Management consulting · Business Development

What are the pros & cons of hiring strategy / management consultants for a startup?

Frederic Moreau Agile Business Transformer

March 19th, 2015

Did any of the founders here have hired consultants/advisers to help with the strategic thinking and directions to grow a startup? What is your experience like? When is this relevant? How do you find the right person?

Chris Carruth VP/Director. Strategy | Business Development | Operations | Product | Solutions

March 19th, 2015

As also having consulted in a number of spaces, products and markets for startups, my two cents...

a) Most startup teams have a vision..but there can be, usually is, a huge gap between vision and profitability, Consultants can be good, with the right background and experience, at spotting that gap and inserting some degree of business reality into the equation. For every product that stayed true to the original vision AND made a profit there are hundreds, if not thousands that failed because the founder's simply couldn't pivot when needed.

b) Consultants are good at "de-risking" the venture from a number of perspectives, depending on how well rounded the consultant is. However the consultant typically does not have any real authority to implement anything, and if management's style is to ignore anything they don't agree with, then the impact is obviously can be very little, meaning you paid a lot for somthing unused. 

However, if you acknowledge that you have areas of expertise, as does the consultant, and value is placed on both sides, then the return/impact can be well worth the money.  

Julien Fruchier Founder at Republic of Change

March 20th, 2015

There are a lot of consultants chiming in here. Here's the experience of one entrepreneur working on his sixth startup for a more balanced perspective... 

Consultants are a waste of money and time for a startup. They are most useful in helping mature companies deal with very specific problems primarily in the scope of structure (accounting, legal and regulatory) and circumstances that require industry expertise and/or contacts. 

Startups are about creativity and hustle. Don't hire someone to teach you something you don't know. Go out and learn it, get a partner who can tackle it or better yet, find an entrepreneur who has domain in that area and convince him/her to advise you. The last option is the most effective (advise from someone like you who's been there, done that) and cost efficient (it costs you time and beer money). 

Best of luck  

Nick Damiano Co-Founder & CEO at Zenflow

March 20th, 2015

As Julien and Adrian said, this is almost certainly a bad idea. The best startup founders I know would never think of throwing away money on McKinsey or their ilk. There are three key reasons for this:
1) Consultants are not personally invested in your company (other than raking in boatloads of your precious cash). You'll get the best results from people who are "strapped to the rocket" like you are.
2) You won't retain the talent. You should buy top talent, not rent it, and certainly don't rent it at the rates consulting firms charge. If you're paying $500+ an hour for this, you're doing it very wrong. And you'll lose that person and the company-specific expertise they've built the second their contract is up. That's a waste.
3) The way of thinking in the management consulting world is antithetical to that of a startup founder. I've met loads of MBAs with Bain or McKinsey or whatnot on their resumes having a go at entrepreneurship. Founding teams led by people like this are the darlings of mediocre accelerators, and they can occasionally trick an investor or two. Most turn out poorly. Companies founded by your typical YC-style hacker/hustlers tend to do much better. Only by adopting the hacker/hustler mindset can consulting types succeed in the startup world, and this rarely comes naturally to them.

You as the founder - not a consulting firm - should set the strategic vision for the company. If you can't do this, hire others who can. A good advisory board can also help you with this, and for free!

Lawrence Lerner Digitalization and Transformation Coach

March 19th, 2015

Full disclosure, I am former management consultant from PwC. As part of my practice my team helped launch six successful startups.

As with any other consulting arrangement, if you have
  • Focus on the problem you want solved
  • A need for a temporary injection of talent with reasonably defined boundaries
  • Experience working with an extended team
Personally, I think it's a win all around. Consultants often bring the perspective and experience that you can consume and make part of your team without requiring another FTE. All that being said, can you share broadly what you need? Finance, Strategic Direction, Product Validation? It will help the audience point in the right direct. Do feel free to reach out to me offline.

Cheers

Vijay MD Founder Chefalytics, Co-owner Bite Catering Couture, Independent consultant (ex-McKinsey)

March 19th, 2015

I've been a consultant (ex-McKinsey engagement manager) and I've hired consultants.

At the end of the day, consultants are expensive and don't live with the outcome of decisions, so they need to be engaged on specific issues where they bring credible experience and practical solutions to the table faster than a cheaper internal resource.  This works great when you a) find the right person, b) are looking for more experience than you can hire for, and c) the person is able to move you forward in a way that's practical for your level of company/ bandwidth/ infrastructure OR prevents you from making expensive mistakes (this is different than experiments/ learning/ testing).

They can also provide impartial advice, which may be great for vetting a technical or marketing/sales hire if the founder/ ceo doesn't yet know what to look for.

Doesn't work as well when you need talent developed and made reliable on a core competency for the business.  Then the dynamics can be counterproductive (high rates and non-attached talent trying to stay in fees) on something the business really needs to own.

From what I can tell referral networks (incl. alumni networks) are the top places for startups to find advisory talent.  There's a beginning of broker networks of independents, but they tend to cater to the Fortune 1000 and Inc 1000.


Nik Osipov CTO / Co-founder of SafeChats

March 20th, 2015

We've been working with consultants together on our startup SafeChats (safechats.com). Their input is invaluable and really helped to shape the vision of the product and determine the most important features to focus on first.

They helped us to create a business development strategy and specify exactly the plan to get from a closed-group testing of a prototype to a full launch. The developed strategy and plan is confirmed by extensive analysis of the current market trends around the world. All that information is conveniently gathered together in one document making it very easy to refer to.

At the moment we are working on the marketing strategy how to present the product to customers, where and how to get them. Based on all the studies we decided to launch in the US and right now looking for connections that will help us in business development. All that would take us much longer to decide on ourselves without their help. The best thing is they are pushing us not to take it slow but to think big.

Speaking of choosing consultants, the most important thing is as with any relationship is to have mutual understanding and common language. And, of course, for their input to be valuable to you they must have authority (proven track of achievements). Listen to them, think, discuss your ideas, come up with new ones etc... They are kinda business partners (co-founders) in a sense with expertise in the field. When you can delegate something to someone you trust who can do it better and, especially, faster, go for it!

John Seiffer Business Advisor to growing companies

March 20th, 2015

I agree with all that's been said here. I would add one cautionary note. In a startup that has not yet discovered a scalable business model, then the focus of the startup is to learn. Learn who are the customers that want to pay for the value that you provide, learn what those customers consider "value", learn how those customers think and how to reach them. Most importantly, learn the cost of acquiring a customer and the lifetime value of said customer. Those are the building blocks of a business model. 

You do NOT want a consultant (or even an employee) doing that learning for you. Founders must do it themselves. You might benefit from someone guiding you how to do it - they could be a consultant or a coach - but you must get out of the building and do the learning yourself. 

Karl Schulmeisters CTO ClearRoadmap

March 23rd, 2015

One - now successfully retired - Angel Investor I know had two rules for investingin startups: 

  1. make sure they are close enough so that you can drop in for an unexpected visit
  2. Never invest in  a company founded by an MBA  or a PhD.

this guy was an old Quantum Mechanics grad so his answer when asked "why" was "I don't need a why when I have as long an empirical track record as I do.  If you pushed him he would speculate that MBAs are tought a way to "MANAGE" a business not how to get a disruptive or innovative idea into  a market at little to no capital.  and PhDs tend to be too wedded to their original idea to make the adjustments that an entrepreneur needs to make.

So having coaches is a good idea..   that's why founders set aside 5%-10% to hand out  to "Strategic Advisors".   whom you give between 1/2% to 5% depending on their level of involvement and strategic benefit.

this means they bear the risk off the advice they give you.  something that a large consulting agency won't.

Note that having someone review an existing business plan for completeness or "holes" in your ideas is something you can get at an incubator or even less expensively by attending "meetups" of other entrepreneurs.   meetup.com has lots of entrepreneur based events in almost every city around the globe.

and there is no one more able to poke a hole in your business plan than a fellow entrepreneur that is slightly jealous of your idea.

Anonymous

March 24th, 2015

As a former consultant myself, I'll take a somewhat contrarian view to most of the comments... you should not need to HIRE strategy/management consultants for your startup.  

In general, smart people can always help your startup by adding perspective, solving problems and helping you execute.  Consultancies usually hire smart people, therefore consultants, in general, could help your startup.  

That said, consultants are expensive and the last thing you probably want to do is spend valuable $ of consultants when that money should probably go into product, marketing and sales.  Frankly, if your startup has enough money to hire good (expensive) consultants, then something probably isn't quite right.

What I would suggest is finding people with the right background (possibly ex-consultants) willing to help you for FREE.  If you build a good advisor team, you will likely get all the perspective, problem solving and execution support that any good consultant would give you, and you won't have to pay consulting fees.

Andrew Lockley

March 19th, 2015

Pick someone who works a lot with startups. You need someone who works really fast, so they're affordable. It's a personal relationship so choose someone who demonstrates real value before you hire them, rather than just talking a good game. Ignore the brands they've worked for, unless the person was intimately involved in creating the success of those firms.