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You running a Small IT services company ? Read this!

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[Editors Note: Yash Gadhiya, one of our regular readers and occasional writer on this blog has been running a IT services company for 5 years and announced on his blog today that he will be shutting down his IT services unit and will concentrate on building products. His reasoning for closing down will probably resonate with thousands of Entrepreneurs out there who run similar shops. I speak to these entrepreneurs frequently, and everyone has similar stories to tell. ]

Bidding adieu to IT services…

I started Uconomix in 2005. The intention was to build a company. A large company over a period of time. It’s been six years and I have seen lots of ups and downs. I started the company from a spare room in my house and moved into a proper office with a team of 8 at one point. Now I am scaling down. On May 31st I have stopped working on the IT services. All the people are gone except one.

What exactly is IT services?

In simple language, IT services is creating computer software for clients as per the requirements and maintaining it on a daily basis – fixing bugs, adding new features etc.

Why am I getting out of IT services?

It’s a bread and butter business

Providing IT services is not much different than working as a daily labourer. Difference being we work from an Air Conditioned Office and get paid more. But only if you are an employee. If you are an employer, it’s an earn-from-clients-and-pay-employees game for you. Revenue is directly proportional to the number of programmers you have.

Running a small IT services shop is a challenging task. Your playing field is way too small. The real juice and money lies in big mega contracts. Small companies only get small projects, small clients and small profits. Just enough to pay salaries of the team and the owner. And there is no inherent value of your business if you don’t have recurring income clients. And that is no different than a job.

It’s also a restless job. Yes it’s a job. 24×7. You will get a call from client at mid-night, on a weekend, on a vacation. And they expect you to take care of the problem immediately. Because they know you are a programmer and you have the means and capability to provide an instant solution.

People problem

IT services business is all about people. Employees want more cause larger players are paying more. If you can’t pay to that level good people will leave. You cannot really afford to pay that kind of salary because your client does not pay you what an Infosys’ client pays. Cause if client could afford to pay more why would he come to me in the first place? He would rather go to Infosys. So it’s a catch 22 situation.

Lack of passion amongst programmers is another reason. Nobody likes fixing bugs in code someone else has written. The best projects that pay well are also the lowest quality! You don’t get anything new to learn. That’s why they are most profitable because there are no challenging tasks, less chances of bugs, and overshooting the estimates. Really smart programmers will never work on such projects for long. They will move on no matter what you pay them.

And most of the new guys just get in the industry to make a quick buck. Nobody really cares about developing a solution for client’s problem. Everyone just thinks of it as writing code as per requirements.

Projects that go on forever

Software is funny thing. It’s too damn subjective. And there are One thousand dependencies. You take care of them all and your code will break on the issue number one thousand one! It will go on back and forth, forever. No matter how well you have defined the scope of the project, some items will never be agreed upon. Requirements will change constantly because clients are humans and humans are full of ideas. If people on the team change, new people will bring new ideas. Projects that are stretched beyond a limit start costing money to both sides and after a while the software becomes a nightmare for everyone. Seemingly simple tasks take so many iterations.

Client will say I need a registration form. You say it’s a couple of hours job. And you do have the form ready in couple of hours you show it to the client on your server. Now the game begins. Client will ask for changes in copy, font, colors, thank you message. Hey can you also capture the IP, the date of birth, the date of separation, number of cats, number of puppies your dog has, count of people killed by Rambo in all movies?! If you say no, client has the ultimate weapon, I won’t pay until this is added – its a small job. Yes its a small job but lots of small changes make it a big job!

Then you move it on client’s server. No one has the FTP info. It takes three days to get FTP info from client’s host then the email is not working. You spend your time figuring it out on client’s server why email is not working. And there you are. A simple registration form took you a week! Then client will say I will test this for a week and then pay you for the couple of hours!

It’s a small incident, but the story for larger projects is no different. Projects are stretched, you don’t get paid but you still have to pay the salary to your programmers.

Tired of begging money

It reminds me a dialogue from the movie Coolie starring Amitabh Bachhan. Bachhan works as a coolie and he says “Majdoor ka pasina sukhne se pehle use apni majdoori mil jani chahiye”. A labourer should get his wage before his sweat disappears. I wish it was true for IT industry as well.

Clients will never pay on time. Especially the Indian clients and especially the large Indian clients. One Indian client of ours paid after 1.5 years! A large fortune 500 company! That is ridiculous. They won’t pay any advance, they won’t pay in phases. And they won’t pay your usual rate. Why do you work for such clients then? To get the dues of the last project cleared you have to accept more projects!

As a businessman you are constantly thinking of meeting your costs for the month. A programmer working on a project is better than the one sitting idle. So you get sucked into the vicious circle. You start thinking in the terms of – Ok this project covers 3 programmers’ salary for a month. Take it. And you get taken! And once the project is done you virtually have to beg for your money from the mighty client! And client won’t pay till the nth grammatical error is fixed for the 835th time.

No clear direction

Seriously I was just running day by day. I had no goal whatsoever of where I want to take my business in one year, two years or five years. Business is good and you tend to just play along. And I spent six years doing just that. One day I woke up and said to myself. WTF am I doing? I was doing a job! I was going to office, communicating with clients, working with my programmers and coming back home. Taking a vacation a year and the life was a drab routine! This is definitely not what I had in mind when I started the company.

May be I was never into IT services. I never really wanted to become next Infosys or Wipro. IT services was meant to be the bread and butter that will find the development of the real thing. Products! But that never really happened. Way back in 2006 I had created uMark – my first product and at one point I was selling 100 licenses a month! Life was so good. But the IT services side was so better then because of its seemingly larger cash flow that I virtually neglected the product for next 5 years! Biggest blunder of my life!

But better late then never.

So what’s next?

I am back to products. I have let everyone on my team go except one guy named Arokkia. And we have just launched a new version of uMark. I have many more products ideas in mind and soon I will decide upon the next product.

I am lucky that I already have a super star product in uMark with more than 3000 customers. As I write this post, my existing customers are upgrading to the latest version of uMark and I don’t have to beg for the money! And I know that my software is making some difference to their lives.

Bye bye IT services. I will not miss you.

  1. Puneet Kaura says

    Wonderful snd very insightful, thanks Yash for sharing this.

  2. Ankit Garg says

    I agree with you that this is a problem with Small service oriented IT companies. But if you can grow to more than 50-60 employees in a couple of years then I feel its not that bad. The company that I work for has around 200 employees and its service oriented. The marketing guys bring projects, developers do the development and the owner earns money without doing much. Of course the problem is that out of 500 IT services companies only 5-10 are able to grow to such a level but I believe that's because of lack of proper planning (I know its not easy but its not impossible either)…

  3. Ashish Srivastava says

    I completely understand the frustration of the author and respect his entrepreneurial will. However, there are some things I notice from this article.
    1. "It’s also a restless job. Yes it’s a job. 24×7". I can't think of a single business where the stakeholders or owners didn't have to work more than an ordinary job. Everything is a job. The only time a 'job' feels easier on you is when you are passionate about it and don't mind the pain.
    2. Author doesn't seem passionate about the offering. He just wants to be successful. That formula never works. You 'must' know what you are selling. When you yourself don't know what you are selling , how do you hope to have repeat customers? E.g. Infosys sells reliability and reduced risks.. so customer looking for creativity don't come to infosys..
    In other words – What does your client know you for is extremely important.
    3. You have already answered your dilemma towards the end. Lack of direction and strategy seems to be the root cause (at least at this moment) why you hit the ceiling.

    Lastly, I empathize a lot with young entrepreneurs like you. If you would like to talk to me and discuss this in more details, I am more then happy to do that. I have a strong consulting and advisory background, so hopefully I can provide you some insights for your future endeavors.

  4. Guha Rajan says

    Each industry or Sector has its own challenges, if you are small, the challenges are multifold particularly you are bound to be at the receiving end, meaning you might be serving “buyer” market.

    IT product area is also not without challenges, either you are bound to face competition OR if it new / unique product then would require selling of the concept, which could lead to longer sales cycle. However, having said the above point, I visited umark website, the product look impressive, but to sustain with this product alone – I believe there needs to be volume. Good luck!

  5. Vijay says

    “A labourer should get his wage before his sweat disappears. I wish it was true for IT industry as well”
    that tells all about how you were frustrated with your IT services company!

    Really this is a good example for all those small entrepreneurs even if they are running their small products. I too think sometime to establish a startup but when my friends tell me about how ridiculous and frustrating the process is (especially in India), I quickly cancel my plan.

    Hope this is a good lesson for all those running small service company. I suggest not to quit it but get a lesson from Yash’s experience.

    Good luck!!

  6. Ruchi Bisht says

    My Hari is so sweet.

  7. Mayuresh Phadke says

    I think, you did not "really" love the IT services business, that's why you saw these as problems.

    You would end up facing problems in the product's business, Earning money by selling products is way harder..But if you love what you are doing, you will think of a way.

    1. Yash Gadhiya says

      Yeah I guess so.

  8. Navin Kabra says

    So let's look at the list of complaints:

    1. "It’s a bread and butter business." Revenue is directly proportional to the number of programmers you have. >> Umm… what else were you expecting?

    2. "People problem." IT services business is all about people. >> Umm… what else were you expecting?

    3. "Projects that go on forever." Projects are stretched, you don’t get paid but you still have to pay the salary to your programmers. >> This just seems to be, as Sushrut pointed out, an inability to say no to bad clients.

    4. "Tired of begging money." Clients will never pay on time. Especially the Indian clients. >> Ok, I'll grant this one. This is one common problem that is not obvious by just using common sense. But anybody who's hung out on startup mailing lists would know that this is a common problem, and would have some ideas for solutions… Apparently there are 1000s of companies who manage to solve this problem.

    5. "No clear direction." Seriously I was just running day by day. I had no goal whatsoever. >> Uh… whose fault is this? Maybe this is the root of reason why this particular business failed?

    This article seems to be arguing that all entrepreneurs running small services companies should shut down (and start product companies). Better advice would be: Look at the problems listed above, and figure out whether you have a clear strategy to solve them. There are good solutions to most of these issues – focus on fixing them.

    1. Arun Prabhudesai says

      Navin Kabra points 1 & 3 are fine… but people problem is one of the biggest problems especially for smaller IT services companies…most of them are just looking to get exp. with smaller companies to make a jump to bigger ones…they are looking at brands…To get right people is THE BIGGEST CHALLENGE for a smaller IT services company….and obviously IT is all about people

      And yeah…like I told clients squeeze smaller fishes as much as they can !

      Anyways…the reason I put this article was because, I have heard these reasons very frequently from people I have spoken to…and there is some truth in this…

    2. Navin Kabra says

      I'll grant that many other entrepreneurs are having similar problems, especially the clients not paying, and employees being stolen by bigger companies with bigger salaries.

      What I do not like is the defeatist attitude of the article. These are not insurmountable problems. So, it would have been better if the focus was on discussing ways around the problems, instead of implying that quitting is the only option.

      Also, I think this article highlights the importance of having mentors who've been there and done that. A mentor would probably have pointed these problems and suggested approaches in the first few meetings. It shouldn't take 5 years of struggling.

      So, my advice for entrepreneurs with small IT services companies: get a mentor who (successfully) went through this process roughly 5 years ago.

    3. Arun Prabhudesai says

      Well said and fully agree…

    4. Yash Gadhiya says

      I never said every small IT company should close the doors. I was just listing the reasons why I am stopping my services business. It was on my personal blog. Arun posted it here cause he has heard similar things from many entrepreneurs. You may find the tone of the article defeatist but I did what I thought was best for me. As I mentioned I was never in the game to create new Infosys or Accenture so probably that's why it didn't work for me. That's fine. I am not advising anybody about their business.

    5. Navin Kabra says

      @Yash, I'm sorry, I had earlier missed the context that this was initially posted on your personal blog. In the light of that context, my comments are unfair and I apologize for that.

      However, one still has to be mindful of the fact that now most readers are going to assume this is intended to be advice for entrepreneurs, and must be discussed accordingly.

      Assuming that Arun's experiences are not isolated incidences, that means there are many other entrepreneurs in the same boat; and then this article does an important job of giving visibility to the issues – and I feel it is necessary to round it off with specific, positive advice. Get Mentors…

    6. Yash Gadhiya says

      No need to aplogise Navin. :) The points you have raised are very valid. Had I been interested in continuing with the services business I would have definitely tackled each one of them. I did that for 6 years and survived. I just wanna play a different game now.

      Infosys, TCS all have grown in the same environment and they faced pretty much the same issues in their early days. Its just that every person has different goals. And I realised services is not something I would like to continue doing. Hence I changed the course.

  9. Yash Gadhiya says

    Yes I agree with you. Saying NO is a rare skill. I learnt it at a great cost. And as I have mentioned lack clear direction was definitely my fault.

  10. Excel Biznet says

    I agree with u, but u never know your goal. And I think u never choose your niche market to whom people will u give the service. We should make our little – little aim, will try to achieved them..
    If you didn't achieve your goal then find the answer what was the problem, why could I have not achieve the goal.
    Yes, you should be a little lucky with your loyal employees…

  11. Excel Biznet says

    I agree with u, but u never know your goal. And I think u never choose your niche market to whom people will u give the service. We should make our little – little aim, will try to achieved them..
    If you didn't achieve your goal then find the answer what was the problem, why could I have not achieve the goal.
    Yes, you should be a little lucky with your loyal employees…

  12. Jitin Pillai says

    Hell lot of Thank You Arun for putting this up! I started with service only to finance my Dream product. Then this turned into a viscous circle which seems to have no end. Time to break through!

  13. Jitin Pillai says

    Hell lot of Thank You Arun for putting this up! I started with service only to finance my Dream product. Then this turned into a viscous circle which seems to have no end. Time to break through!

  14. Sushrut Bidwai says

    Cant resonate with me at all. I was also running an IT services company for 3 years before I got really passionate about Prolinkd and decided to give product startup another chance. No denying that Product venture > Service venture. More control, more freedom, more money.

    Mostly people doing IT services get stuck when then fail to say no – No to bad clients. No to a certain but useless project. No to bad people and culture. So even though the sentiments of the author are honest I must say most of it was few mistakes on his part. I have fired handful of people and clients in last 3 years and I still think I got stuck with few.

    Most importantly No clear direction part. Since author had no clear direction about business, perhaps he failed to fix each of the problems that he mentions?

    Doctors also provide a service, will you call them daily laborers? I hope not.

  15. Sushrut Bidwai says

    Cant resonate with me at all. I was also running an IT services company for 3 years before I got really passionate about Prolinkd and decided to give product startup another chance. No denying that Product venture > Service venture. More control, more freedom, more money.

    Mostly people doing IT services get stuck when then fail to say no – No to bad clients. No to a certain but useless project. No to bad people and culture. So even though the sentiments of the author are honest I must say most of it was few mistakes on his part. I have fired handful of people and clients in last 3 years and I still think I got stuck with few.

    Most importantly No clear direction part. Since author had no clear direction about business, perhaps he failed to fix each of the problems that he mentions?

    Doctors also provide a service, will you call them daily laborers? I hope not.

  16. Sushrut Bidwai says

    Cant resonate with me at all. I was also running an IT services company for 3 years before I got really passionate about Prolinkd and decided to give product startup another chance. No denying that Product venture > Service venture. More control, more freedom, more money.

    Mostly people doing IT services get stuck when then fail to say no – No to bad clients. No to a certain but useless project. No to bad people and culture. So even though the sentiments of the author are honest I must say most of it was few mistakes on his part. I have fired handful of people and clients in last 3 years and I still think I got stuck with few.

    Most importantly No clear direction part. Since author had no clear direction about business, perhaps he failed to fix each of the problems that he mentions?

    Doctors also provide a service, will you call them daily laborers? I hope not.

    1. Yash Gadhiya says

      Yes I agree with you. Saying NO is a rare skill. I learnt it at a great cost. And as I have mentioned lack clear direction was definitely my fault.

  17. Satinder Panesar says

    Completely agree with you.

    Will share my instance with a Big property agent of Pune (oopss consultant).. that web site was HUGE with many DB tables. They initially paid about 20% but for rest 80%, I have to re-design/re-develop the whole site atleast 4 times and still it was NOT done. After repeated attempts and putting people in the middle who refer us that client, only Manages to get 50% and one fine day, I said… it's better to forget remaining 30%.. atleast will have peace of mind.

    Thereafter NO more Indian Client… Thank You

  18. Satinder Panesar says

    Completely agree with you.

    Will share my instance with a Big property agent of Pune (oopss consultant).. that web site was HUGE with many DB tables. They initially paid about 20% but for rest 80%, I have to re-design/re-develop the whole site atleast 4 times and still it was NOT done. After repeated attempts and putting people in the middle who refer us that client, only Manages to get 50% and one fine day, I said… it's better to forget remaining 30%.. atleast will have peace of mind.

    Thereafter NO more Indian Client… Thank You

    1. Arun Prabhudesai says

      Trust me I have been hearing stories like these endlessly…the smaller you are the more you are squeezed out of your blood…

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