/ industry

The Investment Vehicle Consultancy

Lately I’ve been playing with the idea of a new type of consultancy. Tangental to this idea, there’s been a lot of thoughts around the current state of the technology industry simmering in my head. Particularly following the blog post from Groove about turning down the $5 million in VC money, I realized that the people who make that call aren’t near loud enough.

Since I become more and more certain each day that if I ever wanted to start a product company on my own it wouldn’t be with VC money, I’m discouraged by not hearing more people make that call. Moreover, if there’s anything I’ve learned over the past few months, it’s that bootstrapping a product while holding down a 40-hour-a-week job is hard. Darn near impossible, to be honest. But what if there was a better way?

Background

I worked for a few different consultancies during my tenure at the University of Georgia. It was a pretty great arrangement: I had interesting client work to keep me engaged, the hours were kind, and the pay was great. In the end I left that world to work for a startup company, and it was the best decision that I’ve made in my career to date. It’s been about a year since I’ve worked for the company that lured me out of consulting. About a year ago to the dot, I remember being somewhat frustrated with the prospects out there. As someone with a passion for consumer-facing things, it’s a bit frustrating sometimes to find yourself in a primarily business-facing scene.

Now, the B2B scene isn’t really any better or worse than the B2C scene. It’s just different. The latter looks a lot more like home to me. As I reflect on the decision to leave consulting, and the decisions that followed, I feel as though I can pinpoint (one of) the things that drew me: the idea of moving toward something worthwhile, instead of just moving. As a consultant, I can see how it would be easy to build a successful business with no real endgame or overarching mission. As a software engineer, I see how easy it would be to do so with my career.

Over the past few weeks I’ve found myself plagued, for lack of a better word, by ideas that seem like really phenomenal, and potentially profitable, opportunities. Trying to maintain balance and sanity in my life means that I don’t work eight hours at my day job then come home and hack away all night. That’s not healthy, and ultimately pushing myself past the limits of my own humanity is only something that’s going to hurt me in the long run. If not physically, then certainly mentally and emotionally. From experience I can tell you that road leads to loathing your job, which isn’t the mindset you want to be in when you’re trying to take a budding idea of your own and make it into something grand.

While I’ll be the first to concede the applicability of the #firstworldproblems hashtag, the past few weeks have got me thinking about how I might pursue some of those ideas seriously while trying to maintain that peace and sanity that I so diligently work to preserve. Moreover, it got me wondering about how many other people are in the same boat as me: stuck with a great idea, no time to build it out, and an aversion to starving yourself or taking “free” money to build it. People of this particular disposition often find themselves creating a consultancy as a means to an end.

Consultancy: Means to an End

It’s not entirely uncommon for a few cofounders to come together and say, “Hey, we want to do this Really Awesome Thing. So let’s start a company, and accumulate capital by doing consulting work. Then we’ll work on our Really Awesome Thing when we have enough spare change in the bank to work on it and still get paid.” This is, in essence, the consultancy that really wants to one day “grow up” to be a product company. When done correctly, it lets you build your Really Awesome Thing without spending money you don’t have (or money that isn’t yours). I’ve considered doing this a few times, but have always shied away for one simple fact: clients never actually go away.

Once you do client work, you’re probably going to be expected to support it perpetually. If you don’t, expect not to get a glowing recommendation if anyone asks that particular client what they think on you. For a company trying to shift its attentions, this is a minefield. You’ve got to worry about either staffing to accommodate these requests, try to offload these requests, and/or come up with some end-of-life schedule for these clients. Having experienced a few of these transitional strategies and heard first-hand accounts of others, they all strike me as sub-optimal and seem to always result in bridges getting a little bit charred, if not burned compeltely.

While thinking on this an idea occurred to me: What if the consultancy’s goal wasn’t to shift its focus to becoming product driven? What if its focus what spinning off other companies who are product driven?

Consultancy: Investment Vehicle

My proposal is that we retool the average consultancy a little bit to make it a bootstrapped company factory. Envision, if you will, a consultancy structured such that resources are to clients assigned based on a four day week. Each employee, in this scheme, would have the opportunity to spend the fifth day working on something of their own creation. The first question when you sit down for an interview to work at said consultancy would be this: “What are you going to do with your fifth workday?”

I think it’s high time for a consultancy where the employees work on building a product of their own one day a week and spend the other four days working with clients. During the process of working out the idea the consultancy would leverage its resources to get the engineer business, marketing, design, and technical input to help make the product successful. Ideally, the product would eventually launch and start collecting revenue, with profits shared between the company and the employee.

As profits from the new product increase, the employee’s client obligations would start decreasing. Sometime before or right around the time the employee is spending their entire week working on and supporting the product, the employee would spin off into their own company. The consultancy itself would own a percentage of the new company and continue taking a percentage profit throughout the life of the business.

In this form the dynamics shift a little bit. The consultancy is no longer an organization that exists without any real purpose or strategy. It is also no longer an organization seeking to grow into being something completely different. It is, instead, an investment vehicle. This presents us with a few interesting contrasts from the existing investment vehicles available to aspiring entrepreneurs. Specifically,

  • No living off ramen. Some people love living off next to no income. I, personally, enjoy being able to eat and afford rent in a decent apartment complex.
  • No hunting for work. If you start a new company from scratch, making the connections to get consulting work is hard. Coming into an established consultancy is much easier, even if its only a few months older. An Investment Vehicle Consultancy could take the frustration and time required to hunt for work out of the equation for people interested in taking this route to bootstrapping.
  • No hunting for resources. A consultancy set up in this fashion is uniquely poised to offer a lot of resources to its employees. Some similar to those you’d find in an incubator (connections, mentors, etc), and some you probably wouldn’t (help from other employees at the company in areas such as design, marketing, etc).
  • Less severe failure condition. Products fail. It’s an unavoidable fact. Two things are true when this would happen with our Investment Vehicle Consultancy: first, you’re not on the street looking for work, and second the consultancy hasn’t been throwing money at you without getting any revenue in return. The consultancy can afford for you to fail because you’re still producing work for clients, and you can afford to fail because you’ll still have a job.
  • No exit strategy required. If you want to build a business that you plan on running for the next three decades and can make it work, the consultancy shouldn’t try to persuade you to do otherwise. It won’t have invested so much money as to require a 10x ROI to make its existence worthwhile. Long term businesses are better anyway. Sure, exits create hype. But stable businesses create stable, sustainable job growth (e.g. less likely hood of getting giant real quick, then shutting down a bunch of offices and laying people off).

I think there’s a solid case to be made here for this type of launching pad to exist, especially in a market like Atlanta, which is filled with viable options for receiving investment, but not necessarily filled with resources for those who are interested in part-time bootstrapping. Admittedly, this type of arrangement is slanted in favor of engineers as opposed to business folk. If you have ideas about how to help the business folk bootstrap, I’d love to hear them!

If you have ideas, or just want to register your interested in this consultancy as an investment vehicle concept (or know someone who is doing this), give me some comment love. It’s always great hearing from you. 🙂

Check out the Hacker News thread here.