The Consulting Bible. Alan Weiss
two available structures for a consulting practice. Both are viable. But to be betwixt and between is bizarre.
The True Solo Practitioner
When you are a true solo practitioner (aka independent consultant) according to the criteria we've discussed thus far (brains not hands, improving the client's condition, and so forth), you work on your own, most often from your home or a shared facility where you rent common space. If it's at all possible, work from home, because it's far more comfortable and much less costly. If the distractions are overwhelming, then find inexpensive shared space. Remember, you go to clients; clients don't come to you.6 (The pandemic taught all of us the true needs for working at home.)
Every year, you maximize short‐term and long‐term income. In the short term, you pay for all you can out of pretax income. You then maximize your after‐tax income in varying ways (depending on your legal status as a Subchapter S corporation, or LLC). In the long term, you maximize your contributions to both pretax and after‐tax retirement plans: SEP IRA, traditional IRA, Roth IRA, 401(k), and so forth. You do not reinvest in the corporate entity, other than acquiring the normal equipment and technology you need to stay current and effective. You should operate on a cash basis, recording income as it's received and deducting expenses as they are paid (as opposed to an accrual basis).
The distinctions of the true solo consultant include:
No staff, full‐time or part‐time.
Home‐based office.
Outsourced routine needs, such as printing, graphics, web site design, and so on.
Personal responsibility for key tasks, such as invoicing, correspondence, depositing money, processing credit cards, and so on.
Personal credit funds the company until such time as receivables and critical mass of clients create corporate credit.
No purchases of major assets, such as office space.
Branding may be varied, but ultimate brand is one's name (e.g., “Get me Joyce Wilson”).
No plan to sell the business or leave it to family.
Extensions of income include licensing intellectual property and royalties.
Retirement and benefit programs created solely for the benefit of the consultant and family.
Some people who start out as solo consultants choose to move into the creation of a firm later in their careers. That's fine, as long as key transitions are clear. (And some firm principals choose to dissolve their firms and become solo practitioners—more common than you might think, often caused by financial duress or growing intolerance for managing people.)
The Firm Principal
Many consultants either begin or move into running a firm. That means that every year the principal must reinvest in the firm, with the intent of expanding business, personnel, goodwill, infrastructure, brands, and other accoutrements of what the accountants like to call a “going concern.” That's because the ultimate aim is to sell the business at some point as a multiple of revenues or earnings.
This requires more than merely consulting skills. The firm principal must exercise people management skills, delegation, recruitment, legal discretion, compensation, defections, and so on. Many consultants are refugees from large companies and managing people (including me). To return to this as the owner of the firm doesn't make the obligations any less daunting, frequent, or critical.
In firms, the benefit programs must be inclusive, so that employees derive identical or proportional advantages to the owner. This vastly increases expenses. Salaries and benefits also must be set and adjusted frequently and with care about equity across the board.
The Gospel
Never confuse a solo practice with a boutique firm, or attempt a hybrid. You'll be burdened with the disadvantages of both and few of the benefits of either.
The distinctions of the true boutique firm owner include:
A growing staff, full‐time and part‐time.
Serving as the primary rainmaker, with most people in support.
Separate office space, either rented or owned.
Outsourced specialty needs, but most skills onboard.
Shared responsibility and delegation, especially of clerical functions, scheduling, finances, technology, and so forth.
Discrete banking relationship independent of personal credit based on assets, property, goodwill, and so on.
Branding that promotes the company, not the owner, so that an eventual sale will not demand the owner's continuing long‐term involvement.
An exit strategy to sell the company at some finite point and to leave, even if it requires a contractual relationship for some time; this sale may be to employees structured as a buyout over time from profits.
Retention of licensing and royalty rights to increase the firm's value.
The owner's salary would be considered as profit in the business at time of sale.
The danger occurs when a consultant has one foot planted on each side of the gorge, and the chasm begins to widen under the consultant's feet. By this I mean that the so‐called firm is, in reality, a solo consultant supporting an unneeded staff and physical property. Unless highly paid people bring in new business, they are not worth the money. Delivery people are a dime a dozen.
I know that's anathema to many of you, but it's a harsh reality. There are tens of thousands of delivery people who solely implement, teach, and execute because they can't market, and can't be rainmakers. However much they will importune, their work is replaceable and not the reason for the firm's growth. The acquisition of new business is the reason for the firm's growth, and if just the owner is doing that, then he or she is acting as a solo consultant while carrying a very heavy backpack.
I call these murderous hybrids “consulting welfare states.”
The Story of Phil
I mentored Phil for about 18 months some years ago. He was 47 at the time, about 30 pounds overweight, and failing at breaking his smoking habit. He had a staff of eight, all of whom were delivery people. Phil generated, through his rainmaking, about $450,000 a year. That's not bad for an independent consultant, but very poor for a firm of this size (which should be doing at least $2.25 million with that complement of professionals).
Phil and I spoke about once or twice a month, and it wasn't unusual not to hear from him some months when he was heavily booked with appointments. He traveled about 80 percent of the time, which was tough on his wife and two children.
After a two‐month hiatus, I called his office. His wife answered and told me that Phil had passed away two weeks earlier, alone, in a hotel room in Boston. She hadn't been able to contact everyone yet to tell them. Some clients didn't even know.
FIGURE 2.3 Consulting Model
I can always make another dollar, but I can't make another minute.
I have never advocated starting out as a solo consultant and building a firm as a natural extension. I routinely make well over $3 million working out of my home with no staff at all. When I began, I made $67,000 my first year.