How to Start a Consulting Company
How to Start a Consulting Company
On Showtime's satiric television series “House of Lies,” a corrupt team of management consultants uses shady tricks to convince powerful CEOs to engage their (deliberately vague) services for outrageous fees. Although the series is fiction (and its values questionable), it does make a valid point: If you are outgoing and can provide a service that's considered essential but difficult to obtain, you may be able to earn a living as a consultant.
Consultants are experts in a particular field who work independently or as part of a consulting firm. Consultants provide expert information and advice to their clients in exchange for fees. While this may sound like easy money—who doesn't want to voice opinions and tell others what to do?—it's not just a matter of spouting off. You need to be able to justify your recommendations, and your reputation will be built on the results.
Value and Scarcity Are Key
Are you comfortable working with computers? Fund-raising? Public relations? Your job will be to offer solutions. You may develop the solutions yourself if you have the technical knowledge, or you may tap other resources, including other consultants. If your expertise is highly valued—or, as the show illustrates, you're skilled at creating the appearance of value—you could command substantial fees.
Consulting services currently in demand include:
- Computers and technology
- Accounting and auditing
- Advertising and public relations
- Business and management
- Writing, editing and communications
- Marketing and sales
There are several questions you need to answer before you quit your job and hang out your shingle as an independent consultant:
- Am I qualified? A consultant is an expert in his or her field, so you need to make sure you have an area of expertise and that your expertise is in high demand but not in high supply. You do not need to be the most knowledgeable person on the planet in your field, but you must be able to recognize when additional information is needed and how and where to obtain it, and that requires maintaining a network of professional resources.
In addition, you must be able to “package” your recommendations in a professionally written report, and, from time to time, you will likely be asked to present your report in person, which may involve creating and narrating a slideshow. A typical consulting presentation includes a definition of the project purpose, objective and background; research methods; research findings, including relevant statistics with graphs and charts as needed; followed by your recommendations and rationales.
- Where would I house my business? Many consultants begin their venture working out of their home. There are few or no overhead expenses, you can work any time of the day or night, and you may even be able to deduct home office expenses (although you should consult a professional tax advisor before doing this).
- What should I charge? As a consultant, you provide services that are intangible. You can't touch them, and they're not made from supplies you've had to purchase—in fact, you may not have any real expenses at all (besides your time and overhead). So deciding what to charge can be a challenge.
- Should I charge by the hour? Should you charge by the hour? What if your client needs information you have in your head from previous projects and years of experience? Do you bill just for the hour it took to restate what you already know? Should you get paid less than an inexperienced consultant who puts in more time because they knew less to begin with? That doesn't seem right.
Your Time = Their Value?
What about the converse: Some tasks take more time than others; does that mean clients are willing to pay more for tasks that take more time? Not necessarily.
Easy Come, Easy Gogh?
Imagine you've bought a painting in a beat-up frame at your local thrift store for $1. You take it home and, after a little poking around on Goggle, you discover it's a Van Gogh. Do you sell it for $2 and congratulate yourself because you spent only 10 minutes and made 100% profit? No, you price it based on its value to the purchaser. Should you—and can you—price your work this way?
Flat Fee vs. The Project from Heck
What about charging by the project? Some clients actually hire a consultant to help them define the project. If they aren't yet clear on the details, how can you determine your fee? Many a regretful consultant has locked in a flat fee but failed to tie it to a written job spec, then watched in horror as the project mushroomed into The Project That Ate My Brain. You don't want to find yourself working for minimum wage…or worse!
Undercharge or Overcharge—Both Are Red Flags
Once you've decided how to charge, how do you decide how much? If you charge too little, not only will you be unable to stay in business, you'll also be sending a signal that you don't value your services or aren't knowledgeable about market rates for what you offer. On the other hand, if you charge too much, clients won't be able to afford you.
Ask Questions and Practice
So, how do you find a middle ground? Do some research to learn what your competitors charge. This will give you a good idea of what your services are worth and what clients are willing to pay. If your competition's fees are much higher than what you would have charged, practice saying those rates in front of a mirror until you can do it without looking embarrassed. This is especially important for women since they are so often taught to undervalue their contributions. Also, keep careful track of your expenses so you know the least you can charge and still turn a profit.
- How do I find clients? Probably the least expensive way to market your services is to design a website so that potential customers can find you easily and quickly. You can market your site through social media, including Facebook, LinkedIn, Google+ and Twitter. Be sure to include your Web address (URL) on all marketing materials, such as business cards and brochures. When cold-calling customers, refer them to your website as you leave. And don't be afraid to ask your current clients for referrals—word-of-mouth advertising is golden.
- What certifications or licensing do I need? Depending on your specialty, you may need special certification or a license before you can begin operating as a consultant. The best way to find out is by contacting the trade association that most prominently represents your field. Also verify whether you need special coursework or seminar requirements.
- Do I have to network? Being a consultant requires a vast amount of networking, as self-promotion is vital. Consider joining a networking group in your field; for example, if you wish to consult in public relations, joining the Public Relations Society of America would be a great start to make contacts, learn how your competitors operate, and find clients. Participating in industry organizations and events can help you build your network.
Got the Chops? Here's How to Start
If you've addressed the questions above, you can develop a basic business plan, choose the legal structure of your business (e.g., LLC, corporation, etc.), and clarify what type of clients you'll target so that you don't waste time marketing to those who can't afford your services or don't need them. You may determine who potential clients are by examining their problems and current staffing levels. You can also respond to a Request for Proposal. Taking the time to research clients will save you time in the long run by weeding out clients who are in trouble or who are trouble. Search by company name and keywords such as “complaints,” “financial trouble,” etc.
As more and more professionals become consultants, new consultants face a stiff challenge. However, if you have the technical and professional skills, branding yourself through a consulting company can be a lucrative and worthwhile business venture.