Why the 6-month mark is often crunch time for new consulting businesses
Your consultancy business is six months old. The first project was tough, the work is not flowing, and your anxiety levels are high. You don’t want to go back to employment but are struggling to keep the faith.
I spend a lot of time with people who’ve recently set up their own consulting business – and by recent, I mean anywhere between a few months and a couple of years. Most acknowledge that there was a fair degree of anxiety when they first made the transition from employment, but it’s not until they get a few months in that the fear factor really kicks in.
Most people make the jump from employment to consulting when an opportunity presents itself. While they might have been considering it for a while and weighing up the pros and cons, it’s usually a specific opportunity that triggers the actual move. It might be the offer of a voluntary redundancy package, a short-term contract in another team or organisation, or even the offer of their first consultancy gig. And they grasp this opportunity and take the plunge.
Right then, the motivation for leaving employment is strong; there is relief at the prospect of opting out of the daily grind, and they ride high on the anticipation of a better lifestyle with more flexibility and control.
Fast forward a few months and the honeymoon period is over, reality starts to bite, and fear starts to creep in.
My first bit of advice for anyone in this situation is don’t panic and rush back to employment. The first 12 months of a new consulting business is the hardest, and it would be rare for there to be no bumps in the road. Take heart knowing that all the successful consultants you know have very likely gone through this same 6-month slump. So if you find yourself wondering if you’ve made the right move, its time to take some steps to get things back on track.
Here are four of the most common scenarios I come across when new consultants hit that reality check moment – and what you can do to turn things around.
Scenario #1: Your first project was handed to you on a plate, but now there is nothing else is in the pipeline.
A lot of people get their first consultancy project through a colleague or referral. It’s often not competitive – more a right place, right time, right connection kind of situation. A piece of work needs doing, generally quickly, and in the eyes of the client, you are exactly the right person for the job. Great – you’re off and running. Well, kind of…. Most of us are so excited and grateful to get the first consultancy project that we just put our head down and get stuck into it. We make the mistake of not raising our head again until the project’s completed, only to realise that there is no other work in the pipeline.
What to do
You need to dedicate some time to prepare to be in business. I hear so many stories from people who started consulting “by accident”, meaning they took the first project they were offered and didn’t do a whole lot of planning for their consulting business. So they haven’t worked out their consulting niche, defined their service offering or figured out where to focus their marketing efforts to bring in more business. Taking that first project is a no brainer – but don’t let it have you miss the critical step of figuring out exactly what kind of consulting business you want to create. You need to decide what you are ‘selling’, who your potential clients are, develop a capability statement for the business, develop a marketing plan and then implement it. Don’t wait till you get to the end of that first project – build in time for this work and optimise your chances of lining up your next project before you finish the current one.
Scenario #2: You start to experience the struggle of cash flow
You’ve gone from a regular fortnightly paycheck, to a seemingly random payment schedule. You also invoice on a 30-day basis, so even when you get work, getting the money into your bank account takes time. So, you struggle to budget and manage your finances in this brave new world of small business income. And when you don’t have another project lined up, you also struggle to manage the anxiety of not knowing when your next paycheck is coming and how much it will be.
What to do
If possible, make sure you have a small financial safety net that will see you through financially for six months if you didn’t generate income in that time. This just gives you a bit of breathing space and helps avoid early anxiety.
But most importantly, you have to change your financial mindset when you move to consulting. My advice is to take a medium-term view of how your business is travelling, rather than getting fixated on the day-to-day cash flow. It will help to prepare a simple annual business plan – here’s a quick guide:
- Work out how much income you need to generate for the first year – most new consultants aim for the equivalent of their previous salary
- Based on your daily consulting rate, calculate how many fee-earning days you need over the year to bring in that amount
- Prepare a simple spreadsheet and distribute those consulting days over the 12 months to be clear about how many paid days per month you need to generate
- Chart the actual consulting days you accumulate as you win and implement projects
Taking this medium-term view helps to avoid constantly looking at the bank account and getting worried if it doesn’t look too healthy. Instead, you stay focused on how you’re tracking in terms of your annual income goals. Remember, the paychecks come in less often, but they are substantially higher than your previous fortnightly ones, so hold your nerve – as long as you are on track with your fee-earning days per month, you will meet your annual income goal.
Scenario #3: You got through your first project by the skin of your teeth, but the fact that there’s a steep learning curve is really starting to dawn on you.
I see it time and time again. People who have had solid careers move into consulting thinking that it’s going to be an easy transition – that they will intrinsically know how to consult. After all, they bring a wealth of knowledge, skills and experience to the role. It can’t be that different right? Definitely wrong. The role of consultant is unique and no matter what your prior career path, there is a steep learning curve. The majority of people are totally capable of learning the role and becoming an outstanding consultant. But the key thing to focus on here is learning – we all need to do it. And if you come into it thinking you already know it all, you’re much more likely to fail.
What to do
Firstly, embrace the fact that you are a beginner and need to learn the ropes. There is absolutely no shame in this, no sense that it diminishes you or your previous career achievements. It just confirms you are a smart operator.
Secondly, get help and support. Whatever it takes, get the support you need to learn the ropes. Here are some options:
- Find a mentor
- Sign up for online training
- Read books, blogs, articles
- Talk to other consultants
- Download free consulting resources
- Google everything ‘consulting’ and find trusted sources of information
Whatever works for you and suits your budget, do it. Don’t make the mistake of not investing in the most important asset of your new business venture – you.
Scenario #4: Consulting opportunities have come your way [great news], but unfortunately you haven’t been the successful bidder
In your first few years in business, most consulting opportunities will be competitive. Potential clients will send the brief to maybe 2-3 consultants asking for a proposal and quote. And if the first hurdle for new consultants is getting that opportunity to bid for projects, the second is figuring out how to stand out from the competition and win the bid.
Let’s face it, preparing consultancy proposals and quoting to implement a discrete project is not part of the job description of an employee. Now that you’re a consultant, it’s one of the core skills you need to master quickly if you’re going to stay in business. It’s a simple formula – if you don’t win projects, your business fails. So it’s essential to figure this one out.
Also, all the work on preparing proposals is unpaid. So just dwell on that for a minute. If your plan is to match your previous salary income of $150,000 and an average project is valued between $30 – $50K [generally the size that suits a solo consultant], you’ll need to win 4–5 projects in that first year. If your success rate is low – let’s say you win one in four [25%] – that’s potentially 20 consulting proposals you’ll have to prepare in that year. And if you spend on average 1.5 days preparing each proposal, that adds up to 30 unpaid days [not to mention the endless time you spend googling ‘how to prepare a consultancy proposal’].
What to do
Again, acknowledge there’s a learning curve and find out what you need to know from trusted sources. Here’s four initial tips:
- A written brief rarely tells the full story, so make sure you get the back story from the client before you prepare your proposal.
- Find a tried and tested template and work with that – by all means, make it your own but follow its basic rules.
- Always map out a project plan and use this as the basis of your costings; don’t just guess how long you think implementing the project will take [trust me I see a lot of people do this when they start out].
- Focus on figuring out not just what’s in scope, but what’s out of scope.
If you find yourself and your business in the doldrums after a few months, don’t despair and don’t give up. The first 12 months is generally the hardest, so hold your nerve, remind yourself why you’re doing this, refocus on your goals, take a good hard look at what the specific hurdles are, and set about addressing them.
PS: If scenario #1 particularly resonated with you, my new email course might be of interest – it takes you step by step how to define your consulting niche, figure out your service offering, develop a capability statement and put in place a marketing plan.