CXO

IT consultant strategies for weathering economic downturns

Check out these tips for keeping your consulting business afloat when the economy is tanking. Chip Camden discusses five marketing tips from Steve McKee and provides six do's and don'ts of his own.

 

Independent consultants are familiar with the feast or famine phenomenon — you usually have too much work or not enough. You can develop strategies to help get you through periodic lean times, but what do you do when the entire economy starts to tank?

Predictions about the U.S. economy in 2009 look bleaker by the day. Although the consensus seems to be that IT hasn't been hit badly by the not-technically-a-recession, the forecast for IT in 2009 is stormy with a chance of tears.

Tips for keeping your consulting business afloat

In Steve McKee's BusinessWeek article about marketing in tough times, he offers five good tips on how to hang on to your sanity and your business during a recession (or whatever we're supposed to call it). His tips are mostly aimed at small businesses, but these principles also apply to small consultancies. I'll discuss each of his points with a specific focus on the independent consultant and provide six additional tips of my own.

#1: Be smart and thrifty, but don't panic. This, too, shall pass.

It would be nice if you've thought ahead as Steve suggests and stockpiled some assets to get you through (if you haven't, now may be a good time to start) — but what if you find yourself running on empty? Here are a few ideas to consider:

  • Decrease expenses. Try to identify ways to reduce your personal budget so you can take less out of the business each month; then look at your business expenses to see what else you can trim. For instance, look for a cheaper phone or Internet plan; drop a few domains or software licenses that you no longer use; or stop buying new gadgets until you really need them. These ideas might seem like dents in the Death Star, but every little bit keeps you that much further from bankruptcy.
  • Take out a business loan. Think this idea through. Unless the interest rate is negligible, you might be digging yourself a deeper hole.
  • Find vendors who will give you terms without interest for necessary equipment and supplies. This could temporarily help your cash flow, but remember that 30 days go by awfully fast when funds are short.

#2: Marketing is muscle, not fat. Be careful about cutting it.

Marketing is usually the first thing businesses cut when they're in trouble. But why? You need more business! Here's how to be smarter about your marketing strategy:

  • Stop spending thousands of dollars on full-page ads in a technical journal.
  • Use your extra time to find new business. Follow up potential leads for new business, ping members of your existing business network, and endear yourself to Google.
  • Comment on related online forums, actively blog about your expertise, and provide free samples (make sure the samples are real content and not a blatant marketing pitch).
  • Learn about SEO and get your pretty Web site on Google's first page of results for your target market.

#3: Don't lose focus by chasing business you wouldn't normally want.

Amen. Consulting is about providing expertise and insight. If you allow yourself to become just another journeyman coder who happens to have a non-employee contract, guess who's the easiest person for your clients to cut when things get tight? Sticking to your strong suit helps to make you less dispensable. Be sure you know the seven reasons to turn down business.

Of course, if you have no business, you're likely to take anything that comes along. But don't let it distract you from pursuing the market that you serve best.

#4: Don't discount

This may sound counterintuitive, but it isn't. As Steve says, "discounting your price discounts your product." If you give special discounts just because you need the business, it paints "Desperate" across your forehead. By contrast, sticking to your consulting fees when times are tough sends a clear message that you value your work, and you expect clients to derive a benefit from it that justifies your price. Now if the entire market goes south, you might need to adjust your regular fee to stay in step.

#5: Don't neglect the elephant in the room

Even though the economic downturn hasn't drastically affected IT yet doesn't mean you shouldn't plan for it. The following six points are my suggested do's and don'ts.

  • Show that you're an asset. You should be able to demonstrate to clients that having you on board saves them money today. In real life, it can be much less tangible than a simple equation. You need to convince clients that your abilities to efficiently deliver solutions, do things the best way, motivate others, and foresee potential problems combine to save more money than they pay you. Your situation will dictate how you'll make this argument.
  • See if some clients will pay in advance. If a client agrees to pay you in advance, try to sock the income (at least some of it) away for the rainy days ahead. This is one instance where you can make an exception to the "Don't discount" rule. A discount is justifiable because of the cash flow advantage your client is providing to you at their expense. You still don't want to cut your fees too deeply. Remember that time paid for today is time you'll have to work later at no additional compensation. You're only moving things around on your balance sheet in order to gain cash now.
  • Save. Even if you're already feeling pinched, save some of your income because the economy will likely get worse. It's tempting to think, "Well, if I need the money for expenses now, I shouldn't try to put money in the bank." The thing is, once you put money away, you can usually find ways to live without it. If you keep money on hand, you will spend it.
  • Don't be expendable. Your clients will be looking for ways to cut back, and you don't want to be on the hit list. You need to demonstrate your key strengths, work well with others, solve problems, and most importantly get the job done right. Use some of your extra time to hone your skills so you'll be even more valuable. If your client thinks you're a key element of their success, it's less likely you'll be let go than if you appear to be holding them hostage. It's never a good idea to try to game your job security by refusing to share information, baking in time bombs, or denigrating the abilities of others. These strategies backfire in the long run.
  • Don't allow clients to slip into late payment. One way businesses can increase their cash flow is to postpone payables. But if clients start paying you late, then guess whose cash flow they're stealing? You've got to put up a big "Do Not Enter" sign on that avenue. If you don't protest a late payment, it says that you don't think you deserve better treatment and that you don't believe in the value of your work. If you let a client slip once, be ready for a bigger slippage next time.
  • Don't make major changes in your strategy (unless your current strategy is dead wrong). Anytime you take a new heading in business, you're going to make mistakes and learn a lot. That's fine when you have enough income to buoy you through the transition; but when money is already scarce, you can sink your entire endeavor. So if you really think that changing course could improve your business, paddle incrementally in that direction rather than jumping out of your life raft and trying to swim for shore.

What tips would you add to the list?

What other strategies do you have for weathering the new economy? Have you felt any effects yet? Post your thoughts and experiences to the discussion.

Related resources for further reading

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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...

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