…So you want to be an independent consultant…

Alex S. Brown, PMP IPMA-C

By Jennifer (Tharp) Russell, President, Mastodon Consulting and Alex S. Brown, PMP, President, Real-Life Projects, Inc.

Introduction

A project manager develops skills, knowledge and experience over years of hard work.  When he becomes a consultant, he can offer that hard won experience and skill to others.  Consultants are in charge of scheduling their own time, and setting their own rates.  They only need to take work that interests them.

When a project manager switches from full time employment to starting a consulting practice, he’s “saying goodbye to the predictability, normalness, routine and safety of a regular job. [He's] venturing out on [his] own, into unknown territory. From here on out, [he'll] need to survive by [his] wits, not a paycheck that appears every two weeks without question.” (Coutu, 2006).

Project managers have a unique advantage over other types of consultants who are building a practice – they know how to break down a large project into manageable components and follow through to execution. Project managers can launch a consulting practice using familiar tools.  A Guide to the Project Management Body of Knowledge (PMBOK® Guide) lists the processes that are key to building a successful consulting practice.

Scope Management

Scope management ensures that a project includes all the required work.  “Scope” can refer to both the features and functions of the project, as well as the work that must be done to deliver a product with those features and functions (PMBOK® Guide, p. 51).  So how can a consultant use this principle to help develop his practice?

Initiation:  Strategic planning

In the same way that a project begins with a charter, consultants should also develop a charter for their practice. The charter should include a product description and a vision of what the business will accomplish. Spending some time at the outset on initiation and planning will help with the execution of the consultant’s vision, greatly increasing the chance of success.

Vision statements are temporary – looking 3-5 years in the future, drawing a very specific picture of what the world will look like in this time period.  The vision statement drives the bottom line and success of the practice (Collins, 1996).  A good vision will help decision-making in times of uncertainty.

Before many projects are initiated, a feasibility study is conducted, to determine whether the project will be successful.  Applying that lesson to consulting, in order to determine whether a prospective consultant should go into business for himself, he needs to consider these feasibility factors:
Is he comfortable working alone?  Can he maintain his sense of objectivity when he doesn’t have others to support him?

  • Does he believe in himself, and can he persuade others to believe in him?
  • Can he walk away from a job he doesn’t want or that does not match his vision?
  • Is he good at listening to others, and reframing their issues in order to get to the next step?
  • Does he follow up quickly, completely and reliably?
  • Can he sleep at night without knowing when he’ll see revenue?
  • Will his family support his decision? (Coutu, 2006, online; Weiss, 2000, p. 7)

Assuming the project is feasible, the project manager moves on to develop a project description, which describes the product or service that the project was undertaken to create, as well as the business need that gave rise to it (PMBOK® Guide, p. 53).

First, what is the service the consultant will provide?  A beginning consultant often looks at his title, and thinks he should consult in general project management.  After all, once a project manager has mastered the fundamentals, he can handle managing projects in many different fields.  However, by being a generalist, he becomes a commodity product in a very crowded field.  As someone who isn’t differentiated from his competition, he will only be able to attract a commodity price.  He might find that while it’s easy to get work, it’s harder to get interesting or lucrative work.

Differentiating and narrowing the field of service, puts the consultant in a much smaller pool of competition.  He can differentiate

  • By area of expertise, such as risk, earned value, or regulatory compliance
  • By industry, such as biotech, telecom or finance

With lower competition and greater specialty, he can bill at a higher rate. Experts debate over whether being more specialized increases or decreases business opportunities. Although a specialist’s market is smaller, he or she may be able to service it more effectively; increasing the demand for their services far more than if they tried to serve everyone (Port, 2006, p. 19). The consultant considers all these issues, and then determines exactly what his service will be.

The prospective consultant should analyze whether there is a business need for his services. What are the results a client will see after working with the consultant?  This business need is the consultant’s value proposition.  A value proposition describes tangible, measurable business outcomes the client will realize from working with the consultant (Konrath, 2006, p. 53-55).  Is there a business need or market demand that the prospective consultant can fill?  This need is often documented in the project charter. Unlike a typical project charter, the independent consultant does not need to get approval from anyone else. As the chief executive of this new business, he himself authorizes the charter. However, it’s in his best interest to consider constraints (such as finances) that will limit his options as he begins his practice.

Scope Definition

A consultant needs to develop a core marketing message, to clearly state who he works with, what problems he solves, what solutions he provides, what benefits he offers, what results he produces, what guarantees he gives and what is unique and special about his particular service.  This positioning is the foundation for the rest of his marketing efforts (Middleton, p. 29).

Other questions the consultant should consider in developing his practice:

  1. What size should his practice be?  Will it be a single-person practice? Does he want to build a large practice? Does he want partners? Building a larger practice involves greater risk and creates more financial issues.
  2. What will be the organizational and legal structure for his practice?  Will he do business purely as a sole proprietor, or will he create a separate business entity, such as a corporation?  Finding the right organizational structure requires discussions with tax and legal professionals. Liability, financial and tax consequences vary depending on location, politics, local law, and common business practices.
  3. Where will the consultant operate, geographically?  Is there enough local business to sustain the practice, or will the practice be international?

Scope change control

When a client requests work performed outside of a consultant’s area of expertise, geographical reach or other parameters, a wise consultant analyzes whether this new work is aligned with his vision.  If so, perhaps the consultant should dedicate the time to building that expertise, and complete the work for the client.  If not, the consultant should either outsource the work or recommend a partner to complete the work.

Time Management

Time management is a huge challenge for the beginning consultant. As with any project, the consultant needs to identify and document all the activities that must be performed to build a successful practice.  Like other small business owners, consultants often find themselves wearing many hats, and commitments can be overwhelming. Time spent on accounting, legal, marketing, administration, writing, editing and other tasks is non-billable time. These tasks can be outsourced, so the project manager can focus on core services. (Coutu, 2006).  Starting with a robust work breakdown structure and determining which tasks can be outsourced or delayed is the first step to getting all these activities managed successfully.

Much of the beginning consultant’s time needs to be allocated to building credibility, and building a network.  Marketing is essential to build the new business. That work does not happen automatically. It needs to be planned and scheduled, to make sure it gets done.

It used to be that sales could be driven by cold-calling a hundred companies.  Consultants will be much more successful if they target a few specific companies, and focus sales efforts towards getting in to those companies.  Consultants need to be careful not to fall into the trap of thinking they just need a customer, any customer.  Consultants must know when to say no, and know exactly what they want to go after, or they won’t make productive sales.  Clearly defining a target market is a more efficient use of time – prospective clients can quickly see that the consultant is a perfect match for their needs. (Konrath, 2006, p. 42).

Cost Management

Project cost management is conducted to ensure a project is completed within the approved budget (PMBOK® Guide, p. 83).

It doesn’t require a substantial investment to launch a consulting practice. A consultant only needs to start with some basic tools, such as a computer, business cards, a telephone, an Internet connection, and expertise in order to begin reaching and working with clients.

Pricing strategy

Pricing is a marketing decision.  As with any contract, care should be taken to distinguish cost estimating from pricing (PMBOK® Guide, p.86).  A consultant can only fairly price his services once his positioning has been determined.

Many consultants begin by setting their fees fairly low, in order to get work.  While this strategy can be effective in obtaining work, it’s also more likely that the consultant will engage with companies with less ability or inclination to pay, and their work will not be valued.  However, if fees are set too high, it may discourage potential clients.  Setting fees is making a decision about how the consultant approaches the market.  By differentiating, and presenting rare services, the consultant can command a higher fee.

Whereas many beginning consultants charge an hourly rate, some consultants find they are able to increase their margins by setting their rates by the project. This approach can be very risky for the consultant. Offering a fixed price requires excellent skills in:

  • Project management
  • Scope control
  • Activity duration estimation
  • Cost estimation

The consultant uses historical information and expert judgment to help determine overall costs, and ensures that his pricing model covers these fundamental costs, and is aligned with his overall marketing and pricing strategy.

More experienced consultants may set fees based on the value the client derives from the consultant’s advice. This value might include future revenue, profits or commissions. Consulting fees based on performance, such as these, pose several risks:

  • The company’s performance in other areas may affect the area in which the consultant is measured.
  • It may take months or more to see the results of the work, meaning that the consultant will not see any revenue for a long period, effectively giving the company an interest-free loan
  • The company may not implement all of the consultant’s recommendations, compromising the ability to reach the potential projected
  • The consultant may not be able to audit the improvement measure, to see whether the client has manipulated results (Coutu, 2006, online).

The consultant also needs to allow for the full costs of the business, including employee benefits, which he will now need to cover rather than a separate employer, and bad debt, and other overhead costs.

Quality Management

Quality management is critical to successful consulting, as the consultant’s name and reputation depends on the quality of his output.  A client hires a consultant to help solve a particular problem.  Therefore, effective consulting isn’t simply producing a report of recommendations, but rather helping the client achieve results.  Results are client benefits, not simply a project deliverable.  (Schaffer, 2002, p. xiii)  The consultant who focuses on client benefits will not only be perceived as more valuable to the client, but will also be more likely to gain repeat business.  Similarly, presenting a proposal in terms of client benefits, rather than deliverables, will close a sale much more quickly.

A consulting project can be successful if:

  1. The consultant provides a solution or method that’s new to the client.
  2. The client must achieve measurable improvement in its results by adopting the consultant’s solution
  3. The client must be able to sustain the improvement over time

In other words, consultants must be effective change agents, and share accountability for results with their client (Schaffer, 2002, p.4).

Agreeing on quality criteria (whether via a checklist, control charts, statistical sampling or trend analysis) at the outset of the consulting engagement will allow both parties to determine that the engagement has been successful.  Careful quality planning, assurance and control will help manage client expectations.

Instead of passing responsibility and deliverables between client and consultant, a good relationship is a partnership, where both parties learn and work together through every stage of the project (Schaffer, 2002, p.36).

Human Resource Management

When a client requests work performed outside of a consultant’s area of expertise, geographical reach or other parameters, consultants need to determine if they should expand their capabilities to meet client demand.  The simplest way to expand is to bring in another consultant on a project basis.

Anyone a consultant hires or collaborates with must provide a synergy that creates an exponential degree of business growth or increase in value.  The relationship will take energy to manage, and it makes no sense to collaborate if each party will only make as much together as they would make individually (Weiss, 2000, p. 190).  One plus one should equal at least three, or there is no point in working together.

A consultant may figure out who would make a good partner by identifying someone in a business contiguous to his – someone with the same target market but a different skill set.  A good strategic alliance would be with someone who is doing well and wants to grow. A consultant should remember that any partnership reflects upon his own judgment, so he should take the time to be sure he is confident in a potential partner’s work before jumping in to a partnership (Konrath, 2006, p. 95).

Communications Management

Communications management provides the links between people, ideas and information that are necessary for success (PMBOK® Guide, p. 117).  How can the consultant provide effective outreach to prospective clients?  Marketing is the biggest communication challenge for a new consultant. Consultants can write, speak, and create marketing messages through branding and development of marketing materials.

Branding

This paper previously discussed the importance of developing a consulting business around a core value proposition.  Branding effectively communicates this value proposition to prospective clients, via communications planning. Communications planning involves determining who needs what information, when they will need it, how it will be given to them, and by whom (PMBOK® Guide, p. 119).

First, the consultant must articulate a positioning strategy, examining key industry trends and market needs, and objectively evaluate strengths and weaknesses.  What is the most compelling solution offered by the consultant? Which target customers and segments have the most immediate need for this solution?  Who are the key competitors in the target segment, and what is the consultant’s competitive differentiation from these competitors?

With this information, he can now develop a strategy framework for positioning, including product definition, target customer and target market, value proposition, competitive differentiation, and strategic direction.

Finally, he can use these materials to develop a positioning statement and key messages.  These will be critical for development of marketing materials, including logo, website, business cards and collateral (Karen Kang, personal interview, April 4, 2007). All marketing activities, from brochures, to logos, to sales pitches should all be rooted in a common positioning approach and concept. The consultant needs to understand what he is selling, whom he is selling to, and why customers ought to buy from him. These key facts provide the foundation for all marketing (Middleton, p. 29).

Networking

Everyone knows the value of networking, but networking sometimes has little value.  Going to a networking event, meeting people and passing out business cards is a very inefficient method of communicating with potential customers. There are more powerful ways to reach people.

When a consultant provides value to others without asking for anything in exchange, he starts a powerful chain reaction. Others want to reciprocate, to provide value back to the consultant, and many people will provide referrals or other information.  Many consultants hold tightly to their intellectual property, but giving something of value for free will help customers see the potential value the consultant can bring to an organization.  “If he gives this away for free, what will we get when we hire him?” By offering value with every interaction, the relationship with a potential client can grow (Weiss, 2000, p. 82 – 86).

Most project management services are high-value, high-trust services. A consultant cannot expect to close a sale in a single phone call or a single meeting. He should have a long-term plan to build trust with potential customers.  He may even want to write down a plan for a typical sales cycle that begins with early introductions, progresses to sign-up for a free newsletter or article, and eventually builds into a paid client relationship (Port, pp. 73 to 91). Understanding a typical client sales cycle will help him decide where to invest time and when. It can also be a foundation for metrics about the effectiveness of different marketing activities.

Writing and Speaking

The consultant should develop a communications management plan to determine the appropriate medium for each type of message.  He may even consider using multiple methods for the same message. If he writes an email newsletter, somebody might forward on that email to a couple of friends. If he posts the same message on his blog, a reader may post about it on his blog, and the message is distributed to thousands of people immediately. White papers can be published on his website as PDF’s, on his blog, and in paper marketing materials.

The consultant can submit articles he has written to magazines and newsletters. He should be sure they are the kinds of magazines his potential customers read, or they might not be effective marketing. Many new consultants focus on publishing material targeted for their peers; that work may be valuable to build reputation, but it is not likely to lead to new business.  Similarly, when he considers speaking engagements, he should speak at conferences or universities where his potential customers will be in attendance.

Book publishing offers similar options.  Commercial publishing helps the consultant gain credibility, while self-publishing can provide less expensive material to give away (Weiss, 2000, p. 99).

Many consultants stop marketing and networking when they accept a long-term assignment.  However, when that project is over, they will need to begin marketing and networking again, and they will find that it can take months to build momentum if all efforts have stopped. The communication and marketing plan should include ways to continue to build business, even while working on an assignment.

Risk Management

Risk management is focused on maximizing the probability and consequences of positive events, and minimizing the probability and consequences of negative events to project outcomes (PMBOK® Guide, p. 127).  An independent consultant quickly becomes a master of risk management. A company employee might manage risk closely to prevent catastrophe for his employer; an independent consultant must manage risk to avoid catastrophe to himself and his business.

Financial risk

The number one reason new consulting businesses fail is undercapitalization (Weiss, 2000, p. 2).  As there are many administrative and marketing tasks that need to be performed in order to set up a consulting practice, a consultant needs to ensure he has revenue to sustain himself until he’s achieved that baseline.

He should count on at least 6-12 months of dedicated effort before his efforts begin to bring in new business.  The uncertainty of the timing and amount of revenue in the first year is the consultant’s largest risk, in both probability and impact.

Consultants need a strategy to mitigate this risk.

Possible ways of resolving this risk include:

  • Wait to begin work until the consultant has saved enough money to live on for the startup period
  • Take out a loan, while still employed
  • Perform startup activities while still employed.

Each of these options has their own risks. A consultant might miss opportunities, if they wait to save up money. Loans introduce loan-repayment risks, and possible loss of any collateral offered for the loan. Starting the business while employed introduces the risk that the consultant will not have enough time to do the work properly. In many companies, they also risk being fired from their job if their employer discovers the new business.

Many consultants make the mistake of simply planning on getting business right away. It is not a feasible approach. The consultant will be influenced by financial risk and worry from the very beginning, and will make poor business decisions as a result.  (Weiss, 2000, p. 3) Desperation can lead people to price their services too low, pick poor clients, and make decisions that can hurt their reputation and long-term business plans.

Contracts and Legal Risks

Contracts and proposals, with all terms, conditions, deliverables and measures of completion clearly defined, are a consultant’s key tool for risk mitigation. No matter how high his fees or how busy his consulting schedule, the independent consultant will not be successful if he doesn’t get paid. Contracts can help consultants get paid. Contracts can also help encourage cash flow, if they include early payment clauses. By collecting deposits on work, billing after key milestones, and charging interest on overdue payments, the consultant can ensure he has money to continue running the business (Coutu, 2006).

A consultant needs to keep excellent records, in case he needs to sue a company, or is the object of a lawsuit himself.  Errors and omissions insurance helps protect the consultant from a lawsuit claiming harm from services.

Taking on multiple concurrent contracts may be productive if the contracts are complimentary, are close geographically, and if both parties understand that the consultant will be setting his own hours. Good client communication is critical.

Market risks

A consultant will weather market fluctuations by anticipating trends as a key way of establishing value.  By watching what’s happening in his industry of expertise, and designing services to help clients cope with changes in their environment, he can stay in the area of highest demand and value (Liz Greer, personal interview, August 10, 2007).

Wrap-up and closing

“Your biggest competition isn’t another consulting firm – it’s the status quo.” (Konrath, 2006, p. 25).

Becoming an independent consultant is challenging, and it uses every part of a project manager’s skills. With careful planning and thought, a prospective consultant can decide if this is the right career change. With good planning, a project manager can launch a profitable and enjoyable career as an independent consultant.

References

Collins, J.C. & Porras, J.I. (1996) Building Your Company’s Vision. Harvard Business Review [Electronic Version] Retrieved June, 2007 from http://harvardbusinessonline.hbsp.harvard.edu/hbrsa/en/issue/9609/article/96501.jhtml;jsessionid=TUPXW0YG20R2QAKRGWDSELQBKE0YIISW?path=arc&pubDate=September%201996

Coutu, A. (2006) Consultant Journal. Retrieved July, 2007 from http://www.consultantjournal.com/

Coutu, A. (2006) Consulting Fees: A Guide for Independent Consultants. Retrieved July, 2007 from http://www.consultantjournal.com/consulting-fees

Konrath, J. (2006) Selling to Big Companies. Kaplan

Middleton, R. (2005) Infoguru Marketing Manual. Boulder Creek, CO: Action Plan Marketing

Parth, F. (2007, May) Becoming a Successful Consultant. PMI Global Congress 2007, EMEA, Budapest, Hungary.

Port, M. (2006). Book Yourself Solid. Hoboken, NJ: John Wiley & Sons, Inc.

Project Management Institute (PMI®) A Guide to the Project Management Body of Knowledge (PMBOK® Guide) (2000 Edition). Newtown Square, PA: Project Management Institute

Schaffer, R.H. (2002) High-Impact Consulting. San Francisco, CA: Josey-Bass.

Weiss, A. (2000) Getting Started in Consulting. Hoboken, NJ: John Wiley & Sons, Inc.

Copyright 2008 Jennifer Tharp Russell and Alex S. Brown