Our business area has some distinct advantages over other industries such as (say) manufacturing or advertising. But it also has some distinct disadvantages. More than anything else consulting companies need to realize that they are in the "people" business, where talent is king and the companies best assets have a heart beat.
So in this post we'll take a look at some of the pro's and con's of going into the consulting business as an independent operator.
Hopefully this will help you towards your own decision in this area.
Pro's
+1. No big outlays for service providers
As a people business our biggest expense, normally, is salaries. And at the very beginning the only salary you will need to pay will be your own. There are some methods that you could attempt to try to get you to avoid cash-flow problems but we will deal with these in a separate posting.
So salaries aside, and travel costs controlled, at the beginning, to gasoline and hotels (maybe) You can get moving for relatively low cost. (Laptop, Blackberry and stationary excluded.)
+2. An abundance of free business tools to get you started.
I have posted on this before under the bootstrapping tag on the site. But, in brief, there is an abundance of free and low cost stuff out there on the internet today that you could set up a lot of the office infrastructure you need relatively cheaply.
Gmail for email, Zoho for writing and productivity tools, RSS Reader for keeping up to date, Adsense for internet marketing, Aweber for email marketing and Picasa for image storing - just to name a few - just a few examples of the abundance of internet tools that are either free or low cost tools for you to get moving with.
Another one of course if Salesforce.com for sales management and the whole CRM thing. Great area, great tool, one of my favorites.
+3. Quick conversion of business into cash.
90 days is not too long to wait. Not once things start moving forward. No long waiting times, no manufacturing time, nothing like that. We sell, we arrive, we deliver, they pay us. Good deal!
+4. Resistant to Recessions (?)
I have been a consultant now for most of my career. This takes in at least one official recession and maybe one or two unofficial ones as well. In all that time I have never stopped working. I have always been able to find work and generally have more work than I need.
I think that the bottom line here is that in consulting issues like profitability and productivity are the basis for our existence. And in a recession we should find even higher levels of demand. Again, this is from my limited viewpoint, in my industries and the areas where I have worked, we either help them make more money, or help them reduce their cost base.
Sometimes the road there is different, maybe through talent management, or through IT system implementation, or through data quality improvement or... whatever!
+5. No stockpiles, dead cash.
As with number one. We do not ever have stockpiles of raw materials waiting to be turned into products, and we never have stockpiles of products waiting to be picked up by the market in some form or other.
We have people, we can forecast ahead approximately 6 months on a good day, and we can make sure our utilization rates are at the 80%+ (Or whatever) that we need in order to stay profitable.
Con's
- 1. Hard to predict the future.
Your look ahead on a pure-services consultancy is about 6 months tops. You can increase likelihood of continued earnings via good sales teams, a strong track record and "unique" services - but six months is the best you can reliably get.
- 2 Recurring income streams are hard to develop.
This can be done through services consulting. But it takes a bit more imagination and effort in terms of setting it all up. It also needs a willing market place.
- 3 Technology will soon replace what you are doing ...
So guess what? You have to develop it first! Or just peacefully wait for the future to overtake you. Amazingly we do not learn from history for some reason or other.
Take the old-IT giants like Oracle and SAP. Both great companies, both very successful, but both of them took a long time to really "get it" with relation to the SaaS software revolution that has been taking place.
- 4. Talent is hard to find.
Unless you make it as a Rock Star consultant, or you are willing to work yourself into a lonely and short life - you need to find talent to work with you.
Finding Talent! Not easy. You need the best, so does everyone else, and the best want to run their own companies (often). A difficult cycle, finding, developing and keeping talent, and just one of the unique skil sets you are going to have to develop as an entrepreneur.
- 5. Selling - if you can't - your'e finished.
Easy and obvious. No-one is going to beat your door down just because you are now in business for yourself. Sorry to tell you that. They will buy, one day.. but only if you go and sell them!
leadership is Sales. Period. Says Tom peters, and I am convinced that he is right. You need to be able to sell your vision, your company, your services, your costs, your ability to compete with other players.. and so on. The game of sales never ever stops for an entrepreneur, and especially for one in the field of professional services.
Motivators...
1. Fire the Boss!
This is probably what started you thinking this anyway. Thoughts like "whose sale is this anyway?", "They just don't get it" in relation to a specific idea you are trying to push, or even "why am I working so hard to make her rich!".
Whatever, the point is part of you wants to step out so that you don't need to answer to somebody else. And fair enough. The boss wants you to travel on your weekend, takes credit for your achievements, doesn't promote you even though you deserve it and so on and so forth.
2. Money! .
If you can sell, have an idea about marketing, have something of value to offer, the energy and drive to be persistent, and the ability to build and maintain long term relationships - (phew) then it can be very lucrative.
3. Take charge of your families destiny.
This is a big one for me I have to admit. I am a family guy these days. And I love it, and my legacy for my children is always at the front of my mind.
4. Work the hours you want to, doing what you want to, and travel as you see fit.
Sames as the above... control over my work life means control over my family life and less sacrifices.
De-motivators...
I am sure there are more de-motivators, but I could only come up with these three right now.
1. Doing it all. (Short term)
I hate taxes and I hate payroll. But both are essential items. And if you are going it alone then the most likely to have to do this is you.
2. Hard on your ego.
For most of us the Ego went out the window several years ago. Why? Because consulting, or selling consulting, is hard stuff. You are trading the value that your skills can create, and your ability to build and hold relationships, for cash. it is a difficult thing to do.
And when you get told no it is hard not to take it to heart. But, as I said, most of us got over this a fair while ago now.
3. Security? (Short-term)
Another one that holds most people back, and probably a major factor for me also I have to admit. Right now I get paid, if I step out tomorrow I wont get paid, at least not for a while.
And there you go...
In the final analysis it is always going to be a tough call, at every turn. I have started my own consultancy once in Latin America, and I would love to do it again one day. (Maybe)
Then again there are cold hard statistics showing the phenomenal failure rate of most start-ups.
My thinking is that any steps out to start your own business in consulting needs to be seen as a risk, but one with a substantial upside.
So your best mitigation strategy is to "be prepared". Do your homework, work out the financial issues, get the relationships built, start working on te sales and marketing strategy, and step forward when you are in a controlled space.
One thing I do know for sure is that often when you finally make the leap - strangely there are things there to catch you.
"Fortune favors the Brave".
