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THE ANATOMY OF A CONSULTING FIRM: It's been said that the "typical" start-up consulting firm is in business from two to three years. That's long enough to exhaust previously held close contacts and to complete the first few engagements. The disappointed and financially depleted consultant then frequently rejoins industry or a larger consulting firm. Today, more than ever, in depth technical or industry knowledge is just not enough to maintain a successful consulting practice. A consulting professional must have much more. This article discusses a few of the major points to cover when starting, or improving, a consulting practice. It is intended for both the small firm principal and the larger firm manager having responsibility for a business segment. Every consulting firm should have marketing and client relations skills resident in the principals or quickly available through outside sources. I've heard time and time again that marketing is the single key task that is not performed regularly. The firm must also have access to reasonable amounts of capital, whether available from personal savings, loans or ongoing engagements UNDER CONTRACT. Significant funds are needed for expansion of the client base, as well as for start-up costs. Consultants must constantly be working their contacts. It's been proven that referral business pays better and is much easier to maintain than business gotten from cold-calling or advertising. Cultivating powerful contacts is a very important part of a successful practice. Rather than assuming everyone in your new firm has the needed networking and contact prospecting skills, plan to audit their use. SKILLS In-depth, specialized knowledge is, of course, the basis on which to build a successful practice. Make sure you keep your staff and yourself current in your field. In many cases, a consultant that boasts of "ten years of experience" really means that s/he has one year of experience, ten times! Beware the temptation to keep yourself so busy that you do not attend seminars, read current periodicals, (and yes, texts and other books), as well as attend industry and professional meetings. I have had success negotiating with a client to pay half our normal rate for (client paid) class time. Training not only increases marketability, but can be used as a loyalty inspiring perk or benefit for your staff. No one likes to do the same thing over and over. A BUSINESS A successful consultant should pay as much attention to the business aspects of consulting as s/he does to the specialized knowledge required for an engagement. Communication skills play a vital role in this process. The saying "Referrals are the best advertising" works only if you adequately communicate the special services your firm provides to your current clients. They will promote you only if they feel you can fill a niche for their colleagues' companies. You must let them know frequently that your firm is ready, willing and able to serve others in specialized ways. The same goes for new contacts. They will not engage your firm unless you successfully communicate to them how you can help solve their business problems. Negotiations, professionally held with "win-win" and "can-do" attitudes, can go a long way toward legitimizing your services. As trite as it may sound, in our era of providing quality to your clients, you must be prepared to do whatever it takes to put them at ease. Providing your company policies, with a careful eye toward flexible "tailoring" to meet client expectations, will help you form long-term client relationships. You can always let the client know that you will be using another firm for an especially crucial part of the project, or that you will bring in a well-known expert to go over your recommendations before presentation to management. Management skills, honed both during prior employment and recent (or pending) client engagements, must be strong. Even when you don't have responsibility for employees, you will frequently be asked to plan, staff and generally help with many management issues. Keeping current with your clients' policies and procedures, as well as traditional and popular management texts, is required for all high-level engagements. Herein lies a potential benefit to everyone: you may find policies that need updating. What better way than to do a little research and offer to update them (with a contract addendum?) As a consultant, you usually work WITH people rather than FOR or ABOVE them. This requires a friendly, honest, assertive and persuasive manner. You were engaged to act, but many times do not have direct authority in the most crucial matters. Careful use of printed and verbal communication can boost your effectiveness and the clients' perception of your effectiveness, which is just as important. Be aware that you are not there to get the credit, but to get the job done. My default is to let the client have most of the credit when things go right and to take full responsibility when they go wrong. Constant review of your one-on-one and group speaking techniques can yield a growing confidence in your ability to have your ideas and strategies accepted. Record keeping, as mundane as it sounds, is also important. Record EVERYTHING in a client or project notebook. Each time you have a conversation, write down the specifics of it, even if no agreement was reached. People are generally haphazard about these things, and your being very organized is a great selling point. Tax and other required documents must be strictly maintained and possibly even backed up. The recent earthquake in California serves to reinforce the administrative requirement of backups and other recovery systems. CAPITAL Many consultants start out with what appears to them as an extremely lucrative first contract. They expand, purchase office equipment or pay themselves as if this was the normal state of affairs. Remember that part of being a consultant means risking immediate dismissal from an engagement EVEN IF YOU DO EVERYTHING RIGHT. You can't always predict corporate buy-outs, industry downturns or project reorganizations. There will be many times, perhaps MONTHS running, where you are not engaged in a big job. Your budgets and forecasts should factor in realistic, ongoing, non-billable hours for marketing, administration (even in a one-person firm), and product development. You also will want the ready resources to hire the right people for their long-term skills, not just when you have an engagement opening. You may want to use some service providers for normal office tasks such as answering services, FAX transmission and receiving, and other office support services. By the way, EVERYONE has a FAX now, so make sure you have one available. If your staff does much client work at your home office, you should have a modem to enable direct transfer of spreadsheet or other data or text files to your client's computer. When custom software or other specialized services are developed for a client, make sure the budget reflects the hidden costs. Don't skimp on the documentation. Good verbiage can save you many hours on the phone and possibly the product, if your key person should walk away. Maintaining any type of package can frequently cost far more than the initial development. Updating a few clients can still cost you valuable time, materials and money. Make sure you have the full financial picture when developing any type of ongoing service. Most start-up costs can be pinpointed, such as office expenses and utility estimates. What is usually forgotten is the TIME it takes to get really good deals in each area. My wife once spent over three weeks at least half-time researching phone systems for a small company. Each time she found a reasonable system, one of the partners had a "feeling that there was a better deal waiting out there." She spent a lot of time to save $30 per month. When beginning a practice, YOU may be fielding sales calls from hundreds of vendors during your first few months in business. Any type of expansion, whether it be in company benefits or getting that great new client in the adjoining state, will cost you money up front. Don't forget that all your clients know the basic "collect receivables fast, pay payables slow" techniques as well or better than you do. I once spent a LONG eight months waiting for the last substantial payment from a large construction company. They held up a month and a half's billings to dispute two HOURS of time worked on a Sunday. Cash flow projections and a VERY healthy cash reserve are the keys to managing this area. Also, do not totally depend on a single line of credit to get you through tough times, as they can be lifted at any time. CONTACTS No one ever has enough contacts. They are the link to your next client. Time spent taking care of your existing contacts and expanding your network is never wasted. Do a favor for someone when you can. Then, let them know what you are after. You will be surprised at how well most people reciprocate with opportunities. The more your firm specializes in a particular market niche, the more you will need other people to reach the most desirable portion of your market. You should constantly be prospecting for and renewing your existing contacts. Peer contacts can also be very helpful to your firm. Rather than viewing peers as competitors, you should look on them as multi-faceted resources. We are sometimes faced with just too much business to complete in a timely manner. Why not forge a reciprocating relationship for managing the limited resources in each firm? "Borrowing" an expert that can be loaned locally instead of forcing a day or so of travel time for your normal source can also drive your profit margin up. Most consulting firms will be glad to work with you, as the arrangement also helps them "load-level" their resources. Here, as in almost all other important circumstances, a complete written agreement is necessary. Mike Todd, the founder of the IBMSIG on CompuServe and a long-time consultant based in Long Beach, California, once said to me, "Your business perspective should encourage you to assist other consultants in any way you can so that the community of consultants is improved by your activities. You will need the services of other consultants both when the job you are doing increases in scale as well as in scope. The person who does a job as well as you is not necessarily your competition. He or she may be a colleague or partner in a larger project in the future." Mike has a history of helping others in every endeavor he undertakes, and credits that trait with much of his firm's success. Joining in organizations such as the Independent Computer Consultants Association (ICCA) allows you to help shape our emerging profession. Participating in organizations like the Data Processing Management Association (DPMA) helps build your contacts as you assist others in learning more about our profession. Vendor contacts, especially in the technical disciplines, are invaluable. There are several reasons to cultivate vendor contacts besides the infamous but elusive "consultant discount." My firm has been introduced to several major clients by vendor recommendation. It is also very beneficial to have an expert or two with access to proprietary future release and other information. You should also help vendors. One of my clients was seriously considering switching their large corporate MIS database to a competing product, which I thought was not in their best interest. I alerted the original vendor, who quickly put together a tailored presentation to assure the client that their direction could adequately service their needs for the foreseeable future. They kept the account. Our firm now enjoys an even better relationship with the vendor. Niche firms also frequently know of a good deal of work outside their specialty. Why not form "business partnerships" with a few non-competing firms? Pick three to four firms that do not directly compete with your own to form referral or networking groups. You may or may not want to back up the arrangement with a financial or reciprocating reward of some kind. Passing another firm a hot lead is a powerful friendship token. ENERGY Possibly the most important element of any successful firm is the vision and drive of the founder(s). Most well-know small and medium size companies have at least one strong, ambitious executive with an ownership stake in the business. When building your practice area, you usually must service clients, market the firm, work with vendors in several capacities, train or handle the administrative side of consulting and do the books. It takes real commitment to sit down at your dinner table with three hours of proposal or financial statement preparation after a long day. There is no shame in shopping out most or all of the support functions, but be aware that you can't entirely shirk these somewhat unpleasant or unfocused tasks. Building your skills is also usually an after-hours pursuit. There are not many clients that will pay for your education on the job. Consultants are expected to stay current in their field. Since training and other skill-building activities do not generate current revenue, they are sometimes pushed aside. You must continue the level of technical excellence that allows you to think about or keep your practice moving ahead. This means formal education or training, informal study and experimentation. Like everything else, this takes time after or before the normal work day. (The managing consultant, by the way, works longer hours than most any other vocation.) Also, as your firm becomes more successful, you will be called upon for larger or more challenging engagements and office tasks. You must widen, as well as deepen, your sphere of proficiency to include these new functions. Another need for energy comes in motivating people at the client site. As we covered earlier, most times you will likely be embroiled in one form of dissent or another. This is what comes of change. Keeping all client managers and staff motivated can be tricky. As at Apple Computer, you must be a project or system evangelist, or champion. You must take the position best for the client and sell it to the rest of the players. To do this, you must have the energy and patience to communicate your position, over and over. Some of this repetition will be to the same people. You should have the demeanor and appearance of working hard, but not at a fever pitch. Increasing your contacts, and therefore your client base, is also sapping at times. No one likes a constantly cavorting salesperson, but you should professionally make sure that you get the word out. Letting friends, business acquaintances, social, volunteer and professional groups know what your firm does is the way to more business. Granted, it takes a special effort to be up in every social situation. People will not "be on your side" at any type of gathering if they do not sense a winner with the "right" attitude. People are attracted to success and presence, so you should develop both in quantities large enough to give away! Being positive must become a habit. Many psychologists think that money problems are one of the primary causes of marital strife. It is not much different in the business world. Without the energy to overcome financial difficulties such as budgeting, capital gathering, loan processing and income generation, your firm will not prosper. This means having the will to make the hard choices between client, project and consultant problems that have a direct bottom line effect. Discipline is necessary to skirt any potential "bad" surprises. PUTTING IT ALL TOGETHER If I make building a consulting practice sound like a lot of work, it is because I have seen many half-hearted attempts fail. A managing consultant must be a business person as much as an expert in their field. The required cross-section of skills takes gumption to acquire and maintain. The successful consultant will find challenge and pleasure in the various facets of the business. If you like to meet and master an amazing variety of situations, you will probably succeed as a consultant. Many of the above topics merge together. That is because building a consulting practice is not a stand-alone affair. It requires a startling blend of business acumen and dedication. As with many other arduous tasks, the rewards are great. As you build your practice, you will build your business confidence. With that confidence comes the ability to make it all look easy. You know the professionals that have that knack. They got it just like you will, by long, hard hours of working "smart". Keeping the various, changing pieces of the consulting puzzle together is sometimes reward enough. But the money and prestige don't hurt either! |