We're all temps now

The economic downturn is making life harder for independent contractors. But is having a staff job really any more secure?

Published April 11, 2001 7:37PM (EDT)

Last May, after 10 years at Intel, Lisa Magsanay, 37, quit her job to strike out on her own. She'd spent most of her career in marketing and communications, but had more recently gained experience with Web design while working part time on Intel's intranets. There, she found a new direction.

"I figured out that I loved Web design. It's what I wanted to do. I'd found something that I was passionate about, and I wasn't able to do it full time at Intel," she says. After marshaling a number of small business clients, she went freelance -- just as the bottom dropped out of the market.

"My clientele has gone down to almost nil," she says. "The worst part of it is that I found my dream career. I found my passion, and I'm good at it, but I can't get paid."

Magsanay is discovering that sites like Elance, where contractors bid on projects, are flooded with talent but scarce on jobs. When an attractive gig actually does get posted, it's mobbed with bids. "Sixty-five to 100 people will bid on each project, and everybody low-balls so you're not going to make any money even if you get the project."

In February, Magsanay decided to give up the freelance lifestyle and started looking for a full-time Web design job, but she is finding the permanent job market just as unforgiving. "It's very depressing, because I thought even if it doesn't work with my own business, I'd have no problem in the job market."

Just a year after going freelance, Magsanay, who lives in the mountains above the tony burg of Los Gatos in Silicon Valley, is now considering taking a retail job in town just so she'll have some money coming in. "It's that bad. It's pathetic."

Pathetic or not, it's an extreme of the new rude reality that's set in among Silicon Valley's bathrobe set. Fire your boss! Break the alarm clock! Commute to your living room! These were the rallying cries of the contractors, freelancers, consultants and "free agents" who eagerly bought in to the Valley's vaunted hired-gun mentality. In the taut labor market of the last few years, programmers, marketing consultants, usability gurus and graphic designers found that they could turn away work and jack up their rates ever higher with no downside.

But now that the dot-com bonanza has all but evaporated and the tech sector and economy continue to cool, contractors are feeling the brunt of the abrupt slowdown, right along with their pink-slipped full-time counterparts -- just without the severance or unemployment.

During the boom of the '90s, some stalwart leftist critics argued that the hyperindividualism of the contractor lifestyle would bite freelancers in the ass when the labor market inevitably slackened. With their fortunes tied more directly to the whims of the markets, it would be the freelancers who would feel the punch first. After all, in a soft labor market, freelance peddlers of labor get slagged.

That's partially true. Today's project timelines are getting shorter. Clients take longer to make decisions. Some contracts are simply canceled. And networking events are now crowded with hungry consultants hitting each other up for work.

But as layoffs of full-time employees also become ever more popular (not to mention sudden and unexpected), it's not altogether clear that independent contractors are getting the worst of it. Their own flexibility may actually prepare them better for a tougher environment than longtime staff employees who haven't had to measure themselves against real market needs for years. Indeed, the lesson to be learned from the travails of contractors in Silicon Valley right now may be that distinctions between full time or part time, contract or "perm," don't mean all that much. In the new economy, we're all contractors now.

If the boom did anything, it created ludicrous opportunities for contractors who could set their own rates and hours -- and take on as many clients as they could stand. Like a wholesaler of energy in a spot market filling in during an energy shortage, for contractors the sky was the limit.

"I think that the boom market bred a lot of people like me," says Mark Marinovich, 46, a marketing consultant based in Capitola, Calif. "I was raising my fee every 15 minutes. I was being highly selective about my clientele. I was the buyer. My clients were the sellers. For several years, I was like so many independent contractors I know; I was turning away work. I don't know whether it will ever come back like that."

For Marinovich, the turning point was last summer, when he worked for months on a project for a company that went bankrupt. "It was a shock. I didn't make a dime."

Last October, his phone just stopped ringing for a month. Since then, work has been at a lull, and he's taken on low-tech clients, while devoting more of his time to penning his first screenplay, "Low-tech Consultant," which he calls a "dot-comedy." "It's 'Trading Places' meets Silicon Valley," he says. "Yes, there is an autobiographical dimension."

Marinovich's story is echoed in conversations with dozens of other contractors, stunned by the wild swings they've seen in their own bottom line. It's a feast or famine story.

But even consultants watching their client base narrow (if not evaporate) don't see much more insecurity in their situation than in that of their full-time employed counterparts.

San Jose Web developer Catherine Hicks, 25, had her latest contract with Cisco shortened from six months to three when the company's stock tanked. "Since I hadn't been there long, I was the first one to go. I'm used to it," she says.

In her short career, Hicks has seen not only companies go under, but the school where she got her associate's degree in multimedia design shut down last month for lack of funds. Her college went out of business. But she's unfazed.

"The flip side is they could have done this to me if I had been a permanent employee," she says about Cisco, which announced layoffs of 8,000 workers: 3,000 to 5,000 full-time; the rest contractors. "I have friends losing their jobs left and right that they've had for years. It's not really necessary, as I see it, to have a full-time permanent job, because nothing is permanent out here. If the company's stock takes a dive or gets bought out, you're out of a job anyway."

Although contractors may often be the first to go when cuts are made, the downturn has shifted the balance of power. Congratulations! Now everyone is insecure! Marcus Courtney, the co-founder and organizer of Seattle's WashTech, a labor union for contract technology workers, says: "This whole downturn has caused a significant increase of job insecurity. There's almost a leveling starting to occur between contractors and employees right now. Bread-and-butter issues are becoming the concern of full-time employees as well."

Dyed-in-the-wool free agents must be expected to defend their off-the-payroll ways as the only logical response to a volatile job market. But even those less passionate about the contracting life have their doubts about full-time employment as a "safer" proposition.

Winnie Chen, a San Francisco Web usability consultant, has started looking for a full-time job, because of the tightening market, but she's not convinced that that will be a much safer haven: "Personally, I know of six people who got laid off in the last month and a half, and I know of four or five people who will find out in the next 90 days if they got laid off. Whether you work full time or contract, it seems like it's less secure either way."

And some maintain that contractors with several clients may in fact be better off than full-time employees. "In a downturn everyone suffers," says Dan Pink, the author of the new book "Free Agent Nation." "The question is: Do you ultimately suffer less or more if you have a portfolio of clients than a single boss? I think you're better off with a portfolio."

Like stock pickers who've put their life savings in Amazon.com, full-time employees put all their hours in one basket. The contractor has more options. Ann Marcus, a communications strategist for technology companies, splits her time between Portland, Ore., and San Carlos, Calif. She says: "With employees, their situation is black and white. With consultants, the nature of the relationship can change without completely severing the whole relationship." It's easier to have a contract reduced than to be partially downsized.

The shakiness can paradoxically create demand for part-timers, according to Jodi Hadsell, the president of Muses Inc., a small San Francisco staffing firm: "Some companies only want to work with consultants because they're really not sure of their future, and they don't want to go through the hiring process of bringing on a full-time employee when they might go under in a month or two, but they still need to finish up work for a client."

For the consultants who feasted at the dot-com orgy, the new watchword is "diversification." Because it doesn't really help you to have a portfolio of clients, if they were five different women's sporting good dot-coms, and they now are all defunct. Best of all, it's time to get out of the dot-com world altogether -- a shift that may be easier for inherently flexible independent contractors than it might be for staffers who have spent years toiling away at one job for one company.

Sarah Browne, a market research consultant, has seen her clients shift away from the "ebrats," as she fondly calls them: those dot-commers who had so much cash that on trips they'd rent a separate hotel room just for their mountain bikes. "But these days, I'm saying, 'Viva la old economy!" An independent for 27 years, she's shifted her client list from 80 percent tech to about 50 percent, and she's back to working for food, women's products and liquor companies.

"It was like a giant feast for a while there, and everybody was gorging at the smorgasbord, and now we're all on a big diet. For every job I did in the last three years, I turned four away." Now, she's glad she held on to that handful of old economy clients.

Some veterans of the technology start-up world maintain that things really haven't gotten as bad as popularly envisioned -- as long as your skills aren't purely dot-com. "I have as much work as I had a year ago, and I haven't lowered my rates," says Diana Benedikt, who consults to early-stage technology companies on raising venture capital and crafting their business plans.

Her secret: She's shifted her business skills to new markets like wireless and optical networking. "I just took my first optical networking client. I didn't know anything about optical networking, but I applied the skills that I have to their emerging market, and found that I can definitely add value there."

"I think that had I not diversified a year ago, I'd be in serious trouble now," says Brenda Kienan, a content strategist in Oakland, Calif., whose husband was laid off last October as the director of technology at an Internet company. She shifted some of her working to training and teaching when she saw the market start to tighten last year.

Like many consultants, Kienan is discovering that the downturn means she has to actually go back to marketing her skills, instead of choosing which clients to accept. "I'm working as hard as I was last year -- the same number of hours -- but a significant portion of those hours are not billable hours, they're marketing hours."

Fewer billable hours means less money, so we can all look forward to austerity chic. Pink says: "The individual free agents are in a sense microcosms of big companies. They're looking for ways to trim expenses. They're not auctioning their Aeron chairs on eBay and selling plasma downtown, but they are taking some very prudent cost-cutting measures.

"We're not planning any vacations," says Kienan. "We were thinking about getting a new car this year. That's not going to happen. We were thinking about getting a dog this year. That's not going to happen."

But woe to those who did not diversify: The consultants who are worst off are those whose skills are very Web- or e-commerce-centric.

Sandra -- a Silicon Valley Web designer who asked that her name not we used -- expects that her income this year will be about $45,000, half of the $90,000 that she made last year. "For the last couple of years I've been booked out three months in advance. This time last year, I was working 80 hours a week." The clients that are hanging in are the retail clients. But she's the first to admit that the $90,000-a-year heyday was something of an aberration: "I would be working for companies with business models that were really bizarre."

Still, not one of the contractors interviewed for this article expressed any regret at having made the leap to working for themselves. And even with the dip, most of them aren't ready to run scared back to full-time work, assuming there is full-time work to be had.

Jill -- not her real name -- is a Silicon Valley marketing and communications consultant who has worked for companies such as Netscape, Sun and Nortel Networks. She has seen her contract work dry up, and her two best contacts at her favorite recruiting agency were laid off. If things don't improve by the end of the year, she'd take a full-time job: "But only as a last resort."

Nancy Friedman, a freelance copywriter, interviewed for a full-time job at a big branding agency in San Francisco about six months ago, when things started to get chilly. But she didn't take the job, and has since wondered if she'd be better off: "I've had some pangs of regret, but I wonder if I'd taken it, would I have been laid off by now? It's not more secure to be an employee. In two of the best jobs I've had, I've been laid off because of mergers."

And Todd Gemmell, a Java and C++ coder, says he and the other programmers at Coyote Grits who defected from Pixar to work as hired guns don't relish the thought of having to commit to the old full-time grind.

"We shut down the office for a week a year for Burning Man. When it's warmer, we'll arbitrarily take the day off and go on a rafting trip or something. We're fighting really hard for that lifestyle," says Gemmell.

The flip side of the contractor's lament -- first fired! -- is that they're often the first hired back on. After all, after sweeping layoffs, someone has to come and do the work.

"When permanent employees get laid off, sooner or later companies realize that they still have deliverables, they still have deadlines. And who is going to do the work? So ultimately they start hiring contractors back," says Lisa Ferdinandsen, 38, a San Jose graphic designer and project manager. Her two biggest clients -- a chip manufacturer and a medical imaging company -- pulled the plug on her contracts on the same day last week. But even with 50 percent less work, she's still keeping her cool: "I don't feel desperate yet. I was a responsible girl, and I have three months' salary in the bank."

And Kris Bondi, a San Francisco communications consultant, is among the few optimistic consultants in Silicon Valley who says that things are already starting to come back. "I am much more positive now than I would have been a month ago," says Bondi, who watched a few of her tech clients file for bankruptcy or go out of business in December and January. "A lot of businesses were putting things on hold for the first three months of the year. They don't like where we are right now, but they've accepted it, and they've started to move on."

By Katharine Mieszkowski

Katharine Mieszkowski is a senior writer for Salon.

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