We’ve been talking to John Hunter, exploring his journey from technical employee in the United States to consultant, writer, speaker, and sometimes programmer in Malaysia, including his minimal annual income ($16K/yr) and how he generates the revenue to pay for it.

Today I close the interview, and add a few words of my own.

Let’s get back to it.

Matt Heusser: Is it a little odd, socially, to be the minority caucasian around?  Do you have VISA Issues?

John: It is not that odd for me. But I might be odd. I don’t have visa issues because Malaysia offers a long term visa I can use. That was a big part of my reason for picking Malaysia (along with lots of other things I wanted – reliable internet, good weather, can get by in English, fairly cheap, in SE Asia so I can travel around the area). My current lifestyle would probably be lonely for some but I am fine with a large amount of time on my own.

Matt Heusser: Do you have any advice for someone from a developed nation, perhaps with a mortgage, family, and day job, who is looking to do something a little different, perhaps off the wall?

John: I think building up multiple sources of income is a great start. As is sensible financial planning in general (avoid debt, save up for retirement, etc.). In my Curious Cat Investing and Economics blog I discuss personal finance issues occasionally. Getting into a strong personal finance position (no debt, well funded emergency fund and retirement, etc.) lets you take the plunge into something off the wall from a position of strength. Now plenty of people don’t do that, but I that is what I would suggest. And it is a good idea if you want to do something crazy in a few years, or if you plan on staying with the same job until you retire.

I am conservative, financially. Dropping my income to $0 and hoping I can find income would bother me, but lots of people do it. One thing to consider, if you want to rely of some income from a rental property is that your net income from a rental likely goes up over time (if you pick well). It can well be that a house you bought fairly recently, in a non-great rental area, especially if you didn’t put a large amount down, won’t be cash flow positive right away. And cash flow positive is the most important factor for thinking about it supplementing your income. My cash flow on the second house is less than 25% that on the first house for multiple reasons (the first house is about perfect as a rental, I bought it really cheap before the real estate bubble even started, plus I have had it a long time now…). So you can’t count on a positive cash flow – you will have to look at it and see if that will be a strength that can help support your off the wall plans.

I very much like the start something on the side strategy. Keep your full time job and look for contract programming work, or write your book, or create a SaaS that allows you to generate income. Plenty of people just take a leap into spending all their time on their dream idea. That has certain advantages but it just isn’t right for me.

If someone wants to move overseas I would suggest doing a great deal of reading online first (blogs of people doing the same thing you are considering is a great place for information). It would also be much better to have traveled a fair amount to at least have a clue about what you are getting yourself into.

Matt Heusser:  …

John: A couple things I want to get done in 2013. First, I want to travel more – I failed to travel nearly enough last year. I will try to do more in 2013.

I should also talk to a few more people I know to see if they have any consulting for me to help with. I don’t like marketing or sales. My strategy is just to avoid that by letting people I know (with consulting firms) use me if they have the need and they get to profit off bringing in the business and I get paid. Consulting and presenting seminars pays so well that there is plenty of money to split. I am perfectly fine leaving lots of the money on the table for someone else to have and letting me avoid stuff I don’t want to deal with.

I like the idea of a very short term consulting (IM style consulting for management or managing software development issues). I think it would be fun. I thought about trying to build the platform with another person but that fell through. I tried providing consulting that way, but it didn’t amount to much and the company closed down.  I would still like to try that idea but I do understand there are significant challenges getting customers to think of this as something they would like to use.

Finally, I want to do more on getting my travel content online – I have years of trips I haven’t put online (I also have updates for many of my web sites that I want to make). I did at least get a site started last year for Curious Cat Travel Destinations.

Matt Heusser:  Thank you for you time today, John

John: Thanks for the opportunity.

So we have a technologist who loves the work with an aversion to marketing. He makes his money three ways – through seminars and consulting, contract work, and a series of websites that draw in readers.

The high dollar-per-hour activity for John is the seminars. Being one of us, he doesn’t like the marketing, so he finds a partner to get him the work and splits the rate — in order to do that, he needs to be sufficiently differentiated from his competition, to offer something different. For John, that’s the W. Edwards Deming method of management applied to technology, but it could also be support or extensions to an open-source system he wrote. David Heinmeier Hanson wrote Rails; Matt Mullenweb started WordPress.

These are all the sort of things that a dedicated, committed person can do at night, to get things started.

Two hours a night, four nights a week, fifty weeks a year is four hundred hours a year.

I’m not exactly sure how John Hunter got to where he is. Certainly the situation of birth, of luck, and the fact that he is single has something to do with it. Yet Andrew Davis, a programer at Moodle, has been travelling abroad with his wife while programming for 530 days as I write this, with no particular end in sight.

The only thing I know for sure about John and Andrew is that, recession or no recession, layoffs, downsizing, new skilling or no, these two gentlemen refuse to be victims.

How are you doing?

Last time we met John Hunter, a digital migrant living in Malaysia.  John is a regular human, with two mortgages in the United States, who took a ‘six month’ vacation to Southeast Asia in 2011 … and never came back.

We ended with John making the claim that he could live on $1,300/month in Malaysia.  That’s $16K/yr, which, given taxes, means a minimum income around $10/hour to make a go of a forty-hour work week.  At $20/hr, that’s a twenty hour work week- anything higher than that means less hours or more in savings.  (Of course, that doesn’t include the cost of packing up your entire life, or the price of plane tickets …)

Still, it got me interested.  Just how does John generate the income to sustain that sort of life style, plus to save up for emergencies or retirement?

I’ll let him answer in his own words.

Matt Heusser: Now let’s talk about the hard stuff.  How did you find remote contract work in Southeast Asia?  Who are your customers?  How many hours do you really work a week?

John: I have several sources of income: rental income, income from my web sites, consulting income.  All I have done to find remote contract work is talk to a few people I know.  I should talk to a few more people I know (I planned to do so, but things worked fine financially and I kept myself busy so I never go around to it – if I had needed the money I would have).  I work a great deal on my web sites but the income from that is fairly low.  For The W. Edward Deming Institute I do some consulting, write their blog and present seminars.  For Hexawise I do some consulting and write for their blog.

My total hours of consulting and seminars a week averages less than 10.  I work on my web sites over 30 hours a week on average.  I make less from my web sites than either consulting or rental income.  At the very beginning the web site earnings alone (Google, Amazon and similar options) more than covered my living expenses.  That has declined significantly (for whatever reason I had a significant surge in income for about a year but it has gone away – from a bit before I left until about mid 2012).

I wrote a book last year, Management Matters: Building Enterprise Capability, which doesn’t show any evidence of providing significant income yet, but maybe it will (I do not think it is incredibly likely to do so however).  I just launched it in January and have been working on marketing it.  I probably averaged over 10 hours a week for 6 months on it.  It was what I wanted to do with my time; not something I figured would pay well.

I have no question if I was most interested in raising my income I would need to focus on getting consulting and seminar work.

Matt Heusser:  You decided to keep your homes when you moved to Malaysia and rent them out.  Why did you do that?  How has that turned out — I imagine the taxes, mortgage payment, and paying someone else for upkeep exceeds the rental income, so why do it?

John: Well it started when I kept my first house and rented it out when I bought my second.  Actually it started when I was looking for my first house; part of my thinking was buying something that would be a good rental.  I was actually planning on convincing my mother or brother or someone to take ownership of half of the first house (just to raise some cash and spread the risk – having to replace a roof or whatever) when I moved into a new house.  But I ran the numbers and the return was so great it was crazy to give that up to someone else (even family).

I very much like the idea of multiple sources of income.  And I had plans of going out on my own, in some undefined way, so creating an income stream from real estate was one strategy to support that option.  My second house I was less focused on rental prospects and it shows – I paid significantly more (and it is assessed at more) but rent is about 85% of the other one and has many fewer interested tenants when I try to rent it.  My first house is 2 blocks from a metro, in a very nice and active neighborhood.

The rental income is great.  It provides a consistent stream of income.  Though you do need to understand you can have months where you might have more expenses (due to repairs) than income.  I do pay someone to take care of them for me – I actually started doing that the last few years I was there (for the first property – just to not have to deal with it myself).

Matt Heusser: Describe a typical day.  How much time do you spend working, and what else is there to do?

John: A typical day is:
1) Wake up and go onto the internet, do some reading, maybe write some, maybe do some research… while grabbing a bite to eat
2) Option to go for a swim or play basketball (I’ll do one or the other 3 or 4 times a week)
3) Do a bit of work: maybe a bit of coding, write for one of my blogs, consulting… (basketball takes longer so this is not done if I play basketball)
4) Walk to lunch (a great Indian place about 3 times a week is 5 minutes away, some other places within 10 minutes.  About once a week a longer walk (several more options within 20 minutes).  Or I’ll get delivery, eat what I have on hand or take a taxi somewhere.
5) Work some more – with online breaks or reading books…
6) Dinner, normally I just eat what I have; I eat dinner out once or twice a week
7) Working on stuff for fun

I will have plenty of days where I only really do 2 or 3 hours work and others where I do 10 or more.  I spend a bunch of time doing things that can certainly be classified as working but are certainly not the way to optimize income.  I can spend a great deal of time gathering data and analyzing it for a blog post which couldn’t really be justified if I was trying to maximize income.  I am working on what I feel like.  If I needed more current income I would have to put more effort into where I knew the pay was greater (consulting and seminars) but as I don’t have to, so I do what I feel like.  I would be happy to do more consulting and seminars, doing the work to get more of that work doesn’t really excite me so I let it slide.

The time difference means if I need communicate in real time with the USA I need to do the early in the morning or in the evening.

I just started a new activity: taking a course via coursera.org.  It looks like that might take a significant block of time (more than an hour a day), I just started this week (and am signed up for a second course taught by Dan Ariely).

After a great deal of email correspondence and a phone conversation or two, I can start to see how John is successful. I can’t help but notice that while he needs to work 10 hours a week to make a living, he ends up spending forty on business.  Plus earning that $16K won’t pay for plane tickets, so he doesn’t get a chance to get back to the United States as often as he might like.  Finally, I’m struck with how John has certain advantages over the typical tech worker in a developed economy.

So let’s dig into that, with a final piece of the interview next week, where I ask John his advice on how others can get where he is.  I’ll close with my own thoughts, including how to develop that differentiation yourself.

Stick around; we’ll have cookies.

Before I was inspired to write by a sudden, surprise, 1% linkedin email, I was interviewing David Gewirtz, a CBS correspondent, Lecturer at the University of California at Berkeley, and author of “How to Save Jobs.”

It was the David’s work on economic policy that got me most interested in an interview.  Along the way, I wanted to find out what his own life was like, and how he steers between the freedom of freelancing and the reliability of steady employment.  

Let’s get back to it.

So I just got an email from Linkedin, telling me that my account is in the top 1% most viewed.

I should be happy right?

But I can’t say I am.  Instead, I suspect that something is very wrong.   Allow me to explain.

The Problem

Last week I was on linkedin, looking up a former colleague, and to the right, the little “People who viewed this also viewed …” box showed names of other former coworkers.  You know the types:  The project manager who never had a project come in on time (they rarely came in at all), the architect whose participation in a project was the kiss of death, the executive who didn’t even seem to follow through, but always had q great ‘story’ (right up until he was fired), and so on.

Out of a morbid sense of curiosity I clicked on a few of these, and read the bios, which were certainly putting their best foot forward.

Then there were the recommendations.

Oh my goodness, the recommendations.  Each of these people was “exceptional”, they all had keen, accurate, clear, and deep insights into the problems at hand, could think “outside the box”, they were strategic thinkers and high-level change initiators, coming from all levels of the organization, including from the person that decided to let them go.

Every single one of these folks had a pristine set of “this person walks on water” recommendations.

Just.  Like.  Me.

I truely am pleased and honored that people are either seeking me out or stumbling on to my profile.  Still, I have to wonder, when it gets time to choosing who to work with, if we all look perfect, doesn’t that create a sort of “Lemon Market” where the sellers can’t tell the good products from the bad?

A More Excellent Way

Looking at those recommendations a second time, I noticed something. Without a successful project to point to, the recommendations were limited to a list of virtues, like sharp, decisive, open-door, and so on. In writing, we call this “telling” – the author makes the decision for the reader that the hero is brave, or strong, or noble.

The classic way to express this in writing is not to tell but instead “show” – have the hero fight the dragon when everyone else runs, win the arm-wrestling match with the giant troll, or sacrifice himself to save the defenseless.

My favorite stories show, they don’t tell.

So my first takeaway to avoid the lemon market is to work on myself.  I’m going to review the folks who have recommended me, to see if those recommendations “tell” or “show”, and ask for revisions.

I want to have my recommendations talk about the challenging conditions, the conditions of uncertainty, the hard deadlines and out-of-control scope — and what I did to help the team move toward an outcome we could look back on and be proud of.  And if my friends can’t write that, if they struggle to find examples, I want to find out why, and change my behavior to make things better.

A Final Thought

When I left my last long-term consulting assignment, the staff got together and made me a goodbye card.  I kept it in my desk and re-found it the other day, and just took the effort to scan it in (click for the hi-res version):

Somehow, I suspect the folks I mentioned before, with the perfect set of “walks on water” recommendations, don’t have a card like that in their drawer.  I wonder how I could get that on linkedin?

Executing the Reboot

John Bruce, an active blogger in the early 2000′s, once pointed out that when companies need help, real help, not just empire building, they want grown ups, people that actually get things done.  Making it clear that you are a sound craftsperson may just be the new linkedin differatiator — or at least one of them.

For now, I’ll settle for checking my recommendations, asking people to focus on show, not tell.

More to come.

Last week, my friend RobLimo asked if I would take my ideas for independence, box them up, and do a video interview for Slashdot.  The resulting video got tens of thousands of hits in two days.

Somehow, I think it was less than it could have been.

Rob called the video “secrets of independence” or something like that.  At the time, I didn’t realize that was the goal — it felt more like a simple conversation.  With a title like “secrets of of independence”, I thought it deserved more punch — like the four things you need to know to go independent.

It turns out, I do have a list of four things.

That sounds like a good blog post for today.

It all starts with a lot of financial modeling in Excel.

Requirement #1: Know Your Household Burn Rate

This looks a lot like the family budget, and includes all ongoing expenses: Mortgage, Heat, Electrical, Car Payments, Car Repairs, Gasoline, Telecommunications, Magazines, Food, Entertainment, Clothes, your weekly allowance, a small amount of savings for emergencies.

Once you’ve calculated the burn rate, you’ve got the real problem: Living by it.  Consider dropping just that amount into your checking account, every month, for four months.  (Alternatively, just check your actual spend over that time period, to find out what your actual burn rate is.)

Knowing your burn rate is just smart, even if you don’t go independent.  If you, however, you’ll have new expenses.

Requirement #2: Know Your Business Burn Rate

Before you found your first customer or sent your first invoice, your business will have entire new sets of expenses.  You’ll need to purchase your own hardware, buy your own health insurance, contribute to your own retirement program, purchase software, join a professional association, pay for tax software and possibly small business software (I recommend Quickbooks Pro online).  You will add all these up, then consider how much charitable contributions you would make on top, and the taxes you’d be responsible for if you made that much income.  That is Federal, State, unemployment, social security, and the small business tax.

Putting those two together gives you your survival income rate per year.  Divide it by fifty, and it’s the amount you need to average, every week, to have a viable independent business – be it IT Consulting, Dog Walking, or Yard Maintenance.  Divide that number by twenty, and you’ve got a minimum rate per hour to charge assuming 50% utilization.  (Utilization being a fancy term for how busy you are.)

Requirement #3: Calculate Your Replacement Income

Replacement Income is the worst-case income you get – the money your household can earn if you go independent and the gigs don’t come your way.  This could be from a weekend job as a bank teller or pizza delivery person, but more likely it is the income from another household member, or possibly investment income.

The trick is, replacement income can’t get in the way of you being billable during the work-week.  The ideal replacement income allows you to travel to the client site during the work week, so being an online adjunct instructor at night works, as does creating screencasts to teach Ruby On Rails.

As long as #3 is greater than #1+#2, you can go independent right now.

For the rest of us, it’ll take work.

Requirement #4: Calculate Your Runway

(Burn Rate+Business Burn)-Replacement = Burn Per Month, or BPM.

Savings divided by BPM is your runway — the amount of time your have to find another assignment until you start eating into retirement income to pay the bills.

Once you know your runway, the decision suddenly gets a lot easier.  If you have less than a year of runway, you probably need a job.  I’m sorry.  Go back to step one and get aggressive about expenses; that will mean more money in the bank each month and also build your runway.

If you have more than a year of runway, then you can think about how much runway you’d need to find a day job.  Double that, and that’s your minimum.  If savings dip to that level, you start looking for a day job.  For now, start looking for contracts, and when you get enough to exceed your total burn rate, congratulations — you can quit the day job.

At least, that’s the cold, hard, mathematical considerations about independence.  You’ll notice I have not talked about emotions much, or even the hard process of finding new customers.

More about that next time.

I’ve covered a lot of things on this blog in the past year and a half, but one of the recurring themes is going independent.  I’ve run interviews with Corey Haines, J.B. Rainsberger, David Hoppe, and Rosie Sherry, along with several posts about my own journey as a digital migrant.

A few people expressed concern over what I was writing.

After all, most North Americans are looking for those ‘job’ things, with the benefits, paid time off, corporate retirement plan with unemployment insurance if things go badly.  By pushing people to go against their natural instincts, I am pushing them to make an unnatural choice.

At least that’s the argument.

I’m not too worried about the person that shouldn’t go independent.  They won’t read these articles, or if they stumble on to them by some great accident, they certainly won’t do anything about it.

No, I am looking to find people on the fence, who have the inclination, but lack a little something – people who want to be inspired.

Today, I’m going to try to inspire you.

The Set Up

Imagine for a moment you are a director of IT, trying to plan out what you can do in the next year. You have, say, thirty employees (five supervisors, each with four direct reports), a fair amount of hardware, and influence over a few ancillary departments. Your fiefdom includes production app support/helpdesk, the Windows Server Team, the UNIX server team, the network guys, and the DBAs – or something like that. You’ve probably seen the setup before.

Your problem is that the world keeps changing, and as it changes, the skill sets you need change. The programmers are talking to the end customers about the benefits of cloud computing – how they could roll out changes at the push of a button – but you don’t trust Amazon’s EC2 and you don’t know anyone who knows OpenStack, and don’t have budget for Windows Server 2012. Even if you did, no one on staff knows Windows server 2012. Then there are the business users who want to get off Outlook and to go gmail — but who knows how to integrate LDAP with gmail? Not to mention the Business Intelligence Initiative. Now you’ve got to hire someone that knows how to support that tool, too. Not to mention (mumble mumble I could do this for three more paragraphs).

If that sounds convoluted, confusing, and too much at one time — well, welcome to the head of a typical director of IT.

If you are lucky, as an IT director, you might get budget for two full-time employees. There is just no way any two people will have the skills on all the new systems you need.

Or, for the price of one employee per year, you could hire five different freelancers for four weeks each — or ten for two weeks.

The freelancers come in, do the integration, train the staff, create the policies, and go away. No long-term impact on budget at all; next year, you can hire ten different people, with ten different skills.

It turns out this is an economically reasonable choice.

Do the math. 5 people 4 weeks = 20 weeks, means the typical freelance contract worker gets 2.5x the hourly rate of an employee. Add benefits, and it could be 3x.

And they should.

Long-term contract labor has some amount of job security; you get a six month contract. Regular employees get unemployment benefits and implied longer-term job security. The economic tradeoff for that is reduced wages.

I am not trying to be judgement here; I am speaking in terms of economics.

When I talk about going independent, some of my friends are scared.  They are worried.

But wait.  Take a moment.  Make a list of your strengths and skills – especially unique skills.  Are there skills in that list that some executive, somewhere, might find valuable enough to rent at a premium?

If the answer is yes, well, congratulations.  You could probably be talent if you’d like … but don’t quit your day job just yet.

All I am saying is that you might have more options than you previously realized.

Forget about living out of your car and starving — that IT director needs you.

You just need to find him.

Let’s keep talking.

I my previous post I suggested that the workforce is split into three general roles – ‘Labor’, ‘Crew’ and ‘Talent’ — and that it was better to be talent.

In order to be talent, you need to be differentiated somehow from everyone else.  Unique; different.  The classic definition is either a ‘known good quantity’, willing and able to do things others are unwilling, or unable to do — and you’ve got to work gigs, not that day job stuff.

Let’s talk about how to get there.

A Branded Quantity

The straightforward way to do this in IT is to pick one (preferably several) of the following:  Get a PhD in computer science, become a professor at a referencable school, write a book establishing your expertise, then work at a big company with an impressive title.

My model for this is a man named James Whittaker, who yes, earned his PhD from the University of Tennessee, taught at Florida Tech, gave a talk with one of his students that he later turned into a book, How To Break Software.  After Florida Tech, Whittaker left for Microsoft, then did a couple of years at Google, and, as of last February, is now back at Microsoft.

That’s Whit over at right, when he was a director of Test Engineering at Google.

So yes, real people are really able to plan their career in such a way as to do things others have not done, to make their expertise sought-after and desired.  If you are under 25 with no mortgage or serious life commitments, this is an approach.  Right now, my advice is the University of California at Berkeley, MIT, or Carnegie-Mellon University, then on to Google, possibly Microsoft, or Groupon.

But that’s not the only way to do it.

Willing To Do What Others Can Not – Or Will Not – Do

When I click on the “Talent” list for Craigslist, the same listings come up again and again – actors, actresses, and *cough* models doing, well … things on cameras that anyone could do, but that violate the average person’s sense of proprietary.

The easy way to be talent is to simply do things others are unwilling to do.

It doesn’t have to be … adult.  Garbage and Sanitation workers get to work reasonably short hours and command premium pay and benefits relative to their experience.   Mike Rowe, on the discovery channel, has an entire show about this called “dirty jobs.”

In IT, this means carrying a pager or offering support services at midnight.

Consider this business model

There are one hundred and sixty-eight billable hours in a typical 40-hours-per-week month.  If you know your customers well, you might know that they only need, on average, thee to five hours of support – but want time reserved if they need it up to ten hours a month.  So you sell thirty customers up to ten hours of reserved time and get paid for 300 hours a month.  Most of the time it will work – occasionally you will need to call in some help (or just go crazy.)

This is how my brother in law got a very large house.

Or This One

The other end of what people aren’t willing to do is what they aren’t able to do.   So you go out and write your own webserver, or some other component, that is terribly needed to make an open source project really work.  You don’t have to write the whole thing. Zed Shaw, for example, wrote Mongrel, the webserver that made Rails efficient – and gave it away.

Or take David Heinemeier Hansson (“DHH”), the creator of rails. He once had a recruiter ask how many years of Rails Development experience he had.  David replied “ALL OF THEM.”

Neither of those guys is going to have a problem finding a gig anytime soon

The Last Piece

But there’s another element, the toughest element, in becoming talent – moving toward pay-per-event – that most of us avoid out of culture.  We want the “safe” day jobs, which, ironically, means that freelance work becomes  work that few people will do, further increasing the value of that work.

More on that next time.

In my Informations Systems Policy Class in Graduate School (yes, they have classes for that), outsourcing was one of the hot topics of the day.  Specifically, outsourcing of business process. The basic idea was to clearly identify services, then cut cost by moving them to low-wage areas.  We even had impressive, triangle-shaped strategy graphs that talked about what to outsource and how to outsource it.   I ended up doing my master’s capstone work on the subject of outsourcing; it still stands up to scrutiny today.

But I have to admit, when the Washington Post ran an article on Indian Companies setting up call centers in the United States, I was as surprised as the next guy.

There is a lot of confusion going on here; a lot of doubt and mis-understanding.

I’m going to try to clear it up … and let the opportunity show through.

 How Did This Happen?

If you’ve ever called an 800-number for technical support, only to be transferred a dozen times, you probably realize how hard it can be for outsourcers to clearly identify lines of service.  Add a half-dozen time zones, eight layers of management, and a great-annual-review, transfer/promotion/forget_about_yesterday culture to the mix, and you’ve got a prescription for some real trouble.

There are plenty of lessons to be learned from that, but one of them is that keeping the outsourcer close — physically close — to the client company adds incredible value.

So that is exactly what the outsourcers have done.

After complaints about poor service, they looked at the United States (and other developed nations) with our bad economy, large numbers of unemployed workers, large amounts of cheap office space with power everywhere (that works!  All the time!) and said “hey, why don’t we set up shop across the street?”

According to the article, Aegis ignores credentials, uses a competency test, and pays workers who can do the job of repeatable business process outsourcing (mostly phone calls) from $12 to $14 per hour, along with a monthly bonus that might be worth an additional dollar per month.

To a competent high school graduate, it isn’t much, but it beats Taco Bell.

Truth and Consequences

One thing that always struck me about offshore technical work – from low-skill to high – was the sheer number of inefficienies in the process.

First you need a sales person on-site in the developed nation; you need an office to support that sales force.

Then you need the recruiters, trainers, and management overhead in the developing nation, plus, likely, an army of translators and liason-people.  You need to pay taxes, fees, and lots and lots of airfare and hotel expenses.

All this translates to inefficiencies in the system – it makes costs go up.

The Opportunity

A few years ago, an offshore company was offering programmers at $30/hour.  The work wasn’t that complex; it couldn’t be, in order to be offshored.  At the time I thought “A good college intern would accept that rate.  Why, I could get student to drop out of college for a few years, pay them $25/hr, and collect the float.”

I did have a bit of a chicken and an egg problem – I could not get the employees until I had the sales, and vice versa, but the idea was right.  I thought local people of ability could compete directly with offshore work by eliminating complexities in the supply chain. (In English: Cut overhead and work from home.)

I didn’t have the investment cash to pursue this, but it turns out, someone else did.

Today, the outsourcers are setting up shop locally and hiring the talent themselves.

The thing this – they are still saddled by those layers of management, the sales force, the physical office.

With IP telephony and rerouting, someone is going to build a virtual office, enable people to work from home, and lower costs to providers.

The only question is if it will be the developed nations … or the entrepreneurial, scrappy, outsourcers they have come to rely on.

If anyone wants to talk about this — you know where to find me.

Regular readers will remember last month’s Las Vegas Trip to Interop (including the Booth Babes). A few of you may also know that, while in Vegas, I found time for an onsite with Zappos,

Long-time readers know that when I make these trips, I ask a lot of questions.  Some aren’t relevant for the C-level audience; others need to be interpreted by an audience with a bit of … finesse, or, perhaps, would be great, but the answers I get just don’t fit into the piece.

That’s what we have unchartered waters for.

Zappos is a subsidiary of Amazon.com; the company was purchased in 2010, when it had just broke the $1 Billion in annual revenue threshold.

For a website primary known for selling shoes, that is, well, a lot of sales.

Not only did the folks at Zappos invite me for an onsite; they also extended the offer to include attending the all-hands meeting the day before.

Why yes, now that you mention it, I did take my video camera.

The company is actually based in Henderson, Nevada, about fifteen minutes from Las Vegas, and is in the middle of a huge, ambitious project to move to downtown Las Vegas.  Once of the references that Tony Hsief, the CEO, made was that as companies get larger, the per-employee productivity goes down — yet as cities grow, the per-human productivity got up (for most reasonable measures of it.)

Why is this?  Well, lots of things, but I suspect choice and competition are two of them.  When you get more rug-sellers in the market, the customers win.  When people have autonomy over where to live, and realize that, if they put work into the house and community, it’s value will go up, they put effort into property and community.  More people means more specialized clubs and social events.

After describing the advantages to downtown, the company leaders showed a video that was a Walk-through of the Zappos Campus, really a world-class comceptualization.  My camera was on, and yes, I can show you the recording.  The all-hands was enlightening; I got to see the fun culture, the focus on customer service, and a couple presentations from outsiders.  (I have a little more film, I can upload it if there is request.)

Then Things Got Interesting

The second day was where the real action is — the heart of my CIO piece.  One thing I captured on camera that I haven’t had a chance to publish yet is my interview with Chris Weiss, then architecture lead (now director of it) at Zappos, about how the site’s hardware and systems interoperate.  When you consider the volume of traffics they get (the site is rank #216 for traffic in the United States by Alexa), having a 200ms response rate from inbound to outbound is incredible.

How do they do it?

Here’s Chris Weiss in his own words:

Just one more thing:  There’s plenty more to come.

We’ve been dancing around the idea IT staffing, discussing both augmenting with contractors when demand gets high, as well as outsourcing with a model like IS Lite.

Let’s talk a bit more about IS Lite.

Yes, last time I criticized the idea as it was typically practiced.  That’s not a criticism of the idea; it’s one of implementation.

The idea with IS Lite isn’t to shift to managing a bunch of contractors for IT services.  It’s to identify the services that can be provided by the free market, and find partners to provide those services.

With IT Lite, you don’t pay a contractor and a license for MS Exchange; you find a company willing to service and support email.  And internet.  And your login service. And your print service.  Helpdesk.  And Hardware.

No, again, don’t look at me like that.  I’m not saying the company should sign some huge outsourcing agreement with a big vendor, layoff the IT staff, then have the vendor hire the same people back at half the pay — though that has been done before.

No, I’m talking about real services that can actually be outsourced.

That means the services will either need to be very horizontal (“the internet”, “website hosting” and “basic IT support” come to mind), your business better be very simple technologically speaking, or the partner is going to have to get to know you very well.  That might be good for the vendor, but to the hiring company, that might end up looking a whole lot like “vendor lock-in”, which is a fancy way to say that the sourcing partner can hold your company hostage.

This is not kids stuff.  It’s easy to get wrong, hard to get right, and very well might have a direct impact on your career in lots of ways.

But before I take a look at your career, let’s digress.

Personal IT Verses Corporate IT

Consider, for a moment, just how wildly different personal IT is from corporate IT.

In the personal world, if you want an app, if it’s email or a spreadsheet, word processor, invoicing application, billing application, bookeeping or blogging, you can probably go get a free application right now.  At least, it’ll be free for thirty days or so.  Then, bam, you’ve got the software, delivered as a service.

If you don’t like facebook, you can go try GooglePlus.  If you don’t like GooglePlus, switch to twitter, or flikr, or whatever.

I work with one team that did just that.  The company had a standard for project management online  – It came from Microsoft and it’s title was SomethingPoint.  The team decided to sign up for PivotalTracker, which is free for the first sixty days, try it for a month, then ask for the four dollars per person-month to use the application.

It worked.

Now imagine you have to work in “IT” in such an organization, or maybe one where the CEO brings in his shiny new iPad, and if IT won’t support, IT is the one with a problem.

Fight this, and you become irrelevant amazingly quickly.

In fact, some of the Software As A Service vendors have given up on selling to corporate IT entirely, selling directly to the end customer with budget.

Lines like “face it, corporate IT is dead” may be a bit dramatic, but think of it another way:  The SAAS vendors are selling services, in the same vein as IT Lite.

Let’s go beyond pivotal tracker.  Think about the Gen-Y journalist brining in his own iPad to work, who uses his own blogging service, google for email and google docs or Socialtext for collaboration, with basecamp for project management.  How can IT serve that kid?

We’d better find some way to do it.  Because there will be more of him.

To survive, we folks who consider ourselves corporate IT need to either provide some different services, or go work for services companies, or find ways to stich together existing services and sell convenience, or else, perhaps, re-invent our role in some other way.

More to come.