There are certain points in a person’s career where they may consider consulting. Common reasons include a job loss, a desire for more varied work and a more flexible schedule. When considering becoming a consultant, it is important to remember that it has both good and bad aspects. I’m going to do my best to walk you through the journey of what becoming a consultant looks like.
A main reason people like full-time jobs is the security of a paycheck. What many people don’t understand is their jobs are nowhere near as secure as they think. People don’t stay in their jobs as long as they used to. In the U.S., the average tenure of a C-suite executive is roughly 4.9 years. The median tenure at a startup is roughly two years, with the average at U.S. jobs as a whole being 4.2 years. Your job could disappear more quickly than you realize because of things like a restructure, merger or sale. I like to refer to full-time jobs as having unpriced risk. It’s a fancy finance way of saying that if you realized how at-risk your full-time job actually was, you’d ask for more money because it takes time to find a new job.
With consulting, your economic exposure is much clearer: You are either on a project or not. If you are not on a project, you either aren’t getting paid, or you are at serious risk of losing your job if you are getting a salary at a consulting firm. For those who like to know where they stand, consulting can be a bit more revealing.
If you have never consulted full time before, it can be a pretty jarring shift from a full-time job. There are important things to keep in mind as you enter this profession.
1. Focus on meeting your cash needs. It’s tempting to agree to bad contracts out of fear. To prevent that, calculate how much money you need to meet your monthly expenses (e.g., mortgage/rent, insurance, utilities, etc.). Once you meet those cash needs, you will be free to do what you want.
2. Remember that time really is money. A consultant usually is paid by the hour. Therefore, every hour you bill, you get paid. View your hours as your currency. You can lease them to whoever is willing to pay, and you can accept whichever job you want.
3. Don’t overdo it. Enjoy the flexibility consulting brings. Don’t fall into the trap of always feeling you have to work because time is money. Once you meet your cash needs, the rest of your time is yours to do what you want with. Being your own boss has its benefits.
There are pros and cons of joining a consulting firm versus staying on your own.
1. Margins are higher if you are on your own. You will normally make more money if you find your own clients and close your own deals because you do not have to share the proceeds with anyone.
2. Collections risk is real. Just because you closed a deal and did the work doesn’t mean you are going to get paid. You are now a vendor, and companies don’t pay vendors all the time. Shielding yourself from collections risk is a main reason to join a consulting firm.
3. Insurance is often overlooked. Depending on the type of consulting you do, it’s a good idea to get insured. When you issue an opinion, especially as an expert, you potentially open yourself up to liability. Shielding oneself from liability is another reason people join consulting firms.
4. Firms make it easier to scale. When you have a team behind you, larger projects are easier to close. You also can have someone else handle administrative tasks while you focus on revenue. However, scale comes at the price of either taking a lower rate because you joined a firm or the headaches that come with having employees.
5. You’ll need to handle business development if you’re on your own. Part of running your own business is selling. You may find that you have a knack for selling that was never uncovered when you worked at a full-time job. Or, the prospect of selling could frighten you. The more you are comfortable selling and the better you are at it, the more likely you can command a higher margin.
6. Some consulting firms require exclusivity. If a firm requires you to be exclusive with them, in my mind that’s the equivalent of a full-time job, and you’d better be compensated accordingly.
The nice thing about consulting is you don’t have to choose between joining a firm or being on your own. Many times, you can do both or join multiple firms. Remember, you are leasing your time, ideally to the highest bidder. You can do a mix of finding your own gigs and working through other firms. This lets you balance the risks that come with finding and collecting on the business you book yourself versus the lower margins of the business you get through a firm. While consulting is different from a full-time job, once you understand the various elements involved, you can find the path that best suits you.
