The Rise of the Virtual Startup in the Great Recession

As more and more traditional, full-time jobs disappear, more and more people will find work as soloists (freelancers, independent contractors, etc.).  As a result, a funny thing happens to companies:  they become much more dynamic and fluid.  Instead of spending a large amount of time and resources finding people with a perfect set of skills, contacts, and experience, companies can solve their immediate needs by contracting with individuals, small firms, and boutiques.

Consider the risk/reward profile of these two approaches.  When hiring a traditional employee, a company is making a long term commitment to pay an annual salary (plus benefits), to someone who will presumably be around for a long time.  That means the employer is betting that their new hire will not only solve their immediate needs, but that they will grow into other roles that will benefit the company over the long run.  For these reasons and more, the employer must be extremely cautious in who they hire.

When contracting with a soloist, a company is making a short term commitment to someone whose only role is to solve an immediate problem.  This allows the company to more easily bring in specialized resources as needed, without impacting their long-term financial obligations.  And while these benefits are available to companies large and small, it's the smaller companies and startups that stand the most to gain.

The Rise of the Virtual Startup

All companies need, at a minimum, to take care of the basics:  marketing, finance, operations, sales, and accounting.  Typically, someone who starts a business will have a skill set that covers only about half of these needs.  The other half will need to be covered by a partner, employee, soloist or outside firm.  Let's look at each of these in detail:

  • Partners - Finding a partner is much like finding a spouse:  they're great when it works, and horrible when it doesn't.  If you can find one that compliments your skills and is compatible with you on many levels, this may be the way to go.  Unfortunately, it is only after the "marriage" that compatibility issues often arise, and the resulting "divorce" can often kill the company that brought you together in the first place.
  • Employees - Hiring an employee can be the right thing to do, especially if the company is well funded or has already attained profitability.  If it is like most small startups, however, funds are too tight to commit to a weekly salary.
  • Soloists - Contracting with a soloist can be a great way to solve immediate needs.  Instead of hiring a full time marketing person for $100,000/year plus benefits, or hiring a PR firm for $10,000/month retainer, you can contract with someone for a short term project designed to get you to the next level.
  • Outside Firms - Today, outside firms come in two flavors.  Traditional outside firms are expensive, with old-style overhead costs that must be passed on to their clients.  New outside firms are cost effective, using unique combinations of technology and soloists to provide custom solutions.  Depending on the size and scope of the project, the latter can be the right choice for today's startup.

Moving from Soloist to Boutique

This last point also highlights another career path for soloists.  In my last posting, we explored the range of opportunities available to contractors, from administrative type functions, to tactical projects, through strategic solutions.  Moving up through this spectrum is certainly one avenue of growth available to the soloist.

Other options exist as well.  Instead of moving from tactical projects to strategic solutions, a soloist could grow by expanding their client base (2xs the clients = 2xs the revenue).  Soloists can also grow by increasing their reputation and billable rates (2xs the fee = 2xs the revenue).  Sometimes, the solutions you offer will require more work than one person can perform.  At this point, you can grow by contracting with other soloists, and offering your combined services through a new firm or boutique.

Whichever growth path you choose, you will find that outside help may be required or helpful.  Knowing how to find and contract with other soloists is a great resource that can take you to the next level.  This in fact paints a picture of the new employment model, one where people are free to do the things that they like and enjoy, and free to get outside help for those things that they don't.

We'll cover this in more detail in future posts.  Next time, however, we'll discuss how advances in technology can be used to support your self-employment and startup efforts.  As always, comments welcome, and stay tuned ...

Tranzitioning.com is a blog by Jay Fenello, principal and founder of BizPlacements.com, an Atlanta-based
Business Brokerage and Placement firm that helps people buy and sell small businesses and franchises.

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