Over the years, I’ve had a lot of industry friends, colleagues, and professional contacts ask me questions about how to start a talent management consulting business. This always interests me because most people think it’s going to be an easy jump from any internal job to starting a consulting business—simply because they have loads of experience and are pretty competent at what they do. Indeed, consulting sounds so intriguing and even somewhat romantic. What could be better than working from home, doing work that you like with people you like, and making lots of money?
Unfortunately, there are a lot of people making the jump, and to their chagrin, they are not very successful or happy. So, is it that difficult to hang out a shingle and simply tell others what you have always known and they don’t? The primary reason why going out on your own isn’t that simple is that most newbie consultants haven’t figured out whether they want to establish a business or a practice. A one-person practice that may sometimes rely on other independent contractors to assist with clients is a far cry from building a full-fledged business, which requires an entirely different approach and experience level.
So, what’s the difference, you ask? Quite a bit, actually. In fact, this is the most critical question to address before setting out on the consulting journey. Neither choice is right or wrong, or good or bad, but it is important to be clear on your destination before embarking on any new path. Here are some big questions to address as you set out on your own.
How Do You Acquire New Business?
You won’t get any business if you don’t seek it out, regardless of whether you establish a business or create a one-person consulting practice. But, if you aren’t so inclined or capable, which most consultants are not, what do you do after all your friends, family, and initial contacts dry up?
The long-term advantage of forming a business is that you will need to create a business development engine—ultimately, with other people who can market and sell your offering. But as a private consultant, this is much more difficult to do, given that every hour you are working on a paid project doing what you love to do is an hour you don’t have to drum up new business.
To be sure, your best sales tool is doing a great job for your clients in the hope of additional business, but clients don’t necessarily have you in mind when they develop their annual budgets—unless you are clever enough to work under some type of long-term retainer arrangement. In a private consulting practice, you are very dependent on creating a presence (via a website, social media, or other networking tool) to attract new leads. Instead of having a well-oiled business development engine with lead generators, sales reps, and client managers you can depend on to bring in business, you’re basically on your own.
Building an organization that has a sales and marketing focus is one key difference between setting up a private consulting practice and building a full-fledged talent management firm.
Do You Want to Manage Others?
Do you really want to hire people or contract with others—and become responsible for everything they say and do on your behalf? Is being on your own what attracted you to going solo in the first place? Or is the lure of building a legacy business more attractive to you?
Even if you love managing people and are good at it, it can be a drain on the time and resources you need to build the business. Instead, you will likely need to hire others to manage the business while you establish a self-running infrastructure with systems and processes that can support the business in its current and future forms. Do you really want this headache?
Interestingly, there are scores of examples of consultants who start out small on their own and subsequently go on to build a bigger business, only to learn that managing it is the last thing they want to do, or in some cases, are very good at doing. In this situation, you really have only two choices: either fold back the company to a more manageable venture, or hire someone who is operationally competent to grow the business while you continue to consult with clients. This often becomes the tipping point for firms in the talent development industry and makes quality hiring decisions crucial to long-term success.
Are You Prepared to Understand and Manage Financials?
Simply stated, if you are not good at both understanding and overseeing the numbers, you are going to have to rely on someone else to do this for you. Granted, small business software packages are readily available, but they don’t magically fill themselves with data. You, or someone else, must do that, and as the old saying goes, “garbage in, garbage out.” We all know of businesses that appear to be very successful on the outside but are hemorrhaging financially on the inside because they don’t really understand the dynamics of running a sustainably profitable business.
The problem might be even greater if you are a capable consultant in your particular area of expertise, but you weren’t initially very strong at pricing out work and then staying on budget. Before long, you end up working more hours than justify the return of fees you receive. This is why it is so critical for you to fully comprehend how your business or practice plans to make money. For example, as an independent consultant, how much will you pay yourself, and how will you go about doing this? How will you accrue for taxes you owe since most of your work will be via 1099 contracting? If you stay independent, you better figure this out yourself because you may not be able to afford the type of financial help you really need.
Certainly, financial issues become more complicated the more you grow the business. And, of course, there are competent external resources that can assist you with financial expertise and systems needed until you can hire the appropriate internal staff. If you want to build a business, you will absolutely need certified financial professionals to help you navigate these issues, maybe on staff as full-time employees. In either case, not truly understanding how the business makes—and loses—money is perhaps the most fundamental mistake entrepreneurs make.
How Do You Plan to Stay Relevant?
Despite the fact very little seems to change over time or is new in the talent management industry, another critical success factor for any business is keeping abreast of the latest industry trends and key players. Although most of the industry’s content has been recycled over the years, you need to consider what edge or improvement you can add that will make it better.
Perhaps content isn’t your competitive advantage; maybe it’s the way you interact with clients, the accuracy of your observations, or your experienced interpretations that distinguishes your business. Are there any new methods or tools to accomplish these tasks? What’s more, the greatest advantages in the talent development field over the last 40 years have largely been related to the use of technology to enable decision making and learning, and these advances certainly require that you stay up-to-date.
Here’s the good news: There are ways to both stay in touch with industry advancements and maintain relevance. You can attend professional conferences, network with colleagues, and write about or speak on topics with which you have deep expertise and significant experience. As an individual practitioner, you will have to rely much more on these activities to not only stay relevant to the client world, but also to demonstrate your continued presence in the market place.
After all, you are selling yourself. If your expertise and capabilities aren’t significantly distinguishable from competing practitioners or firms, you don’t have much advantage unless you simply price yourself significantly below your competition.
How Will You Maintain Discipline?
It can get very lonely, very quickly, as an independent practitioner working out of your home office or at contracted external office. More importantly if you are not busy managing people or the growth of a business, how do you ensure that you aren’t sitting around twiddling your thumbs all day? In a home office, how do you avoid the multitude of distractions from family member interactions, the ever-tempting refrigerator dangerously close to your office, television shows you’ve been waiting to watch on Netflix, or the chores you didn’t complete last weekend? Again, many people set-up shop outside of their home just because of the potential distractions that might be difficult to avoid at home.
The truth of the matter, however, is that there is always more downtime when working alone, because projects rarely start just when others stop. It takes a good dose of discipline to minimize this dead time, and you can’t simply visit your colleague in the office next door to shoot the breeze. Time management becomes a major factor that independent practitioners must learn to handle if they are going to efficiently produce a long-term profitable business model. You are on your own, often with no one else to take-up the slack or attend to the myriad of “adminstrivia” that plague even the lone wolf consultant.
Bottom Line
At the end of the day, there are pros and cons to either the full-fledged business or smaller consulting approach—depending on what you are looking for and your desired lifestyle. And there are many more differences between the two than mentioned above. Here’s a partial breakdown of some of the main differences.
Variable |
Building a Business |
Creating a Practice |
Equity |
Corporate entity for potential cash-out exit |
Investments from profits |
Offer |
Replicable product/service |
Your personal expertise and experience |
Delivery |
Dependent on self and largely others |
Dependent on self only |
Selling |
Formal sales and marketing engine |
Mining and expanding your personal network |
Brand |
Positioning a business brand |
Creating a personal brand |
Hierarchy |
Answer to and support many |
Answer to and support yourself |
Overhead |
Plant, people, infrastructure
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Home office or minimal outside space |
Management |
Overseeing others |
Overseeing yourself |
Work time |
Traditional 8-5+ |
Anytime you want |
Labor rates |
Need to cover overhead |
Can keep relatively low |
Structure |
Systems and processes required |
Minimal requirements |
Networking |
Work colleagues and multiple connections |
Staying connected beyond your “little island” |
Intellectual Property |
Typically owned by the business |
Typically owned by you |
Competitive advantage |
Replicability and scale |
Personal touch |
Knowing and exploring these differences before deciding which way to go will save loads of time, money, and frustration. Understanding what will personally work for you, given your interest, talents, and current situation will allow you to make an informed decision that is much more likely to yield success.
From your personal experience, what are some other challenges you have unexpectedly faced after starting a business or practice? How have you addressed them? Share your thoughts in the Comments below.
