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EXECUTION Which business would you start between these two ?

AstonMartinOne77

New Contributor
Dec 13, 2017
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Montreal, Canada
Greetings fellow fastlaners,


I’m looking forward to starting a business, however I am having a hard time deciding between two.

Personal context: 27 years old self-taught software engineer with 5 years experience living with parents working in a top financial institution (Will make 6 figures soon)


The first business is a ERP Software Consulting business and the second one is a Software Engineering Consulting business. The business models of both of these business are very similar. Find a client who needs consulting services (B2B) and hire employees who are willing to do the work. Small clarification: I will not be a headhunting company, meaning that I will actually train the employees myself and they will be employees of my business. The only difference I see between these two business models is that with the ERP business, I will be able to earn commissions on ERP software licenses sold, whereas with the software engineering business I need to find a need in the market, so I can build a software product and then sell licenses.

So the model is mainly : Consulting + Licenses sold = Total Revenue

I will have to partner up with 2 or 3 other guys for the ERP consulting business because I know nothing about that ERP, so this will be a huge investment of my time and revenue in the short term to learn the ins and outs of the ERP. For the software engineering business, which is my core field (actual job, writing custom applications for a specific company), we would be maximum a total of 2 partners.

So far, it looks like its better to go with the software engineering business because less owners, more share percentage ownership, no need to relearn my craft from scratch

However, I have a feeling that the ERP business can be more profitable because of the hourly rate ERP consultants charge, it goes from 100$/hr to 150$/hr (according to my ERP partner) and software engineers charge 70$/hr to 100$/hr (as far as I know).

Also, ERP consultants can also sell very expensive ERP licenses; Software engineers have to come up with an software product idea to build and then sell licenses, which seems harder and a longer process.

Both of the businesses seem to meet all the 5 fastlane commandments (CENTS)

Control: Less control with the ERP software business because we are more business owners and dependent upon the ERP software provider
Entry: Very hard to get into the ERP business, software engineering is more common thus easier
Need: There seems to be more demand than supply for both of these businesses
Time: Eventually, when the business has been built. I will not have to be always there.
Scale: Find more clients, hire more employees, sell software licenses and the business has scaled !

I’ve listed in a summary the Pros and Cons of these businesses.

ERP Software Consulting Business

Pros
Superior Hourly rate charged to client ($100 to $150+/hr)
Potential revenue by selling ERP licenses

Cons
We will be 4 business owners (Less control)
Very low share percentage of the company - around (10-20%)
I don’t know the ERP software at all, I will have to learn it from scratch

Software Engineering Consulting
Pros
Maximum 2 business owners (Share percentage minimum 60% )
I know software engineering very well (its my actual job)

Cons
Inferior hourly rate charged to client (80-100$/hr)
Competition seems fiercer to acquire contracts with clients


This is a very hard choice
What do you guys think ? I'm open for constructive criticism, opinions, ideas, etc.

If I missed a detail or if I need to clarify something just ask a question, I'll gladly reply with the information

Thank you !
 

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NMdad

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OK, so I pretty much already do what you described. I worked for 8 years at a vendor of an ERP, then left & started consulting for clients who use the ERP. I mostly develop customizations, automations, integrations, & custom reports for the ERP--stuff that the vendor won't or can't do. I've been self-employed consulting for 12 years.

Here's what I've learned:
  • The hourly rate is high.
  • There's demand for custom software & services--especially if the ERP vendor's service sucks and/or the ERP isn't very innovative.
  • However, the ERP-centric knowledge takes a LONG time to acquire--through many projects & over years to learn all the nuances & kooky things, both about the ERP and the clients who use it (e.g., their workflows, & other oddities of how their businesses operate). That creates a big barrier to entry.
  • That knowledge is extremely difficult & time-consuming to teach to others so you can delegate to them. This makes your business time-bound--unless you can identify repeatable tools to sell to ERP clients.
  • In theory, you have little control, especially if the ERP vendor decides to drastically change something about the ERP. However, practically speaking, an ERP usually can't drastically change their architecture without incurring massive costs.
So, if I have an ERP consulting business, why am I on this forum?

Because my ERP consulting business doesn't meet the CENTS criteria--especially the commandments of time & scale. That said, the ERP consulting business is WAY better than being an employee--I've got more time freedom & earn way more than I ever could as an employee.
 
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AstonMartinOne77

AstonMartinOne77

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Dec 13, 2017
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Montreal, Canada
Very interesting info that your bringing to the table !

  • The hourly rate is high.
Can it go higher than 150$/hr ?

  • There's demand for custom software & services--especially if the ERP vendor's service sucks and/or the ERP isn't very innovative.
Do you think that the demand for ERP consultation is increasing, staying put or decreasing ?

  • However, the ERP-centric knowledge takes a LONG time to acquire--through many projects & over years to learn all the nuances & kooky things, both about the ERP and the clients who use it (e.g., their workflows, & other oddities of how their businesses operate). That creates a big barrier to entry.
This is what my partner keeps saying. So, he wants to hire people that already have at least a little bit of experience in the ERP.

  • That knowledge is extremely difficult & time-consuming to teach to others so you can delegate to them. This makes your business time-bound--unless you can identify repeatable tools to sell to ERP clients.
It actually took 3 to 4 years working 60hrs/week for my partner to develop this skill by working as an employee for another company. He also thinks that its so difficult and time-consuming to teach to others, so he only wants to teach to people with a minimum amount of experience.

However, I know a company in my area who has managed to hire undergraduates directly from college. The company grew up to a maximum of 60 employees. The management of the company was hell (overworked employees, others employee with no projects for week, overbilling of clients) but the two owners eventually successfully sold the company for a few millions

  • Because my ERP consulting business doesn't meet the CENTS criteria--especially the commandments of time & scale.
I'm curious, how many employees do you have ?

Whats your plan ? Are you planning on building that company and eventually selling it ? Do you plan on keeping the company small so it stays manageable ? Or maybe being an independent consultant (1 man show) ?

Would you advise a software engineer with 5 years of experience to start learning ERP?

For what I understand, it actually looks harder to learn ERP than learn software engineering (programming custom applications with Java/C#). I'm very surprised to learn this.

But the market for software engineering consulting is much more saturated (more competition, less entry barriers)

Thank you
 

NMdad

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Answers:
  • Yes, the hourly rate can be over $150/hour, but it depends on how specialized you are & how profitable the niche market is that you're supporting.
  • Demand--again, depends on the specific niche. The demand in my niche has been steady for 15 years (even during the recession), partly because clients seek outside help since the ERP vendor support sucks & the vendor is unwilling to do much consulting.
  • Hiring people with experience in the ERP would definitely be the way to go--if you can find them. In my niche, there are very few people, so I hire people with more generalized skills (e.g., SQL & VBA), and then after I do the higher-level ERP-specific consulting & architecture design, I'll hand off tasks that don't require ERP-specific expertise. Even so, I can typically only delegate ~20% of stuff. I currently have 3 people--2 contractors with very similar skillsets (SQL & VBA, the 2nd person I hired just for redundancy since I didn't want to be left in a lurch if my 1st guy got hit by a bus), and my wife (who I've trained over the past 15 months to design custom reports--which is a common thing that my clients need). I've used UpWork to hire the developers, & it's worked well, though I've created a vetting process over the years to make sure I hire responsive, capable people.
My plan is to do the ERP consulting while I build up delegatable, scalable revenue streams, then to phase out the ERP consulting. The ERP consulting is super time & mental-energy-intensive, and is a dollars-for-hours treadmill. I might be able to sell some of my tools and/or refer my clients to other similar consultants in my niche, but otherwise, it's not a sell-able business--basically 1 guy with clients who keep coming back to me for stuff since they like the work I do--there are a handful of colleagues who are somewhat similar (we used to work for the ERP vendor).

I'd agree that learning the ERP, how it's used, & the problems & workflow of the ERP clients is very challenging. Software development is a far more generalized skillset, and although good developers are more rare, ERP expertise does indeed take years of full-time work to acquire. Out of all the people I worked with at the ERP vendor over the years, I'd say maybe 5% become skilled enough to be able to consult--and nearly all of them are content with a salaried job instead of part-time contract work.

All that said, I'm sure there are ERP consulting & dev shops that do very well & are sell-able--probably for larger ERPs like Salesforce. My ERP niche is much smaller--probably 3k-5k companies using the ERP.
 

Leigh Farrell

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Nov 27, 2017
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This one kinda answers itself...
Have you ever tried to get 4 or 5 people to agree on anything? It's dam near impossible.
Do a search on THIS forum on the word ''partner'' or '' partnership'' and see all of the horror stories.
You mentioned that the erp option will give you a maximum of 20% of the company, and that your product will be piggy-backing on other software. Both of those throw up the red flag of CONTROL or lack thereof.
 

Tourmaline

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Which market has a bigger hole, gap, and need?
 
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AstonMartinOne77

AstonMartinOne77

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Dec 13, 2017
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Which market has a bigger hole, gap, and need?
That's actually a very good question, @Tourmaline. I don't know the answer. But I have a feeling that the ERP field has bigger holes and gaps in need. Because it is soo niche, sometimes obscure, the skill is so hard to acquire and ERP implementations are so costly (sometimes a mess).

Software development is a much more common skillset and I think there's more people with that skillset. I feel like there's already so many companies offering software development consulting versus ERP consulting companies.

I also think that every company that has revenues of more than $5 millions will need ERP to manage their back-office processes.

Versus

Custom Software development is more for companies that have very specific needs that basic ERPs won't fill, so they need to develop their own (Which I think takes more time and seems less business critical)

What do you think @NMdad ?
 

NMdad

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It's a bit of a false dichotomy. Generally, you'll find that once you're consulting, you start seeing needs that can be filled that are missed by the ERP--and then you can develop a software solution for those.
 

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