What are the challenges associated with starting your own consulting firm?
1. Project Performance vs. Business Development
This is the dilemma of every small consulting firm. You are moderately successful in your practice, are generating a fair amount of revenue, and are comfortable to continue with what you know and bank the money.
I had a multi-year umbrella contract for a large U.S. Federal agency, where just on this contract, if I marketed within the contract I could work and bill a very substantial no. of hours. This type of marketing was a lot easier than seeking new work from a different client. Yet it does end eventually, and after 8 years and two successful re-competes. it did end. As I had not actively sought other work, it took an appreciable amount of time until I developed new business. Fortunately, I had saved and invested well, but often I wish I had billed fewer hours on the large project and sought other clients. I did eventually develop more clients, and the diversification was good. But I should have done this sooner.
2. Need for Resources
If your practice is fairly successful, you most likely will encounter opportunities that require additional people with different specialties. For example, two of my practice areas were management reviews and process improvement for Federal Government agencies. I received an invitation to compete (along with 3 or 4 other firms) on a project involving process improvement, as well as communications and social marketing. The latter two were not my specialty, but it was an interesting opportunity of good size with a fair chance to win.
But I just didn’t have the time or maybe the energy to line up the needed specialists. This situation occurred a few times; sometimes I acquired the necessary talents, other times I passed. With a larger firm, there was a greater chance of the required skills being available.
There were other situations where I had most of the skills required, but not all. An example was an opportunity dealing with performance-based contracting for a Federal health agency. In this case, I chose to incur a relatively small amount of risk, expecting that I could fairly easily develop the knowledge I was lacking on the job. This proved to be the case and turned out to be one of my best engagements, lasting several years.
3. Business vs. Personal Activities
Often consultants get so busy selling and performing in their practices they may neglect their own financial planning, health care, family life and other personal activities. This can happen to any consultant, whether he/she works as a solo or for a small, medium or large consulting firm. When I started my own firm in my early 40s, I had more control over my time, and devoted more time to my health and financial planning. But for some small consulting firm owners, it can go the other way,
Whether it is exercising regularly, following a sensible diet, or engaging a personal financial planner, you need to make the effort to do these things, along with your consulting work.
4. Keeping Current
As a small consulting firm owner, you typically don’t have the information or people resources available that larger firms do. It is very important to stay current with the latest developments in your functional and domain areas of expertise. With fewer resources available, one way of meeting this need is to join a professional association and to read articles and books in your field. If you join a professional association, you should attend meetings and become an officer or otherwise be active.
Credit: Michael E. Cohen