Becoming a Consultant

[Enda Goodwin]

Consulting (Step 1): Consider Your Skills, Workstyle and Lifestyle

Goal: To feel confident that you have the skills needed to be a successful consultant, and feel comfortable that you can make the necessary professional and personal life adjustments.

Many individuals consider consulting an attractive career path. They believe they can use the skills they developed in corporate life, market them profitably to a range of clients, and be their own boss. They look forward to the time flexibility and the opportunity to work primarily from home. All this is possible.

But the landscape is littered with failed consulting businesses. Why?

Starting a successful consulting business requires careful consideration of your skills, workstyle and lifestyle. Do you have what it takes to be successful in this arena? Before you answer, you may want to check out SCORE (the Service Corps of Retired Executives).

Running a consulting business requires a range of skills beyond the expertise you intend to sell. You will be the marketing manager, salesperson, bookkeeper, accountant, administrator, customer service manager, janitor, as well as president. Perhaps even more important than the marketable skill question is this: Are you good at these jobs, or are you willing to become good at them? Finding potential clients and actually selling consulting engagements is the biggest single challenge for most first time consultants.

From a work style perspective, you will largely be working by yourself, with no organizational resources to support you. Many people moving from large organizations to careers as independent consultants miss the give-and-take of working with a larger team, having peers to bounce ideas off, and the physical corporate work environment.

Changes in workstyle may carry over into your lifestyle. Yes, you’ll have more freedom and flexibility, but you may need to develop new time disciplines. You may need space and equipment in your home for your business. What income and cash flow do you need? What changes will you need to make in your personal and family finances? What effects will these changes have on you and others in your home?

Questions to ask

• How do my skills and abilities lend themselves to consulting?
• What support systems are currently available to me?
• What is my desired work style?
• What is my desired lifestyle?
• How will my changed lifestyle affect other members of my household? My personal and family finances?
• Does my financial situation support consulting?

[Enda Goodwin]

Consulting (Step 2): Explore Consulting

Goal: Decide that it’s worth the time and effort to take your idea to the next step, or realize that consulting is wrong for you.

How do you know, or how will you know, whether you have what it takes to be successful in a consulting business?

One of the best ways to gather information and to determine your suitability for the consulting life is to talk to those who are already consultants. Think of it as networking with people who know the territory, the opportunities, and the pitfalls.

You will want to talk to at least three consultants, preferably doing the kind of consulting you have in mind (e. g., financial services, human resources, marketing). Experienced consultants can help you with frank, and often blunt advice that will help in your decisions — whether to invest the time and energy necessary to take it to the next step, whether to revise the concept, or whether to abandon the idea of consulting entirely. In that case, you will want to consider another entrepreneurial business idea, or seek reemployment.

If approached in a professional way, most consultants (even those who might loosely be considered competitors) will share their insights and perspectives. You might also want to talk with individuals who were once consultants, but for whatever reason, are no longer. Be prepared to hear honest, even challenging, points of view.
If you have no prior consulting experience, you may want to look into Internet resources, books, magazines, and workshops. SCORE and the Small Business Administration offer very good and free advice. A few sources are listed below. But there is no substitute for actual discussions with people in the field.

Questions to ask

• What was (is) your greatest challenge?
• What worked for you when you started consulting?
• What would you do differently?
• What do you think of my consulting idea? Is it a viable business idea?
• How well do you think consulting fits with my skills?
• What do you think will be my greatest challenge?

Note: Keep in mind that finding potential clients and actually selling consulting engagements is the biggest single challenge for most first time consultants. Ask them about this specifically.

Additional resources

Links

• SCORE, the Service Corps of Retired Executives. SCORE has more than 12,000 volunteer business counselors available to share their expertise free of charge. Explore the option of consulting with one of these professionals.
• Business Planning Basics from the Small Business Administration

Consulting Periodicals

• Entrepreneur.com - resources for self-employed, small business, home business and start-ups.
• Consulting Magazine - advice and information from people working in the profession.

Books

• Free Agent Nation: The Future of Working for Yourself, Daniel H. Pink, 2002

[Enda Goodwin]

Consulting (Step 3): Create Your Board of Advisors

Goal: Line up three to six people who will provide straight advice to you, especially in areas where your skills are less developed.

Even though you will wear many hats as a consultant, you will need help from others. To address their needs, many successful consultants create a board of advisors, tapping into the know-how of three to six people (or more) who have specialized knowledge, experience, and expertise, and are not afraid to express their honest opinions.

Begin by identifying the kind of expertise you need, then find appropriate people to provide it. If you are not a financial person yourself, you will likely want at least a CPA and possibly an experienced financial manager on call. You may also need legal advice, and may require someone with very different legal experience from the attorneys you may already know.

Will you need insurance, such as Errors and Omissions coverage? Will you need expertise in putting proposals together, or simple contracts, in marketing techniques, closing sales, operations, human resources or other functions? Consider also a person or two in a related (but not directly competitive) field, particularly if there is potential for synergy or a strategic alliance.

You may meet with your entire board of advisors occasionally, but you will generally call on them individually for specific advice in their area of specialty. Some of your advisors will be paid. You may trade out services with others, and some may provide services free of charge. But make sure that the free advice is worth more than every penny you spend on it.

Questions to ask

• Does the advisor have experience in an area where I need assistance?
• If the advisor charges fees, are they appropriate?
• Do I feel comfortable with the advisor? Will the person be objective, willing to say no to unsound ideas, and speak up about tough or critical issues?
• Which of the following specialties should I consider for my board of advisors?
  • accountant
  • attorney
  • commercial banker
  • financial planner
  • insurance specialist
  • independent sale representative
  • marketing consultant
  • seasoned businessperson
  • contacts in potential client organizations
  • strategic associates in other consulting businesses

Additional resources

Links

• How to Develop a Successful Board of Advisors (...and Why You Should!)
• How to Build an Advisory Board to Grow Your Business and Increase Profits by Advisory Board Group

[Enda Goodwin]

Consulting (Step 4): Define Your Business

Goal: Get three knowledgeable people to agree that your business definition is clear, market appropriate, and potentially viable.

You now need to define your business clearly, so that potential customers will understand it and buy from you. Defining your consulting business means more than simply describing the services you intend to sell. It means packaging the essence of your business from your clients’ perspective, so you will facilitate their making a buying decision in your favor.

In addition to clearly describing your services, you need to define your target market. This might be as simple as a tag line under your name on a business card. For example:

John Doe
Health Care Marketing

Mary Smith
Financial Consulting to Businesses

Each of these is specific. The first defines a narrow target market, health care, while the second describes a business-to-business focus. Wise consultants adopt a business name that reflects their positioning, such as Doe Health Care Marketing or Smith Financial Consultants. Find a name that captures your positioning.

You also want to distinguish your services in a way that your clients find clear, compelling and beneficial. This is what Rosser Reeves, one of the founders of modern advertising, called the unique selling proposition (USP). The idea is simple: promise a specific benefit, preferably one that none of your competitors promise. How are you different from competitors? On what basis should people buy from you? What can you do to solve their problem(s)? Unless you can answer these questions clearly and succinctly, your selling proposition isn’t unique.

Now discuss your business definition, positioning, name, and USP with your board of advisors. Do three or more of them think that your business idea is viable in the marketplace? Does it come across with minimal explanation?

As you work through the next two Milestones — researching your marketplace and searching out the competition — you will very likely find that you will need to refine or redefine your business definition and unique selling proposition. This is good. You want to go to market with your best possible effort.

Questions to ask

• Exactly what consulting services will I offer?
• What is my target market (e. g., industries, locations, size) for these services?
• Who are my probable clients (job titles, ages, interests, concerns)? What are their needs?
• What will my clients see as the benefits of my services?
• What is my USP? How will it motivate these clients?
• What will I name my business? Does it reflect my USP? Will it age well with my business?

[Enda Goodwin]

Consulting (Step 5): Research the Marketplace

Goal: Identify at least three potential clients and determine that they might be in the market for your services.

Once you have defined your business, your target market, your name, and your unique selling proposition, the next step is to research the marketplace to confirm that these will be effective and well-received.

One mistake many new consultants make is offering their services before they are sufficiently knowledgeable about their markets and potential clients. Their pitch fails because they don’t know enough.

You need to know as much as possible about your potential clients and their industries. You’ll want to research companies and research people. Find out how are they doing financially and in the marketplace. What are the problems they face, or will face? What’s happening with their competitors? What implications does your analysis of your target clients’ situations have for you? How might you be part of the solution for your clients?

Find out about changes in your target organizations, as change often brings opportunity. Have they had a management change, or a merger, divestiture or downsizing that might work in your favor?

Talk to people in your targets or related industries, and with other consultants in those industries. You may also want to test your idea with some friendly potential clients. In addition to getting feedback on how they view you as a possible service provider, you will have an opportunity to try out your sales and marketing skills. If you get a consulting engagement in the process, you might have uncovered evidence that your whole plan is working.

If necessary, refine your business definition and unique selling proposition based on the information you have picked up from this research. Return to Step 4 if indicated.

Questions to ask

• What are some of my target companies/potential clients? Do I have contacts in any of them? Friends? How many?
• What are the major trends impacting my clients and my business? What might the future trends be?
• What are my clients’ needs? What are their wants?
• What do they buy now? What else might they buy? Who do they buy from now? What would it take for me to get business from them?
• What do they pay? What will they pay?
• When do they buy? Why?
• How do they make buying decisions?
• How can I get new referrals from my clients?
• What is my niche in the market? Is my USP appealing to my prospective clients?
• What kind of services do clients expect of me? What kind of services would satisfy or even delight them?

Additional resources

Links

• Marketing from SCORE
• How to Research Your Business Idea from Entrepreneur.com

[Enda Goodwin]

Consulting (Step 7): Set Your Fees

Goal: Establish fees that are competitive and in line with your skills and income needs.

There are four factors to consider in setting your fees:

• What you need to earn
• What the going rate is
• What your expenses are
• What you can command

Obviously, if the market will not bear a fee high enough to cover your expenses and what you need to earn, you will need to reconsider your business plan.

A rule of thumb in consulting is that at least one-third of your time goes to marketing, sales, preparation, administration, and other non-billable activities. Therefore, count on at least one-third of your time selling and only two-thirds (or less) delivering billable services. With good contacts or a strong reputation, you may need less sales time. On the other hand, if you are starting out cold with no immediate clients, you will be in full time sales initially, with no income. You will want to ease that down to 50%, which is standard in some forms of consulting.

There are about 240 working days in a year. If you assume that you’ll spend one-third of your days in sales and other non-billable activities, and two-thirds on work you can bill for, you can run some rough numbers. Two-thirds of 240 working days is 160. If you aim to earn $150,000 annually, and your health insurance, retirement plan contributions, overhead, and sales/marketing costs total $26,000, you would divide the total, $176,000, by 160. This means you’d want $1,100 per billable day, assuming you’d be fully booked all day, every billable day. You certainly won’t be fully booked in your first year, or probably in any year. So unless you’re able to live on less, you’ll want to bill more than $1,100 per day.

But can you command $1,500 per day, or $2,500 per day? What’s the going rate? At what point is your rate uncompetitive? Here’s where you really need knowledge of your competitors.

Questions to ask

• How many billable days will I have (or do I want to have), and what revenue do I need to generate?
• What overhead expenses can I anticipate?
• How does the rate I calculate compare to the going rate for services like mine?
• Will I bill hourly? Daily? By project?
• What kind of proposals or quotations are the norm? In what format? How will I cost out estimates and live by them?
• What expenses can I pass on to my clients (such as travel, perhaps)?

Additional resources

Books

• Contract and Fee Setting Guide for Consultants and Professionals, Howard L. Shenson, 1990. This book is highly recommended.

[Enda Goodwin]

Consulting (Step 8): Develop Your Business Plan

Goal: A business plan that passes the scrutiny of your board of advisors (or other knowledgeable and objective advisors).

Most smaller consulting businesses don’t need funding, and therefore don’t need to review detailed plans with bankers or venture capitalists. If this applies to you, then a lengthy formal plan is not necessary. However, actually writing an informal one or two page plan can be a useful and valuable way to decide whether this is the right direction for you, as well as a way to plan the practice.

A simple business plan for your consulting practice increases your probability of success, because it compels you to articulate the key success factors underlying your business.

There are many print and electronic sources available, including actual plan templates. See the resources listed below, especially those from the Small Business Administration (SBA).

Here are some standard elements of a business plan. You can construct on your own.

• Business definition: Define your services, target market, and unique selling proposition.
• Fee schedule: Decide what you will charge, and why. Is there a pricing strategy that needs explanation? Can you charge your customers for results rather than billing for time expended? Can you bill for travel?
• Competition: Know who else your prospective clients are likely to consider as alternatives to you. What are your competitors’ strengths and how will you counter them? What are their weaknesses and how will you exploit them?
• Marketing and sales strategy: Decide how you will communicate with prospective clients — using the market positioning you have selected — and how you will convert them and close the sale.
• Implementation schedule: Scope out what you need to do to get your practice operational.
• Revenue, expense and cash flow projections: You may want to run these numbers, just as you would for any new venture. But know that they will change.

Questions to ask

• Does your business idea require funding? If it does, you’ll need revenue, expense, and cash flow projections over the period of the loan.
• Does your business definition, target market, and unique selling proposition stand out clearly? If the language is vague, murky, loaded with euphemisms, you need to revise it. Get others to read it and (forthrightly) comment on it.
• How will you compete in your chosen market? On what basis? How are your services differentiated from your competition? What are the key factors that will drive your success?
• Ask yourself: would I invest in the business summarized in this plan? Get members of your advisory board review it and ask the same question. Even if there’s little monetary risk, you are planning to make a major investment of your time and energy. Objectively, it should look like the right move to you, and to others.

Additional resources

Links

• Essential Elements of a Good Business Plan for Growing Companies from the Small Business Administration
• Business Plan Workshop An online workshop to help start and improve your business plan. Sample Business Plans
• Developing a Business Plan An online tutorial from the Small Business Lending Corporation, recommended by the SBA

Books

• Business Plans Kit For Dummies, Steven D. Peterson, Peter E. Jaret, Barbara Findlay Schenck, 2013

[Enda Goodwin]

Consulting (Step 9): Establish Business Systems and Processes

Goal: Establish adequate systems and procedures to get started, and know what you’ll add on as you are able.

Even a small consulting business needs systems and procedures, and the earlier you establish yours, the more prepared you will be to manage your consulting practice effectively. You should have systems and processes that track your sales efforts, work projects, and finances in a systematic way, week to week, month to month and year to year.

If you use an accountant, this would be a good time to arrange that so you know at the outset (and well ahead of tax time) how best to handle the finances of your business. You will probably want a separate bank account for your business. Talk to your accountant about expenses (such as certain memberships and subscriptions) that might legitimately be run through your business, rather than borne as a personal expense. And consider purchasing some software (suggestions listed below) to keep your affairs straight.

You should also consult with an attorney on the forms of business organization (sole proprietorship, limited liability corporation, etc.), and on liability and any other issues that may be relevant. Consider whether you need insurance, such as Errors and Omissions coverage.

Will you need a "virtual shingle" website, and help in putting it together? Will you need a license to do business in the city or town where your business is located? Do you need to register your business and its name with the city or county clerk?

Many consultants start their businesses in a bedroom, but move to professional space when they can afford to. If you do not have an office appropriate to the consulting practice you have in mind, work on securing that space, and the necessary equipment and supplies.

Your board of advisors (or the consultants you contacted earlier) may help you with space and equipment decisions. They may also know where to get good prices on equipment and low cost space.

The following are some considerations. Establish systems and processes, such as:

• Recordkeeping, billing, project planning
• Correspondence, proposal development, mailings (print or electronic)
• Financial statements, tax records, cash flow
• Benefits (e. g., health insurance, disability, retirement accounts)
• Submit any required filings, and obtain any required licenses, permits, and insurance
• Acquire the necessary equipment and supplies, such as furniture, computer, printer, Internet service provider, telephone(s), wireless capability, stationery, business cards, and office supplies.

Additional resources

Links

• Small Business Toolkit from the U.S. Chamber of Commerce

Software

• Small Business Pro (Windows 2000 / XP) Integrated finance and customer management tools, including general ledger, balance sheet, and invoicing.
• BillingTracker Pro Track your time and projects and create professional-looking invoices.

[Enda Goodwin]

Consulting (Step 10): Market and Sell your Services

Goal: Get a paying client, then get more

Finding potential clients and actually selling consulting engagements is the biggest single challenge for most first time consultants.

It takes repeated contacts to turn a prospect into a first-time buyer. Sending potential clients a brochure and letter, or even having a face-to-face meeting arranged by a mutual friend, usually does not make a sale. It just begins a relationship that you’ll need to build and nurture. You are, by necessity, your main salesperson. Play the part.

Since you will need to contact prospects several times, it is important to develop a systematic way of communicating with them so they get to know your name and the nature of your business. You may also wish to use contact management software. A consistent, systematic approach to sales is the best way to expand your client base.

Your marketing materials should not just describe your business, but must speak to your clients’ needs. Like all communications, including your proposals, your marketing materials should clearly convey your unique selling proposition, and how this distinguishes you from competition.

But as good as your marketing materials are, the only thing that really matters is closing the sale. You know your services are good, but...

• Can you convince a prospective client?
• Can you resist the temptation to give away solutions before you close the sale?
• Can you overcome your client’s fear or resistance that blocks them from using you as a consultant?
• Can you ask for the order?

As we mentioned before, finding potential clients and actually selling consulting engagements is the biggest single challenge for most first time consultants. Your ability to sell is probably the key to your success.

Questions to ask

• What marketing materials do I need? (Possibilities: business cards, stationery, brochures, mailers, service descriptions, interactive website, portfolio, work samples, references, client list, case studies/success stories, your biography, proposal formats)
• How will I promote my business? (Possibilities: seeking a leadership position in a professional or industry association, writing articles, speaking engagements, direct mail, advertising, website)
• What marketing and sales methods will I use? (Possibilities: networking for information, leads, referrals and introductions, telemarketing, making sales calls and presentations)
• Do I know how to close a sale?

Additional resources

Links

• Entrepreneur.com’s Marketing Section includes branding, finding customers, market research, and more.
• Entrepreneuer.com’s Sales Section includes information about prospecting, closing the sale, making a successful sales call, presentations, and negotiating.
• Justsell.com — loaded with articles about the sales process, closing the sale, and advice and motivational information to help business people sell their product.

[Enda Goodwin]

Missed Step 6 Sorry* 

Consulting (Step 6): Search out the Competition

Goal: Identify at least three competitors, know how they compete, and know how you can compete against them.

Knowing your competition is just as important for successful consultants as it is for large global corporations or for local mom-and-pop retail establishments. You need to find out about your competitors and what they are selling, particularly to the target market and prospect organizations you have identified.

Who are your competitors? Are you in competition with large consulting firms, sole practitioners or both? Are they local, regional, national, or global? Are they specialized in single areas of expertise, or do they offer multiple lines of service? What implications does this knowledge have for you?

Study competitive information, such as their publications, promotional brochures and websites. Some of the same sources you used to research companies and people in Milestone 5 may be useful here.

Search out information from your competitors’ current and past clients, and your own personal contacts. Your board of advisors and networking contacts may be helpful — use them.

Identify and analyze at least three competitors in your areas of expertise. Evaluate the services they offer and their marketing strategies and tactics. Try to find out how much market share they have, especially with the target organizations you have identified. From your clients’ perspective, consider how you compare to your competition. Do you stack up favorably or unfavorably? Why?

What is the reputation of the three competitors you’ve identified? What are their strengths and weaknesses? How does this suggest you should position your practice? How do you differentiate your services? How do you propose to win market share? What can you do for your clients that’s different or better than what your competitors are doing?

If necessary, refine your business definition and unique selling proposition based on the information you have acquired from this research. Don’t be afraid to return to Milestone 4 if you need to.

Questions to ask

• What is my competition offering?
• How are they positioning their services? What is their sales proposition?
• How do they price their services?
• How well established are they with their clients?
• What are my strengths and weaknesses in comparison?
• What is my USP in relation to competition? How do I differentiate my capabilities versus theirs?
• Is my USP an effective competitive tool?
• If I were the buyer, from whom would I buy?
• Is there room in the marketplace for additional competition?

Additional resources

Books

• Competitive Intelligence: How to Gather, Analyze, and Use Information to Move Your Business to the Top, Larry Kahaner, 1998

[Enda Goodwin]

Will re-do this after operation completion or when migrating it over elsewhere.