Why I Love Consulting (and why it's not a broken business model)
Consulting often gets a bad rap. I can't count the number of times I've heard these complaints (usually from people who are consulting):
“I don’t want to get stuck just trading my time for money.”
“My clients suck and I hate them.”
or the favourite mantra of the unhappy consultant:
“If I create a product I can get paid over and over again and have passive income.”
But a lot of these complaints exist because it’s incredibly easy to make certain consulting mistakes, and scrape by for years without realizing that you are doing consulting wrong.
I made these same mistakes for years and it cost me a lot. But my viewpoint has since changed, and I’d like to talk to you today about...
Why I really truly do love consulting.
After figuring out what went wrong and rebuilding the right way, I now view consulting as enabling a beautiful intersection of freedom and financial security.
For me freedom is the biggest goal in life. It's not just a cliche, and it's not just about being able to work in your underpants (thats not as comfortable as it sounds).
It's the freedom to choose who I get to work for, and on what projects. It's the freedom to vary my work schedule to accommodate both errands and whimsical desires (it's 1pm in the afternoon, let's do some woodworking). It's the freedom to choose to work anywhere. And it's the freedom to pursue work that is constantly more challenging. In short, it's not being trapped to one thing.
Of course you can get all those freedoms by backpacking through Europe while washing dishes. Or spending a summer rock climbing while living in a van to have bare minimum expenses. But consulting can also deliver financial security on top of that freedom. A great deal of it in fact.
Somebody pinch me, I’m dreaming.
But that doesn't actually counter the objections above. So let’s bust some myths about what consulting can and can’t do, and explain why a lot of the "can’t" column comes from poor execution rather than inherent inability.
Consulting Myth: Consulting can’t scale and can’t leverage your time.
Consulting CAN scale, and you CAN leverage your time.
What is scaling up? More customers? More money? More time? Consulting can scale out in many ways:
- More Money: as your abilities increase and you learn how to leverage them to create extraordinary results through your work, you can start to charge dramatically higher rates AND have your clients be happy to them. More on this in a bit.
- More Time: once you learn how to find high value work consistently, create efficient processes, and delegate away lower value tasks (such as bookkeeping or buying eggs at the grocery store), time can be abundant. I know, I just spent the middle of the afternoon converting my garage into a woodworking shop.
- More Freedom: time is just one dimension of freedom, albeit the one that people seem to wish they had more of the most. However consulting can also create freedom of location, freedom of when you do the work, and yes, even freedom to take extended trips “off-grid” (I spent two months traveling Poland and Ukraine checking email once every two weeks while my tiny web agency soldiered on, it can be done).
You CAN create MORE time, but also enjoy FLEXIBILITY in how you spend that time.
Freelance Transformation is all about using consulting to create freedom in life.
Have you ever sat at home at night, bored and binge watching Netflix for lack of anything else to do?
We’ve all been there - the abundance of time was there, but something else was lacking in the equation:
- Energy: The physical or mental energy required to do something “more exciting”.
- People: The people to do your favourite activity with.
- Timing: It wasn’t the right time of day - everything is closed.
- Location: Not interested in anything nearby.
- Resources: “Too broke to do anything"
Time freedom isn’t just about the absolute number of hours per day are free, it’s also about flexibility to use that time when the resources above are available.
For example if biking is your passion then you will derive infinitely more happiness from spending 2 hours a day biking on world-class mountain bike trails in the afternoon than you will from 2 (or 4) hours of TV at night.
It is no good to have lots of time on your hands if you can’t spend it doing the things that make you happy.
Thanks to being able to create freedom in these other dimensions, consulting has allowed me to:
- Take 6-8 week summer vacations in Europe and not have to count or save vacation days (time and location freedom)
- Eliminate the concept of a “daily commute” (lifestyle freedom)
- Attend conferences by booking a ticket and travel and being done with it (time and financial freedom)
And for many people consulting has meant being able to earn money AND spend quality time with their kids. How is that anything other than amazing?
I have to admit that I’ve started taking this freedom for granted, because it’s simply become the new norm.
Note that this doesn’t necessarily mean working very little (although it could). For most people it’s not a matter of having free time, so much as when that free time is available.
Consulting Myth: your earnings are heavily capped due to the amount of hours in a day
Reality: As you grow you can substantially raise your effective hourly rate, instead of working harder.
For the first 70% of my web development consulting career I viewed $100/hr as an absolute ceiling on what I could hope to earn for my services. Reaching it would be "success".
This is because I had an internal “consulting rate” hierarchy in my head that looked something like this:
Web Developer - $100/hr
Doctor/Lawyer - $300/hr
Celebrity - crazy/hr
It was unthinkable to me that you could bill much beyond $100/hr in the web development space. MAYBE some boutique agency or some specialized corporate programmer could hit $200, but the Laws of the Universe would shatter if a web developer ever earned more money for their time than a doctor or a lawyer. It just wouldn’t be “right”.
This mindset came about from the limitations of hourly thinking: that consulting was somehow all about selling your time in exchange for money (see the first objection at the beginning of this article), instead of selling a specific result.
When you change that mindset and start focusing on delivering a result, rather than hourly (or even weekly) rates, that entire hierarchy instantly evaporates.
Suddenly multiple strategies exist for breaking that hourly rate ceiling which allow you to ethically earn $300, $500, $1,000/hr, and beyond. And these strategies can be combined:
- Increase rates by finding and solving expensive problems that companies are highly motivated to solve. Most consultants consistently fail to do this and end up trying to level-up their rates by providing commodity services to a client roster that consists of mom and pop shops, tiny startups, solopreneurs, and a family friend for good measure.
No matter how good of a web developer you are, if your client is a pizza shop in a small town, there is a very measurable and low ceiling on how much your work can possibly impact their sales. And that in turn puts a low cap on how much your work could possibly be worth, no matter how much of your time is spent (I talk more about this example in my Guide to Finding High Value Clients).
Case in point: I recently ran into an issue that I would have happily paid $1,000 to fix. It was only 2 hours of work, but represented a very expensive technical problem that relatively few people know how to fix (it involves Linux). The consultant that fixed it billed me at their normal hourly rate of $150/hr. Highway robbery if you ask me... except I’m the bandit.
- Become really fast at solving a specific problem: let’s say that someone paid you $5,000 to complete some programming work. This work took 80 hours to complete netting roughly $60/hr.
Now someone else comes to you and needs a similar problem solved. They are also willing to pay $5,000 to solve that problem. But thanks to the experience that you just gained on the first project, it now takes you 40 hours to complete this $5,000 project, netting $125/hr. You’ve just doubled your hourly rate!
But I also mentioned that these strategies can be combined. If you keep solving this problem, you will also produce a higher quality solution/be able to deal with more complex cases/there is less risk to hiring you. Suddenly instead of $5,000 to solve this problem, now you can command $10,000. That’s a very realistic $250/hr if you’re still counting.
- Leverage your time by hiring others: there is absolutely no magic rule that consulting has to be an exercise in solopreneurship. If you listen to the Freelance Transformation podcast you will notice many highly successful guests end up building small teams or at least hiring a virtual assistant. At some point it’s difficult to ignore the leverage that this creates.
Maybe the value that you specifically are best equipped to deliver on a project is only 25% of the work. The other 75% is work that someone else can complete faster, more cost effectively, or at a higher level of quality.
So now instead of taking 40 hours of your time to complete the $10,000 project in the previous example, you leverage that time by bringing on trusted contractors. Now this same project takes 10 hours of your time to complete and also costs you $5,000 in subcontracting costs. Now that’s a net profit of $5,000 instead of $10,000, but it works out to $500/hr*. Suddenly you have a really nice incentive to keep your sales funnel filled.
And yes, this scale of growth, from $60 to $500/hr and beyond, is achievable and not just hypothetical.
* Actually we do need to factor in the time that it takes to manage your team, so this might be more like $300 or 400 per hour. Still, I'll take it.
- Build a low-overhead consultancy: I debated whether to even include this point because “spend less” isn’t really a model for “scaling”, but the reality is that rebuilding my agency on mostly variable costs dramatically increased my earnings by combating the feast or famine problem of high fixed costs vs highly variable revenue. Just getting rid of my office space itself resulted in an extra $30K+/year in profit, or money I didn't need to earn before I could be "above water". If you currently run an overhead-heavy operation, there is huge opportunity to either earn more money or take back free time by restructuring it.
- Your consulting work can be leveraged into a product or a productized service: consulting can help you discover a need for your product, build up a reputation, establish crucial connections, and yes allow you to earn money on a flexible schedule while you build your product.
Stories abound of consultants spinning off a product based on the market insights or tools that they built as a result of their work. Just take a look at some of the past Freelance Transformation Podcast guests:
Steli Efti was originally operating a sales consultancy. This lead directly to launching close.io, a fast growing CRM that began life as an internal tool built to organize his own sales team.
Brian Casel built Restaurant Engine into a service business that no longer required his presence (and which he was ultimately able to sell).
Andrew Wicklander was able to bootstrap the development of a yoga studio management SaaS products thanks to consulting clients.
“But Matt, I’ll never have a hundred million dollar exit this way!”
Probably not, and if you’re convinced that you are the next Zuckerberg or Musk then I apologize. But most people are not seriously trying to earn $100 million dollars, or are willing to take the steps needed to do so.
But turning consulting into six or seven figure income is achievable, utilizing the methods above. Of course the ranks start thinning out at the top, much like they do in the product game (sorry but most products don’t make seven figures either).
But speaking of products, consulting allows for quick pivots.
Consulting makes business pivots a relatively painless idea. You can tweak your offering or who you sell to just by “trying it out” and seeing if you have bites. If what you currently do just isn’t working, or doesn’t excite you anymore, you can pivot to a new offering entirely.
Even though I have spent the past ten years in the website development game, my business and what my days look like now are almost unrecognizable compared to where I started. I simply evolved: in the type of work done, the types of clients serviced, marketing and sales strategy, going remote, and so much more.
The past ten years have been a series of pivots, and the next ten will continue to be as well. Stagnation certainly doesn’t have to be part of the business.
Consulting Myth: You Have to Work Crazy Hours
Yes there are many consultants out there, from web developers to marketers to graphic designers to copywriters to business consultants and so on, who work 60-80 hour weeks and sometimes beyond. I was there myself for years and at times I felt like the world was collapsing in on me.
But the reality is that it didn’t have to be this way. There are two business model flaws that seem to lead to this:
Undercharging Like Crazy: Like many people I made the mistake of seeking out low value jobs instead of figuring out where I could contribute huge value (aka help clients make a lot of money). Ironically the low value projects are where the most heavy competition is, because everyone else is making that same mistake. Consequently I had to work crazy hours just to make a living.
Making Yourself Available 24/7: Making yourself available constantly, either because clients demand it or (more likely) you perceive that they demand it, is disastrous. It’s very difficult to spend an afternoon bike riding if you’re stopping every 5 minutes to answer an “urgent” phone call or respond to an email. And because the consulting world is full of contradictions, often times the consultants that make themselves available 24/7 and are glued to their phones are the ones that seem to have the greatest lapses in response time as things start to slip between the cracks.
Fun fact: when I started my first web hosting business, I would wake up at 3am to check the support desk, then go back to bed. I'll let you figure out how sustainable that was.
“But Matt, I want a product so I can scale and have passive income and time freedom times a million.”
That's great. But “consulting” and “creating a product” aren’t mutually exclusive. In fact many very successful people have done both.
Rather than sweating about the indignity of trading my time for money, I prefer to see businesses as having a slide scale of productization. All business models fall somewhere between the two extremes of this scale:
Extreme #1 (zero leverage): general labourer charges $x per hour for whatever tasks someone needs them to do. Does not attempt to hire anyone, subcontract work, develop a specialty, upgrade skills, buy better tools, charge per project, or anything else that might risk creating more efficient use of their time.
Extreme #2 (infinite leverage): selling an idea that ends up generating insane royalties for the rest of your life. The royalties are deposited to your bank account electronically so that you don’t overexert yourself by depositing a cheque.
Like I said, most service and product-based businesses fall somewhere between these two extremes (zero time leverage to infinite time leverage). For example my actual income comes from different points on the above spectrum, with different levels of time leverage and different effective hourly rates:
- When a website project is built, I am directly involved with client management, project management, website strategy, quality control, and sometimes a bit of a development. But big portions of the project are built by a very skilled and trusted team, who deliver consistently high quality work.
- Productized offerings like SEO and Adwords management allow leverage through repeatable standardized processes. The value of these offerings is the results that these processes deliver to the client (higher rankings, higher ad performance, etc). Some labour is required to execute on these processes, but that labour is far less than someone attempting to do SEO and Adwords as a one-off (while achieving a better result).
- Website hosting provides a recurring revenue base. People far more skilled than I am at server management handle the bulk of the server work, and because we cater to a small set of clients for who we also built the websites, support is a very small portion of the workload (very far on the product side of the scale).
- I have always been involved in some mix of software or software as a service product. None of these were truly passive. They required labour upfront and to continue to keep the business running. The software product that I devoted a big part of my spare time for 2 years building ended up generating many times less than minimum wage.
What it all means: consulting still isn't for everyone, but doing it right can create an amazing life instead of a trap.
I've been through the private hell of undercharging, taking on massive overhead, and going after small one-time projects. It's a recipe for disaster. But for the past few years, consulting has created a very different life for me. One that would require an absolutely absurd salary to even consider employment again, because of all the dimensions of freedom that I would lose.
If you're with me on this, I'd love to help you get there too. You can do two things right now:
- I send out a newsletter with articles on consulting, including articles and musings that I don't publish anywhere else. Feel free to join the list.
- I produce a weekly podcast that deeply interviews consultants that get it. One of the biggest mistakes I made when I started my web agency is not taking the time to learn from others. With the podcast, you get to learn from a new mind every Monday morning.
PS. That header banner at the top of this post? That's me rock climbing around 11am on a week day in Croatia while my clients are still sleeping. Things get very interesting when location independence is combined with timezones...
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