Linux Consulting SecretsJul 26, 1999, 08:40 (13 Talkback[s])
(Other stories by Tom Adelstein)
Earlier this year, Bengt Vienke, the Vice President of Data Services for Ericsson Americas asked me to assist him in developing a plan for setting up a consultancy in the US. My assignment included analyzing the market for niche areas where an Ericsson professional service organization could enter the market. Ericsson operates a global business and with its massive infrastructure they have had success offering services to the industries they serve.
Working with the Ericsson team in the past and having a track record for consulting startups prepared me for the assignment, I thought. We learned a valuable lesson about the consulting business that can help Linux consultants thrive and further market acceptance for Linux.
Which Startups Succeed?
Startup organizations fail for many reasons. Usually, the firm's business plan, written or not, does not contain a well conceived model. A common misconception exists in the minds of the operators and the people who finance them. People believe a startup must have a "great new idea" or a GNI.
Startups succeed when they focus on overlooked business opportunities. One doesn't need a GNI to succeed. One of our founders uses an interesting phrase to characterize this: He says, "God is in the details but how do you ship it?"
Consider the aforementioned company. Over a span of one hundred years, a few telephony switches bearing the logo made their way into the global infrastructure. With an installed base of business, a startup business can "add value" by adding support. While some people look for GNI others have created instant revenue by doing the skunkwerk jobs.
(You might ask for a definition of skunkwerk. I have no idea where the term originates, but it seems to come from the same people who say, "that's how the coins fall to the floor." I suspect a Penguin lover might know. As explained to me, it's the dirty little jobs no one wants and for which people forget to budget.)
Skunkwerk characterizes a niche for Linux consultants. For example, many companies already have Linux systems integrated into their networks. Free downloads and early distributions of Linux and the GNU libraries provided many organizations access to the Internet. GNU's history precedes the Linux operating kernel and many people opted for inexpensive solutions to email, firewalls, print and file services and other solutions available from such stale places as MIT and UNC. The people who deployed or patched those utilities together have probably left their organizations since turnover in the IT world is high. The new employees inherit those boxes and don't know how to maintain them. Thus, the Linux consultant becomes handy.
The analysts of the world might find the proliferation of Linux in the business community greater than they want to believe. After all, what sensationalism exists in adding a newer kernel to 75 Red Hat 4.1 486 computers running the mail for an international firm? From my experience, the number of Linux servers in business far exceeds the estimates. Simple statistical sampling tells me that the number of Linux servers already in use exceeds the estimates of the community by 300%. I conclude this from samplings of service requests from our current operations and ones with which I worked in the past.
Take a look at the business case archives at lcsrc. You'll see that Linux is the glue that many companies use to hold their networks together. You'll also find that it's the server of choice for organizations operating on a budget and for those who need a stable server environment.
Show Me the Business
Microsoft's Steve Balmer might worry about Apache. A Linux consultant should learn to track like an Apache so he or she can find a Linux box running someone's Web site and sendmail. How many million Web sites went up on Linux boxes before Microsoft's brilliant cult figure hit his head with the heal of his hand and uttered those infamous words, "We missed the Internet"?
Let's see, I got my first release of Windows NT 3.1 in 1994 and it didn't have a web server. As I recall, we patched it to handle the PCI bus sometime that year. Then, Windows NT 3.5 arrived as did NT 3.51 before version 4.0 in late 1996. So, Microsoft didn't offer a Web server until the Internet had exploded. Of course, Novell didn't "get it" until 1998. That left UNIX, which most people resisted because of price and platform. So, that left the free Unix like systems that college kids knew about when the Internet wasn't just the World Wide Web. Stop!
Can somebody please explain to me how the Internet grew so fast when the "major players" didn't have a hand in it? I mean, the "dot com" company was fending off a customer rebellion and resistance to its change of operating systems. I guess the Internet didn't really grow at all since the people who claim they made it were not involved. Now, I see, the entire Internet phenomenon is vaporware! Of course, if you read the press, you'd know that. Everybody could afford an 85 megahertz proprietary UNIX system that didn't interoperate with anything else and cost a zillion dollars. Right?
That's enough background for the moment. If you want to make money as a Linux consultant forget GNI. Fix and update those wonderful boxes out there that make up the Internet. The people who think they're IS professionals because they learned the GUI of NT in a six week boot camp can't do it. You can and people need you. Now hear this: You can get a higher hourly rate because of the scarcity of Linux professionals in the market. Yes!
Focus on Revenue
While the world awaits another sensational story about a technology that will run the planet on a pencil point, get forty hours of billing time a week out of the support business. Set up your consulting practice to put your hours on a time sheet. Fill that time sheet up with time adding and deleting users from the password file. You know, the one in the /etc. directory. Apply the security fixes. You might have to reboot the box since it hasn't had a good reboot in five years. Put your time on your time sheet for that too.
Once you have your time on the time sheet, multiply it by an hourly rate of say $50 to $100. Total those amounts and bill the client. Then make sure you collect your invoice. Do that again and again and again. As you add people to your staff, find a "business consultant" like a CPA and handle your payroll taxes. Then, pay your quarterly estimates. Get a good employee benefits consultant to help with human resources. Also, answer the phone when it rings or beeps or whatever it does.
While other people look for silicon angels, provide a quality service. Focus on making a profit. When someone says provide a quality of service take that to heart. The only thing you sell is service. So make sure you do it right. Good work begets more work. (Someone should make a song out of that!)
What Happens Next
Due diligence officers from investment bankers traditionally look at the quality of revenue when deciding whether or not to recommend a company for a public offering. Quality of revenue means the money you bring into the business that they can call "consistent". Build your revenue base on repetitive service dollars because an investment banker can use that amount to "capitalize" the revenue stream. You capitalize a revenue stream by taking the amount of revenue and converting it into an investment.
This is important. If you generate $100,000 how much would you have to invest in today's investment environment to get that as a return? If you could get a 5 per cent return you would need $2 million. That's what your business can be worth if the quality of your base revenue can be sold to someone. $1 million in base revenue equates to $20,000,000 in capital. The capitalization rate decreases as your income becomes less stable and more risky. When you add 15% to the return to account for risk you can only sell $100,000 of revenue for $500,000.
Once you build a consistent and enduring revenue stream, you can start to add additional services to your business. For example, in consulting many people want to add hot software to their product mix. That's fine and can provide needed infusions of capital. Just remember that "hot software" gets cold when left out on the counter too long. Today, too long can equal two weeks.
Good observation will show you that successful consultancies base their business on basic services. The Arthur Andersen's and Cap Gemini's of the world start with core business that media analysts might call boring. Don't think because you're a Linux consultant that core business reflects badly on you. People who have little to contribute focus on the sensational. Be a good business person and concentrate on that which the due diligence officers analyze. Who would you rather please, a reporter who last year was a rock star or the due diligence director from Goldman?
Conclusion and parting notes
This article is the fifth in a series on Consultative Sales and Marketing. The first article, How to Successfully Sell Linux, introduced the idea of starting a consulting practice. The second article, Consultative Selling, explained the seven phases of a consultative selling effort. The third article, Using a Pursuit Team to Win, discussed how to create a presentation or "demo" by taking a project approach. The last article addressed "prospecting".
In describing base revenue generation, we stressed the importance of finding and having solid income from skunkwerks. Linux provides excellent solutions for a number of consulting engagements. Locating the best money making opportunities can help ensure your success and everyone's around you.
Tom Adelstein, CPA, is the CIO/CFO of Bynari, Inc. He's the author of several books and articles on business and technology and has management, consulting and hands-on experience in the Information Technology field.