In 2009 after careful consideration I decided to resign from my Engineering position and become a full time consultant. I had spent the previous 3 years traveling extensively to model and optimize EAF power and control systems for the steel company that I worked for at that time. By extensive travel I mean 100%+ of the time. I felt like given this much demand for my services I would not have any problems getting by as a consultant. My main reason (at that time) for wanting to leave a steady position was so that I could travel less, be my own boss (even though the guy I worked for at the time was an excellent boss and friend) and to develop and market EAF optimization software.
I consulted for one year before hanging it up and accepting a full time Engineering position with a steel company. I have been thinking about my consulting days a lately and realized that I had never written anything on this blog about how it went. I have had plenty of time to reflect (~5 years) and decided to note a few things in the hope that it may help someone considering a similar venture. I did plenty of research before deciding to start a business. One of the best write-ups I found was this one. I took away many good tips from Steve’s article and I’m not even attempting to write something of similar quality here. I just want to note a few thoughts I’ve had about my experience as a full time consultant.
Getting started was not very difficult at all. The first step was to incorporate an LLC. An LLC insulates your personal assets from the business. Only your business assets can be awarded in the event that your business is sued. I was in a hurry when I did this and so worked with an excellent law office in the area I lived. The rates were reasonable and I utilized them later to review NDA agreements that some clients wanted me to sign. I was a little nervous about signing an NDA and having their review and approval made me feel comfortable signing it. It is easy and cheaper to incorporate the LLC yourself, but I think it is a good idea to find a good legal office to consult with, especially if you will be developing products. I never thought much about legal assistance prior to consulting and nothing I read recommended it, but things come up (like NDAs).
I opened a separate bank account for the business. Mainly because I knew I would have to give the routing and account numbers to the accounting offices of clients and wasn’t sure if giving out my personal account information was such a good idea.
I had a good tax accountant that I had utilized for the previous few years and consulted with him before I started. He let me know what he would need from me on a quarterly basis and so made it easy to keep track of income, expenses, etc. I didn’t have a lot of transactions and so was able to provide him with a simple summary spreadsheet each quarter.
So How Did It Go?
I was fortunate in that business found me more or less immediately and I was able to stay reasonably busy and make enough to pay the bills. I was unfortunate in that it was 2009 and clients just didn’t have much money available for consulting.
I committed a significant amount of time developing and submitting Small Business Innovation and Research grant proposals to the DOE and NSF. I felt like I had a good chance at being funded since my goal was to reduce the energy consumption of one of the most energy intensive industrial devices in operation (EAFs). I also partnered with the U of Iowa to increase my chance of being funded. This effort turned out to be a complete waste of time that could have been spent doing something much more productive. I later found out that many of the government’s calls for proposals are actually bogus. The calls are written and posted but the funding is never committed. There is money out there, but I can’t recommend putting much time into pursuing it based on my experiences.
My workload at my previous employer was very high and I assumed this would continue into my consulting business as I mentioned above. One thing I failed to consider was that I was a free resource within the company. My group had its own budget and so the facilities that utilized our services never saw an expense for it. It is very hard to make someone start paying for something that they have been getting for free. I have seen vendors try this approach and provide a service on a trial basis with the goal of charging at some point. This approach doesn’t seem to work so well. 1% or so will decide they like something enough to pay for it, the other 99% had their minds made up from the beginning that they were just taking advantage of the free trial.
I didn’t give much thought to the sales side of the business. The steel industry is still a little old school in the sense that a lot of the business still takes place face to face. Successful steel industry vendors are successful (at least in part) because they have the resources and the budget to visit customers on a regular basis. I didn’t really have the budget and so had to resort to cold calls and e-mail. It wasn’t a complete failure, I still received business (in 2009!!) and established a few excellent repeat business customers. But I believe I would have done much better if I would have made regular customer visits.
I would advise any potential consultants to be very careful about providing services without a purchase order. This is a tough dilemma and I was burned by this more than once. On the one hand, you want to make a good first impression and gain business when a potential customer asks you to look at something for them. On the other hand, the potential customer is free to take your analysis and provide it to another vendor, along with the payment you should have received. As noted, this happened to me more than once. Be careful.
I would advise any potential consultants to consider the following:
- Have a partner and make sure one of you enjoys the selling aspect of the business. You probably won’t do well waiting on people to call you.
- Supply a consumable if possible. This provides a steady source of income while you work on the next big thing.
- Develop a business plan and especially a customer list. Ask your potential customers if they will support you with business and try to get a feel for how much.