CONSULTANTS AND STARTUPS
Yet, still today some entrepreneurs are unwilling to confide in a third party with” no stake in the game”, under the pretense they are the ones who know best the enterprise they founded.
Why take a consultant? Added value of consultants
There are several reasons why a startup seeks a consultant:
- Because of the restricted resources at hand and the various evolving needs that would not economically be met with a full-time employee, hiring a consultant is a cost-effective way to leverage a niche expertise. The legitimate gap in expertise can be filled temporarily or for a long period by a consultant.
- The consultant brings a new, unbiased, perspective, discovers and solves problems. Founders and management are often too focused on execution and let slip new market information that would warrant, if not a pivot, at least a drastic reassessment of the strategy.
- Even in the absence of perceived problems, an unbiased exchange can prompt a new approach, and generate an additional revenue stream, or a change in processes leading to higher cash flow, for example.
Different Types of Consultants
There are a great number of types of consultants. Below are a few examples taken from my personal experience:
- John, the niche specialist: I once was on the board of an early-stage startup that hired for one day a recognized specialist of manufacturing ERP. John delivered a flawless, rich presentation of a narrow domain, providing sharp answers to our uninterrupted flow of questions. There are niche specialists, covering tens of fields. Often such consultant has practiced the trade at an operating level and knows the domain inside out, from which she extracts and selects as her specialty the part where startups stumble most and suffer the highest pain. References for these experts are easy to get and check. Though their rate is on the higher end, their services are rather inexpensive considering the value and the long-term benefits they bring.
- Bob, the marketing specialist focused on one domain, or sub-domain. Bob is a marketing guru with a sharp methodology. His process involves a series of interactions; hence Bob’s mission lasts several weeks. His presence in meetings generally spans a day every week, as both parties, Bob and his client, need to prepare each step. This kind of consultant is specializing in a function not yet developed in-house at the client, because it is not permanently needed. The value one gets out of it is a function of the consultant’s experience. Rates can be high; still, few have to regret to spend money for these services. Here also, it is relatively easy to have access to thorough references.
- Ravi is the ebullient technology expert you want to hire for a period lasting at least three months. He is the epitome of the problem solver with whom the longer you spend time, the deeper you can reach unimagined solutions. Ravi acts almost as a temporary full-time employee, embracing the purpose of the company, thriving to convince the team to navigate in a promising territory. The worth in such a consultant is twofold: you avoid costly mistakes with a technology choice for your product that you thought was obvious, and you gain a broad knowledge that will serve in the future, much after Ravi’s mission ends. It is harder to find a Ravi-like consultant. Only unexpected circumstances led us to meet at a time when we had relieved from his mission another consultant, praised by all references we checked, who was utterly out of sync with our culture and goal.
- Andrea is the consummate strategy consultant with the dual capabilities of an academics in a prestigious university and a hands-on advisor who thrives in tech startups. In his dealings with startups, his language shifts naturally to direct, effective, concepts and words. The more time he spends with the client the more his knowledge becomes valuable. Such consultant often has a terribly busy schedule that prevents her to spend as much time as you would require on issues you hired her for. It is a question of management and contract in which the matter should be addressed upfront.
- Bernard is a product/market fit specialist hired indifferently by the Fortune 100 or by promising startups. He is an original thinker you want to hire if you are at a junction when a diversification into a new product may make sense. He has an extensive experience that covers multiple industries. A great listener, he has a cunning ability to drive a set of questions allowing him to dive as deep as needed to understand ecosystems and a business environment. Despite his multiple assignments, including as a member of a faculty, Bernard spends as much time as necessary in meetings to provide his best advice.
- Myself, I am a generalist for startup with a few specialties all part of the strategy realm. I interact regularly with my clients, as getting to know their venture inside out is how I can be the most efficient. I am often considered a coach for startup entrepreneurs because of the previous hats I wore. My missions can be short, if, for example, an expertise on a financial issue is of the essence, long, if I am tasked to survey a market, or on-going when coaching a CEO or a founder in the path to higher relevance and drafting a long-term strategy with high potential for success, while mitigating the risks as much as possible. In the latter case, the value of my contribution is periodically reassessed according to the venture growth.
- A breed of highly demanded consultants are the hired guns who fill an executive position or a lower employee position for a period of time generally not surpassing 6 months. Often a part-time consultant, say working two days a week for 13 weeks for instance, is enough to relieve pressure and yield great results. CFO on-demand is the most common hired gun, as CFOs are hardly needed before the business has reached a certain level of activity and its structure has changed accordingly. In the usual lingo, these individuals are considered contractors rather than consultants, though the line between the two is blurred.
Individual Consultants vs. Firms of Consultants
Startups are generally dealing with an individual when hiring a specialist from outside. For this reason, it is critical that the chemistry between the founder, or CEO, be excellent. As paramount as it is to hire an independent thinker who gives unbiased advice, if the advisor and his client clash at any meeting, the mission of the consulting becomes useless. It is then a big waste of time and money.
Who hires a consultant? CEOs and Boards of Directors
Consultants are, in a broad majority, sought and hired by CEOs, founders or not, with the consent of the Board of Directors, or Supervisory Board. The consultant reports to the CEO from then on. In some instances, the Board of Directors hires a consultant. Unfortunately for management, this occurs when there is a point of contention between the CEO and the Board. The consultant is then reporting directly to the Board, yet gaining information from management. I have witnessed cases when a Board was already fixed on an outcome and the consultant was only a conduit to give a pretense of unbiased expertise. Needless to say, consultants who act as dependently are not worthy of praise, as they bring no added value to the startup. Needless to say also, it shows the Board of the venture is also not worthy of praise. Hiding behind a so-called independent expert is very poor governance.
How to select a Consultant?
It is important that startups follow a reasonable process to hire the right consultant. Ultimately, it saves management time and money. Selecting a consultant who best fits the mission is not an easy task. To be successful in the selection process, it is advised to do a thorough search. If you are lucky, consultants may be recommended to you by a trustworthy executive from another startup, or from a person or a group within your circle of activity. Lots of resources exist that can help: the editor of an industry review, for example, has access to all the best professionals in that industry. Social media can be another source, though uncurated data are in abundance, making the selection process riskier and long.
Ideally, you would like to pre-select three candidates whose proposals are the closest fit to your request, and whose experience confirms the qualification. and subject them to a long interview that would determine the best suited consultant to hire.
The first step of the interview is to prepare a thorough questionnaire to reveal the personality of the individual as well as her competence related to the mission. In some cases, this can be difficult if, for instance, a technical CEO is interviewing a consultant with a financial background. Outside help to craft the questionnaire can be obtained. Again, keep in mind that you must answer the question: can I work with this consultant?
Through the interview a startup CEO must be looking for:
- High integrity
Integrity must be difficult to ascertain without some blunt questioning of three references. A good professional puts the client’s interest first. She must tell things as they are, even if it may sound a harsh view, rather than what the consultant believes the client wants to hear. - Valid experience
Experience does not mean the consultant has already encountered the same situation the startups would hire her for. I would even argue paradoxically that it is preferable she has not, to avoid the risk to apply one solution that worked in the past but may not necessarily best apply to the present case. Cookie-cutter solutions are a recipe for failure. Experience here relates to the specific ability to address issues and quickly think through the challenges they highlight. When the issue is well defined, chances are a solution comes out almost naturally. To evaluate this fundamental aptitude, the client needs to assess how the candidate consultant reacted under certain conditions and what her thought process led her to see the light and reach a successful outcome for her client. References can be of great help in confirming this point. Adequate qualifications can more easily be evaluated through the interview. - Problem-solving talent
This is what distinguishes a good consultant from a run-of-the-mill consultant. It is a corollary of the previous point, i.e. the ability to address the issue, combined with a creative mind. - Communication skills
First and foremost, a consultant can listen. He must communicate orally with ease and clarity and have a good articulate written expression. You must feel her genuine enthusiasm in the interactions with her. Beware of the over enthusiast, though. - The right cultural and personal fit
Trust can be established between a consultant and her client through a good chemistry, a mutual respect, and an accord on essential business values. Consultant and client work closely together and will challenge each other in honesty. The startup CEO plays her part by being open. Assessing how a consultant candidate will be the best fit is complex. Because the client wants to believe she has found the rare diamond in the rock, illusions can settle in and ruin the selection process. A second opinion must be sought.
How to check References
Checking references is a critical aspect of the selection process. It can quickly reverse an opinion. There is almost always a bias in a reference, by construction: the candidate will provide names of people that are expected to give positive appreciation on her. It is up to the demanding client to ask blunt questions. A businessperson would never put her reputation at risk for the sheer reason to please someone they have hired in the past or have known through another relationship. Here my advice is to prepare those questions and ask them in a crescendo mode, so that there is no surprise if you elect to hire the candidate referred to. If you know people the candidate worked with in the past that are not among the references, you are at liberty to exercise your due diligence by calling them.
Contracting a Consultant
Last, make sure you have a good contract. The main issues in the contract that must be spelled clearly are:
- The mission, including the goal, the statement of work and expected deliverables.
- The period of the contract: using successive phases with interim deadlines allow you to evaluate the consultant work and eventually terminate the contract if you are unsatisfied with the quality of the result. Conversely, it may be convenient to envisage a potential extension of the contract, under well-defined circumstances only.
- The consultant’s remuneration. It is always better to agree on a remuneration based on measurable results. When the results are qualitative and end up in a long-term outcome, another basis for the pay must be agreed upon, at any rate dependent upon the value provided, and not the time spent.
Contracts must include boiler plate articles, such as confidentiality, termination clauses, etc.
Consultants vs. contractors
As mentioned above, the lines are blurred between consultants and contractors. Contractors generally are providing long-term on-going services, such as payroll services, accounting, legal services. Outsourced services that are not core to the business of the venture are more and more outsourced to contractors for the benefit of management who gets a first-class result, by paying by the hour a specialized firm or individual for tasks that would not warrant a full-time employee work.
When is it time to move from a consultant to a hired executive employee?
Good consultants may progressively become an irreplaceable part of the team. At that stage, it is time to either offer the consultant to join as a full-time team-member or to part with her and seek to hire a new employee, if it does not make any more a cost difference. As they deal with a core activity, ultimately, the expertise must reside in-house and not be contracted to an independent consultant.