Editor's note: This article originally published on Feb. 5, 2002.
In my work advising IT consultants and service firms worldwide, I'm often dismayed to find that many lack a clear vision of their business. Consultants and their firms often try to be whatever their clients want them to be at the moment. They'll run after the latest RFP or lead that comes in the door and figure out how to deliver the services later.
For those that have gone a step further and categorized themselves, the challenge is not over: How will they differentiate themselves from the hordes of like-minded competitors, and how will they operate their business?
Sharing a vision is a key element of building teamwork and commitment, and a business plan — built by the entire team — is a powerful tool for creating and communicating a common mission. In this article, I'll explore how a business plan can help consultants prepare themselves to succeed and stand out in the ultracompetitive IT services marketplace. I'll feature examples from my own business and my clients'. (In parts two and three of this series, I will explore marketing, operational plans, and costs and revenue forecasts.)
What should you include?
When you're starting a consulting practice (or any business), you should address the following issues when creating a business plan:
- Business mission
- Competitive position
- The potential market for your services
- Sales and marketing plan
- Operational plan
- Costs and revenue forecasts
Consultants who do the research and analysis necessary to develop realistic plans for attacking each of the factors above will be far ahead of those who assume that their technical expertise is sufficient to create a sustainable business. As always, a clear and honest assessment of our own competencies and the realities of the market are two key elements of any business plan.
What's your mission?
The business mission may seem simple — "We do IT consulting work" — but the range of services that fit this description is huge. You need to take an honest look at your background, experience, and area of interest and make that the starting point for any business decision.
For example, while it may be true that strategic consultants command far higher hourly rates than PC hardware techs, that fact can't guide your decision process if you have no skill or experience in IT strategy.
One of the best methods for uncovering your core competencies is to do a SWOT analysis. SWOT, which stands for Strengths, Weaknesses, Opportunities, and Threats, is a common strategic planning tool and can be used by individuals or teams to uncover real competencies and limitations. By honestly asking yourself or your team which of your skills are the strongest and which need development, and by thinking through both the opportunities and the competitive threats in your marketplace, you can develop a plan to capitalize on your competitive advantages.
I advise a consulting firm that specializes in implementing hospital information systems. This firm, through its exposure to hospital operations, saw an opportunity to assist hospitals in reducing their outstanding receivables. We brought together management and the consulting team, did a SWOT analysis, and built an action plan that resulted in the creation of a new, profitable division of the firm.
By assessing the skills and knowledge that existed in the firm and the areas that they needed to enhance, they were able to quickly create a new business, define job descriptions, get funding, and develop a marketing message that resonated with their client base.
The most important point about the business mission is that it should be a realistic description of what you actually do and what you are truly capable of selling and delivering. If, for example, your firm is made up of Java programmers that hire out on a project basis, say so in your business mission. If you have any doubt about how to phrase this, ask your clients — they can often tell you in clear, concise language what value you bring and why they choose to work with you.
The mission statement
Strive to build a mission statement that is crisp, jargon-free, and would be meaningful to a nontechnical reader. Most business plans start with a "tag line," a statement that tells the reader in one sentence exactly what this business is about. For example, the tag line for my business is "Consulting Strategies trains and mentors IT consultants in the skills, techniques, and behaviors required to deliver quality services and develop trusting client relationships."
Your mission statement should be simple, succinct, and memorable. The rest of your mission section should support this statement and should include the following components:
- A more detailed description of your basic business
- A description of how you conduct business. Do you work on a project basis, on an hourly basis, or on a pay-for-results basis? Are you a one-person firm or a team?
- The target client or market for these services and why you've selected this market
- Why you believe you will be successful. What is it about your offering or your business methods that will persuade clients to work with you — is it your superior expertise, your credibility, or your existing relationships?
- Your competition and your competitive advantage
- Your success metrics, both financial and in terms of client relationships. How will you know when you've been successful at achieving your business plan?
Everyone has experienced this situation: You see a new pizza shop or drug store opening up right down the street from a successful competitor. A few months later, the new upstart is out of business, and you ask yourself, "What were they thinking?"
This type of fundamental business error happens all the time. The rise and fall of the dot-com consultancies is a prime example of too much supply chasing too few customers. Understanding the competitive marketplace is a central activity of any business planning process.
One of the constants in business is competition. Whether you're an independent contractor or a manager of a consulting firm, there are others out there offering the same or similar services. It's your job when developing a plan to identify who they are and to strategize on how you will beat them to take a portion of the market. Analyzing competition is a three-step process:
- Identify them. This can be as easy as looking through the Yellow Pages or as involved as searching through tools such as Dun & Bradstreet's "Million Dollar Directory" and Standard & Poor's "Industry Surveys." (Both are subscription services. Versions can be found in most major public and university libraries.) It's important to think broadly here. The small shop from the next town and the big multinational consulting giant can both be competing for your clients.
- Assess their threat. Are they offering the same types of services as you? Is the marketplace crowded or wide open? Checking the Web sites of the competitors you've identified can tell you a lot about their offerings, strengths, and weaknesses. Local networking, through user groups, chambers of commerce, or local business networks, can be a great source of information about the successes and failures of competitive firms.
- Strategize against them. If there are 20 Web boutiques in a small town, opening another might not be the best idea. The old advice to "hit 'em where they ain't" is still the best. Figure out how you can apply your skills to offer services that the other guys can't or how to offer them in a unique and innovative way. Perhaps you can propose a free assessment or a risk-reward-based pay structure or some other creative offering to differentiate yourself from the crowd.
It's critical to remember that the goal of business planning is not to produce a piece of paper; it's to encourage you to think through all the pitfalls that can hinder your success and develop strategies for overcoming them.
While the plan is important, the process is the key. Approach the business planning process thoroughly and honestly, and you'll enhance your chances for creating the perfect job all consultants dream of — one that empowers us to use our technical skills to face new challenges every day.Get weekly consulting tips in your inbox TechRepublic's IT Consultant newsletter, delivered each Monday, offers tips on how to attract customers, build your business, and increase your technical skills in order to get the job done. Automatically sign up today!
Rick Freedman is the author of three books on IT consulting, including "The IT Consultant." Rick is an independent consultant and trainer, working, through his company Consulting Strategies Inc., to help agile teams and organizations understand agile practices and migrate successfully.