For the last 20 years, I’ve “lived the life”. I’ve been self-employed as a consultant.
I charge ridonculous rates to tell people what they already know, spend my afternoons having coffee or skiing and don’t have any stress. It’s the good life!
It seems every month someone asks me about becoming a consultant, and I’m happy to help people understand what’s involved and through the decision-making process.
If you’re thinking about becoming a consultant, there’s a lot of things to consider.
What is consulting?
There are four types of working relationships:
You’re an employee for a single company, usually with benefits. There is very low risk from day to day. Often you work specified hours. Note that there are employees who work as external consultants (for multiple clients). They get all the fun of consulting, and almost none of the risk or benefits.
- Risk level: Low
- Freedom: Low
- Variability: Low
You work for a single client for an extended period, generally on a single project. As a contractor, you don’t get benefits or vacation pay. You do get the benefit of change from project to project and some freedom (when you take the next project). Generally pay is better than being an employee, but there is risk of getting your next contract.
- Risk level: Medium
- Freedom: Medium
- Variability: Medium
3. The gig economy
I’m not going to go into this in depth. There’s lots of opportunity for the gig economy. It can be somewhere between contracting and consulting. You’re self-employed with all the risks and benefits of it. Pay can vary depending on what your skills are and if you’re in a commodity market.
- Risk level: Depends
- Freedom: High
- Variability: Medium
You work for multiple clients, often at the same time. Your time is yours to commit. Often you do your own sales, admin work and delivery. You get maximum freedom, but all the risk of not knowing where your next paycheck will come from. You need to be able to adapt quickly as you’re with new clients regularly. You need to be able to create value quickly and constantly.
- Risk level: High
- Freedom: High
- Variability: High
Many people I’ve spoken to leave employment expecting to jump right into consulting, only to discover that the constant hustle, the sales and business development part, is a tough one for them.
They end up either going back into employment or choosing the path of contractors working through a recruitment firm. This gives them some freedom and variability, while keeping the risk level lower and someone else doing the legwork of finding their next project.
The great consultant trifecta
Great consultants score highly in three key attributes: IQ, NQ and RQ.
- IQ = Intelligence quotient
How great you are at what you do. This is a basic requirement for a consultant. If you’re not great at what you do, don’t become a consultant.
- NQ = Network quotient
How broad is your network, and how well do you serve it. The more value you bring to your network, the more they will bring value back to you. This includes referrals, strategic partnerships and other relationships.
- RQ = Resiliency quotient
This is vital. Resiliency is your ability to handle the ups and downs of consulting, market shifts and the unexpected. The unknown factors of consulting can make this career path very stressful—you need to be self-driven and perform with confidence.
I can’t stress how important all three of these attributes are for your career as a consultant. If you aren’t high on all three, you should consider how much of a fit the world of consulting really is.
Pro-tip: You can start building up your NQ even when employed. Start networking and helping the great people you meet. Contribute more on LinkedIn. Volunteer your expertise and show it by helping people.
Know your runway
Okay, you’re going to make the jump to consulting. Fantastic! Before we even start to talk about any details, you need to understand your runway.
This is about the simple economics of becoming independent. Some new consultants get booked quickly and consistently, where others do not. Since you’re high in RQ, the downs won’t impact you (as much), but the financial impact may, especially if you have a family.
Your runway is simply defined as:
How long can you survive with no income, minus the amount of time it would take to find a job or contract.
Joe has $25,000 in his rainy-day fund. He needs a minimum $5,000/month to cover his family expenses and it will take 1-2 months to get a job/contract if he needs it.
$25,000 (rainy-day)/$5,000 (min per month) = 5 months – 2 months (to get a job) = 3 month runway
Joe would have to build up more than $5,000 in revenue (per month) within the first 3 month of consulting.
Knowing this number gives you financial security, the confidence to sell and to say no to the wrong deals.
Pro-tip: Build up your rainy-day fund to have a year’s runway at all times.
Consulting strategic foundations
Not scared away yet? Awesome!
There are two kinds of consultants out there. Those that are focused, and those that aren’t.
The focused ones are strategic. They know exactly what they do well and focus on that.
The others are all over the place. It’s like the plumber who also does electrical, framing and lock-smithing.
Which do you think would be more successful as a plumber?
Yet so often, solo-consultants do exactly this. Sometimes it’s because they’re stuck in survival mode and take whatever deals they can, other times because they haven’t thought strategically.
To start becoming strategic, you need to answer the following questions:
- What are you passionate about?
- Who is your core customer?
- What problems do you solve for them?
- Why should they buy from you?
Answering these questions clearly is your first step to building a thriving practice. They:
- Are the base for your elevator pitch
- Show how you’re different from your competition
- Explain exactly who to refer or introduce you to
- Allow you to focus your service delivery on the exact needs of one customer segment
They’re some of the first questions I ask every other service provider I meet (consultant and otherwise), as it lets me clearly evaluate where they are, exactly where they fit into our network and who I could refer to them (once I get to know them).
Should you become a consultant?
If you have the right attributes, the runway and are ready to think strategically, maybe the consultant’ life is for you. Congratulations! It can be a great life and incredibly fulfilling.
Would I do it again? Absolutely.
Would I change some of it, done more networking and been more strategic? Absolutely. It would have made my life far simpler. Want to discuss further? Get in touch.