How to Establish a Consultancy
From a seventeen-year vantage point, I offer these recollections into the development of a technology-based consulting business.
John Coates |
The key steps in starting your own consultancy are, (a) possessing the motivation and courage to start, (b) getting the timing correct, and (c) having the guts to see it through. Of these, the third quality is often the most important; almost every start-up goes through a turbulent period where persistence in the face of adversity is required. The other essential piece of information you must have from the outset, is what success really means to you. In setting up Coates Consulting, for me it was recognition, and the ability to bring in new clients and to cultivate referrals.
Coates Consulting was established in July 1996. In concept, it was formed in my mind several years earlier.
As early as the start of the 1980s, I realized that the business model in the professional world was changing. In my case it was the instrument business; I’d enjoyed a professional technology career in one of the largest instrument manufacturers, Perkin-Elmer Corporation, which at the time was a $1 billion company and the world leader in the markets that it served. The company was morphing from a multi-technology base (in the 1970s) to a more focused, market driven technology base in the 1980s and beyond. This was a market-wide changeover, with companies moving from the traditional “lifetime” appointment for a company scientist, to a business model where the technical people were an important commodity – as long as the business was profitable, the market expanding and there was potential for continued growth. While there was still some job security for scientists and technologists in the commercial world, it was dwindling, and it favored the politically savvy; the more independent-minded were often removed from the business. This was before the technology “bubble” of the late 1990s, and at a time when companies were inclined to hire consultants rather than hire specialists in full time positions. The time was a ripe for the formation of Coates Consulting.
In the mid-1980s, I joined an emerging instrument-based company, Spectra-Tech Inc., which had been formed a few years earlier by an entrepreneur in the scientific instruments business, Don Sting. Spectra-Tech was a classic small business: limited in budgets but confident in investing in itself, lacking in bureaucracy and run by individuals who made bold decisions. It was the perfect training ground for a “youngish” person who wanted to learn to become an entrepreneur. I learned about business and marketing on the job, both of which are essential to be successful in a crowded market place. As a consultant, you are the business and you need to be able to get yourself known on a very small budget.
Working for a successful small business was a useful first step. The second was to get out in front of as many audiences from as many different industries as possible. I had been doing this since the mid-1970s at analytical and scientific instrument conferences in Europe, the Americas, Asia, and the Soviet Bloc. If you plan to be something of a generalist as a consultant you should address as many different industries and applications as possible during the “information gathering” stage.
In my career between the mid-1960s and mid-1990s my business title changed from applications chemist, to staff scientist, to marketing manager, to business unit manager. Titles mean little if you truly want to be an entrepreneur, but they provide a means to gather information and expand the scope of your résumé.
My third step in this career-expanding period was to develop a true business network. I don’t mean social networking through Linked-in and the like, although they are part of it. It is important to balance the speed, convenience and effectiveness of the modern social/business networks and the benefits of firsthand communications with a known and trusted resource. Your business network is formed over years, even decades, for the most part as face-to-face relationships. Email helps in initiating interactions but it can’t match the benefits of a handshake and physical eye contact. The ability to observe and interpret body language is essential. A strong personal business network is critical during the first few months of starting the business, and remains essential for maintaining and growing the business in the first two to five years.
As a technology consultant, a fundamental element of the service you provide is the ability to turn on a dime and provide accurate information to a client or a potential client. You are professionally judged and rated by your ability to respond with real, personal experience-based information, and not regurgitated information obtained from “Googling the Internet”. Consultants’ reputations, good or bad, are made on the basis of the information they provide. Good ones provide fast and accurate practical information that truly solves a problem; their response is customized to the question asked or the facts required to resolve the issues.
Working at a company, it is easy to feel comfortable and be overconfident about job security. The truth is, few positions are secure and decisions to hire or fire can be almost on a whim, even in the biggest corporations, where decisions are made quarter by quarter. That understanding motivated me to plan Coates Consulting.
Timing is another crucial issue (see Figure 1). In my case, I made the decision to set up on my own five years before I started. Letting go of a regular salary and/or having family responsibilities tends to put the decision off. However, if you “see the writing on the wall” then plan on that becoming reality. It helps if you get “let go” from your job and you get some form of severance pay; I formed Coates Consulting on the back of about six month severance.
As soon as the decision is made, you are working “24 hours a day”. The first task is to establish the business officially, which might simply mean going to the local town hall and registering as a DBA (Doing Business as “your company”). This must be done. You may also set up the business entity and establish an LLC (limited liability corporation) or a corporation (most likely a Sub-“S” Corp if you are planning to file taxes as an individual). In the US, tax law, both federal and state, really tends to define how the business should be established.
If you have no plans to hire employees, at least in the short term, then forming a DBA or a simple LLC may be sufficient. In the latter case, companies such as LegalZoom provide a convenient service. The decision to form an LLC is an important one, and to some extent it depends on the nature of the business. Having the protection of a corporation (the corporate veil) can become important in terms of overall liability - one can become exposed if something happens to a project, and there are financial repercussions.
If you are planning to form a good-sized consultancy you may want to form a partnership. This can be an LLC in which partners have a defined share in the business but file taxes as individuals.
The decision to add employees is a big one, not least because failure to take the proper registration steps can cost you later on. There is a lot more work and liability in maintaining the business and with health care costs and payment of a third party’s (employees) social security, the financial burden is greater.
The loss of an infra-structure, that is, equipment (copiers, fax machines, water coolers, etc.) and people that help you “do stuff” can be unnerving. If you are a one-man-band, your role has expanded to include the shipping, mailing, coffee-making and janitoritorial functions. Some small companies make use of incubator centers where many of the infra-structure services are provided for a weekly fee. This can become more important if a group of professionals are involved and the company functions as a partnership. But if you start really small, then working from home can work, at least for a few years.
Functionally, Coates Consulting was set up in a few days after a couple of visits to Staples and Costco. Today’s computers and home cable internet lines have made things a lot easier; with these and a professional-quality multifunctional printer you can appear as a good size business to the outside world. Some new businesses try to go 100% mobile, but from experience, a land line usually looks and sounds more professional.
Forming a consultancy
If you are a recognized expert in a particular technical field, the idea of becoming a consultant seems logical. But it is not necessarily easy to do. You need clients to get started… but for some reason they are not knocking on your door. You are now in the marketing or business development phase. You need a plan that combines what you are good at and what people need.
In my case, I formed an analytical business development service. I offered traditional analytical services if these were required, but the focus was on instrumentation and support of that business. I had experience in chromatography, spectroscopy and electrochemistry but was known as a spectroscopist, particularly optical spectroscopy (UV-vis, NIR, Raman and mid-IR). Consequently the company was formed with a focus on spectroscopy. Then, however, real life kicked in: the first two business opportunities were in chromatography (high speed GC) and mass spectrometry (non-optical), and they were for market development, not truly technology-based projects. I had to decide whether to go out of my comfort zone. I did, and both projects were successfully completed. That first check, no matter how large or small, is the most important. It sends the message, to yourself and the clients: I can earn an income consulting.
Today, 17 years later, 75 percent of the business is tied to spectroscopy and analytical chemistry, with the remainder being anything and everything within a general technology umbrella. Over the years I’ve included method development and instrument applications work (both hands-on and written application notes), as well as instrument concept development. Expanding to include hardware was a big decision, but it enabled other people to be brought into the business, in the form of contractors, without the need to hire additional staff. Pure consulting can be very limiting because you are constrained by what you as an individual can handle. Bringing on projects that can be handled by others is one way to expand the business. Another, to bring on partners or employees, is more complicated, and may result in you losing control of your time and ultimately of the finances.
Once you’ve had some successes, where next? One option is to expand the scope of the business, but you must not lose direction or become overwhelmed by work. For any project, only about half of the allotted time is actually doing the work, the other half is taken up with managing the business. One has to become a master at juggling time, work and funds, and of doing so without it being obvious to the outside world. You must appear to be spending 100 percent of your time on each and every project, which is no mean feat.
Growing the business also requires that you get the message out. There are many ways to do this, requiring investment of time, money or both. Advertising is expensive, and not always effective. Writing in magazines is a good way to start. It takes time to write a good article, but it is typically a good investment. Other cost-effective strategies include the product directories of trade magazines, and press releases about the business, services and products.
In summary, make certain that you understand the basic rules of doing business. Hire additional expertise if you need help and use professional services to supplement what you do. Most importantly, hire a good tax accountant, they are worth their weight in gold. Finally, have confidence in yourself, even if times get tough; be prepared to multitask, and always have a plan “B”.