finding candidates, qualifying them, and presenting them. The hiring manager can breath a sigh of relief.

That isn't to say that you shouldn't interview the candidate carefully, but if it is a bad fit, or some, uh embellishment gets past the screening (something the Dude has dealt with when hiring Product Managers), you can have an early exit, without the huge overhead. The Contracting company takes the risk of onboarding, and offboarding.

The Dude's experience: Probably the shortest interview process in 2 decades. Of course, the head shop wasn't very detailed in their process. They weren't really knowledgeable about product management, so the Dude got to educate them on what makes a good product manager (check that: GREAT Product Manager)

The Decision - Since the 'hire' isn't a full time employee, and is really an employee of the contracting agency, the company can be somewhat complacent. The risk is borne by the contracting agency. Apart from requirements written into their relationship with the end company, all responsibilities are owned by the contracting agency.

So, they do the background check, the reference check, criminal record check, credit check (yep, that is pretty standard). The contractee has to sign the contracting company's business conduct code, their ethics waiver, and the like.

The end result is that when a candidate is found, to the contracting company, the process is streamlined. And, if the contractor doesn't work out, the cost of termination and replacement falls to the agency.

For this, the contracting company (the end customer) does pay a premium, but it is tiny compared to the cost of staffing and replacing a non-performing employee.

addendum: the premium isn't significant if the contracting period has a reasonable horizon, say 18 months, but if it stretches to years, that premium becomes significant.

The Dude's Experience: It took a bit of back and forth, but without a doubt it was the least stressful interview process. A handful of calls with his "handler" at the agency, two in person interviews with the hiring manager. The in-person interviews were light discussions, talking more about what they were looking for, and about how the Dude would handle the issues they have. Easy-peasy.

Head Shop

The Head Shop - The Dude grudgingly assigns praise to his head shop. They do have it down to a science. Clearly, they exist to reduce friction, and to be very efficient in their handling of bringing talent in. To do that they have recruiters, handlers, and support staff to handle all the routine bits, HR systems for the legal bits, and they offer benefits (at full price).

The company who engages them pay enough to handle this, and allows the agency to make a tidy profit. The really good head shops develop long term relationships with their contractors. Keeping them on engagements, grooming them, having a pipeline of work. Companies like RHI, Porter Consulting, and others develop a symbiotic relationship with their pool of talent.

Most engagements, particularly in IT or related technologies, are for a project or a specific program. A definite timeline, a finish date, a shelf life. The contractors are well paid, and kept happy.

Product managers though are an odd fit. As Steve Johnson, of Under 10 posted, a product isn't a Project, the key difference being that there is typically an end to a project. Delivery, completion, final milestone, and the team disbands and moves on.

For Product though, shipment is just one of many milestones. Once that hurdle is cleared, the Product Manager moves into a different mode. Future releases, roadmaps, promotion, business development.

A typical head shop will struggle with the indeterminate nature of a true product manager deployment. They will like the long term revenue stream, but their processes will not be prepared for the engagement.

The Dude's Experience: The head shop, specialists in project managers and IT people, really didn't know what product management was. The Dude was called to replace someone who wasn't working out. The Dude wasn't worried, as he is quite flexible, and adaptable, but he did wonder what specifically was the reason why his predecessor wasn't brought back.

The bad

It isn't all skittles and bourbon though. There are some downsides, some in general, and some specific to Product Management.

The Contract - the contract is for a fixed term. The Agency is very cautious to not guarantee extensions (renewals) or contract to hire for obvious reasons. It is for a fixed length, and a price per hour, and you are under an hourly agreement. 40 hours per week (although the Dude has seen some product marketing positions from agencies for 20 - 30 hours. He guesses that is to circumvent the need for benefits that the great state of California mandates).

There is some ambiguity. The agency assures you that you bill for all hours worked, but clearly the contracting company doesn't want you to exceed the total hour commitment per week. If you need to, you need preapproval for those hours.

Unfortunately, unlike say a fixed project with well defined deliverables, product management isn't a task based role. To be effective, you need to spend some fraction doing research, strategy planning, and background thinking. The Dude has always questioned the use of contractors for Product Management positions precisely because of this "always on" behaviors of good product managers. There is no way you can bill for all those hours.

The Dude's Experience: Write down 40 hours a week, 5 eight hour days, and close his eyes to the extra commitment. He does try to completely disconnect on weekends, and after hours, but isn't always successful. In short, he treats it like a full time salaried position, even though it isn't. The Dude is pretty sure his contracting agency would lose their shit if they knew, but c'est la vie.

Benefits - This is the real downside. Depending on the end company (the contractee) and the state/local laws, benefits must be offered, but don't expect any help. Healthcare is offered, but without the "employer" contributions, expect to pay full ticket. That is roughly equivalent to the bronze and silver plans on the ACA marketplace.

Gulp. Boy is that expensive, but at least it is available.

However, there is no vacation time, no holiday pay (i.e. holidays are unpaid), and some sick time off, but the Dude suspects that is solely because California mandates it.

Yes, you can setup a 401K, and make pre-tax contributions, but don't expect matches or many frills.

The Dude's Experience: *Healthcare is the biggest shock. The cost if fully borne by The Dude, and it is expensive. His agency announced a 401K match for 2017, but it was a laughable $25. Yep, they will match 1:1 for the first $25 dollar contribution. Fucking joke, clearly a checkbox for the contracting company to remain in the pool for the end company. Holidays unpaid suck. The week long shutdown at Christmas? Huge suckage. *

Feedback - supposedly there is a quarterly feedback from the contractee company to the agency, which is then passed on to the contractor. I understand this, as an important method of distinguishing that contractors are separate from full time, regular employees, but it is inconvenient. Of course, the extension at the end of the contract is the ultimate review process. Yet it would be nice to have periodic feedback to see if the contractor is doing a good job.

The Dude's Experience: *This is totally fucking broken. Fortunately, his "hiring" manager is super cool, and bi-weekly 1:1 meetings have plenty of feedback. In fact in this manner, The Dude feels like a regular employee, and that is a good thing. *

Separate But Equal - there are limitations on what contractors can legally do. One specific example is that in California, contractors, or contingent workers are not allowed to attend "all hands" meetings. The Dude understands this rule, as it segregates contingent workers, as they aren't true employees. If the companies want regular workers, they should hire them directly. But contractors are used to save costs, and reduce the overall official headcount, so they aren't employees in the eyes of the law.

Of course there are other examples, but this separation is important. Companies adopt a contractor policy for a reason. Cut costs (mostly benefit costs, or incentive costs) or to have flexibility (quickly add labor when needed, and ramp it down just as quickly when the economy sours), valid reasons for utilizing contractors (think of department stores and the Christmas season), but some companies rely too much on contractors. They dilute the commitment of your workforce (why should they be loyal if every 3/6/12 months they might be turfed out?) and the Dude suspects, damage the morale of regular employees.

The Dude's Experience: Starting with the dot-com bubble burst, and the rise of net 2.0 economies, companies have become too comfortable with larger and larger pools of contractors. He sees many abuses, and breaking of the rules, while most contractors are happy with their lot, he believes that, especially in product management, you should only bring in a contractor if you intend to flip that role to a permanent position. You (the hiring company) will still spend a lot of time on the ramp, and invest a lot in this contractor, so you have an incentive to keep them around. If they make the commitment to you, return that commitment.

Summary

The Dude bagan writing this as a paean to the concept of "Try before you buy" for product managers with contract positions, but instead it morphed into a laundry list of the good and bad of contract product management.

Still, after a year in a contract role, The Dude believes that there is a place for it (where he was skeptical before), but there are pitfalls on both sides of the equation. Contractor isn't Consulting. Instead of advising, the contract product manager is rolling up their sleeves and doing the job.

However, good product managers will tire of the contract/extension/renewal cycle and look for a permanent position. If your business model relies on contract product managers, you will ultimately end up with mediocrity, product managers who are happy with the status quo, and the uncertainty. Try before you buy, sure, but make sure your long term goals are to convert them to regular employees. And if you are properly doing try before you buy, ruthlessly cull the lesser performers. Nothing is worse than a 40 hour a week, seat warmer, who isn't good enough to hire.


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1 - For the international reader, a "1099" is a form filed for taxes by the employer of a contractor. It tells the IRS how much you were paid per hour, so they know that you are working, and that you are expected to pay your quarterly estimated taxes. I imagine that all countries have something similar for the consultant class.

2 - Related to #1 above, a W2 is a standard tax witholding position where the employer withholds the payroll taxes, and reports the earnings to the IRS.

(c) Can Stock Photo / roxanabalint

Observations of a year of Contracting
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