Five Lessons learned from starting a consulting business
Somehow in the past few years, I have become a go-to-person for people looking for advice on starting their own consulting business. This became obvious to me when I realized that my advice now rolls off my tongue as effortlessly as a rehearsed presentation. My advice isn’t rocket science, in fact some of it is counter-intuitive and is the summation of mistakes, lessons learnt and epiphanies that I have had over the past nine years of running my own business. That said, it resonates with the people to whom I speak. Later, feedback from them reinforces that my advice holds true beyond my personal experience.
I wrote a blog about a year ago entitled “Starting your own Consulting Business” in which I described how I was able to build my business by narrowing my messaging of the services I provided. While this seems counterintuitive, by shrinking the target market for my services, I was able to build my business faster.
I have provided this advice so often that I now have the narrative boiled down to Five Lessons.
Lesson 1: When I started The Meaford Group, I thought I was pretty well equipped to take on a wide range of consulting engagements. I had twenty-seven years of experience in the high tech and software industries in sales, consulting and leadership roles. In these roles, I had solved business problems for customers across a wide range of business sectors and had a breadth and depth of industry knowledge. I had experience successfully managing large P&L’s and leading teams ranging from 10 to over 1000 people. For me, this translated to my initial consulting value proposition consisting of, “smart guy – done lots – can help”. I thought with my resume and large network of connections that my phone would be ringing off the hook in demand of my services. Guess what? It didn’t.
The reason it didn’t was because I was so broad and unfocused that I was never top of mind for people to match against their current problem. Over time, my value statement for my consulting business became more focused. Today, I say “I help software companies who are in the five to fifty million dollar revenue range to solve go-to-market strategy and execution issues (sales, professional services, customer success, marketing lead generation)”.
In response to this statement, I generally receive two reactions. The first is, “wow, you must be good if you can maintain your business on such a specific and small market”. If you visualize my value statement in terms of a Venn diagram there are three circles: companies developing and selling software; companies within the $5-50 million range; and companies with go-to-market strategy or execution issues. My target market is in the small triangle at the intersection of the three circles. In other words, my prospective customers heard the “AND” (software and $5-50 million and go-to-market), which describes the intersection that met all three criteria. Moreover, this specifically focuses them on what I do and gives me credibility in their eyes that I must be “good” if I am that specific.
Then the magic happens. Even though they heard “AND”, they react on the “OR” (software OR $5-50 million OR go-to-market) and say to me, “I am a software company with a product management problem, can you help me”; or “I am small business and obviously you understand small business, can you help me”; or “I have a sales issues, can you help me”. They heard the “AND”, but often react to the “OR” if they have a problem within one of the three circles.
As counter-intuitive as this seems, my business opportunities grew as I got narrower and more specific in how I described what I do.
Lessons 2: I hate administrative work such as tracking how many hours I work for a customer in a month, tracking small expenses such as mileage and parking, and calculating their invoice amount monthly. Philosophically, when providing advice, I also don’t want a cash register sound to be ringing in my client’s ears every time they pick up the phone to ask me a question. Worse, I don’t want them to avoid picking up the phone to ask because they are worried about the cost. This philosophy is born out of personal hesitation to call my lawyer or accountant because of the cost. I don’t think this behavior promotes a healthy value added relationship between a client and an advisor. I combined my aversion to administration with my desire for openness for clients calling me and as a result, I only invoice based on a fixed monthly fee or retainer.
Adopting a fixed month retainer approach to fees also solved another issue I had. When I started The Meaford Group, my fees were $1,500 per day or $200/hour. Many senor colleagues told me I was nuts. They said that I was undervaluing myself and underestimating the amount of non-billable time that I would spend on networking, business development and gaps in projects caused by client schedules. A few in particular were vehement that my rate should be $500 per hour given my experience and the type of work that I do. I struggled to accept this for a long time but eventually agreed. This was around the time that I stopped taking on typical time and deliverable based consulting projects and started to offer executive coaching for CEO’s and other VP or “C” level executives. My coaching program is typically set up that I regularly meet my clients, starting with a minimum commitment 6 months and then move to a month to month commitment with 30 days’ termination notice. In addition, I make myself available to my clients by phone or email in between meetings if they have a pressing issue they need to discuss. My fees for this service is a fixed monthly amount, based on the estimate of the work the client requires.
Now my work is being value based on the advice I provide and outcomes they lead to, rather than the hours I spend.
Lesson 3: Many consultants strive to find large projects with one or two clients that will keep them fully utilized so that they reduce the amount of unbillable time spent on business development, networking, etc. Counterintuitively, I learned that the opposite was better for my business. My goal is to have long term value add relationships with my clients. Early in my business, I had only a few clients that I billed $80,000 to $100,000 per year each. Projects were successful and clients were happy but as soon as the year was done, my contract was not renewed. I studied this phenomena to understand and rationalize it. My conclusion was that when a client (especially a small business) spends that much on a consultant and the project is complete, they look for other ways to deploy that capital in the next year to get the best return. This means my services are competing against other needs in their business that $80,000 to $100,000 could solve. The alternative is often hiring a new employee, which often wins a priority battle, regardless of how stellar the consulting work was. For example, if last year I assisted a company in building their sales strategy and doing sales coaching, the better use of that same amount of money this year is often to hire an additional sales person.
With my coaching retainer starting at $2,000 per month, my annual cost to a client may be as low as $24,000. This amount of money doesn’t really buy much of anything else for a company, so often there is a desire to continue the engagement over multiple years. I sometimes joke that my competition for use of these funds would be Bagel Tuesdays, pizza lunches and Beer Thursday’s for staff. I humbly think I provide greater value to my clients :-). I now have clients that I have been continuously working with for over five years and because of the length of these relationships, I have accumulated institutional knowledge and history about their business. This allows me to add even more value to our discussions because of the deep context that I have in formulating my advice.
Lesson 4: Finding new clients is a challenge for every consultant because consulting is a trust based business. The fear of the damage a wrongly chosen consultant can do to a client’s business is worrying for an executive. This combined with the prospect of spending tens of thousands of dollars in fees and not getting the expected value often leads to long decision making cycles for the client and the consultant.
As a result, consultants will tell you that most of their work comes from trusted relationships that they have developed with people over many years, often when they worked as an employee before they started their own consulting practice. This presents a dilemma for how a consultant expands their clients beyond their trusted network of former colleagues. In effect, there is a chicken and egg phenomena of clients saying I can’t hire you until I trust you, but I won’t know you well enough to trust you until after I have hired and worked with you.
This epiphany led me to conclude that it is easier to sell a product than sell a service. As a result, my first consulting engagement with a new client is usually a, “product”. For example, I have training program called the Consulting Skills Workshop under which I can deliver ½ day, one day or multi day workshops for professional service consultants for a price in the $5,000 to $20,000 range. This is an easy buying decision for a client to make. There is a well understood deliverable (the training session) and the price is low enough that that risk is minimal that value won’t be received. Once I have completed the workshop, I have established myself as an expert and am often asked to engage on other things with the client. I also have an “assessment” product. A prospective client will describe an issue they are having. I will then propose an assessment, which usually encompasses a few of days on-site, interviewing some of the client’s staff and a wrap up meeting with the CEO to present my findings and recommendations. The price for this assessment is fixed, usually in the $7,500 to $15,000 range. Again the price is relatively low, so the risk of not getting value or of the consultant doing collateral damage is minimal. If the quality of the recommendations is good, the client will often ask for help in implementing them. In the same way, my coaching offer is a product: a set of meetings, held monthly, during a 6 month commitment for $24,000. It is low risk, relatively low price but has potentially large value and as a result, an easy decision to make or say no to, thus shortening the business development cycle either way.
Lesson 5: The fifth lessons is particularly unique to start-up work. In the early days of The Meaford Group, I would meet early stage companies with little investment funding or revenue but with a large need for advice from senior experienced mentors. Often equity would be offered as a partial or full substitute for cash. When you are a consultant just starting out and without a robust pipeline of prospective customers, this equity offer is tempting. Unfortunately, many of these early stage start-ups will never have a liquidity event so the equity provided will never be worth anything. The internet is ripe with stories of people who provided services to start-ups that hit it big and cashed out with many orders of magnitude more money than they would have earned in fees. These situations are also very rare.
As a result, I developed the following decision-tree for taking on consulting work in exchange for equity instead of cash. First, I do it in cases where the equity is a nice acknowledgement or thank you for the work I am doing but my primary motivation for making myself available is to give back to the start-up community and I really don’t ever expect to make any money. In rare other cases where I do take equity in exchange for case fees, I do so with my, “investors hat” on. If I am going to spend time with a client that would normally be worth $x in fees, I ask myself whether I would be willing to pull $x from my savings to invest as cash. If the answer is no, then I will turn down the equity offer. If the answer is yes, and I can afford the time along with my other client commitments, then I will work for equity.
I know these five Lessons do not apply to all types of consulting, but I have found that they seem to apply well to consulting in the tech world. I hope some of my thoughts are helpful to you and I would love feedback if you agree or disagree.