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Starting an IT Consulting Business

Starting an IT consulting business is an excellent path for those who are interested in becoming an entrepreneur. Here's how to open an IT consulting firm.

Starting an IT consulting firm is relatively easy if you have strong IT skills that are in high demand.
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The good news is that there is a labor shortage right now for talented IT workers. Companies simply cannot find enough resources to accomplish their IT objectives, so they are turning to external IT consultants for help.

As such, if you open an IT consulting firm today, you may find that you immediately are busy and you are profitable right away.

If you play your cards right, you can grow your IT consulting firm to be big and profitable.

But, before starting an IT consulting company, you should think things through. Here are some important considerations for those of you who want to open an IT consulting business.

  • Do you have a first client? If possible, it's best to start your business with a core client. The alternative is to simply start an IT business and begin selling work but it's much better to have that first client in hand before you quit your day job.
  • What IT problems will you solve? Position your business based on what pain points you will address for your clients. It's important to narrow your focus at least to the point where you know prospective clients will be interested in your offerings. Just saying you are an IT consultant is too broad. Saying you are an IT consultant specializing in SAP outsourcing is much better. If you can narrow it even further, that's good. Perhaps saying that you are an IT consultant specializing in SAP outsourcing with strong skills in supply chain logistics would be even better positioning. That's very specific and differentiates you from competitors. You get the idea.
  • Don't define yourself too narrowly. It's good to offer more than one thing. In a meeting with a prospective client, you'll hear all sorts of pain points. You don't want to not be able to generate business from one of those pain points simply because you've micro-niched your site too narrowly.
  • Form a legal entity. If you don't form a legal entity and simply act as a sole proprietor, you are effectively just an independent contractor. That doesn't really count as far as starting an IT consultancy goes. To be a real company, you need to be a corporation or an LLC. As a bonus, setting up a corporate entity of some kind will also shield you from personal liability.
  • Build a website. No IT consulting company worth its salt doesn't have a website. Plus, people who are buying technology services generally search for firms via the web. As such, you should not only have a website, but you should also search engine optimize that website so you do well when prospective customers are searching for your services via popular search engines.
  • Try to get long-term contracts. Be willing to offer a lower rate if you can get a longer project. Having too many small projects that start and stop can be a deathblow to new IT consulting companies. It's much better to get bigger, longer projects.
  • Never stop selling. A common mistake when opening up an IT consulting company is to sell your first project, do the work and then find you have nothing to do when the project ends. You should always be selling new work to ensure that you never have long periods of time when revenues are not flowing into your bank account.
  • Build a network of freelancers. Given the ebb and flow of consulting work, don't get stuck with employees who are on the bench between projects but consuming payroll dollars. Instead, leverage independent subcontractors on a just-in-time basis. It may be more expensive on an hourly basis, but it can be more profitable over the long term.
  • Track utilization and use good professional services automation software. An IT consultant that doesn't use good software tools to help them manage the work will soon find themselves in trouble, both in terms of customer service and financial stability. Whenever you can afford it, invest in tools that will make it easier to manage your consulting business and provide great service to your clients.

Of course, the best way to learn how to start an IT consulting firm is simply to do it. Along the way, you will make a few mistakes but that's typical. The best thing you can do is go for it. Stop talking about doing it and start your IT consulting firm next week.

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Conversation Board

We greatly appreciate any advice you can provide on this topic. Please contribute your insights on this topic so others can benefit.

dcr 6/26/2008

this is one great article...a much needed one since i'm starting my own IT consulting firm...just like anybody else who is starting their own entrepreneural endeavor, we need all the help and advice that we can get to guide us...

Dee 2/13/2009

Very good article... I am looking to start an IT consulting firm. It helped give me some great ideas.

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