Starting a Consulting Company - First Steps

Business
1

Considering how to get a consulting/digital agency started. The goal is to become a 20 person firm within 3-5 years who focuses on high end clients and solutions (higher hourly rate). At the moment it is really just me. Here are the approaches I’m considering - would love to get some feedback:

  1. Do the work myself - I am a “domain expert”. I have a background in programming, design, proj mgmt etc. I can do the work and can ensure the quality is high. I would then need to hire someone to do sales on my behalf I suppose. But I’ve heard a million times that if you want to build a business you need to work ON your business, not get stuck working IN your business. I’ve seen several people go this route and they never seem to break out of being a freelancer.

  2. Outsource Hybrid - I can step back and only do the proj mgmt, architecture planning and pass off actual production work to the offshore developers. This frees me up at least 50% to do the client-facing work (acct mgmt and sales) myself. This allows me to work ON the business, but I worry that I won’t be able to take a position of a high quality firm by employing offshore team (perceived value). I can lower my rates and pass some of the value to the client which may help to get clients but perhaps not the better clients as a result. I’m sensing offshore is really getting a bad reputation lately (some earned, some not).

Those are the two main options that I see. What would you do? How do you get started, establish momentum and yet still maintain a brand that is able to attract higher end clients and projects? Do the work yourself even though you cannot grow very quickly, retain offshore assistants even though it may damage your credibility, or is there another option I’m not clueing into?

2

[FONT=verdana]Good luck with your endeavours. I’m sure you’ll get some good advice in this forum.

For now, I would just say that hiring someone to do the marketing for you is not a good idea. With any professional service, what you are really selling is yourself. It’s your professional expertise that the clients will be buying, and it’s you they will want to meet, and talk to, and form an opinion of, before they entrust their work to you - not an intermediary.

As well, it’s unlikely that a sales person will generate enough business to pay his salary (or fee, or whatever) as well as yours. It might be different when you have 20 professionals in the firm, but you’re not at that point yet.

Just my opinion, of course.

Mike[/FONT]

3

Miki - thanks for the reply. But that sounds like a freelancer. If you start down this path, how do you transition to running a business? If you set expectations that you will always do the work, that’s not scalable. Moreover, how will you have time to both prospect for new business and actually do the work at the same time?

I’d assume this becomes a self-fulfilling prophecy thus, where you never have quite enough business to hire someone and even if you did, everyone expects you to be doing the work anyway, so they just become your assistant.

So how do you later break from that pattern, if this is how you begin?

4

so if you want to start a consulting company you are to overcome some steps. first of all you are to have education in this area, it is preferable but not so necessary. then you need a good stuff.also you are to have a license. then you choose a certain area and service you are going to suggest your clients and finally advertise your business everywhere you like:TV, the Internet< Radio and so on.

5

wow - terrible advice so far guys. lol :wink:

6

[ot]

I’ve moved this to the business forum, where it might attract others interested in this area. You may have meant that as a tongue-in-cheek reply, but better just to ask more questions or make further comments that help the conversation to develop. :wink: [/ot]

7

There is no magic formula for creating an agency. It depends on what you are best it, and what you can do personally to build a great business. If the business is relying upon your personal skills/touch then it will be very hard to grow it, like you said.

So, I would reverse the question and ask yourself what you can best do to contribute to your own business. Plenty of formulas will work but only if you are great at executing on them.

Are you a great project manager? You will have to be if you plan to outsource work overseas.

Are you a visionary leader and team builder who inspires others to do great work? Then you can build a domestic team and mentor them to do great work.

Are you a salesman with the ability to close? If you can sell, just keep doing that and you should have no problem hiring great talent to execute.

Build your business strategy on what you are great at! Everyone told me that I wouldn’t be able to build a business and outsource all the development, but that model has worked for me. But, it’s because I’m good at offshoring not because it’s the ‘best’ model. What are you best at?

If you are not great at anything that will directly contribute to building a business, you can always just do some personal branding and build a business out of yourself, and do very well.

8

But, freelancing is a business.
Don’t set expectations that you will always do the work, just operate as a business from the start, do good work and build a client base.
If there’s sufficient demand for work you should look for a partner / employee that you can work with and grow.

I wouldn’t suggest outsourcing unless you know people overseas that are doing high quality work and that they’re people you can depend on.

The big question is what type of business do you want to build? That will define who you hire and when.

9

Somebody has to do the selling. If you are self-employed, odds are the vast majority of your time will be spent marketing yourself with only a fraction spent on actually doing billable work. If you hire a salesman, that salesman could be paid commission-based meaning you are only out of pocket when you get billable work. If you are spending 75% or more of your time selling yourself, you may just starve. Paying a knowledgeable and competent salesman a 10% to 20% commission on your billable work will at least allow you to do something to earn some money.

From the reading I’ve done, offshoring to low-cost developers in third-world countries almost never works out well. Remember: when you are doing consulting, your reputation is of critical importance. That means you and your name. You pass off some bad offshore work onto some clients and your reputation is trashed.

I think the option you are not cluing into is letting your business grow as it grows by providing high-quality services to your clients which provide value enough that they will not only be glad to pay you for your work, but will recommend you to others. How much advertising do you see done in your industry? Probably little to none. Why? Because reputation is the advertising.

You cannot operate any business based solely on the objective of having a certain number of employees or hitting a particular revenue target at a deadline sometime in the future, and certainly not in the current bad economy.

10

[FONT=verdana]

But that sounds like a freelancer. If you start down this path, how do you transition to running a business?

Cabagehead, maybe I misunderstand what your perception is of a freelancer in this context.

Do you use the term “freelancer” to mean someone who works more-or-less full time for a client, under the client’s control, and working for only one client at a time? If so, I can understand why you want to stay away from that model.

But the alternative to that is not necessarily to move straight into a multi-fee-earner company. It’s perfectly possible to start as a one-person business, but where you retain control over your own time, and work for different clients at the same time. As with all businesses, you would start small. But as the work comes in, you consider hiring more professionals to take on the extra workload. To begin with, you would do you own marketing and selling, but, again, you would hire people to do perform that role in once you can justify the cost.

Many professionals companies have started in this way, and have grown into large concerns of the sort that you envisage for yourself.

Mike[/FONT]

11

While I have not hit your goals of 20 people in 3-5 years, I have personally built a one-man consulting firm into a 6-man profitable business in under a year starting with only $350, and I’m happy to explain how.

First of all, I started my company while working at another consulting agency and it was key to my success.

When I started I spent roughly $350 to get myself 1) legal to do business in my area under the name Full Ambit Media out of my house 2) 250 business cards from VistaPrint which were designed internally and 3) web hosting for a website designed and developed internally. From here, I continued working my job at the existing consultant firm while I worked hard (attending local industry groups, talking to friends and family) to land my first client with my new business. This allowed me to easily afford to get started without the commitments of loans or investors, sustain myself financially during the early stages and begin networking.

Shortly thereafter I landed my first client. It didn’t pay as much as I had hoped, but it was feasible and it certainly helped me get the ball rolling.

Within 3 short months of starting the business I had 3 active clients, 2 of which were paying as much as I had hoped and I was extremely busy. I resigned from my position at the consulting firm and hired a bright and energetic college student from New York to work with me on development. Out of my home office with one part-time employee who I trained to follow my vision of quality we completed our first 3 projects successfully! In fact, 2 of those clients became repeat customers almost immediately thereafter and we soon had a growing list of testimonials and people being referred to us. I hired a local woman part-time to offload some of my bookkeeping and secretarial work.

Roughly 6 months after starting the business I landed a couple large contracts which demanded more development manpower and my time was growing thin with administrative and sales work. I hired a full-time general manager and an additional part-time developer to handle the demand.

About 8 months after the launch of Full Ambit Media I landed a contract with one of my existing development clients managing servers for a volume traffic website. Since that happened I have formed a wholesale relationship with a massive telecom company and hired a full-time system administrator to handle the work.

As I write this my company has been in business for 11 months and we currently employ 6 people including myself, although granted about half of them are only part-time. To this day I have never outsourced any work, I have never spent a dime on advertisement and I didn’t hire any salespeople.

So, to answer your question directly, I do not think that an “off-shoring hybrid” business model is the best choice if you’re truly a “domain expert.”

If you want to reach your goals you’re going to have to work very hard to establish your brand and reputation. I recommend that you establish a legal business name and use that for branding if that is your goal long-term. It’s okay if your business is associated with you personally: My first client, who paid less than desirable and met with me at my home office for months now pays our standard rate and meets me in my private office at the Full Ambit Media headquarters. How did I manage the transition? Simple, I told him “We’re growing!”, smiled and got back to business. I do imagine that having a single company name, logo, website and business card from the onset through now helped the transition.

Finally, I will bestow you with the advice of my father:

Dad: “Boy, now that you’re a business owner you get to choose which half of the day you want to work!”
Me: “Really?”
Dad: “Yeah, the first 12 hours or the second 12 hours, take your pick.”

And, honestly, that’s an understatement at times.

The point is that if you’re not prepared to work yourself non-stop like a dog for those 2 or 3 years then I highly suggest you start looking for a job. On the other hand, if you’re prepared for sleepless nights and stressful days the reward of seeing your dreams come to fruition is completely worth the effort.

Asking for advice here on SitePoint was a great decision as it’s certainly bountiful within this community. I do hope you’re able to gain helpful insights from my post and I wish you the best of luck with your endeavors.

12

Firstly I’d like to say good luck, and wish you the best. As I also started a business I found many many obsticles and I now have completely changed my original business model, as the old one was a little like yourself (without offending you).

The goal is to become a 20 person firm within 3-5 years who focuses on high end clients and solutions (higher hourly rate).

This should not be your goal. Your goal should be a quality firm however, small or big you are. You should not only focus on high end clients. This economic climate (EU,UK anyhow) you cannot afford to isolate yourself to BIG clients, but instead you have to cater for the small guys too, as they too are people. This is not to say you will not produce quality work.

  1. Do the work myself - I am a “domain expert”. I have a background in programming, design, proj mgmt etc. I can do the work and can ensure the quality is high. I would then need to hire someone to do sales on my behalf I suppose. But I’ve heard a million times that if you want to build a business you need to work ON your business, not get stuck working IN your business. I’ve seen several people go this route and they never seem to break out of being a freelancer.

How can you ensure you have a steady flow of income? I feel that you will need 3-years at least to build a solid steady income. Your solid income (from my experience anyhow) will be your existing clients on support and maintance. As this should be charged. When you have enough of those clients then you push your company / firm / orginazation into a non-freelancing status and therefore hire ‘a’ single person until you start making more money to cater for more people. Getting those clients might not be as easy as you think :). Depending on your geographic region will depend on how easy this is.

The goal from my experience is not the size, but expanding to the level in which you can support. When I started out I made many mistakes, and one of those was expanding too quickly when I needed not to.

Those are the two main options that I see. What would you do? How do you get started, establish momentum and yet still maintain a brand that is able to attract higher end clients and projects? Do the work yourself even though you cannot grow very quickly, retain offshore assistants even though it may damage your credibility, or is there another option I’m not clueing into?

  1. Get your logo done, get some business cards.
  2. Advertise, go out and be pro-active, go to conferences and events and meeting places.
  3. Advertise yourself, “what do you do?”, "I am a web designer, and it’s … ", word of mouth is very strong
  4. When you go enough of a steady income then expand. There is nothing wrong with working from your bed room, honestly! I do it! I even let clients know and from experience they don’t mind. Once you get enough smaller clients and you have enough money then consider expanding into an office, but only then.

PS: I lost a lot of money trying to expand too quickly don’t make the same mistake. Instead focus on creating trust with your clients and expanding their existing services. Also diversify, don’t focus in one field, focus in many and run with what works. :wink:

I now do templates and online advertising, those work! I sell all websites with annual support and maintance. I also focus much of my time on learning and evolving what I learned, it’s pretty awesome. I wish you the best of luck.

@Alex;
I completely wholeheartidly agree with what you said. A completely understatement! I work around 15 hours per day, no joke! Much of that time might not be focussed on client work, but instead is focussed on templates, keeping up with learning web stuff and creating different concepts. I do so so many things now, but it’s all cool! As this is what I love.

13

Starting an IT consulting firm takes several things:

  1. Experience - Do you or members of your team have the experience to actually consult and service companies?

  2. Business experience - Make sure you know about contracts, hiring employees or consultants, margins of your services, customer service and things of this nature - the nuts and bolts of an IT consulting business.

  3. Most IT consulting businesses grow from word of mouth. So as your business grows and one customer after another likes your work, your business will grow.

Competition is going to be fierce from Best Buy-type consultants to local independent consultants and the consulting arms of PC vendors. But all businesses need an IT consultant - it’s a matter of who they choose.

14

I was reading this quote from Steve Wozniak from the Q&A over at Gizmodo and it reminded me of this thread so I thought I’d share:

Personally, I couldn’t agree with him more.

15

Only people that have been full-cycle and had a lucrative exit talk like that :slight_smile:
The rest have to be more pragmatic. Woz is a genius hardware engineer, for sure, but I’m not sure this advice is all that meaningful.

16

Cheezedude - yeah, I know you’re right on this front (growing by reputation/referral). I’ve talked to a number of entrepreneurs of small services businesses and they all say the same: they grew by referral. I also like your point of hiring a sales guy to generate leads so that I can get work done and/or build a team to do so over time. Any ideas how to loop in with a decent sales person?

17

Outsourcing seems to be a slipper slope! SageWing I think rightfully illustrates how it can be an effective part of the mix and can be done well! But that has to be balanced against the marketability of the idea, since a lot of people have heard bad stories and just want to avoid the entire thing.

Perhaps its just a matter of industry maturity. If we look at other businesses such as auto or retail, we can see how its no longer even cost effective to manufacture onshore any longer and those who have figured out the model have made it impossible for most to compete who still do onshore, except the very very best brands that sell as luxury brands at a premium. Still others such as Honda have hybrid manufacturing setup in which assembly only occurs onshore, though primary to avoid tarriffs. In reality however, this work is now considered a commodity and is interchangeable with work anywhere in the world, except for premium brands.

And yet in our industry there is an anomaly - many mid-market managers who would control the budgets and hiring decisions are absolutely paranoid about outsourcing because as markbrown4 points out, it can really go poorly if you’re not expert at managing the team and process, and everyone has heard those stories by now. And so it seems that two markets have emerged out of this reality: (a) people who don’t fear outsourcing and (b) people who do. People who do NOT fear it, tend to be either tech savvy and are more confident in controlling the process a bit better or are SMBs or entrepreneurs for whom the cost savings is imperative. The mid-market however has the money to spend and the prerogative of a mid-market manager is to not hire a vendor who will F*** up! So I guess for them, its worth it to spend then extra 100% (of someone else’s money) to hire a local and trusted partner, so they don’t take the heat if it gets screwed up somehow.

I wonder how long it will take for those 2 worlds to merge into one though? I also remember a time only maybe 10 years ago, when there were two types of shoppers: (a) those who would go to offline stores and (b) those who weren’t scared to use their credit card online! In a similar way, I suppose the offshore industry will cleanup its act a bit, get better process and standards, and barring any gov’t regulations or currency wars, will become a more commonplace way to run production. At which point their services are more inter-changeable with onshore.

All of that said, it sounds to be like the easiest path forward in 2012 might actually be as was suggested above - to focus on doing the work yourself, and hire someone to do sales. As the demand for my services grow, I can step back from day to day development and focus more on internal mgmt and growing a team, while also growing the sales team. Outsourcing is a excellent tool to keep costs down, but perhaps despite its value-add it ironically makes it more difficult to sell my services early on, since it has such a bad reputation, particularly among the mid-market managers who would be idea clients (bigger budgets, etc). it makes it difficult to position myself as more up-market as well, where I’ll get better clients.

So perhaps for most, the best path forward is to do the work yourself, hiring a sales professional to augment your efforts and then as you grow, you can layer in offshoring as part of that model. In fact in some industries, professionals buy leads … just another economic model for this same basic arrangement of doing the work yourself but unlisting sales pros to help generate business. And then I suppose once you have a good enough track record that people won’t be so concerned about you including a few offshore resources on the project, you can begin to layer that in. Otherwise, you’ll get stuck in that trap of super cheap clients who want to audit ever hour you bill them for and make it impossible for you to do good work in the first place.

Thoughts?

18

I’d say that only people with narrow and assumption ridden thinking talk like that. Meanwhile, I support his perspective while I sit here mid-cycle with no intention of an exit… ever.

Thinking like this often leads entrepreneurs and gifted engineers to powerful positions that demand lucrative deals, in my humble opinion. Coupled with Eric Reis’s Lean Startup methods I’d call this as close to a sure shot success as is possible. On the other hand, I’d call outsourcing offshore as close to guaranteed mediocrity as is possible.

19

Making a blanket statement like that about the such a huge and complex industry as outsourcing is about as mediocre as it gets.

20

Wait, do you mean like this:

Considering that is a blanket statement regarding many huge and complex industries, you’re calling yourself mediocre, right? Oh, the irony.

Be honest Mr. Sagewing, you’re only calling it a blanket statement because you’re under the blanket. If I had come here ranting about how anyone who doesn’t outsource overseas is bound for failure I believe you wouldn’t have made a peep about such a blanket statement. The overwhelming majority of clients, colleagues, partners and industry friends I have spoken with have horror stories about outsourcing offshore, so I think we’re rightfully weary. I have a friend who is the chief architect for a software company and he leads 13 full-time Indian developers and his story is the same every time we talk: face-to-palm.

To be clear, I stated an opinion about outsourcing while not closing the door to the possibility that it works for some, and you called it a blanket statement. Had I written that outsourcing offshore was guaranteed mediocrity you would be correct. But, I didn’t, I said “as close to as is possible” for a specific reason: never say never. You on the other hand blanketed several different industries, not just a subset of one, with the term “only” and for you that’s perfectly logical…

I’m going to have to leave it at that since I should be working. After all, I don’t have offshore developers working for peanuts while I post on SitePoint.