Setting up a small consultancy

[northernladyuk]

It's very tough to pull off successfully from what I've seen with friends and colleagues who tried to do the same after working as employed consultants and myself at a small consultancy. This was in IT and non-IT sectors.

As hinted above, there'a big leap from being a one man band to a fully fledged 'consultancy'. Your competition changes, you may be competing against other small to mid-size consultancies, sometimes even against one of the big boys.

Do you have a market proposition? Have you looked at the potential competition and understand the market? What will your USP or competitive advantage be?

There's also the factor of scalability- I reckon you need at least six people to be seen as a consultancy in a potential client's eyes. How do you demonstrate credibility working at a larger scale?

It's easy to fall into a trap of becoming heavily reliant on one main client with dribs and drabs from a variety of other clients. This poses a large business risk if you lose the main client. I've seen small consultancies go bankrupt or only just avoid going out of business by making half their staff redundant when they lost their main client.

You also have to maintain a tricky balance between sales pipeline development activity and delivery of current work - again, it's not an easy thing to do if you're not used to it.

Good luck!

It's going to be tough OK. There is something of a vacuum here so I am up against the big boys, who lack expertise and cost too much, and also UK based smaller firms, who have expertise but lack local credibility. It's a difficult tightrope to walk, but I'm bored with what I'm doing. Have no intention of taking on employed staff until I know I can pay them long-term!

[breaktwister]

I was going to set mine up as a managed service, with the big agency taking 5% to factor my invoices.

There was going to be an opt out after a number of years where everything could become my responsibility.
i.e. they would no longer be involved.

Are you guys talking about a special factoring agency?

NLUK what did you mean by this "They also have the size to contract with public sector through a tender" I'm struggling to see why a factoring agency would contract with public sector to provide your companies services - makes me think you are talking about a different type of agency.

[northernladuk]

NLUK what did you mean by this "They also have the size to contract with public sector through a tender" I'm struggling to see why a factoring agency would contract with public sector to provide your companies services - makes me think you are talking about a different type of agency.

I understand and applaud your correct etiquette of directing your question to the master of the household but in this instance I shall allow NLyUK to respond to your question.

[northernladyuk]

Are you guys talking about a special factoring agency?

NLUK what did you mean by this "They also have the size to contract with public sector through a tender" I'm struggling to see why a factoring agency would contract with public sector to provide your companies services - makes me think you are talking about a different type of agency.

I don't quite mean factoring. I'm looking at a consortium model where the agency is the prime contractor (and will meet criteria for financial stability - turnover and balance sheet), and also they will ensure we get paid promptly, mitigating against the cash flow risk of late payment.

[breaktwister]

What do you mean when you are talking about "the agency". Is this some type of arrangement with a recruitment agency, an umbrella company, one of the big resource providers (e.g. Capita)?

[northernladyuk]

What do you mean when you are talking about "the agency". Is this some type of arrangement with a recruitment agency, an umbrella company, one of the big resource providers (e.g. Capita)?

Recrutiment agency type company. Find an entrepreneurial company to work with.

[Smackdown]

As general strategy I would use the kitty from margin on employees to fund getting/setting up a second client/site once you have big enough reserves before I start eating the profits. It's a huge business risk otherwise.

I've also seen a consultancy with a recruitment agency. Client-co comes along and says I need X contractors and you have X staff on bench...win.

[ladymuck]

An alternative route is to join www.goprojectpool.com and advertise the roles on there. You get 50% of the commission and have the financials/contracts taken care of. Happy to put you in touch with one of the chaps running it if you want to know more without committing yourself.

EDIT: joining in no way commits you to anything, FTAOD

[mattfx]

NLyUK - I worked as a consultant at a reseller for 4 years. From a business perspective, here are my observations:

1) Do you have a network of professionals you can call in to assist you with projects? Or contractors willing to do extra evening and weekend work? You will need them, and that may be more financially viable than taking on permies initially.

2) Do you have any BDM or marketing experience? Sales whilst irritating are what will keep you afloat. You need a person dedicating to selling your products and services - even if that person is you for a couple of days a week.

3) As already mentioned, never place all your eggs in one client basket. It will go wrong.

4) Know your value and stick to it. I'm sure you've already learnt this well enough as a contractor, but if you have a price in mind for a project, don't move on it or start discounting. It's a slippy slope and a bad way (IMO) to win business.

5) Have you made a business plan? This can really help you identify what you want to do, where you want to be and sometimes laying it all out on paper helps focus the mind.

6) Cash flow is king. Our company has massive issues procuring an order for a customer because the same customer hadn't paid an overdue 6 figure invoice; Dell then wouldn't extend our credit limit even on a temporary basis to service the new order and it put sales in a tight spot. Fortunately client paid that week, but you get my drift; people will always take the mickey with invoicing. I know you've mentioned invoice factoring, but that eats into your bottom line. Best thing to do is maintain excellent relationships with all the bean counters, if you can.

That's just my 2 cents, hope you find some of it useful. Good luck and congrats.

[northernladyuk]

NLyUK - I worked as a consultant at a reseller for 4 years. From a business perspective, here are my observations:

1) Do you have a network of professionals you can call in to assist you with projects? Or contractors willing to do extra evening and weekend work? You will need them, and that may be more financially viable than taking on permies initially.

2) Do you have any BDM or marketing experience? Sales whilst irritating are what will keep you afloat. You need a person dedicating to selling your products and services - even if that person is you for a couple of days a week.

3) As already mentioned, never place all your eggs in one client basket. It will go wrong.

4) Know your value and stick to it. I'm sure you've already learnt this well enough as a contractor, but if you have a price in mind for a project, don't move on it or start discounting. It's a slippy slope and a bad way (IMO) to win business.

5) Have you made a business plan? This can really help you identify what you want to do, where you want to be and sometimes laying it all out on paper helps focus the mind.

6) Cash flow is king. Our company has massive issues procuring an order for a customer because the same customer hadn't paid an overdue 6 figure invoice; Dell then wouldn't extend our credit limit even on a temporary basis to service the new order and it put sales in a tight spot. Fortunately client paid that week, but you get my drift; people will always take the mickey with invoicing. I know you've mentioned invoice factoring, but that eats into your bottom line. Best thing to do is maintain excellent relationships with all the bean counters, if you can.

That's just my 2 cents, hope you find some of it useful. Good luck and congrats.

Thanks very much for taking the time to post such thoughtful commentary. Congrats are premature...

1) Do you have a network of professionals you can call in to assist you with projects? Or contractors willing to do extra evening and weekend work? You will need them, and that may be more financially viable than taking on permies initially.

Am a long way from taking on permies, but have a good network of people to do work on a daily rate.

2) Do you have any BDM or marketing experience? Sales whilst irritating are what will keep you afloat. You need a person dedicating to selling your products and services - even if that person is you for a couple of days a week.

I didn't have the experience but am learning fast. I seem to be reasonably good at it. The area I'm in won't work with a sales person, I think - not at this stage. The pipelines are very long along a consultative sales model. Have two opportunities that I'm hoping to close a least one of soon. What I do need to do is not sell my own services out five days per week.

3) As already mentioned, never place all your eggs in one client basket. It will go wrong.

This is a worry of course. First thing is to find first client. Then need to find second...

4) Know your value and stick to it. I'm sure you've already learnt this well enough as a contractor, but if you have a price in mind for a project, don't move on it or start discounting. It's a slippy slope and a bad way (IMO) to win business.

I need to print that out and put it on the wall. I know I am just about the only person in these parts with the skills and experience I have and that these are in demand. I also know that clients will see me as untried in the market. Will stay strong!

5) Have you made a business plan? This can really help you identify what you want to do, where you want to be and sometimes laying it all out on paper helps focus the mind.

Will think about this. Am spending most of my non-billable contractor time chasing opportunities so need to think about when to do this. Maybe after have landed first 'proper' gig.

6) Cash flow is king. Our company has massive issues procuring an order for a customer because the same customer hadn't paid an overdue 6 figure invoice; Dell then wouldn't extend our credit limit even on a temporary basis to service the new order and it put sales in a tight spot. Fortunately client paid that week, but you get my drift; people will always take the mickey with invoicing. I know you've mentioned invoice factoring, but that eats into your bottom line. Best thing to do is maintain excellent relationships with all the bean counters, if you can.

Yes, I've seen this with a previous small client. They had three clients, all of whom missed a payment deadline, and then all missed the next payment run. Gulp... we have a couple of options for managing this risk, and will also memorise the advice around relationships with bean counters.

Thanks again.