An it Professional's Dilemma: Be an Entrepreneur or a Consultant?

Posted: 9 Nov 2009

See all articles by Rajeev K. Goel

Rajeev K. Goel

Illinois State University - Department of Economics

Iftekhar Hasan

Fordham University - Gabelli School of Business; Bank of Finland

Date Written: 2005

Abstract

The decision for an Information Technology (IT)professional to either work for him- or herself or work for someone else is thecentral theme explored in this paper. A model is used to determine the effectsthat project size and venture competition have on the professional'sdecision.Assuming in this analysis that the entrepreneur has littlecapital, the entrepreneur offers the labor input, but must seek the capitalfrom another source. Typically, an entrepreneur wishing to attract venturecapital auctions an incentive contract.Entrepreneurs unable to obtain thenecessary financing seek employment. Results indicate that fixed-price contracts tend to be desirable when theproject size is small and there are many venture capitalists interested, whilecost-plus contracts tend to better suit larger projects. The implication ofthese findings is that incentive contracts may not be the best choice in manysituations. Larger projects require less effort by the professional than dosmaller ones. Consequently, there appears to be some tradeoff between theprofessional's effort and venture capitalist competition. Finally, as a resultof differing cultures, the type of contract desired in these situations willvary, and these findings cannot be assumed to apply to all situations.(SRD)

Keywords: Incentive contracts, Consultants, Contracts & agreements, Employees, Financing, Firm financing, Information & communication technologies, Venture capital

Suggested Citation

Goel, Rajeev K. and Hasan, Iftekhar, An it Professional's Dilemma: Be an Entrepreneur or a Consultant? (2005). Netnomics, Vol. 1, Issue 1, 2005. Available at SSRN: https://ssrn.com/abstract=1500956

Rajeev K. Goel (Contact Author)

Illinois State University - Department of Economics ( email )

Normal, IL 61790-4200
United States

Iftekhar Hasan

Fordham University - Gabelli School of Business ( email )

Rose Hill Campus Bronx
New York, NY 10458
United States

Bank of Finland ( email )

P.O. Box 160
Helsinki 00101
Finland

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