Banking

Effects of the recession on IT consultants

Chip Camden shares his thoughts on how the recession affects IT consultants and reveals the single greatest factor in keeping your consultancy afloat.

 ZDNet blogger Brian Sommer wrote a couple of weeks ago about how the recession affects consultancies. His analysis led me to the following ruminations.

Firms that merely broker services are in big trouble.

Many clients are looking to save money by doing the legwork for themselves. If your business model is only about helping clients find the right person or firm for the job (like the startup that Brian mentions), you're likely to be considered an unnecessary expense even if you could actually save the client money in the long run. As Brian says, "We found that buyers had to be more self-sufficient/self-reliant as they had less operational, discretionary budget to spend on services like ours."

The same principle applies to big consultancies vs. small ones. Bigger firms add a significant overhead for managing the relationship between their consultants and their clients. Smaller firms, especially independents, can trim those costs as well as many other expenses. You can talk about economies of scale all you want, but the truth is that smaller is often leaner. Smaller projects have a better chance of approval in a down economy.

Brian asserts that large-scale projects that are already underway are more likely to be finished than shelved, delaying the effects of the recession for consultants who work on them. I'm not entirely certain on that point, but I do agree that it will take longer for new large-scale projects to get started once the economy recovers. Clients can often justify smaller projects more quickly, based on their more immediate benefits and reduced risks.

Note: By smaller projects, I mean smaller in scope -- not necessarily in duration. Keep that in mind in discussions with prospects, and look for ways to help them reduce the scope of their plans. Smart companies may want to use consultants for small projects more during a recession than ever before.

Companies are already cutting staff down to where they can barely get their usual jobs done. If they add another task to an employee's list of duties, it will be interrupted frequently. Existing employees might need to be educated on the technology required. So the choices could come down to (1) spend the time and money to train an employee who doesn't really have the time; (2) hire someone new and deal with the expense and commitment of new head count; or (3) bring in a consultant who ostensibly knows what he is doing and who can be dismissed without a fuss when the project is complete. Many companies choose option number three, because they know that getting the job done quickly and correctly will save money. And sometimes it's just the stupid policy of "we can't increase head count, but we can use a consultant."

Brian correctly notes that "not all consultancies are affected equally by a recession." He mentions the type of consulting you do as a factor -- but you should also consider the type and health of the business in which your client is engaged. Some of my clients continue to pull in strong revenues, precisely because they provide their customers the software equivalent of a security blanket. So they've continued to fund new projects and use the gravity of the slow economy to slingshot themselves past their competitors. Although I advocate smaller, leaner projects above, perhaps the single greatest factor in keeping your consulting boat afloat is to nurture long-term relationships (which you should have been doing for years). When a client knows the value that you've consistently provided, it's much easier for them to see you as a revenue generator and/or cost saver rather than as an expense. You want to be the one they think of asking to help them create the solutions that will enable them to weather the recession and come out profitable on the other side.

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About

Chip Camden has been programming since 1978, and he's still not done. An independent consultant since 1991, Chip specializes in software development tools, languages, and migration to new technology. Besides writing for TechRepublic's IT Consultant b...

41 comments
apotheon
apotheon

If you're a consultant who nurtures long-term relationships with your clients, the single biggest factor in determining how well you'll weather the recession is likely to be how well your client weathers the recession. It's more important now than ever to make sure you give your clients the best help you can reasonably give them to improve the profitability and long-term stability of their businesses. The better you help your clients do at any time, the more likely they are to contract you to do more work for them; the better you help them do in hard times, the more likely they are to survive long enough to keep paying you. Anyone out to fleece clients for as much money as possible is playing the short game, and isn't thinking much about tomorrow.

Sterling chip Camden
Sterling chip Camden

Have you felt any effects from the recession? Do you think we're starting to see signs of recovery?

Marty R. Milette
Marty R. Milette

All the projects I've worked on in the past 2 years have been one-off, green field systems. No chance of similar work in the future for the same client. This is generally difficult. First, you have to prove yourself from scratch with every new engagement. Second, you need to do a stellar job -- so you can get solid written references at the end of it. (To make the first point easier next time.) In contrast to Chip's point about agencies being a handicap -- I've found the opposite. First, because many major companies will ONLY deal through agencies -- and -- in the case of government clients, agencies that are on specific lists of 'approved agencies'. Second, because if you do a great job when working through an agency, you rise to the top of their list when new work comes along. Agencies LOVE reliable contractors who produce excellent results for 'their' clients.

Sterling chip Camden
Sterling chip Camden

It's the motto of one of my clients, because they know that their success depends on the success of their customers.

Kam Guerra
Kam Guerra

The IT industry had been going downhill since the dotcom bomb days.

PMPsicle
PMPsicle

Someone (a recruiter) pointed out to me today that 90% of recruiters have less than 1 year of experience. Which tells me that your reputation with a recruiter only matters if the recruiter is still around and hasn't left. Unfortunately (for a lot of reasons) most of them don't last. That also explains why recruiting companies have such a bad reputation themselves!

Sterling chip Camden
Sterling chip Camden

That's some interesting information, Marty. I try to stay as far away from government work as I can, mainly because of institutional red tape such as only working through approved agencies. If these governments were businesses, they'd fail. Big companies who have the same kind of red tape will fail, too -- it just takes a long time because their mass provides sufficient inertia. Give me the small, lean and efficient client -- we'll actually get things done.

apotheon
apotheon

I have more to say about it in an article I have sitting on my hard drive, waiting to be posted. I edited in a reference to your article here, and a reference to my comment here, because of the relevance. I just can't get it posted; there's something drastically wrong with my ability to log in to the publishing interface. Did someone forget to tell me that the login URL changed?

apotheon
apotheon

I'll leave it there for posterity, and let people who read your comment just mentally edit, I guess.

santeewelding
santeewelding

This is one of those self-fulfilling prophecies that takes hold of you? We should all follow suit?

Sterling chip Camden
Sterling chip Camden

any justification for those assertions. Can you back them up with some data?

rxmillered
rxmillered

The cost of workstations are so low by many standards now. Windows 7 is very cheap and will provide a strong ROI (Return On Investment) due to the lower cost of maintenance. It is also very backward compatibale, more than any other version. I am seeing evidence of companies offering old over $1M products converted to MS technology as under $0.5 M products for release in December. Companies want to cut labor now more than they want to cut assets. Windows 7 will is a great lead-in for that concept.

Sterling chip Camden
Sterling chip Camden

1) They buy a new PC and it comes installed. 2) An application they depend on requires an upgrade that's only supported on a newer platform. If Microsoft doesn't provide a clean upgrade from XP to Win7, then personally I would advise wipe and load rather than going thru Vista. In fact, with Windows a wipe and load is usually a better idea anyway -- too much crap builds up in the registry and filesystem over the years.

apotheon
apotheon

Maybe a lot of those companies will switch to Win7 in 2010/2011, because they need to upgrade to something and Vista just isn't in the options they're willing to consider.

PMPsicle
PMPsicle

I'm not a hardware or OS guy but ... I know a lot of my clients won't change to any new OS until several years in (XP is still new to them and normally they would just be thinking about upgrading to Vista soon). I would guess that a lot of corporate systems won't switch to Win 7 until 2012/2013 or later although skipping Vista may be an issue. The big guys don't like change, don't trust change and can't (or won't) afford change.

apotheon
apotheon

Lets hope Windows 7 can turns Microsoft's reputation around... . . . or that it destroys Microsoft and solves the problem once and for all. Either is fine, I guess, as long as by "turns Microsoft's reputation around" you mean it does so by proving to be the beginning of the company becoming something much, much better than it currently is.

CNet19
CNet19

It is true most companies will be hesitant to upgrade, but it will hit a point where many will have to. Lets hope Windows 7 can turns Microsoft's reputation around...

Tony Hopkinson
Tony Hopkinson

That's worth more than what it will cost to do the old stuff on the new. What he really needs is to send all his customers to the next Garnter Symposium....

Sterling chip Camden
Sterling chip Camden

I would guess that businesses will be cautious about Windows 7 after the troubles with Vista. Even if it turns out to be as solid as they claim, it will probably be a few years before most businesses are ready to upgrade (heck, I still see some businesses running Win2K). The benefit:risk ratio just isn't there until they need something that they can only get on the new platform.

Tony Hopkinson
Tony Hopkinson

lose on that proposition. Hardware cost is near trivial in big organisations compared to moving what runs on or is attached to it. Even a small business. There you are with your P3 running windows 98 and office 95, with your own bits and pieces of macros and some now defunct business apps. What's going to cost more? If I were you I'd look at building up stocks of old pcs, and parts, offer them a chance to keep their old stuff going.

CNet19
CNet19

We are happy to say that our billable hours are up this year! Almost ALL of our clients have done something to downsize, but still need our services. However, our hardware sales are down about 75% and our vendors are barely hanging on...the recession has taken its toll. I think things will turn around soon as companies are hanging on to what they have, but will soon be forced to finally migrate from Windows XP. I predict a 'Windows 7' tech boom and expect the demand for IT professionals to reach as high as it was for Y2K when the economy starts turning around. Thoughts?

apotheon
apotheon

They got it fixed this morning, evidently -- as you're now aware, of course, since I talked to you about it elsewhere.

Sterling chip Camden
Sterling chip Camden

But I think the publishing interface for each TR blog is managed separately. For instance, the admin panel for this blog has had an invalid certificate for years now (yes, I reported it several times).

apotheon
apotheon

I appreciate the compliment.

santeewelding
santeewelding

The finger is best! I ran the edge of a grinder through the principal knuckle of my trigger finger a while back. Splattered a wall with blood, and other stuff. In addition to exquisite and intimate learning about the dura of the knuckle, I had to learn for real how to do everything left-handed -- holster, mags, everything -- until then only practiced for who-knows-what. God be with you. I enjoy your work tremendously, if what I have to say matters.

apotheon
apotheon

. . . the car that broke down yesterday to get fixed, the thumb that got the stitches taken out yesterday to be done healing so I can do some dishes (finally), to have gotten to go to the shooting event for which I'd already paid admission today, for the publishing interface for IT Security to start working so I can publish a new article, and probably half a dozen other things at least.

santeewelding
santeewelding

Is entirely too wan for you. Maybe, you need a pick-me-up.

Sterling chip Camden
Sterling chip Camden

I think it's often a distinction between those who view IT as an expense and those who see it as an investment. Long-term improvements in automation help a business to become more efficient and successful, but many businesses simply view computers and software as a necessary evil.

PMPsicle
PMPsicle

True the dot com and telecom crash took away a large chunk of companies that valued IT. But not all. It also killed some companies that did not value IT. The point being made was that during the boom time everyone had to compete for resources. Therefore, whether you valued IT or not, you had to pay at least fair value in order to get resources. Today competition is much less and only those who value IT are willing to pay a fair value. Just as the fair price coffee stream has a reason to play fair so do those companies. That's not to say the amount is as high as during the dot com boom just that it is fair. It is fair (and generally higher than the non-fair market) because that market is focused on quality and the long term view. Yes, the market is down generally but it also is segmenting into fair value and "I want it for free". Which is another issue entirely.

rxmillered
rxmillered

On Frontline coverage of the dot com AND the Telecommunications boom and bust, the Denver Colorado area lost more money (Frontline words, not mine) than the entier South American debt, the Poland debt... (a couple of more I don't remember). Guy, that is a whole lot of money. There were companies that valued IT that were just swept away over night. If you see a title wave, good generalizations won't save you. To say that some companies are down while others are doing OK just throws away the reality that nine of ten are gone, wiped off the face of the earth. Now, think of the value of coffee... If none of the buyers have money, what happens to the price, the farmers, and the suppliers.

PMPsicle
PMPsicle

I knew if I set you up you wouldn't disappoint me. I needed the giggle. :D

apotheon
apotheon

I spell neighbour just fine. I can also spell neighbor.

PMPsicle
PMPsicle

Not the validity of your English (or it's spelling). Besides, none of you Yanks can spell neighbour worth a d**n!

PMPsicle
PMPsicle

The advantage of the dot boom era was that those who don't value IT had to bid against those who did for a limited market. And those who did had no intention of losing. So prices were maintained where they belong. Now, there's always someway of getting the service without paying the cost - outsource to Ireland India China Philippines North America? and there's nothing to dissuade the market. Except where the market values IT and needs to maintain a fair value. (Think Fair Value coffee folks!)

PMPsicle
PMPsicle

suit not suite ... as in clubs, spades, hearts & diamonds. To follow suit is to play a card in the same suit as previously played e.g. bridge or euchre.

Sterling chip Camden
Sterling chip Camden

Some parts of IT are doing quite well. The parts that are suffering are those that rely on businesses that don't value IT -- or on IT models that have become obsolete.