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Last Updated: 5/28/2011 5:43:13 PM
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IT Chop Shops

By Erik Rodriguez

Tags: Managed Service providers, trunk slammers, small hosting providers, small business owners, working for service providers

This articles provides information on the business model and operation of small IT service providers.

IT Chop Shops

I call most of these businesses "IT chop shops" because they usually operate like traditional automotive chop shops. They skim little bits of revenue here and there so collectively they can make big money. These chop shops are generally "IT firms" as they call themselves, and will take nearly any type of business they can get their hands on. In contrst, the one-man shops are commonly called "trunk slammers" or "trunkers." The chop shops I have worked for, or done work for over the years, were anything but stellar. The following paragraphs explains the downfalls of small IT firms and their business models.

Small Business Owners

If you have ever worked for a small business owner, you will know what I am talking about here. There are no extra days off, you aren't paid at the top of the pay scale, and vacation is next to non-existent. The largest problem among these small IT firms in the pay structure. This is largely related to the business model which I will discuss in detail below.

Employee Moral

The low wages and extended hours worked by employees at these chop shops are directly related to the business model. Generally speaking, there just isn't enough revenue generated for a technician or administrator to justify a high paying salary. I use the word salary because no technical roles are paid hourly at these places. If employees were paid hourly, the businesses could not afford to cover all the overtime pay.

In my own experience, I worked for a small IT shop that provided:
  • hosting (shared, dedicated, virtual, etc)
  • colocation
  • on-site service
  • web design
  • programming
  • networking and wireless
  • cable/wiring
  • database administration
  • security consulting
  • remote backups
Needless to say this company was an expert at anything. This literally translated to "we aren't an expert at anything, so we do everything." The owner refused to pay anyone overtime, travel mileage, or even a competitive salary. I was the only person making an acceptable salary, though it still wasn't worth the hours I was putting in. The icing on the cake came when the owner would "sell" a service we didn't provide, and had no experience with. His response was "just figure it out." Of course he was none to pleased when the deal went south because we couldn't deliver what was promised.

Overall this company was a complete disaster. As the pattern continued, customers left and right were cancelling service. The owner still insisted everyone work extra hours (unpaid of course), and sales people had to ask to be paid their commission. The owner constant harrased the sales staff about make calls and appointments while was seen in the middle of a business day at various places like the mall and gym. The owner was actually taking all the sales leads from the website and telling the rest of the sales team he landed them making office visits and cold calls. This eventually lead to a mini mutiny among the employees. One employee was promised a spot bonus at christmas (5 months away when promised), and was never paid. He walked out on the spot.



Chop Shop Business Models

One of the major problems here is the business model. Being a small business, there is more overhead associated with providing service. Competing with larger shops, they simply don't make the margins to spread the wealth to the employees. The owner keeps most of the money, and the rest of the employees end up make personal sacrifices ( of both time and money) so the owner can continue to make money. I personally worked between 50-60 hours a week (mostly late nights) for a 40 hour pay check. I never got any comp time for the 12AM-2AM maintenance I was doing in addition to my 8-6 day shift. I only received 1 week of vacation per year and needless to say it was the worst IT job I ever had.

Any truly skilled employees didn't last longer than 2 years there, and the business never grew because of its cyclical business model. Going back to the business model, you can only bill soo many hours with each employee. Once you factor the cost of travel time and wages, it is almost impossible to make a decent margin on billable hours, and if you have a tech guy that is somewhat decent, you will have to pay them a good wages to stick around.

Looking at a hosted business model. Most of these services are a commodity. You can get a shared web hosting plan anywhere these days. For dirt cheap at that. Small companies simply can't compete with the big guys on a service level. The big shops do things better, faster, and cheaper than the little ones. So unless a small shop is offering a service that nobody else has, the simply stuck making low margins, paying low wages, and simply can't grow in size or service.

Conclusion

In conclusion, I would like to alert anyone reading this article that working for a small IT shop is what you make of it. The owners of these shops always have their own interests at best, and as an employee you are only there to make the owner more money. The technical knowledge you may gain will help you further down the road. I definitely did become a quick troubleshooter by walking into environments I had never worked in before. See my articles on complicated Linux environments. For most technical minds starting out, I would say a small IT shop is good place to get your feet wet and learn the ropes. You will be shocked how much a corporate IT job is after spending a year or two on the service provider side.

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