Brain vs. Labor: Are You Hired For What You Know, or What You Do?
Why performing “work made for hire” is bad for your service business
Most software consulting firms start out as laborers. Glorified pairs of hands that do something in exchange for money, at the expense of their minds.
While that may get you going, it’s a terrible business. Your profits (likely a function of cost, not value) will not sustain your growth and your customers will see you as highly replaceable. I’m going to assume both those statements made you uneasy. That’s good because it means you want something better.
What is “Work Made For Hire”?
By default, work is owned (or authored) by the person or people who actually created it. However, there is an exception to that rule.
According to the United States Copyright Office:
“Works made for hire” are an exception to this rule. For legal purposes, when a work is a “work made for hire,” the author is not the individual who actually created the work. Instead, the party that hired the individual is considered both the author and the copyright owner of the work.
If you were an employee, anything you create on the behalf of your employer is actually owned by them. This is one example of “works made for hire”. But given you own a software consulting firm, this could play out differently. Of the hundreds of master service agreements I’ve seen throughout my career, most start off with the customer insisting they own the work.
Why is “Work Made For Hire” So Bad?
There is a time and place for it. Typical employment situations can make sense where you exchange your knowledge and labor for a consistent salary. Yet that is not the audience for this article.
I’m speaking to owners or leaders of software consulting firms. The kind of businesses that create custom software and those that implement and integrate complex solutions consisting of many individual products.
1. Replaceable Labor
When your customer owns the work you create, you become replaceable. Not only technically but also conceptually. The value you create is perceived less as knowledge and more as general labor. If you’re a pair of hands, you can be easily replaced by the tool next to you.
2. Enterprise Value
When you don’t own what you’ve created, which can be knowledge just as much as it can be software assets, you are not creating any IP (intellectual property) that can be leveraged for other customers or additional businesses.
When you own it:
You can leverage it across every customer. This provides a path towards scaling as you don’t have to start from scratch every time.
You get the benefit of leveraging it when appraising your business. The more IP you own, the more it benefits the overall value of your business.
When you DON’T own it:
You need to solve the same problem uniquely for each customer. Without owning the IP for your past work means you must be constantly “reinventing the wheel”, which will definitely prevent you from scaling.
You cannot build upon it for additional revenue opportunities. That amazing work belongs to someone else so it’s as if you never created it. While you know you did, the legal exposure of reusing that work will hurt your business, if not bankrupt it.
3. End Goal
The real value is NOT in the deliverables, it’s in the “know-how” that helped you create them in the first place. Your end goal should be to own the work that created the results for your customer.
Once you own your work product, you can begin leveraging it in any number of ways that will benefit other customers.
Some of the typical ways I’ve seen it play out are: