Software

Five reasons IT consultancies fail

IT consulting firms continue to tread water in a challenging organization environment, and many are taking a "back to basics" approach when it comes to their business. Take advice from two consultants who have done just that.


If it hasn’t already happened to you, then you know someone whose IT consultancy went belly up during the last few years. Stories abound of poorly focused firms that spread themselves too thin and consultants who leased prime office space in glamorous high rises they couldn’t afford.

As many IT consulting firms struggle to win a share of IT dollars, they’re working to refocus their organizations and concentrate on business basics. Several successful IT company owners who watched friends’ firms go down the tubes recommend these strategies to stave off common business failings:
  • Control growth
  • Focus your business
  • Push strategy, not product
  • Manage expectations
  • Pay attention to appearance

Control your growth
The IT consultancies that survive the longest have steady growth that can withstand the economy’s fluctuations. To keep the growth consistent, keep your fixed costs under control, advised Scott Testa, chief operating officer of Mindbridge Software in Philadelphia.

“You can grow yourself poor,” said Testa, who has colleagues who’ve leased expensive office space and signed 10-year leases that have them in a stranglehold today.

If you need more help, but don’t know if you can sustain another employee, Testa suggested hiring independent contractors; if your billings slow down, you won’t have too many employees. For those of you who don’t have enough space for employees but don’t want to expand your office space, Testa suggested asking your employees to set up home offices.

Testa said it’s also possible to negotiate with landlords, agreeing to rent increases if business grows. His firm decided to lease space in an industrial park in suburban Philadelphia even though his employees were pushing for more stylish quarters in a downtown office tower. The company used the money it saved to increase its sales and marketing staff by at least two people.

“I can’t tell you how many times we were approached about upgrading our image,” he said. “We were told, ‘You have to be in this brand-new building.’”

Testa said he second-guessed himself at times, but he’s happy with his decision.

“It’s not glamorous, but it’s very presentable,” he said about the company’s offices, which sit near a motorcycle dealership and a moving company.

Choose a focus wisely
Mindbridge Software found its niche in the late 1990s. At the time, Testa was toying with the idea of getting into e-commerce. “There was a feeling that if the old brick-and-mortar stores didn’t have a Web presence, they needed one. And a lot of people were spending money on e-commerce.”

But the firm’s principals didn’t have a lot of expertise in that area and ultimately—unlike many firms that saw their billings soar with Y2K and e-commerce projects—decided to take a pass on that kind of business as well as Y2K remediation work.

One day, Testa said, a prospect called and expressed a need for an intranet specialist. Testa said that idea fit the company’s skill sets, so it took the plunge. Before long, Mindbridge Software started fielding calls from other prospects who wanted intranets. The firm has built intranets for many organizations, including Eli Lilly and Co., a division of the Army Corps of Engineers, and Better Homes and Gardens magazine.

“It became very apparent that there was a niche here that was being underserved,” Testa said.

When IT consultant Charles Arvin started his own firm, he vowed not to repeat the lack of focus of a past employer, a company that was more interested in pleasing the next client who walked through the door than in building on its strengths, Arvin said.

“The three and a half years I worked there, we had three different names, and people had a hard time getting it right,” said Arvin, president of MicroServe in Louisville, KY.

“They tried to be all things to all people: They were the training provider. They were into application development. Then they started pushing Great Plains accounting software,” Arvin said. “The company was trying to…grow at an absurd speed. Then in late 1999 and early 2000, the brakes really got slammed on the business.”

Push strategy, not product
Narrow your focus, but not too much, said Bob Green, managing director of INSYNC Consulting Group in Los Angeles. Green said he has watched colleagues put too much stock in certain applications and have their business fall when clients find it difficult to support.

“Novell is a great example. Many companies still use it, but the fact is that it is hard to find a consultant to support it—and configure it—because every decent consultant wants to be a Microsoft consultant and not a Novell consultant,” he said. “So those shops that have hung on to Novell are all dying or dead.”

Green said he watched a firm open a large office nearby and then suffer when it essentially offered support for only one product. That strategy might have worked three years ago, he observed, but many businesses in Los Angeles have failed because they focused on one product.

At all times, but especially when the economy is tight, Green said, a better strategy is for consultants to focus on teaching clients how to use the technology they’ve already purchased. Business owners are grappling with the huge investments they’ve already made in IT.

“Don’t expect to be shoving products at people as aggressively as you were two years ago,” he said. “The emphasis should be to look at the clients’ needs. It’s not just products that are going to solve their problems.”

Managing expectations
Beware of floating specifications, said Testa, because failing to manage the expectations of the client and the consultant can cause big problems when the bill comes due.

“It’s not unusual for clients to say in midstream, ‘We didn’t realize we wanted this function,’ or ‘We didn’t realize we needed to be able to synchronize the data with this other software we have,’“ Testa said. “I don’t think I’ve ever been on a project when the final specifications were 100 percent of the original specifications.”

When the client’s needs start to change, Testa said, it’s important to have a procedure in place to keep track of the changes, how much more they will cost, and how much longer the project will take.

First of all, Testa said, make sure your contract has a provision that allows you to bill work added after the contract has been signed. Then, when the client asks for more work, tell him or her you will have to add an addendum to the contract that specifies how much more the additional work will cost and how much longer the project will take. In most cases, Testa said, the client usually decides not to proceed when the additional cost is calculated.

"We had one Fortune 500 company we were doing business with. We were 90 percent done and they pulled this. We said that's fine. We're 90 percent done. Let's finish the project as is and do it on the back end. They hesitated, but when we showed them it would take another six to nine months to put in the changes at double the price, they realized it wasn't worth the additional specifications."

Testa said the encounter could have dissolved into a dispute over the bill if he hadn't been clear about the complexity of the work covered by the addendum.

Appearance counts
Finally, Arvin said, the large number of people trying to make a living as IT consultants has changed the dress code. Gone are the days when IT consultants could role out of bed and into their offices without changing clothes and slipping on shoes. The increased competition for IT dollars means that many consultants who formerly didn’t put a premium on their appearance have begun dressing for business.

Follow some basics: Tie your shoestrings and wear a shirt with your company’s logo on it, Arvin said. If a client expects its employees to adhere to a dress code, follow it as well.

“A few years ago, it was okay to go out in a wrinkled shirt and sandals—in the classic computer geek garb. But people need to get serious about having a professional image,” Arvin said. “People don’t accept poor presentation anymore, because they don’t have to. There is a huge pool of people out there who are trying to be in this business.”

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