Frustrated at work? Considering consulting? You're not alone

Now that we are in the fourth year of a dismal economic recovery and more people with significant experience (of all ages) are laid off, I’m getting more requests for advice on how to become a consultant. Lemme give you some advice before you take any serious first steps into this new world...

Now that we are in the fourth year of a dismal economic recovery and as more and more people with significant experience (of all ages) are laid off, or just get tired of the corporate grind, the number one request I’m getting is for advice on how to become a consultant.

Most inquires are broad. “I see you have been a consultant for some time. Can you help me get a practice started?” Or a broad list of the nitty grittys, “ Do I need a website or business cards, do I have to advertise somewhere, do I need to have an actual company and what is an LLC?” To the most asked question, “I gave up looking for a new job and want to consult but how do I figure out what to charge?” The list goes on.

This happened once before - after the Internet bubble burst. These requests came so frequently that we put together a day-long seminar to teach the “How To” all those who had inquired. That was about 2 years after the bubble burst. Now at 3 ½ years and after Petters and Madoff, I am concerned.

With all the layoffs and downsizing still occurring, I don’t see an end in sight.

So, in the spirit of helping with some of these initial questions, here is a little Q&A, or better said, answers to the most frequently asked questions.

Q: What’s it like being a consultant? I’ve never worked for myself. Is it hard? How do I know that I can be successful?

Consulting is the ultimate in being your own boss – you still have customers but you (or the customer) control how much and how hard you work. No one chases after you to do anything (spouses aside). The issues that might cause you to think against consulting are easier to address than why those for it.

Consulting might not be for you if you are: not comfortable in your own skin; not comfortable developing your own sales/customers; not self motivated, unfriendly or antisocial; too tempted by the refrigerator, Oprah, your bed; unable to juggle, prioritize (yes, I used that word) and re-prioritize as customer demands change; and missing the service mentality or the conviviality of a work environment. Ummm, that seems a long list.

I know of no a priori way of knowing if you will be successful. The proof is in the doing. One hint, in your last job or two, did employees seek out your opinion or suggestions on how to solve problems? If so, that was preliminary consulting.

Q: Is there a market for what I do? Who should I approach for work?

Often, one’s first client is one’s last employer. Who knows you better, your level of performance, reliability, and value, even if they had to lay you off or downsize. Shortly thereafter they may find that they really do need you. And for reasons only accountants understand, your former employer might rather have you as a (more expensive per hour or per project) contractor than a salaried full-time employee. The second logical choices are competitors. That is if you are not subject to a non-compete or other restrictive agreements. Right behind those are companies which have need for similar skills. I find guided brainstorming helps my friends and clients develop a list too long to explore. This is good news.

Q: How do I charge? 

There are a half dozen ways to develop a rate. The easiest are (1) what the market will bear – but this may be hard to determine, and (2) what you were paid in your previous job. Now, the devil is in the details here. One should gross up for taxes, health care benefits, and include bonuses at a minimum then divide by work hours – 2080 hours/year is a good number to come up with an hourly rate. More analysis goes into adjusting to reflect non-billable time and other factors.

Q: Do I need a contract? Legal agreements?

Yes. Emphatically yes. Unless your agreement is in writing, it is not clear that anything is clear. A consultant should be comfortable in providing a “Statement of Work” to be done and a client should want to know what is going to be delivered, when, and at what cost. A written agreement cuts down, if not eliminates, confusion or misunderstanding and makes it clear what happens if there is disagreement. The longer I do this, the more explicit I try to be in my written proposals.

When I started my practice, I had my favorite law firm create a standard engagement letter that I customize to meet the needs of a specific client. Every so often, my lawyer updates it to assure it complies with current law and practices. I recommend avoiding using someone else’s or an internet boilerplate – you don’t know where it’s been, who created it, and who to help you if you need to enforce it.

Q: If the client is a start up and offers me equity, should I take it?

I continue to struggle with this one but recommend a discipline that I’ve used over the years. Start every working relationship on a cash basis. If over time, I become comfortable with the market, technology, product and team, I ask for an opportunity to invest. This policy helps avoid making a bet on compensation before you know the horse. It also has the merit of minimizing potential conflicts of interest, and the need to negotiate valuation of the company and terms of the security (in lieu of cash) from your potential customer.

The last thing I’ve done is write down a code of conduct on what I will and won’t do, what I expect and won’t tolerate from a client and adhere to it. The discipline of doing this will help keep you out of trouble and make sure you get paid for your work.

Who knows maybe I’ll finish the book I started a few years ago on the A to Z of how to start a consulting practice….

John J. Alexander is President of Business Development Advisors, Founder and Chair of the Twin Cities Angels, and business author of the Angel Investment Tax Credit. Email him at:

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