A large part of software developers in our community do contracting. Despite a number of interesting startups popping on the scene I do not see this trend ending anytime soon. The fundamental problem of contracting as it is done today is that the contractors are torn between serving their customers and serving their own companies. What causes this problem and how could it be solved? My argument is that it boils down to the contracting companies using the billing rate of contractors as the main indicator of success. This leads to a dynamic where spending the customer’s time and money is beneficial to the contractor in short term whilst simultaneously damaging the customer-contractor relationship in the long term. In my speech I’ll demonstrate this phenomenon in software contracting with concrete examples. I will also describe potential alternatives to how to lead and buy software contracting.

1. A Minute of Our Time
or
What we need to unlearn about software
contracting
Antti Kirjavainen (@anttiki)

3. Photo by ToniVC, CC-lisensed (non-commercial, sharealike, attribution)

4. BSOD by Martin Deutsch

5. Major contributor to this is the way we do
SOFTWARE CONTRACTING

6. FAIL #1

7. FAIL #2

8. FAIL #2

9. FAIL #3

10. THE DYSFUNCTIONAL DYNAMICS

11. Needs
Contractor
Customer

12. Risk Mitigation
Contractor
• Doing work that customer does not
want to pay for
• Employing people who do not
produce income
Customer
• Get fair contribution in exchange of
payment

13. The Man-Hour
•
•
•
•
De-facto industry standard
Smallest unit of work
Value can be evaluated
Billable or not billable

14. Contractor
billable man-hours
ratio of billable and unbillable
man-hours on an individual basis
unbillable man-hours

15. Customer
definition of valuable (=billable)
man-hours
billed man-hours
price of man-hours

16. Alert

17. Actual Dynamics
billable man-hours
definition of valuable
(=billable) man-hours
ratio of billable and
unbillable man-hours on an
individual basis
billed man-hours
price of man-hour
unbillable man-hours

18. Actual Dynamics
billable man-hours
experiments
definition of valuable
(=billable) man-hours
Do only work
everyone
agrees on
missed
opportunities
motivation
analysis
paralysis

19. Handcuffs by Mark Zwolanek

20. Actual Dynamics
billable man-hours
billed man-hours
Competition,
conflict
motivation
trust

21. Actual Dynamics
work units
(=people) are
the same
Let’s compete
with unit
price!
favor
cheaper
labor
quality of
work
price of man-hour

23. Actual Dynamics
growing
competences
developing
business
model(s)
opportunities
to improve
Ability to attract and
satisfy customers
unbillable manhours
Possibility to
correct failure
situations

24. Actual Dynamics
billable man-hours
definition of valuable
(=billable) man-hours
ratio of billable and
unbillable man-hours on an
individual basis
billed man-hours
price of man-hour
unbillable man-hours
Valuable
contributions to the
customer?

25. Impacts of focusing on billable manhours
• De-motivation of people
• Losing trust
• Losing competitiveness
• Missed opportunities
• Losing trust
• Getting low quality work
• Losing focus on
producing valuable
contributions to the
customer
• Losing focus on getting
valuable contributions
in exchange for pay

26. WAYS TO MAKE IT BETTER

27. Option 1. #NoContracting ?!

28. Option 2. First Build Trust
1.
2.
3.
4.
Build trust relationship with the customer
Start contracting for the customer
???
Profit

29. Option 2. First Build Trust
1.
2.
3.
4.
Build trust relationship with the customer
Start contracting for the customer
???
Profit
How to be
(or appear to be?!)
trustworthy before
working together?

30. Option 3. What is the smallest
potentially valuable unit of work?

31. Actual Dynamics
billable man-hours
experiments
definition of valuable
(=billable) man-hours
Do only work
everyone
agrees on
missed
opportunities
motivation
analysis
paralysis

32. Handcuffs by Mark Zwolanek

33. Option 3. Team
Smallest Value-Producing Unit

34. Option 3. Team
And smallest potentially valuable units of work
Outcome
Time

35. Option 3. Smallest potentially
valuable units of work
Outcome
Time
Sprint

36. Option 3. Smallest potentially
valuable units of work
Outcome
Potentially
shippable
product
increment
Time
Sprint

37. Option 3. Smallest potentially
valuable units of work
Outcome
Minimal
Marketable
Feature (MMF)
Potentially
shippable
product
increment
Time
Sprint

38. Handcuffs by Mark Zwolanek

39. Option 4. What should we offer to
the customer?

40. Actual Dynamics
work units
(=people) are
the same
Let’s compete
with unit
price!
favor
cheaper
labor
quality of
work
price of man-hour

41. Option 4. How to focus on valuable
contributions for customers?

42. What is your unique value
proposition?

43. Option 4b. Compensation tied to
actual valuable contribution for
customer?

44. Profit Sharing
• Works best for developing commercial products and services
• Customer and contractor partner up
• Parties agree on profit sharing

45. ”No Cure No Pay” by Tom & Kai Gilb
•
•
•
•
•
Fixed Price
Payment only if Value Definition is met
Validated e.g. by trial use
Value Definition done with EVO method
Allows definition of desired impact of the software
• http://www.gilb.com/dl38

46. What is your unique value
proposition?
We Need New SW Contracting
Business Models!

47. CONCLUSIONS

48. Photo by ToniVC, CC-lisensed (non-commercial, sharealike, attribution)

49. BSOD by Martin Deutsch, CC-lisensed (non-commercial, sharealike, attribution)

50. Major contributor to this is the way we do
SOFTWARE CONTRACTING

51. The Man-Hour
•
•
•
•
De-facto industry standard
Smallest unit of work
Value can be evaluated
Billable or not billable

52. Impacts of focusing on billable manhours
• De-motivation of people
• Losing trust
• Losing competitiveness
• Missed opportunities
• Losing trust
• Getting low quality work
• Losing focus on
producing valuable
contributions to the
customer
• Losing focus on getting
valuable contributions
in exchange for pay

53. Smallest potentially valuable units of
work
Outcome
Minimal
Marketable
Feature (MMF)
Potentially
shippable
product
increment
Time
Sprint

54. Compensation tied to actual valuable
contribution for customer?

55. What is your unique value
proposition?
We Need New SW Contracting
Business Models!

56. Antti Kirjavainen
Twitter: @anttiki
Email: antti.kirjavainen@houston-inc.com
SlideShare: http://www.slideshare.net/anttikirjavainen
THANK YOU!