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.
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