Jonathan Stark

I didn't know what I was going to do, but I knew it wasn't going to be hourly. And that was all I knew. Back then, there were still these things called bookstores. And I was standing in a bookstore and came across a book called Value-Based Fees by Alan Weiss. And that thing was my Bible for a couple of years. Every single page has notes on it. It's a great book.

It's for management consultants, which wasn't at all what I was doing, but it was adaptable enough that I could figure it out and apply it for software projects. So that was my main, air quotes, tool. And then I had to develop a bunch of frameworks that were specific to software development and consulting that made it make sense.

Hey, it's Jonathan Stark here, and I am the Ditching Hourly Guy over at JonathanStark.com.

After music school, I ended up going back to computers, which I had done as a kid, to make ends meet while I was trying to get gigs and that sort of thing. So I ended up really liking the database programming I was doing. I call it programming. It was ScriptKitty stuff in an application called FileMaker.

that I had a lot of fun with, really enjoyed seeing big teams of people using software that I had put together. So I went off and did that for a few years with a popular consulting firm, a FileMaker consulting firm. And at that firm, we build hourly, and eventually I was managing the teams. There was about 10 developers at the time. And we build them all out at a blended hourly rate.

I realized at one point that if we were going to hire more employees, we would want someone that looked more like our most junior developer, who really wasn't that good, but had a very low salary. And it would be foolish to hire a really high-end developer like our best developer, because he was really expensive and he was really fast. So...

it was tough to keep him busy enough to break even on his salary where with our junior person as long as they kept their clients happy which they did and we were making maybe four times more profit off of a mediocre developer not even mediocre and then i was like wait a second i don't want to have a firm full of junior devs that barely know what they're doing

And I couldn't wrap my head around this. I was like, this doesn't make sense. Why wouldn't we want to have really good developers? We're like a high end dev shop. It seems like you'd want the best developers you could get. And it took me about two weeks of puzzling over this until I finally realized it was because we were billing by the hour. We were trading time for money.

And as soon as I saw that, I was like, I couldn't unsee it. And I said to the owner, what I just told you was like, we should hire more people like a junior. And he was like, what? So he said, I see what you're saying. I understand it intellectually, but what would we actually do? And I did not have an answer for that. This would have been 2005.

So I went solo to find out what the answer to that would be without risking 10 people's mortgage payments. I'd rather just risk my own. So I went solo in 2006, January 1st, 2006 and never looked back.

And coincidentally, I didn't know what I was going to do, but I knew it wasn't going to be hourly. And that was all I knew. Back then, there were still these things called bookstores. And I was standing in a bookstore and came across a book called Value-Based Fees by Alan Weiss. And that book was the answer that I was looking for. That thing was my Bible for a couple of years.

Every single page has notes on it. It's a great book. It's for management consultants, which wasn't at all what I was doing, but it was adaptable enough that I could figure it out and apply it for software projects. So that that was my main air quotes tool. And then I had to develop a bunch of frameworks that were specific to software development and consulting that made it make sense.

There's some nuances in software that are different from more straight advisory services because you are building things. I was still building things at the time. So the main tool was that book, honestly. And I had worked out a deal with my past employer where I had clients that I worked with directly and they wanted to come with me. So we worked out a revenue sharing thing.

So I had clients immediately. I continued working with them on an hourly basis. I converted one to a more of a fixed fee, more retainery kind of thing. But then I set about trying to attract new clients that were not hourly ever. Rather than trying to convert existing reasonably profitable clients, I decided I'll keep them as is and then I'll switch over to something else with new clients.

And then I was like, okay, how do I attract new clients? And started investigating tactics that would attract leads to me so that they were expecting already to be paying a lot of money. Like my intention was to be the guy who wrote the book about the thing and then attract people who really needed that thing.

The MVP was really probably the first time I started to, I tried to write a value price proposal and working through that because it takes a while to figure out how to do it right.

So there was some pretty straightforward stuff that anyone would get out of that book. For example, when you give a project proposal, give them three options. They're deciding what's the best way to work with you instead of should we or should we not work with this person or should we go to someone else? That piece of advice alone, having three incremental options like good, better, best.

is a game changer in terms of your ability to i don't want to say upsell but if you're not super great at value-based pricing which no one is when they first start then it gives you a way to not leave as much money on the table as you might if you just gave them like one lowball option or something like that that one thing was super helpful and straight out of the book

The things that I had to figure out, the main thing I had to figure out was that since I was giving quotes, fixed prices, not, oh, I think it might take me 100 hours, but whoops, it was 200. Sorry, it cost you twice as much. So since I was going to give prices and stick to them, in fact, it said in my proposal, whichever price you choose of these three options, you will not pay a dime more.

So then for a software person, immediately you're like, how do I control scope? That became the biggest problem to work out. Like, how do you figure out how to manage scope creep? When a client's coming along, they run a shoe store or pizza place and they don't know anything about software. You can't get all the scope you need from talking to them in an hour.