Starting from Scratch: What does it take to start and grow a profitable IT business without a lot of money? Here is practical advice from someone who did it.
There aren’t many of us who have not heard about Sir Winston Churchill. There’s a great story about how he was asked to give a speech to a graduating class at Harvard one year. After a long winded introduction, he got up, walked to the microphone, took a deep breath, looked around at the lecturers, the dignitaries, the students, their families and their friends and said: “never, ever, ever, ever, give up”. He turned around, walked to his chair, and sat down – amongst stunned silence I would assume.
That’s how it is running your own business. There are the good times when everything you touch turns to gold, and there are the bad times when you wonder where on earth you’re going to get the money to pay everyone’s wages.
My company, Conan Group, was conceived by two significant events:
1. In October 1999, I was laying by the pool on Hamilton Island, Queensland, Australia on a five day holiday when I started reading the Robert Kiyosaki book, Rich Dad, Poor Dad. By the end of the book, I had convinced myself to get off the island, leave my very well paid job with an international IT research and advisory company, and start my own business. The problem was I had no idea in what!
2. Meanwhile, back in Perth, my business partner was sitting in his office contemplating his future about starting his own business.
Funnily enough, it wasn’t until February 2000 that we actually realized that we had the skills to complement each other – Tom had the IT brains and I had the networks and sales skills. Lesson Number 1 – always work with those who complement you.
So, we established Conan Group as a boutique IT management consulting and training company. We based our offerings on IT and Business alignment and used the concept of IT Service Management to assist IT departments to become more commercially focused in their management of IT. This means teaching IT departments to focus on delivering business value by the delivery of managed IT services – as opposed to a focus on the delivery of technology. We then found the vehicle to do this was by introducing a best practice framework called ITIL (the IT Infrastructure Library).
The first year being in business we had a meteoric rise. We secured a key government contract that provided us the launching pad we wanted into the market. However, when the government changed, with it came budget cuts and non-renewal of all IT contracts. As a result, we suddenly realized that the bulk of our business was under threat. Lesson Number 2 – never have all your eggs in one basket.
The training business that we started as an after thought ended up being our savior. However, we quickly realized that after two disastrous attempts at alliances, we had to manage our own quality by developing our own courseware and intellectual property. We then gained credibility by becoming one of the first Australian organizations to become accredited through a governing body in Holland called EXIN. Lesson Number 3 – always retain control over quality of your offerings.
On the consulting side of the business, we eventually had to revise our traditional consulting model that I lovingly call “bums on seats”* and create an Implementation Methodology that allowed us to leverage time and Intellectual Property so that we could deliver a competitively priced service to our client.
Now, it sounds like a very easy concept, but we didn’t take into account a number of factors that actually created some problems for us:
Lesson Number 4: Remuneration of staff.
At the time, IT was in a boom period and because of our consulting model, we needed the very best people we could buy. It worked for a while, but what happened was that because we didn’t have our implementation model defined at that point, we became increasingly reliant on people – who then kept asking for more money. A catch 22 situation.
When a downturn in the IT industry occurred late last year, we found ourselves paying some people over double the market rate. So, in conjunction with re-evaluating pay rates, we also implemented a 20% challenge that meant a reduction in costs by 20% accompanied by a 20% increase in value.
The concept was excellent for the business. In fact, so excellent that very quickly we turned the company around into a profit again. However, it meant that a couple of people left our company and decided to join our opposition. Which didn’t worry me too much because they were a liability to our company.
Which brings me to Lesson Number 5: Always give your opposition your liabilities! I have found that people don’t work for money, they work for personal satisfaction. If anyone ever came to me demanding high wages without having to first prove themselves, I would politely show them the door. No matter what, they need to prove themselves first – I don’t pay on the promise of how good someone is anymore!
Lesson Number 6: Margins and pricing strategies!
The reason we decided to move away from a “bums-on-seats”* model was that it simply didn’t work for us. We decided to move towards a model that embraced leveraging our IP – instead of trying to leverage people.
This meant that we needed to clearly define what our margins were on each job. So I introduced time-writing for every person in our company. Every single activity that our staff do has to be assigned to a project code. This helps us to determine the ACTUAL profit and loss for all of our jobs – and the cost to reinvest back into the company. This will provide you with valuable information for understanding the real cost of a project and determining margins and pricing.
Which also links into Lesson Number 7: Be Financially Literate and implement good Financial Management disciplines.
I have a wonderful mentor who simply looks at the bottom line – does it make you money Yes or No. If not, don’t do it. Simple! It has only really been in the last 6 months that I’ve actually started to understand the numbers. I wish I’d realized how critical it was about 2.5 years ago! Often we abdicate those activities that we’re not good at (and I have to admit I hate accounting and anything to do with math), but it’s the life-blood of a company.
You need to be across your finances – and get an excellent person on your team who not only does your compliance work for you (i.e. taxes), but also works with you on strategy.
Lesson Number 8 is to get yourself excellent mentors. But don’t just have one – have a hundred! You will find that true entrepreneurs have an amazing ability to simplify everything. And usually it comes back to “what are my returns – show me the figures!”
There is usually one underlying root cause in every company that punishes you until you fix it. Ours was the lack of HR processes. Lesson Number 9 is to get a good HR policy and recruitment process in place.
Particularly in the service game, people can make or break your company. Therefore, you need to put them through the wringer before employing them. Always have job descriptions. What are their Key Performance Indicators, etc. A good tip I’ve learned to make everyone accountable is to put everyone on a low base, but high commissions. Reward them when they help you achieve your targets – but don’t carry them if they don’t.
Lesson Number 10: You need to be passionate and get up every day excited to get to work. You need to be living, breathing, eating and sleeping this stuff every day. And you need to have goals in place because running your own business isn’t easy by any stretch of the imagination so you need something to keep coming back to why you do this. Things happen and sometimes in one day you can go from the heights of elation to the depths of despair. So you need to be strong and persistent.
And, above all, remember Sir Winston Churchill when that order doesn’t come in, when the bills are high and your funds are low … “never, ever, ever, ever, give up!” Because, you never ever know, you might succeed with another blow.
Tabitha Wellman is General Manager at Conan Group, a West Australian owned IT Management consulting and training company specializing in helping clients develop strategies for IT and Business Alignment.
