From IT services development company to sales agency?

[MortenK]

Hello everyone.

Long post coming here, sorry

I am having a bit of a dilemma, which I hope to gain some new angles / insights on by posting here on YE.

Background
I own an IT company, which do custom software development for clients, such as websites, webshops, custom web applications as well as a little bit of more funky stuff (Facebook apps, viral marketing, flash games). We have positioned ourselves as a subcontractor to advertising and marketing agencies.

We have been in business for just around a year, and we are doing quite well. It is not like the money is pouring in, but we support our main staff (4 guys) as well as freelancers and development teams. We use offshore development for most of our projects, where 2 of the main staff act mainly as project managers. The other 2 is a designer and a salesman.

We have bootstrapped so far, and in the first year made a decent profit. Now, the projects are starting to come in faster and faster, and they are rapidly growing in size and budget. Almost all of our clients are repeat customers, and we do pretty high quality work for some very large end customers (our customers' customers, so to speak). So far so good.

The problem
The problem is now, that I am loosing my motivation regarding developing software projects. I have been doing this myself, for around 8 years now in various organizations, small and large. I started as a developer, and then became tech lead, then project manager. For as long as I remember, I didn't really enjoy software development all that much (except hobby projects), however I have kept doing it because I am good at it, and it has always given me a decent income. Obviously this is also why I / we started a company in this sphere. Its not the first company I have started, but definitely the most successful.

The problem I am facing, is that I have come to a point where I am starting to loathe the work. I like the initial stages of projects, conceptualization, finding the right team and so on, but I hate the production phase, where I constantly have to act as interface between developers and customers (in addition to trying to improve the companies processes and tools, pay wages, invoice clients etc etc).

Stress etc
It is overwhelming and frankly I am starting to get very stressed out, and constantly tired. I think the problem is the amount of attention to detail I have to put into every project (and there is a lot), ranging from technical design to customer handling to developer management etc. In addition, the constant deadlines from different projects are simply becoming a bit too much. Add to that the inability to take a vacation without several projects exploding (due to beforementioned constant deadlines / milestones), and I am getting exhausted to the point of shutdown

In previous positions, I have felt this from time to time, and it usually ended with me resigning from the position and taking on something new (which always turned out to be more of the same

Another idea
I think that we have come so far with our company, by building a good customer list, delivering good solutions and so on, that it would be a shame to just let it die.

Therefore! An idea I had yesterday, has been on my mind. In our team, we have a very good salesman, and a very good graphical designer. Lastly, we have myself, which (I like to think) is a decent software / solution architect, and an average salesman as well.

What I think could be interesting, was to stop working as a software delivery company, and instead start as a company of sales agents. Instead of producing solutions, we utilize our large network of suppliers in all manners of fields (web development of course, but also a lot of other areas of IT / marketing), and "merely" sell the solutions.

Concept
We keep going to our large clients, as well as new ones and try to listen to what they want. Then we design / conceptualize a solution, find all the right suppliers and start the project. By then we take a percentage of the sale (think around 30-40%) and hand the entire project over to a third party supplier. Obviously, the challenge will be to ensure that our suppliers are of such high quality, that our customers actually get what they pay for. Naturally, we can assist on various parts of the project, but the more of the project is handled directly by the suppliers, the better.

I believe such a setup could be interesting, because there is an entire "business area" which will no longer be our direct responsibility: Production. We do not have to worry about setting up development environments, enforcing good code practices, managing projects and so on. We can focus on what we enjoy, which is conceptualizing and selling really cool solutions.

However
It is however easy to argue, that what we are actually best at, is probably producing the solutions. On the other hand, while we are good at producing, we are definitely not good at scaling our production. We DO have very good sales resources available, and could probably take on a few more highly qualified sales guys, while we have a hard time finding good project managers.

I would like to put the company in a position, where I am not needed every minute of the week. I'd like to be able to take 2-3 weeks vacation, from time to time which is simply not possible in our current situation. Also, more than anything I would really like to get away from supervising development of software.

So a few questions to start the debate (if anyone is still reading this rant :

Do you reckon it is feasible, what I am thinking of? To change a software development company, into a sales agency?

Is it at all possible to sell such solutions, without being directly involved with the production / supervision of production?

Based on what I describe above, is there any obvious obstacles which I have missed?

Finally...
This post is written more or less directly from the gut, so please do not hesitate to ask if anything needs elaboration. I'll be thankfull for any replies that I get. Obviously I am discussing this issue with friends, family, business partners and so on, but I think YE often contributes new view on issues, which is why I am asking here.

Thank you very much for reading! And even more for replying

Best regards,
Morten

[bananaman]

Do you reckon it is feasible, what I am thinking of? To change a software development company, into a sales agency?

It's feasible if the quality provided by the suppliers meets your and your client's expectations.

Is it at all possible to sell such solutions, without being directly involved with the production / supervision of production?

If you are not directly involved in production, who will guide it to the desired outcome?

It sounds like you are seriously burnt out. The most important thing for you right now is to take a break as soon as possible, or at least to lessen your workload.

I think what you need to do is to split your roles, and then train people to do a particular function.

1. technical design
2. customer handling
3. developer management

Every successful business will have to expand at some stage, and that's when the boss has to stop doing everything himself, and start delegating.

It sounds like your business is doing really well - you don't want to change direction during the growth phase.

Where are you?

Good luck.

EDIT: If you no longer enjoy the work, have you considered selling the business?

[MortenK]

Hi Bananaman Thanks for your response!

As for who will be guiding the production to the desired outcome: I was thinking that the suppliers themselves handle the project management, as they have project managers of their own, instead of us taking on that role. I can imagine that we, whenever we sold a project, would include a pretty detailed vision / scope document for the suppliers, in order to help the project / suppliers as much as we can, initially.

I agree though, that the quality of the suppliers needs to be high. Currently we are using pretty high quality suppliers, but things can and do go wrong obviously. I think the challenge for us, will be to find and build relationsships with really reliable suppliers, who are not too big and not too small for us.

We have tried reasonably hard to find some new people, which could do software project management good (finishing the projects without loosing money), but we have so far been unsuccessful (its not like we can offer a substantial wage or job guarantee). Also, even if we find a good new PM, deadlines need to be met, and in the event of illness or vacation, the ball rolls back to me.

Thats why I am finding "pure" sales work a bit more appealing, as nothing critical will happen if one salesman or myself wishes to go on vacation, is ill etc. I mean no projects will come to a standstill, because we are away.

This is by no means a unique situation I know. I believe most of startup owners have these kinds of problems, and a lot of respect from me to those guys who can keep up the pace. I dont think I am one of those guys though :-)

I understand your point about not changing direction during growth. This is also one of my mayor concerns, because how will our customers react to such a change? For all we know, they might run away screaming, directly to the competition.

As for selling: I would if I could, but I don't believe we have very much to offer a potential buyer. I mean in reality all we have is our client list. We don't have any technology IP, or a strong sales organization or even a strong delivery organization. We are basically just a 1 year old company consisting of 4 guys, using a lot of different suppliers to fulfill our customers needs. But definitely, as I said we would if we could

Thanks again for your reply, I agree with practically everything (especially the part about taking a break, hehe).

Morten

[SeaSquirrel]

Have you ever read a book called the four hour work week? Its about outsourcing your life and building a system to replace yourself in business. If you could create a system to take stress out of your life and drive down work hours and still run your company you would be in good shape.

"We keep going to our large clients, as well as new ones and try to listen to what they want. Then we design / conceptualize a solution, find all the right suppliers and start the project."

If I pay YOU for the job and something goes wrong I would go after you! Think about how frustrating it would be if things broke or went wrong? Where does the blame go? Who fixes the problems? Who is the main point of contact?

It would drive me nuts if all my questions were delayed through the middle man process.

[singaboy]

I am a 10+ year IT veteran with plenty of experience in software dev, admin, project mgmt, pre-sales stuffs. Let me chime in.

Morten, The Idea doesn't seem to be good to me. Sorry to say. Let me back up my statement with the following.

You should change perspective from you, your suppliers to the 'customers'. In the IT business, Middle-Men's involvement doesn't work out. Simply because, he is neither here (with the customer) nor there (with the supplier). If I were a customer, why do I need you, if I can liaise with your supplier directly. You might be aware that plenty of things happen during initial discussions, contracts negotiations, defining the terms & conditions and such. So, ideally the supplier's involvement is greater here than you (middle-man). Customer may already know you, but the minute you tell them that you are not going to execute the project, you are not part of the project board, you are not the PM, then the customer is going to be thrown off and there will always a suspicion looming.

You may win a customer or two with this approach,but I don't see it working in the long-term. Sorry about that.

HOWEVER,

There is already a similar business model that exists in the IT industry. Ie., 'Retainer'. A Retainer is a sales guy who is 'part' of a handful of IT companies. Not exactly on their pay-rolls, but sorta like contractors. You can call them as Freelance Salesmen or whatever. They usually 'maintain' one or more accounts for each the IT companies they work for. Again, they handle only the sales part but nothing on operations. This matches particularly well with what you intend to do. Why I say this will work better is you are part of the supplier here and the customer will trust you.

So, align yourself with a handful of the companies that compliments your skills, you foresee a potential for growth. You will have a personal email address and such with each of these companies. There are other paper works that need to be done too. Now,when you go talk to a customer, you represent THAT company. You are involved in sales here, and you will take along the PM of THAT company and let him handle the execution. You sit back and relax. This is not exactly a 'business', but you will get a 'monthly retainer fee' (salary) + commissions on each sales.

So, Morten, something for you to ponder about

[MortenK]

Hi guys,

Thanks a lot for the very good replies. Definitely got me pondering :-)

First SeaSquirrel: I know about the book but haven't read it. Have been meaning to get a copy, as such books while maybe not living fully up to their names, tend to have ideas and concepts which can be very sound.

As for your question, definitely going through a middleman constantly is not an ideal situation for either the customer, the supplier or for that matter us. Then we would still be in the situation where we have to relay all kind of project related information, from the customer to the supplier. Noone wins here. What we intend to do is basically broker the contract between the client, and the supplier(s). As soon as the contract is done, we are only on the sidelines, available for mediation if needed. The project is handled entirely between the client and the supplier.

The very reasonable question is then, why would the client and supplier even need us? To that, my opinion is that the supplier will welcome any contracts which are given to them, without effort on their part. Naturally only as long as the pricing of the project minus our sales commission is still a good deal for them.

The client "needs" us to properly conceptualize their idea / need, into a specific technical solution. We can sell the solutions fairly well, as we have indepth knowledge of what is required technically. We can tell them, that this particular project should be handled this and that way, using supplier X, as we know that supplier X, is a good company and can fulfill the contract.

We already have very good connections with suppliers, which we know are professional and of a decent size. The change would be that instead of us managing the project, it would be the supplier directly. Of course, why then won't the client just contact the supplier directly next time? They are free to do this, as we won't charge for recurring projects. Obviously, if we again is involved in the technical solution design and sales effort, then we will get the percentage. However, if the clients have a specific well defined need, then we do not wish to stop them from going directly to the supplier.

Then for Singaboy:

Really good reply! We have actually discussed this approach, with several of our suppliers. We have also previously gotten very specific requests, for us to take on a role, which is basically like an independent sales division. Previously, we were not too interested in this, as we wanted to build a delivery organization as well and do all production in-house. As mentioned earlier, I do no longer believe we have what it takes to build such an organization (both financially and regards to the employees we have / can attract).

Unfortunately for most of our suppliers, we can not bring a PM to sales meetings as the suppliers are located all across the globe (southern europe, asia, middle east), and we are focusing sales in UK and Scandinavia. However, I think the general idea of going for a form of company with freelance salesmen working with a handful of suppliers is very interesting. Obviously as long as we complement the suppliers, and of course know that they are good and reliable. This is in effect, more or less what I have been thinking of, when I say "sales agency".

It all boils down to that we already have the clients, we already have the suppliers, but we do no longer want to function as middlemen in terms of production, only in sales.

And I think that meshes quite well, with the "retainer" business model you mentioned. It's true though, that it is not so much a business as it is more a somewhat loosely organized group of salespeople. However, I think that it's a very appealing scenario, and also has potential for (a little) scale. Any thoughts?

Thanks again for the reply, definitely made me think some more

Morten

[singaboy]

Its definitely doable, and I have personally seen people working in this mode pretty successfully.

Think structurally and you'll arrive at something good.

Identify the areas (.NET, java, open source based development stuffs ? infrastructure mgmt ? ebusiness stuffs, CRM and such enterprise products etc) that have pretty good demand in the regions you are targeting, and that can be sold in big number (license + maintenance) or costs more...coz, you are taking a cut and needs bigger margin here.

Then, identify the potential suppliers..those with good track record, credibility & visibility...

Talk to them, explain what you can bring to their business without even being on their payrolls..workout all the terms & conditions...

Thats it..You are setup...Just go and start selling...

IT sales is all about getting that yearly maintenance contracts..not the 1 time development projects..they dont make that much money (generally speaking)

Cheers

[veikoh]

I do not understand how IT can be profitable business model anymore. I was involved when young to build it as microprocessors and computers where interesting thing but since software was announced as "open source" for free, how can anyone make money out of it?

[MortenK]

Veikoh: Its true that a lot of software products is now opensource, and while this has advantages it also has disadvantages like:

-Usually no phone number you can contact for support.
-Some part of opensource software is also not stable yet, and is maintained by a group of volunteers. Often a product dies, because people move on / lose interest in the product.
-Lastly, if a client needs custom software, it is rare that there is an opensource product, which fits their needs 100%.

Anyway, Singaboy again thanks for the great answers. I think I'll take a few weeks of vacation and think it properly through, as well as discuss possibilities with our current suppliers.

[singaboy]

Good luck, Morten. Pls feel free to PM me if there is something that we can work on or to discuss !

[nitipal.matrix]

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