10 Years of Solo Consulting (Part 3)

Episode 44: Better Built By Burkhard

This is the third and last part looking back at my 10 years of solo consulting. In the first part, I reflected on positioning and customer value as the foundation for a successful business. In the second part, I discussed pricing and payment terms. I’ll close my retrospection with my reasons for working solo, with a discussion about starting a company or not, and with the importance of a healthy work-life balance.

10 Years of Solo Consulting (Part 3)

Working Solo

Give a man a fish and you feed him for a day. Teach him how to fish and you feed him for a life time.

This proverb is the guiding principle for my customer engagements. I help my customers become self-dependent and make myself superfluous as quickly as possible. I enable development teams to implement product features on their own, faster and with better quality (see Enabling, Platform, Complex-Subsystem and Stream-Aligned Teams). My customers gain control over their own fate.

This is in contrast to most service companies and freelancers. They have a vital interest in making their customers dependent on their services. The more dependent customers are the easier they can sell more hours and more developers. This is rarely in the customers’ best interest.

ROPA, the world’s leading manufacturer of sugar beet harvesters, was heavily dependent on a single supplier. This supplier provided the hardware and software of the most important ECUs including the HMI ECU or terminal. The ECUs were tightly coupled with the terminal controlling everything.

If a problem occurred during the 6-week harvest, ROPA always had to ask the supplier to fix the problem. If the responsible developer was on vacation, ROPA had to wait for a week or two until the developer returned from vacation. Because of the tight coupling, fixing problems took very long and often introduced more problems. The harvester stood still or the yield was reduced.

This situation was intolerable for ROPA, not good for their reputation and drove up the support costs. ROPA decided to take their fate into their own hand and develop the ECU software themselves. They only needed an experienced person to ramp up the in-house team, take over a good part of the development initially and gradually hand over development to their team. During this decision process, ROPA received a cold e-mail - from me. The sale was one of the easiest in my solo career.

Another advantage of working solo is that customers know exactly with whom they are working. They don’t work with any run-off-the-mill developer of a service company. They are guaranteed to work with the expert in smart HMIs for machines, who knows their problems inside out.

Especially, small and medium businesses (SMBs) understand the advantage they get from me working solo. It certainly helps that I have a couple of similar projects as references. So, I made working solo part of my positioning and use it as a differentiator from service companies. Needless to say that I didn’t start with this understanding of working solo 10 years ago, but developed it over the years.

Starting a Company

In Germany and other EU countries, there is the legal notion of a self-employed person or freelancer. Freelancers are not incorporated. They have a VAT ID so that they can operate as a business. They must pay earned minus spent VAT, can deduct paid VAT and other business expenses from their revenue, and pay income tax on the remaining income. The income tax is the same as for regular employees. Declaring VAT and income tax is fairly simple when done with the right software (Qt-based, of course) and takes me less than 30 hours per year.

Many freelancers (me included) opt out of the statutory pension insurance and take care of their pensions themselves. This is a privilege freelancers in Germany still have, although the government tries to abolish it for new freelancers (not for me, fortunately). For example, I take care of my pension with stocks, ETFs, a life insurance and real estate, which normally yield a much higher dividend than statutory pensions. Unfortunately, freelancers . While profits from real estate and life insurances are tax-free, freelancers must pay a 25% tax on profits from stocks, ETFs and other stock-related investments.

The other legal option for running a solo business is to create a GmbH, which is equivalent to a British Limited or an American Incorporated. I would be the sole proprietor of the company and its only employee. The goal is to keep as much of the income in the company and pay the employee-me a salary that is much lower than my income as freelancer and covers a bit higher than my living expenses.

A GmbH is taxed at a flat rate of roughly 30%, whereas freelancers incur a progressive rate maxing out at 42%. Hence, the company pays 30% tax on an income reduced by the salary (another business expense). The income tax on the salary is considerably lower than on the freelance income. From a certain income threshold (roughly €120,000 for married people like me and €60,000 for unmarried people), the company-me and the employee-me would pay less taxes than the freelancer-me.

Profits from stocks and ETFs are taxed at 1.5% as long as they stay in the company. That makes trading stocks a lot cheaper than for freelancers. When the company pays out stock profits to me as a private person, the tax is 25%. Hence, the company best pays a lower-taxed salary instead.

There are some downsides to an incorporation. If the company sells real estate, it pays 30% tax. Private persons get a yearly tax deduction of at least 3% of the purchasing price, when they rent out the flat or house. Companies don’t get this deduction. Moreover, I would need to hire an accountant doing the taxes of the company.

Unless you are running your business in Germany, you don’t have to understand the details (trust me, I left out most of the details any way). Tax law differs from country to country. However, you should understand your options of running your business early in your career, make a well-informed decision, check your decision every year and adapt it if necessary.

If I had understood the tax and other ramifications 10 years ago, I would have probably created a GmbH. Then, compound interest on higher investments could have worked its magic for more than 25 years of active income. Now with 10-15 years left and on the verge of buying a second property, it may be too late. I’ll definitely check my decision regularly and adapt it if necessary.

I certainly gift a good chunk of money to the Taxman. In return, I get good infrastructure like health care, Internet, energy, roads, trains, hiking trails and cycle paths. So, I don’t mind. Any way, my income is high enough to enjoy a mostly worry-free life.

Work-Life Balance

From January to beginning of August 2014, I worked 60-70 hours per week on an infotainment project. This included a 6-week stay in India and a 4-week stay in the US. In July, I showed all signs of a burn-out. It was my wife who prevented a total break-down. She went through a list of burn-out symptoms with me and I ticked nearly all of them. There was no room for denial. I turned down the extension for another year and just recovered for the rest of the year.

It was at the end of August 2014, just after the death-march project, that we moved from Stuttgart to Muehldorf. We also started regular hikes in the nearby Bavarian Alpes and cross-country skiing in winters. The next 5 years we went hiking every other week.

When COVID struck in early 2020, we started doing it every week. It was amazing to have the mountains mostly for ourselves. We could go hiking on week days, as I had started to take on only 4 days of paid work per week. On average, I spend 1.5 days on developing my business like writing blog posts and newsletters, giving talks, creating new productised services, and finding my next customers. The remaining 1.5 days are for leisure. Another positive consequence of COVID is that my wife and I go for walks around home nearly every other day - often in the lunch breaks.

Now have a look at the photo at the beginning of this section. I reached the place in the photo after a 2.5-hour ascent - half of it over a steep snow field. Going up there was a bit tiring and demanded full concentration. I just focused on the next steps. I sat on the summit for over an hour enjoying the beauty and serenity of the mountains. I would have sat there for even longer if sunset hadn’t been close. Sliding down the snow field was just the icing on an amazing day. Did I ever think of work or other problems? No, I certainly did not.

Hiking in the mountains is meditation for me. I can totally forget the daily grind and immerse myself into the mountains, flowers and views (in German it sounds even better: “Berge, Blumen und Blicke”). Nice chats with other hikers and tasty food in mountain huts complete the experience. The two nights after a hike, I sleep like a baby.

Hiking, cross-country skiing and walking is essential for my work-life balance. Your ways of coping with stress naturally vary. There are so many like cycling, paddling, dancing, reading, Yoga, praying, living in an Ashram, helping out on a farm and spending time with your loved ones. I believe that is vitally important to have a way of stress relief. Without it, both your health and business will suffer.