Leadership

Business planning equals success for IT consultants

A consultancy without a business plan has little chance of success. Find out what both independents and firms need to consider and include to build a solid, clear business plan.

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?

Competitive position

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.

Bottom line

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.

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About

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...

6 comments
Sterling chip Camden
Sterling chip Camden

How many of you consultants did this sort of analysis and planning before you started consulting? I know I didn't. But I have become more aware of these issues through hard experience.

Marty R. Milette
Marty R. Milette

Every 'starting a small business' course on the planet emphasizes the importance and immediacy of a business plan -- but it seems nobody 'has time' for that at the start. It is only after people find things going as they had not expected that the idea 'maybe a plan would be a good idea?' enters the picture. Had they done so at the start, they would have identified markets that were 'in demand' instead of trying to push business they were interested in but that there were no customers for. It also helps to develop FOCUS on core compentencies so that training and contracts accepted help advance the consultant to higher levels of compencies in those core areas instead of drifting mindlessly from project to unrelated project. Just because someone CAN do a hundred different things does NOT mean that they can make a decent (and improving) salary/rate from it. Focus and specialization are the key to moving UP the food chain. (IMHO) Edit: Typo

PMPsicle
PMPsicle

Not every course ... :> But since humans are such GREAT planners (not), business planning is one of those things we just try to avoid even when we know we shouldn't. Secondly, most courses concentrate on the "bankers' business plan" (i.e. market strategy) as does this article. Why? Because sales trainers get paid more than other trainers and it's easier (at least as far as business planning goes). Sales training is also the easiest sale (it doesn't take long for most SMB owners to realize they need sales help). And because, most SMB owners do business plans only because the money men want them. Unfortunately. What you really need to do when starting a business is to design that business. Identify all the aspects (marketing/sales being only one of them), identify how they are going to be done in the short term and the long term, identify what systems are needed, and how they are going to grow. Unfortunately, that's all the things we, as technicians, hate to do. After all, we got into the business because we love doing the work. As entrepreneurs though, we need to shift our focus from working IN our business to working ON our business. Not only is this something most of us haven't been trained to do, it runs contrary to our desires and the reason we got into business in the first place. Entrepreneurs get into businesses not because they love them but because they THINK they can make money at them. Do these business plans need to be heavily documented? No, only the amount that you require to remember what the plan was, and to communicate that plan. Much of the plan should be in diagram form. Consider using FAQs (especially if you can then publish at least a part of those FAQs to your customer). The sad part is that as IT techs this is the fun part of running a business. And those of us who have a BA background are well trained in the techniques needed. We just need to do it. Glen Ford, PMP http://www.trainingnow.ca

PMPsicle
PMPsicle

Like any document (or communication for that matter), a "business plan" needs to be targeted to its audience. Bankers need one form, suppliers need another and workers/employees need a third. Each needs to be focused (slightly?) differently in order to communicate what each needs to know. All of which flows out of the true business plan (which I refer to as a business design ... the reasons for which I won't go into here). I was raised in a small business/entrepreneurial family (fifth generation that I know of). As I deal more and more with small business people both in and out of IT, I am finding that the owner-operator usually doesn't have the knowledge/understanding that I consider as basic to the entrepreneurial lifestyle. Issues as basic as understanding the difference between billable cost and actual cost and labour rate are missing. And don't even get me going on basic goal setting! I sometimes wonder if that is the root cause of our constantly hearing the "needs to understand the business" refrain. But then I run into someone from the other side of the fence and realize that the non-IT folks are just as guilty. And the number of people who don't understand what the word entrepreneur means is amazing. (Then again ... I've been shopping for a coach for some of my weak points and have found many of them just as guilty ... with a few exceptions who point out the issue). For many years now, I've felt that IT folks should have a basic course in business design as part of their base curriculum. Even if there is no intent to go off on their own, understanding of basic business issues is core to the functioning of the nervous system of companies. Unfortunately most small business people stumble into business. Only the lucky few learn to work on their business not in their business. I've been doing a lot of e-business design lately. It's been an eye opener ... designing a business where there's no work for the owner as a design criteria. Definitely a way to realize the power of the business design and the difference between working in and working on your business. Glen Ford,PMP http://www.TrainingNOW.ca

josh.t.richards
josh.t.richards

Glen - good summary. The "business plan for the bankers" is one I run into a lot. When I did (tried to) my first few business plans (not just for consulting) I quickly got bogged down in non-essential details that weren't relevant but that every "best practice" seemed to say was necessary for a business plan. What I only learned later is that there is no rulebook when it comes to business plans and, yes, there are different things expected (by others, for different purposes) if your writing a document for outside scrutiny. The thing is, this isn't the reason why everyone needs to write a plan. First, you should write it for YOURSELF (and, if you have 'em, your partners). Once you get past what others expect in a business plan, it actually becomes a pretty useful document. (But don't ignore what others think should be included... it'll provide some guidance about what you think be thinking about when you're just getting started... or looking to expand... or taking on a partner... or realizing you aren't where you'd hoped yet... or whatever is the driver for realizing you should have a plan). I liked your phrasing "What you really need to do when starting a business is to design that business". That's spot on. It's the difference between simply becoming a "contract employee" versus a truly successful consultant (who, ultimately, gets to design their own lifestyle). For some being a contract employee is satisfying...more power to 'em. But it's important to realize that it is possible to take it to another level... and really enjoy it (and typically reap greater financial rewards as well). But it does take some mindset shifts, definitely. -jr "Are you an IT consultant? Join my community where leading IT consultants go to peer inside the businesses, strategies, and secrets of some of today's most successful independent consultants." Sign up by visiting http://www.ITConsultingLessons.com