Start-up companies are often strapped for cash. Until a start-up is able to raise a significant chunk of capital, or hits profitability, the company is likely to be scrambling for every dollar. Taking on consulting projects can be one way to generate money until a start-up achieves those goals. Typically, the founders of a company have some special skills or knowledge that could be hired out to other companies for money. Lots of successful founders used this strategy to get some cash for their start-up -- Joel Spolsky from Fog Creek Software, Ann Winblad of Open Systems, and Evan Williams from Blogger.com, to name a few.
But there are downsides to taking on consulting work. Consulting is typically time-consuming, and always takes away from the work that the founders would be putting into starting their own company. Clients can be demanding, and put additional pressure on an already-pressed start-up. And many times, working as a consultant puts founders right back into the types of companies that they left (on purpose) in the first place.
If a start-up does take on consulting work to supplement the bottom line, there are a few ways to make sure that the experience is more positive than negative.
1) Charge by the hour. Consulting projects usually end up consuming more time and resources than anyone estimates. And clients are notorious for changing scope in the middle of a project. Start-ups can protect their time investment by charging a high per-hour rate. That way, if the client demands more time, it won’t be like the founders are working for free.
2) Watch the contract terms. Many clients will ask consultants to sign contracts that have incredibly restrictive terms. Start-ups should watch out for any non-compete clauses, restrictions on working with competitors, and if they plan to do work with any of the client’s employees in the future, any prohibitions about hiring or working with the client’s employees. And start-ups should walk away from any client that has a contract restriction that won’t work with the start-up’s business model.
3) Learn from the work. The best types of projects for a start-up to take on are the ones that are educational. It is absolutely the best-case scenario if there is a consulting project from which the founders can learn a new skill, or break new ground or trial something -- all on the client’s dime.
4) Network. Working for a client often opens doors to new business relationships. When working as a consultant, start-up founders should be very cognizant to network with every new contact and keep their eyes open for possible business relationships.
5) Schedule around your busy times. Consulting's biggest negative is it takes time away from the original goal, building a successful start-up. Carefully scheduling the consulting work is imperative. Founders can pick certain days of the week to work on consulting projects, or can commit a certain block of time to the consulting work when they know there will be a lull with their start-up. (Note: This may be easier said than done!)
Ultimately, a start-up might have very little choice in the consulting work that it takes on because it simply needs the cash. But by trying to keep these five points in mind, start-ups will be more likely to make the experience more positive than negative.
Melissa Chang is the founder of Pure Incubation, an Internet incubator based in the Boston area. She also has a blog about startups at 16th Letter.
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