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| Author | Subject | ConanTheProgrammer
Registered User
(3/7/01 1:02:00 am)
Reply | Edit | Del All | Starting a small consulting firm, how tos???
Myself and two buddies of mine, one with about 6 years experience, the other with about 25 years experience, are looking to strike out on our own and start a consulting company. We seem to be of the opinion that by forming an incorporated company, we will be able to portray ourselves as the 800 pound gorilla ( compared to simply being an IC) and may be able to get more work that way. We have drawn up a tentative business model and are hoping to be able to take on projects as a group but may need to each take on a contract of our own, separate from the other two guys initially in order to facilitate some cash flow. At this point in time we don't have an office but that could be easily acquired and are not planning on hiring anyone initially to handle secretarial duties or sales duties. We are basically going to be a service company, shunning product development until we are capable of building up some capital. A few things give me pause at the moment though. First of all, with everyone in the world saying we are on the brink of a recession, this might be a recipe for total disaster before we even get out of the chute. Secondly, as we are not planning on hiring a salesman initially, I am not sure exactly how we should go about selling our services. Does anyone have any experience with this? Our experience mostly lies with java and web based technologies with extensive J2EE type development across many app servers. We have even considered providing technical traning for smaller companies and providing them with guidance on technological choices on a consulting basis. At this point we are all simply giddy about the prospect of running our own careers with a couple of guys we know, like and trust. Anyone have any suggestions as to how we can best put ourselves in a position to make this a success? This is my first attempt at something like this in the computer realm. All my other ventures have been less than stellar which is why I still go to work every morning  Maybe I'll hit that lottery here in Texas though on Wednesday and this will all be a moot point.
I'd love to hear what some of you with a wealth of experience have to say about this.
Regards
CTP
| Matt
Registered User
(3/7/01 8:45:53 am)
Reply | Edit | Del | I've tried to start the same thing
But my buddies haven't been up to it. I've got four friends with whom I went to school. They simply don't have the [courage, assertivenss, whatever] to go out on their own.
I would only suggest that you try to get some gigs with your current employers before you strike off on your own. If just one of your employers agrees to pass some work your way then it could work out for a while.
Just make sure that your partners are as gung-ho about it as you are.
| RMP 
Registered User
(3/7/01 3:58:37 pm)
Reply | Edit | Del | Exactly what we did
I also got tired of the feast/famine, 1-man band situation years ago, especially when brokers/clients sometimes would still dis me even though already incorporated. Once in 1995 when a small project I was trying to get finally came in after I'd started a contract, I hired a colleague to do most of the work on the small project and I'd do some work on it after hours. Eventually I realized that this was the way to go (for me at least) but it wasn't until I started promoting my separate division model that more consultants wanted to join. It seems to work because each one can do his/her thing and make his/her own success without having to worry about being affected by each other. We have gotten more projects now and then where I've gotten to work together with another consultant on them. As our new marketing/sales partner becomes productive, this should increase. Meanwhile, most of us continue working on whichever individual contracts we find, with or without brokers. This keeps us going individually, helps the company as a whole, and also helps us keep our benefit package.
If you have a committed core group, that makes it even easier to start. Having a good starting point is a big help. I'm finding that getting new consultants, new clients, new benefits, etc. is much easier now than the effort it took to start it all.
Robert M. Pritchett,
President - RMP
Consulting Partners LLC
People -
Openings -
Benefits -
Fees -
Acid Test -
Umbrellas -
Per Diems -
IRS
| Snark
Registered User
(3/7/01 6:56:51 pm)
Reply | Edit | Del | Re: I've tried to start the same thing
>But my buddies haven't been up to it. I've got four friends with
>whom I went to school. They simply don't have the [courage,
>assertivenss, whatever] to go out on their own.
Been there. Kind of there now. Problem is, most of my buddies these days have mortgages and kids starting college, and have been mostly FTE, have never understood the contract thing.
It's a very different thing, running a business, and not just a project, much less just a keyboard. Good luck to whoever goes that way, may you do it better than so many before you!
Snark
| Marvin C NiceGuy
Registered User
(3/7/01 8:14:12 pm)
Reply | Edit | Del | Random Thoughts
Structure:
What kind of corporate/partnership structure are you considering ?Most often-heard 'Small Business' advice is to consider break-ups *before* you start (kinda like a pre-nup ??)
If a partnership, buy-out clauses for other partners. If a corp, some kinda first-refusal for the others to purchase the shares.
Key-person insurance might be warranted after a while.
Unequal distribution of revenue / salary:
> Myself and two buddies of mine, one with about 6 years experience, the other with about 25 years experience <
Big difference in experience here - so, what if one partner / officer bills the big-bucks and the other(s) don't ? How will that affect salaries ?
Marketing:
> I am not sure exactly how we should go about selling our services. Does anyone have any experience with this? Our experience mostly lies with java and web based technologies with extensive J2EE type development across many app servers. We have even considered providing technical traning for smaller companies <
Can't comment on the Java stuff, but I've had 3 contracts now after doing technical training (mostly database) at different clients.
It's a good way to get introduced to managers, find-out who has a need for your skills, and get 'instant credibility'.
I sub mostly thru big training companies, and haven't had a problem getting the non-compete modified to allow me to do 'non-training' work at their clients.
Risk:
> First of all, with everyone in the world saying we are on the brink of a recession, this might be a recipe for total disaster before we even get out of the chute. <
Well, it's always riskier in this world. If it wasn't every FTE and her brother would do it... At least with 3 of you it's spreading the risk a little bit.
I'd ask yourself "If I don't do at least try this now, will I regret it in 2 years ?"
Good luck in whatever you decide.
| Don Wallace
Moderator
(3/7/01 8:47:58 pm)
Reply | Edit | Del | A grab bag o' advice...
I am coming into this from sort of the opposite vantage point that you are. I have been getting small IC projects on my own since 1993, and I have been working in industry for, ahhh, "years" (>10.)
I just incorporated in the last month. I think that this is the correct thing to do if you and your friends are completely committed to a concept for a business. Incorporation offers several advantages over an informal partnership: 1) as you are guessing, it makes you look more respectable; 2) the incorporation process will be a "test" of everyone's commitment to the partnership; 3) the corporation formalizes things and imposes financial discipline; 4) if you separate personal and business finances completely through the corporation, the corp. will *probably* (I am not a lawyer!) be an effective shield for liability. This is not insignificant, as the liability protection of a corp. allows you to consider riskier projects than you would as a sole proprietor.
I used a lawyer to handle all the filings, and it was about $1000.
I have current work and clients already which I am simply billing through the corporation.
I also have a problem that you do not have, which after reading Snark and Matt's accounts makes me realize it's pretty typical: lack of suitable partners who share a vision of "creating" their own jobs rather than begging for jobs from lord-knows-who. I know of several successful smaller local IT companies, and in every instance they started as a partnership of good people.
So DUDE, you are REALLY lucky if you have assembled a group of professional people that can work together, and you just may pull it off!
One thing to keep in mind is the psychology of teamwork. One *big* risk with ANY project based solution provider business is the risk of underbidding. This can KILL even a healthy partnership in two important ways: blaming; and one or more partners leaving the partnership or unwilling to accept the result of underbidding. As a solution provider type business your only asset is your reputation, and you need to protect that reputation by delivering on anything that is committed in writing. The point is, the pressure of inadvertantly underbidding is enough to blow a partnership apart, so discuss this among yourselves "soon". Everyone needs to know and to voice their personal risk and hardship tolerance. Large mismatches are the kiss of death. The partnerships I have known that have blown apart did not address these issues up front.
As far as sales... YEAH... you need that too!
Has anyone in your group sold their own projects (worked without a broker or recruiter) before?
What I have been told is that "real" consultants and solution providers (as opposed to "job shoppers") write and publish articles and speak publicly in order to raise their visibility with their client base and to create and maintain an image as experts of their domains. So right there, you need to first figure out *who* would want your services, then you put yourself on their radar screens (without becoming a pain in the butt about it.) Examples of such activities also include attending user's groups, hosting user's groups, hosting local seminars for product companies, etc.
Consider joining a Toastmaster's for the public speaking experience, if you have not done anything like this before. The fees are really cheap and you get to network with professionals and managers. It's helping me already.
(One thing I definitely see out there in consultant-dom: almost NOBODY bothers to market themselves in the "soft" ways as just listed. So if do even a little of this and help or enlighten a few people, your group will put a recognizable "face" on its consulting efforts.)
On the recession: if you "make it" (elevate yourselves above commodity status), the recession if any will not be a significant hit - I know several people who billed and worked like crazy back in the last major downturn in '89-93. Companies *DO* want to farm out necessary project work in a recession. What they *don't* want to do is to hire new contractors for ongoing, job-like, multi year contracts. There's definitely a step function at work here: if you are a commodity, you get slaughtered in a recession; if you have clientele who know you and you have a niche, you may do better than in a good economy.
Good luck.
- Don
| Farnorth
Registered User
(3/8/01 11:34:16 am)
Reply | Edit | Del | Re: Starting a small consulting firm, how tos???
Conan:
My husband and 4 buddies have grown a very successful IC shop over the past 5 years. Watching them, I've seen a couple of things they've done really well, and a couple of bloopers.
- Get an attorney. Do proper partnership documentation. Lock it all down and there will be fewer problems in the future.
- Agree up front on compensation. Since there are different strengths within the group, my hubby's company divides partnership distributions evenly, but pays each partner a salary in keeping with their role in the company.
- Find a marketer, either among your group (make someone the rainmaker and compensate them for it), or hire outside help. In the first year or two, marketing is a full-time job. In fact, the marketer will be busier than the programmers. After you've established a business, growing the business will take the marketer's time and you'll need a lot more management help. The success of most small IT companies I've seen is dependant on two things: sales and service. In the beginning you need a really good salesman. Once you've got work, you really need to keep the clients coming back. It's the old 80/20 rule; established clients are 80% of your billing and only take 20% of your marketing effort to keep them coming back. New clients are likely to be 20% of the billing and require 80% of the marketing effort to attract them.
- Act like a big business. Have regular management meetings. Make someone the manager and make sure they handle the minutia of running a business (stuff that most programmers don't want to do).
- Take advantage of each partner's strengths and skills. You're not just programmers any more, someone will be better at project management. Someone will know accounting and budgeting and forecasting. Someone will be better at sales. Someone is the people person who can go in a calm a client's nerves when they're upset. Someone is good at hiring the right people. Someone is a better writer and can develop marketing materials.
- Don't forget spouses, friends and significant others. If you're missing a skill set, look around. Spouses have a vested interest in your success and are a great resource for rounding out the company. In my husband's company, spouses have done graphic design, written proposals, done data entry, helped move, done space planning, built databases, trained office staff, provided legal advice, and provided accounting and forecasting services. Friends have built and hosted the web site.
- Take advantage of the government. Use the SBA. Get on every government contracting list you can; local, state and federal. Qualify for every small business category you can. Government grants, loans and continuing services contracts can see you through the hard times until you're established.
- Watch your back. Get a good attorney to help you. Joint ventures and subcontracting to larger companies are excellent ways to get work, but they will take advantage of your lack of business accumen if you allow it. This is where a good attorney is critical. My husband's company has been involved in more than 4 years of arbitration with a partner who tried to &#$% them. They won, but it was a long, expensive and very trying battle. Their lawyers were critical in their success.
- Think carefully about the people you'll be partnering with because they'll be with you for a long time. It's like marriage, small irritants can get very large over time. My husband has one partner who's technical skills are excellent. But his business skills suck. Not only can they not depend on him to pull his weight in managing the business, he's usually upset because he isn't included.
- WRITE IT DOWN!!! Whatever you agree to, put it in a memo and sign it. Make sure you have written agreements with everyone you do business with. If they aren't willing to sign, send them a formal letter spelling out your understanding of the agreement. If you ever get in trouble, the paper trail is crucial.
Good luck. I'm sure you'll do well.
| Don Wallace
Moderator
(3/8/01 12:07:18 pm)
Reply | Edit | Del | Great advice!
Farnorth, you're reiterating what Marvin and I said - "do the prenuptuals". I think it's *SO* important for partners to know themselves and each other; after the partnership is formed is the wrong time.
One tendency for a geek owned business to have is for the partners to be geeky, to not get new business or be businesslike. As you stated so well, someone has to manage the business aspects and someone has to be a rainmaker. IE: I know of a prosperous partnership that meets those criteria to a "T", and I fear for this partnership's long term prospects simply because none of the owners want to go out and sell or market aggressively.
Another related fatal tendency is what I alluded to above: the tendency to 'coast' on past business. It's easy to get comfy with status quo and not go after new opportunties or markets.
A third pitfall pattern that I have witnessed several times is for the owners to develop a 'legend in own minds' mentality and to erect a sort of "cargo cult" around some irrelevant activities that they deem "critical for success" - when the primary reason that the business is doing well is momentum from one fluke product or market in years past. The problem with this is that the owners then do not entertain any new ideas whatsoever. I've seen fairly young people (30ish) doing this, it's not exclusively an old fart's syndrome.
- Don
Edited by: Don Wallace at: 3/8/01 12:07:18 pm
| ConanTheProgrammer
Registered User
(3/8/01 5:05:59 pm)
Reply | Edit | Del | I knew I came to the right place - GREAT ADVICE!!
Thanks so much guys for all the great advice. I am documenting everything so I can learn from the mistakes and successes of others. It's all still a dream at this point but I have every intention of making it a reality.
CTP
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