Software

Six questions to ask yourself before expanding your IT consultancy

Don't expand your IT consultancy without asking yourself these six important questions. If you still decide to take the plunge, find out what Chip Camden advises to ease into the transition.

TechRepublic members are the best -- it's your insights and questions in the discussion posts and in the e-mail you send me that are the inspiration for many of my blogs. Case in point: This e-mail from Igor Royzis is what led to this week's post on what you need to think about before expanding your IT consultancy.

First, I'd like to thank you for writing on TechRepublic. I enjoy your articles. I am also an independent consultant and it helps to hear from fellow consultants.

I've been always hands-on and worked on all my consulting engagements myself for a long time. I am now finding myself in situations where if I continue coding myself I will lose many opportunities/projects because of obvious time constraints.

I am currently handling one large project (40 hrs/wk) and 1 smaller project (10 hrs/wk).

If I only choose projects where my hands-on involvement would be minimal and my sub-contractors will do most of the coding, I can probably handle 5 projects, 10 hrs/wk each. More money and more diversification.

On the other hand, I'll probably lose my hands-on expertise pretty soon and if one day I were to go back to coding - I wouldn't be as sharp.

Can you please share some thoughts? Did you consider doing less coding and more management?

I replied that I've often considered expanding beyond my one-man operation. I, too, have had to turn away business (one person can only do so much), which limits earning potential no matter how high your rate.

Think it through

I don't think it's wise to suddenly convert your business model. Before finalizing your decision, here are six important issues to carefully consider.

#1: Will you be able to find people who can maintain the same level of excellent work that you do?

No matter how good they are, you'll need to mentor them to some degree just to keep things seamless. And what will your clients think of this change? They know what they're getting if it's your hand that's stirring the kettle, but can you convince them that the people you hire and supervise will be just as good?

#2: Do you want to take on management duties?

A large part of your day will be dedicated to management. Besides dealing with technical and scheduling issues, you'll also have to deal with interpersonal issues, which grow exponentially the more people you add. Is that really what you want to do? I was in corporate management for years, and part of why I became an independent was to get away from all of that crap. Computers are so much easier to figure out.

#3: If you're not hands-on, will your abilities become outdated?

I've seen a lot of good programmers go into management and watch their programming skills die on the vine. In a way, they make good managers because they can still smell BS, but it's so sad to watch them fumble around in vi after being away from it for a few years. And what if times get tight, and you need to get back into it? I'd advise you to keep your hands in and be a "working manager" to some degree.

#4: Does the monetary equation add up?

How much will you have to pay people vs. how much you will charge for their work? You have to get a cut, or it isn't worth going through all the hassle of expanding your business. Don't forget to include additional expenses such as equipment, software licenses, and employee benefits (if you're hiring instead of subcontracting). Will your clients expect to pay less than they pay you now? I know mine would because they're mostly paying for my niche expertise. Sure, there are parts of what I do that could easily be done by others, but those aren't the parts that land the contracts or justify my rate.

#5: What will new hires do when you're light on work?

We all know how it goes: either you have too much work or not enough. You're tempted to hire people to help you consume the feast, but what are you going to do with them when the famine strikes? You might have to spend more of your time drumming up new business -- in other words, become more of a salesperson (unless you plan to hire someone to fill that role too). Or, you could make it clear in the new hire employment agreement that the number of hours they can work in any given month has no guaranteed minimum.

#6: Are you aware of the regulatory requirements?

I don't know how it works in other countries, but in the United States, hiring people involves navigating a maze of twisty little regulatory passages. It's easier if you subcontract -- that only requires filing a 1099 for what you pay for services if it's more than $600 (and, truth be known, a lot of companies don't even bother filing a 1099). But employees require a whole different roll of red tape. Regulations on hiring, benefits, withholding, and reporting have to be met at the federal, state, and sometimes even county or city levels. You might have to get an accountant involved, which shaves a little more off your margin. On the other hand, you might get some tax breaks for employing people. For instance, Washington offers a credit for hiring programmers in rural counties (although I'm not sure if my county qualifies as rural).

Given these factors, I advise transitioning gradually if you're considering expansion. Try subcontracting out a little more work; afterward, think about what you did right and what you did wrong. If you can see yourself doing more of that and improving at it, then continue to expand carefully. If you get to the point where you have steady work for a number of people, then look into making their positions permanent (assuming that's what they want too).

Share your experience

Are you a one-person operation like me, or do you run or work for a multi-person consultancy, or none of the above? If you've expanded your IT consulting business, what challenges have you faced that you didn't anticipate? If you hire others, are they subcontractors or employees? How's that working for you? Are you considering any changes? Post your feedback in the discussion.

---------------------------------------------------------------------------------------

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!

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...

23 comments
PMPsicle
PMPsicle

There are a lot of questions involved ... bluntly put you really need to do a strategic analysis including the potential issues. Without giving away the farm (TrainingNOW teaches this stuff). Some of the other questions you need to answer are .... Are you comfortable selling including cold calling? Remember that as a company you will need to keep more than one person busy which means you need to be out there drumming up business rather than letting it come to you. Unless you've got Expert Marketing down pat! In which case you will be fully occupied doing that. This level of selling is different than the occasional sales call we make as independents. Is your market open to dealing with the little guy? Some markets only deal with the big boys. And they only deal with individuals. On the other side, other markets may open to you ... do you know what they are? Are you comfortable with accounting information? As a one man shop you can handle the books yourself and only pay attention to the key indicators (e.g. money in the bank). As a bigger organization you need to be able to understand things like cost per chargeable hour, fully loaded cost per hour etc.. You accountant will tell you what he understands you to be asking for but remember that they operate under different rules than you and monitor their costs differently. If you don't explain what you want correctly you'll get a correct answer ... just not the one you need. Are you prepared to give up the technical stuff? If you're selling, managing and administering other people you're not going to have time to keep up your technical skills. Do you have project, operational and strategic management skills? Three different attitudes and three different skills sets ... as a business builder you need them all until you're large enough to hire those skills (as overhead). Are you knowledgeable about risk management? Can you develop the risk profile of your alternatives. There are increased risks and decreased risks involved. I could go on but I'm going to stop now. Glen Ford

minstrelmike
minstrelmike

For the last house foundation I put in, I hired a crew of 3 brothers. They'd had a much larger business earlier running 3 crews w/20 employees or so but said the headaches were bad. Usually had to hire someone new each Monday--couldn't trust folks to show up. And at the end of a year of good business, they each made about the same as when they just worked concrete together so that's what they went back to.

A contractor
A contractor

While all of the points excellent and worth the time to ponder, point 6 can be not only a business killer, but can ruin friendships and family due to the time involved, marriages because of the financial risks and exposure. Talk with a lawyer AND a good accountant before you take the expansion pplunge.

dawgit
dawgit

and again Good Post. Those points you mention can be applictable almost anywhere, and to any business or field. Good advice for someone thinking of starting out in business. -d

Sterling chip Camden
Sterling chip Camden

... I've had pretty good luck in subbing out work, but I've always known the person and the quality of their work beforehand. I'm still unsure whether I'd like to do more of that or not.

Sterling chip Camden
Sterling chip Camden

Yes, this ball of wax gets bigger the longer you look at it. For the techie who would like to be able to grow but doesn't want to be a manager, the ideal situation would be to hire the management and marketing side, and continue to do the technical piece, along with others. But that takes quite a pipeline of business to support. One of my clients did that -- made himself Chairman of the Board, but lifted someone else into the CEO and President role so he could stay technical. But he had a well-established product with a steady revenue stream from licensing.

Sterling chip Camden
Sterling chip Camden

... of why you need to determine whether adding more people really will enable you to make more money -- or not. Employees don't usually have the company's success as their #1 goal -- their goal is to make money for themselves. The two goals are somewhat aligned, but not perfectly.

Sterling chip Camden
Sterling chip Camden

Any time you get involved with government regulations, you can count on it being more complicated than you expect -- even if you expect complexity.

Sterling chip Camden
Sterling chip Camden

I've seen a lot of businesses fail simply because they grew too fast to know what they were doing.

Igor Royzis
Igor Royzis

Chip, thanks for expanding on this topic.

santeewelding
santeewelding

Or, you can write for money about the whole thing with your obviously sage and practiced eye. While not forgetting to mention the big hit you take when you hire or retain that first, not paying off until the third, or fourth, or fifth, whence comes the multiplied and unaccustomed money, and grief.

PMPsicle
PMPsicle

I also know someone else who did that ... built a fairly large software developer, then lost the company to the hired President. Unfortunately, giving up the management side means you have to know the management side so well that you can govern without managing. A trick that many boards of directors still haven't managed. Glen Ford www.TrainingNOW.ca

santeewelding
santeewelding

Both coming in and going out. I've seen what you've seen. I meant to add above to "sage" and "practiced" some one-word appellation to convey the understanding and acceptance of others with which you write and respond. How's about "gracious"?

Sterling chip Camden
Sterling chip Camden

Thanks for the compliment -- it's always more comfortable to sit back and observe than it is to do something. Yes, economies of scale do mean something when you're at the bottom end of the scale.

dawgit
dawgit

What you're saying is that unless you plan to have many employes, it would be cost effective to use contracted workers. 25 workers on the payrole, is more cost effective than 5. True Statement in that the overhead of maintaining the required paperwork, bookeeping, etc. is distributed over a broader people base. In my personal observations that is true. For specific job or project type business to operate with cost efincency, contracted workers are the best solution. -d Also adding to that, depending on the location, contracted work can be a 100% tax write-off, where as the cost of 'employed' workers can only be partially written off. -d

dawgit
dawgit

sounds like a good idea though. I don't think you'd want to do that now though, there's too much trafic, the bad gases would kill you. '68, ouch that was a tough year, world wide. It came close to to the end. (too close) But, we're still kicking. I was still on a short leash, I got turned loose on the world late. circa '71-'72, but I made up for it. (It's killing me now though. X-( ) If I ever get down your way, I'll be sure to stop by and shake your hand. (Palmetto's too) -d

santeewelding
santeewelding

All there is, is like that. Even the meter or so between opposing traffic on the autostrada, where I was assured an unmolested night's sleep between the guardrails. No fool then ('68) would investigate that.

dawgit
dawgit

I'm glad the coffee cup was out of the way. When did you wander over? I haven really been in the States since '84 (when I came to Germany) from '73 - '77 I was wandered around a bit mostly Aisa though. It's all good. B-) -d

santeewelding
santeewelding

I may have passed. I took the turn from Madrid, meandering through the thal, staying away from the city, sleeping in the out of the way, alongside the roads and where I was (not easy to do, Germany what it was and more so today). The East, like Rangoon, did that to me, too, fahrts to this day reminiscent of sugar and chai.

dawgit
dawgit

Quite some time ago, I took a left turn in Spain, and got lost in Germany, via Scottland. B-) (Aisa must have messed my head up a bit :0 ) thus, where I art. :^0 (and fahrt as well) :^0 -d

santeewelding
santeewelding

Takes you down the road of contracting (?) to deal with the contractors. Then, where art thou?

Editor's Picks