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Analytics Magazine

Reality Check: The top five misconceptions about starting an IEOR consulting career

Spring 2008

CLICK HERE TO GO TO THE DIGITAL VERSION OF THIS ARTICLE

Carrie Beamby Carrie Beam

So here you are,starting your last school year. Perhaps you’re finishing a B.S. in operations research,with a double minor in something utterly practical, like computer science and accounting, and an unholy fascination with the left nullspace of a certain type of sparse matrix. Or perhaps you’re polishing off a Ph.D. in industrial engineering,while managing to take as many Italian art classes as you can for free while you’re still a full-time student. Or perchance you’re an undergrad majoring in applied mathematics because your school doesn’t offer a full-blown OR/MS major, and while you can program a little and learned to order another cappuccino in Italian while in Rome last summer, you have spent the vast majority of the past few years working your way up to being president of your sorority, a position which now quite frankly consumes more of your time than your senior thesis.

Every time you run into a grownup, he or she asks, “So what’s next? What are you going to do after graduation?” You’ve been thinking of consulting – OR/MS consulting, to be exact. This idea of being paid to tell other people what to do while being your own boss and doing interesting technical work really appeals to you. If you have had this thought, my friend, this column’s for you. I’m writing from the perspective of a sole proprietor who has built an OR/MS consulting practice from the ground up, immediately following graduate school,with three major tools: a telephone, a laptop and a Ph.D.

How many of these misconceptions do you entertain, however briefly?

1. I don’t need to know how to dress well, schmooze or make pretty PowerPoint presentations. In school they assigned me hard problems and I solved them. I’ll do the same when I go to work.

If you are going to be working for yourself, this is not only false, but deadly.A small-time practitioner is much better off dressing well, schmoozing exceptionally and using excellent PowerPoint to present mediocre mathematical results.Why?

First, according to veteran O.R. consultant Harlan Crowder, in the real world, “you not only have to determine the ‘answer’ to the question, you also need to figure out the question. Most executives and managers you work for – as an employee or consultant – will know they have a problem, but will not be able to articulate what has gone wrong in their organization or business.” Crowder says some of his greatest successes as an O.R. practitioner have come from the ability to work with clients to help determine exactly what problem needs to be solved. The real skills needed for real-world problem formulation are: 1) interpersonal, 2) communication 3) ingenuity and, above all, 4) patience.

Second, in general, your clients hire you because you are better at math than they are, and hence they can’t really judge how optimal a particular solution is.What they can judge are clothing and Power-Point, and (for better or worse) they will often decide how valid your mathematical results are based upon your shoes and the color scheme on a slide. Third, the sad reality is that much of the business world is run on eighth-grade algebra. The silver lining inside this cloud is that with an OR/MS major under your belt, you should be batting very close to 1.000 on all of these, even the story problems involving trains leaving Chicago and St. Louis at different times.

2. Delivering great work on time and within budget is enough.

Possibly false again. If you work for a big company, your career skill ladder will look something like this: do the work (entry-level), manage the work, sell the work, build the brand (partner).At the “do-the-work” level, yes, doing great work on time and within budget will make your manager quite happy, especially if you get along well with the client while you do it.

Image © 2006 JupiterImages CorporationImage © 2006 JupiterImages Corporation

If you work for yourself, your skill ladder will look something like this: sell the work, do the work, sell more and more work, hire somebody so you can manage the work, sell even more work, build the brand and continue selling more work. The on-time and within-budget bit is nice to have but certainly not a requirement.You’ll be better off with excellent sales skills and good project management skills, so you can gently let a client know you’ll be late and running over budget, and spin it so he’s delighted to hear that news.

3. I’m looking forward to working; $150 an hour amounts to $300,000 a year! I’ll have a nice car, a great place to live and an expense account. What a life!

Maybe false again, my friend. If you work for a big company, some of this plus a daily Grande at Starbucks can be yours immediately after signing on the dotted line. According to executive recruiter Ray Fortney, a partner in a Bay-Area based executive search firm,“Salaries for upper-level executives with an O.R. background can easily start at $150,000 and range to $250,000, not counting bonus.And don’t forget benefits including a 401k or stock options. Compensation packages like this are particularly true if the individual is an excellent manager, has strong leadership skills and strong customer skills. These skills are generally learned working for top tier companies. Picking the right company early in your career can be key to your long term success.”And with that sort of start, you can quickly upgrade your Starbucks habit to the Venti, and even progress to the ones with the whipped cream and the chocolate swizzles and the big plastic bubble thing on the top.

And now for the sad news. If you start your own company, you get paid last: after Kinko’s, after your liability insurance, after the hotel stay in Manhattan that the client will take seven months to reimburse you for, after the $2,000 for attending a trade conference at which you got food poisoning and didn’t make any contacts after all.

Those professors who make $300+ an hour to consult? They have two things going for them that beginners typically don’t. First, they’re world experts and have years of experience going for them. Second, they’re selling time at the margin; they don’t need to fill 40 hours a week, 50 weeks a year at those sorts of rates. The university pays their bread and butter, so the professors have the luxury of waiting for the big, juicy job to come along, all the while sharpening their expertise and broadening their spectrum on the university’s nickel.

My first year in business my income was something like minus $4,000. That’s right,my bank account was $4,000 smaller after that first year. For my first big out-of-town job, rather than spending money on hotels or restaurant meals, I dug up a grad school friend in that city, stored groceries in her kitchen and slept on her floor. And my first three years in consulting, I was driving a 1984 blue Volvo station wagon with the right front headlight alternately hanging off at a wild angle or stuck on with duct tape. I parked around the corner when I went on sales calls, because I was sure that any prospect who saw that car would immediately count me out.

For those of you keeping track of these things, I’m now driving a 1998 Saturn with Cheerios all over the back seat, and every time I drive a client anywhere I have to get worked up into a wild vacuuming frenzy first. The only exception to this rule is if the client also has children and has let me into his or her fully-Cheerio-laden car first.

4. It’s rude to talk about money.

This is somewhat true. You have to be careful what figure you share with whom.At a big company, you’ll be responsible for tallying up your accomplishments each year and negotiating with your boss for a raise. As a sole proprietor, you are the boss and you will be talking about money in every other sentence, and you simply will have to get over the social aversion.You will be asking prospects for the sale.You will be asking about corporate discounts on travel.You will be negotiating with vendors and contractors to get the best rate.You will be dealing with your bankers about lines of credit that they will only grant once you don’t really need the money. You will be dealing with your brokers about retirement plans.As I write this, I am finishing up Project B for a client and knee-deep in Project C for them, and they have still not paid for Project A, for which I sent the invoice two months ago.

Money, money, money drives the small-time operator’s world. And between the thoughts about dollars and selling, you can think about linear programming, inventory systems or, in a flash of inspiration, see if you can come up with a snazzy rhyme for “stochastic process.” (The best I can do is “gymnastic bosses” or “spastic rhinoceros,” and I must admit I actually spent a good deal of my first year in the Ph.D. program at Berkeley contemplating this precise issue. It’s a wonder I passed my comps.)

5. Running a consulting practice is the same as running a consulting business.

False again. A consulting practice is typically one “expert” (this is you) person hiring themselves out, with possibly a small support staff, such as an administrative assistant, an accountant and a travel agent. The expert bills by the hour. As every good process engineer knows, the expert should be the bottleneck, and if the expert is busy, the work has to wait. If the expert retires or quits, the practice is nearly worthless.

A consulting business looks much like any other professional services business (think Accenture,KinderCare or Jiffy Lube).The work is well-understood and repeatable. It can be subcontracted out or done by employees. It can be sold by somebody who can’t actually do the work.And it is typically done on a fixed-bid basis, a certain deliverable for a certain amount of money. If the founder retires, the business is worth something – these sorts of things can be sold for the value of the client list plus the employees, methodology and work in progress.

As soon as you move from running a practice to running a business, you no longer desperately need only an administrative assistant. You also desperately need nerdly people whom you can teach to do the work, and even more desperately you need non-nerdly people who can’t necessarily do the work but who can manage it, budget it and above all, sell it.

If you are remotely close to the proverbial OR/MS student who is president of your sorority, whose ambition it was to be the weakest student the department ever had who still got the degree, and who has successfully sold anything from Girl Scout Cookies to life insurance, please e-mail me. The only thing harder to find than good nerds are good nerds who can sell.

Carrie Beam (carrie@carriebeamconsulting.com) received her Ph.D. in industrial engineering and operations research from U.C. Berkeley in 1999 and has been self-employed as an IE/OR consultant for nearly a decade. Her projects have run the gamut from benchmarking the DMV to segmenting a database of rum drinkers, and her clients have ranged from other sole proprietors to Fortune 100 companies. She lives in the San Francisco Bay Area with her family.

CLICK HERE TO GO TO THE DIGITAL VERSION OF THIS ARTICLE

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