So, we’re what’s called a “Professional Services” firm. This term is usually used when talking about e.g. Accountants, Lawyers, etc, but is just as relevant for a Software Consultancy. I’ll go a little into the idea behind professional services firms in general, then get back to talking about us in particular.
There are many, many different types of Professional Services firms, but the basic business model is usually the same—you’re selling your time for money, and people pay because of your expertise and experience in the field.
But here’s where large firms make their real money: the firm gets projects based on the expertise and experience of the “managing partners”, and then a combination of the managing partners and juniors perform the actual work. For example, a law office will win a contract because of their experience and the expertise of its “Name Partners”, and they’ll charge let’s say $500 an hour for an hour of Partner time. But they’ll also charge $450 an hour for an Associate lawyer. The firm pays huge salaries for the name partners, so they’re basically not making any profit there. But they pay tiny salaried to the Associates, for a large profit.
This is called “leverage”. This is how a professional services firm grows and makes a profit—leveraging the skills and reputation of key, highly payed employees, to sell the work of lower-payed employees.
Most Professional Services firms can be placed on a moving scale as to how much expertise vs. leverage they have. An example of a highly skilled “firm”—a team of brain surgeons. They’re basically paid amazingly well, and have minimal leverage. An example of a consultancy with a lot of leverage—a company that builds websites for restaurants. Building a website for a restaurant is 90% repetitive work that can be given to junior employees, with senior employees focused on finding work and growing the reputation of the business.
So where do we fit in all this? In our case, as a rather small firm, we’re mostly on the “expertise” side of the equation. We have a few people in the company, and we’re all very experienced Software Devs. Companies hire us for consulting based on our experience, and for development because we get things done quickly and well.
Of course, the founders of our firm (myself and 2 partners) are much more experienced than most of our employees, and as we grow, that gap will continue to grow as we take on more junior programmers who need more training, but are underappreciated by the market and just need someone to give them an opportunity and teach them the ropes.
So there’s an answer about the basic business model of a Professional Services firm in general. I didn’t go into any of the specific of a Software shop in particular, but there’s a lot to say about that as well, e.g., there are 100′s of niches of Software dev shops—are you targetting large companies or small? Startups? Tech-savvy customers? People who want software projects? Putting people on-site at a customer’s company? Each one of these niches is very, very different, and it’s a fascinating topic for me at least, since 2 years ago before starting this company, I would never have realised how different all these niches truly are, or even that they exist.
can you explain your basic business model? Also, what is the hardest part of your business and/or the biggest barrier to entry?
So, we’re what’s called a “Professional Services” firm. This term is usually used when talking about e.g. Accountants, Lawyers, etc, but is just as relevant for a Software Consultancy. I’ll go a little into the idea behind professional services firms in general, then get back to talking about us in particular.
There are many, many different types of Professional Services firms, but the basic business model is usually the same—you’re selling your time for money, and people pay because of your expertise and experience in the field.
But here’s where large firms make their real money: the firm gets projects based on the expertise and experience of the “managing partners”, and then a combination of the managing partners and juniors perform the actual work. For example, a law office will win a contract because of their experience and the expertise of its “Name Partners”, and they’ll charge let’s say $500 an hour for an hour of Partner time. But they’ll also charge $450 an hour for an Associate lawyer. The firm pays huge salaries for the name partners, so they’re basically not making any profit there. But they pay tiny salaried to the Associates, for a large profit.
This is called “leverage”. This is how a professional services firm grows and makes a profit—leveraging the skills and reputation of key, highly payed employees, to sell the work of lower-payed employees.
Most Professional Services firms can be placed on a moving scale as to how much expertise vs. leverage they have. An example of a highly skilled “firm”—a team of brain surgeons. They’re basically paid amazingly well, and have minimal leverage. An example of a consultancy with a lot of leverage—a company that builds websites for restaurants. Building a website for a restaurant is 90% repetitive work that can be given to junior employees, with senior employees focused on finding work and growing the reputation of the business.
So where do we fit in all this? In our case, as a rather small firm, we’re mostly on the “expertise” side of the equation. We have a few people in the company, and we’re all very experienced Software Devs. Companies hire us for consulting based on our experience, and for development because we get things done quickly and well.
Of course, the founders of our firm (myself and 2 partners) are much more experienced than most of our employees, and as we grow, that gap will continue to grow as we take on more junior programmers who need more training, but are underappreciated by the market and just need someone to give them an opportunity and teach them the ropes.
So there’s an answer about the basic business model of a Professional Services firm in general. I didn’t go into any of the specific of a Software shop in particular, but there’s a lot to say about that as well, e.g., there are 100′s of niches of Software dev shops—are you targetting large companies or small? Startups? Tech-savvy customers? People who want software projects? Putting people on-site at a customer’s company? Each one of these niches is very, very different, and it’s a fascinating topic for me at least, since 2 years ago before starting this company, I would never have realised how different all these niches truly are, or even that they exist.