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Transitioning From A Web Consultancy to a Products Company

May 14, 2012 by · Leave a Comment

Morning Kiss 120/365: Grass
 Jeremy Kunz via Compfight

There are countless web consultancies out there. Major cities may have dozens of high-quality shops and even the smallest of towns will likely have at least one consultancy. A common sentiment that I hear from those in the consulting business is that they wish they were in a product business. They don’t like the endless cycle of finding new clients -> proposals -> contracts -> project management -> finishing up -> starting again. They want to transition from the “find new clients” cycle to building their own web products and working solely for themselves. It’s a noble goal, but not necessarily right for everyone. This article is all about the considerations you have to make when thinking about moving to a products business.

Definition Time

Companies can categorize themselves many different ways, so I want to define what I mean by consultancies and product shops. A consultancy is a company that earns revenue through client work. Client work can be anything from design and development to marketing. The defining factor is that a consultancy needs clients to exist, not customers.

A product company has ideas for web apps, services, or mobile apps and then acts on those ideas. Rovio (the Angry Birds maker), for example, is a product company. The key characteristic of a product company is that it relies on customers for revenue, not clients.

No Guarantees

Successfully building web products and apps for others, even great ones, doesn’t necessarily mean that you’ll be able to have that same success in executing your own ideas. When you’re consulting for another company you don’t have a real stake in how well the end product performs. Sure, you’d like for all of your clients to be successful and come back to you with new business, but that’s not crucial to the success of your consultancy.

When you start relying on a products business to pay the bills the stakes get much higher. Graphic cues, copy, user interactions, and, most importantly, the concept, all have to blend together well for you to have any shot at success. If your consulting background hasn’t prepared you well for those additional responsibilities then you’re gonna have a bad time.

Your Team Might Not Fit

The consultancy-to-products transition will have a tremendous effect on your entire team, and that needs to be seriously considered before making any such decisions. You may have a team of individuals who enjoy working on completely new projects… something that won’t happen as often in a products business. You may also have skills in the consultancy arena that don’t translate to products, or you may have a shortage of skills. Examples:

  • Your consultancy may not have the marketing skills or product development knowledge to get rolling immediately.
  • You may not need a sales team in the products business.

Every situation (and team) is different, but it’s important to understand how your team maps from one business type to the other.

My Advice To You

If having a products business is truly your desired evolution for your consultancy then that’s what I want for you as well. I just want you to be successful. Think through these questions to give yourself a better shot at success.

1. Give an honest evaluation of what your daily life would look like once you’ve started working on products full time. Sure, you’ll spend less time dealing with clients, but you’ll just replace them with customers that need even more attention. Does this still appeal to you?

2. Decide how to fund your products business. Are you still going to do consulting while growing products revenue? If so, how do you staff both ventures without doing a disservice to either? This is where having a larger team makes the transition much easier.

3. Do you want to operate the products business as a completely new entity? If you’ve grown your consultancy to the point that you can afford to split off a product team into a new company then that should be considered. That’s how we do it here. MediaLeaf is the product company, and Deep Field is the consulting company.

4. Start small. This applies to everyone looking to start a products business, not just those moving from consulting. I whole-heartedly recommend starting with a small product first, just to get your feet wet. This will minimize the chances of you spending 6 months building a product that absolutely no one wants. Baby steps.

A Different Approach

I took the opposite approach when growing my companies. MediaLeaf started in 2002-ish and has been a products business from Day 1. I bootstrapped MediaLeaf, did a ton of development work, outsourced design work, and grew revenues to the point I could start hiring team members. After years of growing MediaLeaf I had contacts at other many companies that started asking me for advice, so it was a no-brainer to eventually start a full-fledged consultancy. I haven’t finalized how to grow and operate the consultancy going forward, but I feel strongly that it will be successful because of all the experience we have building products. The bottom line: Starting a consultancy is a easier after running a products business. The opposite isn’t true. 

Finishing Up, Finally…

I didn’t intend for this post to be so long, and I probably could have split it up into 2 separate posts. There are many more items that I could add to this point, but I won’t. The length here just helps reinforce the idea that there’s a lot to consider before making the transition to products from consulting.

What’s your take? I’d love to hear from anyone considering making the transition. What advice do you have for consultancies looking to evolve?

Filed Under: Bootstrapping, CEO, Entrepreneur, Features · Tagged With: , , , , , , , , ,

BS50 Part 7: Do You Need A Cofounder? – The Cons

February 10, 2012 by · Leave a Comment

Bootstrapped Startup 50This post is part of the Bootstrapped Startup 50 series. The goal for the BS50 series is to cover everything that matters when bootstrapping a new startup. The posts are sequential, so it wouldn’t hurt to read from the beginning if you’re just joining in. 

In the last installment of the BS50 we talked about why having a cofounder could be a good idea. This time we’re going to take the alternate side and point out a few things that could be detrimental to your startup.

Personality Conflicts

Startups and small companies truly are like families. Everyone has to spend a great deal of time around each other and everyone has to rely on each other for success. There are no inconsequential team members when a team has only 2 or even 5 employees. Everyone has to work well together or the quality of product shipped will suffer. Personal conflicts between team members can upset the delicate balance in small teams.

This risk is heightened significantly when you’re considering a cofounder. A cofounder is going to bear a significant portion of the decision making responsibility, so trust and understanding are absolute requirements. To be successful you’re going to have to implicitly trust your cofounder, letting them handle their area of expertise without your input. If you don’t get along with your cofounder then the startup will necessarily feel that discord.

Financial Considerations

A cofounder, depending on your specific stock and financial agreements, will necessitate a large portion of income generated. This is somewhat less important if the company gets off the ground quickly and starts earning enough revenue to cover expenses. But what happens if the fledgling company struggles along for a year or so and there isn’t enough revenue coming in to pay either cofounder enough to keep them around?

Long-Term Stability

The long-term goals of your cofounder should matter when making decisions. Are they in the company for the long-term or are they just going to dabble in your startup for 2 years? A committed, long-term cofounder is significantly more valuable to your company than someone who’s just looking to help you out for a while or wanting to get out of their current job.

Your Take

What are your thoughts on bringing in cofounders? Have you had any experiences with a cofounder before? Please share in the comments.

Next up we’ll talk about the potential pitfalls of adding cofounders.

Filed Under: Boostrapped Startup 50, Features · Tagged With: , , , ,

BS50 Part 6: Do You Need A Cofounder? – The Pros

October 26, 2011 by · 1 Comment

Bootstrapped Startup 50This post is part of the Bootstrapped Startup 50 series. The goal for the BS50 series is to cover everything that matters when bootstrapping a new startup. The posts are sequential, so it wouldn’t hurt to read from the beginning if you’re just joining in. 

The decision whether or not to have a cofounder for your new venture is one of the most critical that you’ll make. It will affect everything from how the company is operated to how much money you personally make once you’ve built a successful business. There are many things to consider, and it’s not a decision that should be taken lightly.

I’m going to split this discussion into two parts because it may get a little lengthy. In this post I’ll hit on the advantages of bringing a cofounder in.

Cofounders Vs Employees

First, a quick note about when you should choose a cofounder instead of an employee. Early on you’re most likely not going to have any revenue, so hiring an employee immediately creates an expense that has to be paid. If you’re considering hiring someone who is extremely talented and that you trust implicitly then you should consider making them a cofounder (co-owner of the company) instead. If they’re passionate enough about your idea then they may forego some salary now for ownership considerations and deferred income a little further down the line. Cofounders are inherently more invested in the company’s success.

Complementing Your Skillset

Bringing in a cofounder whose skills complement yours, not mimics them, is a great way to round out your newly formed organization… they can be the yin to your yang. If your startup is a web company and you’re a designer then you’ll probably need to bring in a developer. Bizdev types will probably need someone technical, depending on the industry. Having founders with a combined skillset that covers the majority of the work needed to get a company off the ground is a luxury and probably gives you a better chance at success than going it alone or having to rely on contractors and new-hire employees.

Cofounders Are A Force Multiplier

The initial work required to get your product to an MVP state or an early alpha stage is daunting. Being able to split that workload will help you get your product out the door sooner and let you start the even longer process of building a profitable product earlier. This force multiplier allows you to more aggressively tackle opportunities and challenges, go after bigger clients, think bigger, etc.

Your Take

What are your thoughts on bringing in cofounders? Have you had any experiences with a cofounder before? Please share in the comments.

Next up we’ll talk about the potential pitfalls of adding cofounders.

Filed Under: Boostrapped Startup 50, Features · Tagged With: , , , ,

BS50 Part 5: Your Unique Skills and Why They Matter

October 20, 2011 by · Leave a Comment

Bootstrapped Startup 50This post is part of the Bootstrapped Startup 50 series. The goal for the BS50 series is to cover everything that matters when bootstrapping a new startup. The posts are sequential, so it wouldn’t hurt to read from the beginning if you’re just joining in. 

Would-be startup founders are typically a confident bunch, knowing what they want to do and having the confidence that they can be a success. They also typically have a skillset that allows them to think big.

The Things That Make You Special

Successful business owners, and particularly founders, have special qualities that allow them to deal with all of the issues that arise during the process of building a company. They may have tremendous leadership skills that allow them to rally teams together to pull off the impossible or an innate creativity that allows them to see things in ways that no one else ever has. Maybe it’s drive and a passion to succeed that helps you overcome the never-ending series of obstacles to success.

If you’re considering starting a company of your own then you have something special inside of you as well. You need to fully understand yourself and the special traits that you have. Building a company may be one of the toughest challenges that you’ll ever face, so you certainly want to make the most of your abilities. Don’t leave anything on the sideline. Identify your special skills and cultivate them; always be improving.

Be Careful – Don’t Let Your Talents Get Stale

Working in a small company means that you have innumerable tasks that need to be done. Having to focus on all of those disparate tasks can have the unintended effect of taking you away from what you’re really good at. Try to continually keep your skills sharp by focusing on tasks that require your particular skills or even creating small tasks that could be beneficial.

I personally have experience with this problem. I used to be particularly good at several software related things, Microsoft VBA, development, and the like. Now, I can barely even read the code. I wish I would have taken a little time over the last few years to keep a couple of those skills sharp.

Your Thoughts?

What are some skills that you make you particularly successful? What rare skills do you see in others that you think would make them good startup founders?

Next up we’ll talk about the pros and cons of cofounders.

Filed Under: Boostrapped Startup 50, Features · Tagged With: , , , , ,

BS50 Part 2: Playing To Your Strengths

October 3, 2011 by · 2 Comments

Bootstrapped Startup 50This post is part of the Bootstrapped Startup 50 series. The goal for the BS50 series is to cover everything that matters when bootstrapping a new startup. The posts are sequential, so it wouldn’t hurt to read from the beginning if you’re just joining in. 

In the last post I wrote about how to come up with ideas and filter them. This time I want to talk about choosing ideas that align with your skills and passion. Doing something that you love will save you a lot of time and angst in the long run.

Do What You Love

The best business advice that I can ever give anyone is quite simple… do what makes you happy. Why spend time working on something that you aren’t fully invested in emotionally? You should automatically reject any ideas that are related to things that you don’t like. For example, you wouldn’t want to start writing a baseball blog just because you think it could be profitable if you really and truly dislike watching sports.

Find your passions and try to see if there’s a business idea around them. Like cooking? How about a something to help home cooks? Keep making lists and see what ideas stand out.

Take A Step Back

Once you’ve identified a passion and a business idea around that passion you have to temper your excitement with reality. How good is the idea, really? Is it truly just a three star idea that you perceive as five stars because it excites you? Get some feedback from friends, family, etc. to see what they think. Always ask for honesty when getting feedback. Having someone tell you what you want to hear will only hurt you over time.

Identify Your Skills

What are you good at? Are you a designer, a developer, a business development-type? If you’re not particularly skilled at design you probably don’t want to get into the web design consulting business. Same goes for development. You can always augment your own skillset by bringing in other cofounders or team members, but that’s a decision that has to be made very carefully. Bottom line is that you should always try to do something that you’re actually good at.

In the next post I’ll write about why it doesn’t matter if your idea is original. What do you think of the series so far? Comments appreciated!

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The Case Against the MBA

August 23, 2011 by · Leave a Comment

Nuffield College

MBA programs have been much maligned recently, especially in tech circles. The prevailing thought is that business schools push you through a cookie cutter program that doesn’t prepare you especially well for the types of challenges that you’ll find in modern businesses.

Peter Thiel famously became the face of the anti-MBA movement recently when he unveiled his “20 Under 20” program, which aims to radically advance the tech industry by enticing great, young thinkers away from college. Thiel says “The Thiel Fellows will change the world and call it a senior thesis.” Brilliant.

Startups Care About Skills, Not Degrees

The startup industry is focused solely on results and growth. For this reason alone whatever degrees and letters attached to someone’s name on a resume don’t matter much. If you have the skills necessary to do the job then there’s a great likelihood that you’ll get hired. Even in a “hire slow” company skills should be the single biggest factor in hiring decisions.

Business Schools Need to Evolve

An undeniably large transformation has taken place in the business world in the last 10 years, thanks in large part to the lowest barriers to entry for new businesses ever. Companies are so ridiculously easy and cheap to start now than everyone is thinking about it. Business schools have to embrace this changing business landscape and start producing a larger proportion of entrepreneurs.

Harvard (and I’m sure a few others) is starting to take notice and focus more heavily on entrepreneurship. They’ve recently created an Innovation Lab program and promote their entrepreneurship program more prominently. They say that by 2008 50% of graduates had become entrepreneurs by their 15th reunion, but that timeframe should be much faster. 10 years from now 50% of graduates should be on their way to entrepreneurship as soon as 5 years after graduation.

Your Take?

What do you think? Do business schools, as they are currently constituted, provide enough value for students that they make sense? How do you think business schools should evolve?

Image credit: SBA73 on Flickr

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