I really like most of Jason Cohen's posts, so this article is especially disappointing.

The most fundamental problem with Cohen's analysis is how he arrives at bill rates. "Everybody knows", he says, "that your consultant isn't worth $100/hr --- you only pay him $30/hr!". Well, no, Jason. Nobody knows that, because it's not true. Companies that engage consultants pay a significant premium to: (a) retain talent for the exact duration that they need them, (b) on often little-to-no notice, (c) with the flexibility of picking and choosing the right consultants for the right jobs (d) with no obligations on benefits and severance. And the consulting market is more liquid than the employment market (full-time jobs are "sticky"), so prices more closely track value.

So it is the case that an hour of Rails/jQ consulting might bill out at $140, while the talent delivering that work might effectively make $40/hr. The talent is, in addition to base comp, also getting a stable job, experience working alongside iPhone developers sharp enough to start a successful consultancy, health, benefits, and all the other things that are the reason that big companies have to pay so much to staff projects.

This model works so well that there are branches of the industry that are difficult to staff outside of consulting. For instance, the very very high end of software security bills north of $400/hr. Even discounting for FTE benefits, nobody can afford that person full-time. This sets up a virtuous cycle whereby consultants amass expertise, drive scarcity in their field, and increase their comp.

It should also go without saying that when your bill rate is very high, you don't need to add consultants to make time for product development. You can work half-time and still beat a bigco salary.

The rest of Cohen's arguments are somewhat blunted by the fact that the underlying economics of consulting are way better than he thinks they are. To wit:

* The cost of fully loading headcount isn't scary when you're priced properly.

* Similarly, if you price with the market, the cost of "scaling" isn't scary. Offices are cheap compared to salaries.

* Most consulting firms deliberately aim to keep utilization below a threshold, and recruit to "cool off" when things get crazy. 40 hours a week, 50 weeks a year isn't desireable even as an owner.

* Lots of consultants have written blog posts about firing dysfunctional bigco clients. Yeah, in the real world, you have to deal with the 25 page MSA contracts; that's what you pay lawyers for. Yes, being in business is annoying. If it wasn't, everyone would do it.

* Yes, it's hard to build and ship products in "off hours". But you don't have to do that. Instead, you can scale to the point where it's cost effective to hire full time developers. Most YC companies get to market with 2-3 team members. It isn't a stretch to scale a consultancy to the point where it can fund 2 developers.

Against all these concerns about consulting is the unbelievably huge upside of bootstrapping a company this way: you get near-unlimited lives. It is the JUSTIN BAILEY of startup plans. In virtually every other model of bringing a product to market, product failure ends the company. That's bad, because most products fail. They really, really do. There is no reason that a product miss should zero out all the hard work you put into building a team and a business.