Ask HN: How do you scale a one person consultancy to an agency? | Hacker News Reader

Ask HN: How do you scale a one person consultancy to an agency?

83 pointschatmasta40 comments

Would love to hear any tips from someone who has made the transition successfully (or unsuccessfully!).

As I started to get more work than I could handle, I hired one person to help. That worked out well because we had known each other for a long time and had a shared history, but it also taught me that I wanted to think very hard before hiring someone else - especially someone who I didn't know before hiring them.

Hiring people and managing an agency will feel very different than doing consulting yourself. For me, it meant I now had to worry about getting enough work for two people, and managing cash flow so that I could actually make payroll all the time.

For example: before, if I didn't have work then I could just stop paying myself for awhile, and then make up for it by paying myself more when the contracts started coming in again. With an employee though, I had a fixed burn rate (since I couldn't just stop paying him), so I had to manage my cash reserves a lot better. It's a good practice to have anyway, but it took some getting used to.

So my recommendation would be to start small - and don't start by hiring someone full time right away. Instead, start by subcontracting some of your work out to someone else. How does that feel? Can you get enough work to keep two people busy? Can you manage your cash flow so that you can pay people on time?

I helped do this, and am working on doing it again now (1.5 years in, 6 people, soon to be 7). 6 years ago, I wrote a guide on HN:

https://news.ycombinator.com/item?id=4247615

My #1 answer to "how to do this" has the virtue of simplicity: stop billing hourly.

What would be interesting to see on a thread like this is which people offering advice have actually scaled a consultancy.

Happy to answer specific questions, for what it's worth.

> stop billing hourly

Billing daily/weekly/monthly means losing flexibility/freedom - everyone assumes you will work magic 8 hours per day or 40 hours per week.

In case of an indefinite (or a very long-term) work inflow, billing hourly is preferred, and it means you have a freedom to work e.g. 2 hours on one day, maybe 6 on another...

No, it does not; it means nothing of the sort. Your billing increment isn't your working increment. They might be the same, they might not.

It is also simply not the case that if you work for 2 hours for a client in a day, you can only charge them for 2 hours of work. This might be the single most damaging myth in all of freelancing.

So you say it is fine to charge daily - e.g. the invoice would mention "1 work day" even if you "show up"/work 2 hours on that day?

Or, in case of weekly billing, invoice mentions "1 work week", and you've "showed up"/worked only 1 or 2 days on that week (and even not "full-time"/8h on those days).

Or, do you mean to never mention the time in the invoice and just bill for particular completed tasks?

in the latter case, you will be in a constant negotiations/agreements regarding the scope and costs of particular tasks. The time-based charging doesn't have this issue - again, I mean when you have an "open-ended" work inflow, so you don't say/negotiate in advance how much time you spend on particular task... So it is work/get_paid as you go.

The problem with growing a consulting business is the only way to grow is to hire people. Consulting is often feast or famine. During the lean times if you have an employee you're going to need to keep paying them or they (rightfully so) will leave.

I have been a one-man-show consultant for about 12 years and just this year I have decided that I've had enough. Fat/thin times, clients who hate to pay even for good work, fighting the rest of the world in a race to the bottom, never working on one thing long enough to make it into something great, being the first to be let go when a client has tough times.

It's a bitch being a software consultant.

I'm going to build a product and wind down my business, I'm done.

Just yesterday I came across this video of Steve Jobs talking about consulting, it really hit home for me.

https://www.youtube.com/watch?v=J1F0DC66zwE

He's right, you never quite get deep enough. It's a shallow existence. I've worked for some of the worlds biggest brands and you know what? Nobody gives a shit. They just think you are expensive when they see all that. Seriously I've worked on 100 brands you'd recognize; nobody cares. Big clients squeeze you and small clients don't have the money.

The key was always having a few good clients to keep you going but then you are just basically working a job, right?

I make good money but I'm tired of the grind. I can't work in a reguar job, so, I'm going to grow a product.

Sorry about the rant. I hope you can learn something from the 12 years I just spent asking the questions you are asking.

You might be jumping from the frying pan into the fire there. Be careful. All the consultants I know want to make a product.

Thanks. There's a reason for that!

> Jobs talking about consulting

Exactly same can be said about employees.

I went from a full-time employee to an agency owner (literally one client and one employee for the first ~8 months). Here are some unpleasant surprises I hit along the way:

a. hiring is hard - even more so when you are small. I was lucky to start with a senior hire who had a little more experience than me. I think your first hire is more or less determined by luck.

b. delegating and trusting your hires is learned habit and takes time. I messed up badly so I don't have any tips for you.

c. you need to probably carry a larger bank balance to tide over any downs. Don't inflate your lifestyle just because you are making more money now.

d. there are several small, nagging chores that need to be done regularly (accounts, payslips, interviews, invoices, follow-ups, exit interviews, etc.). Over time, this becomes easier and you will discover good help.

e. most days will be normal but there will be a few days when you wish you had stayed as a lone consultant and there will be a few days when you are genuinely happy to be running an agency. I still struggle with this and don't have too many tips.

f. you will go through a phase where you will do almost zero technical work. The phase can last for years until you hire the right people to free you up. Just be patient - you have to navigate this phase if you want a stable business.

g. once you start and are not a failure (i.e., even if you are mediocre), you are on a treadmill that is hard to get off. You employees want to see growth and direction even if you, as the owner, may be content with a lifestyle business.

The worst recoverable mistake I unknowingly made in early days was to focus a lot more on the client and not bother about the image of my own company. We felt more like an extended team of another company than our own. I feel this is a recoverable error and that you don't need to avoid this. And as a disclaimer, I'm not in a hurry to scale so I avoided or have delayed many other problems that people more successful than me have hit.

I scaled from myself to a team of 20 (all remote). Just be aware that your skill set needs to change from hands on to management and operations. I had formal training in both, so it felt comfortable, but that's where many people stumble thinking that they have more work than they can handle so they start hiring, even though their gift is just on the execution side and not the management side.

The transition is fantastic and very financially rewarding if you have the desire and skillset to hire, manage (and fire!) others. The biggest change for me was the added stress on sales of having to "provide" for not just myself and my family but the individuals I hired and thinking about their families as well.

Also, my days became much more about things going wrong. Not because they were at a high rate, but because at the top people bring to you problems they couldn't solve themselves. So, it's a lot of problem solving, client repair work and coaching.

But after 5 years, I made more money than I thought I'd ever make, so to the victor go the spoils.

Step 1: Do everything until you can't.

Step 2: Pick the one thing you do the worst. Hire one person (probably a part-time contractor) to do that.

Step 3: Do everything else until you can't.

Step 4: Goto "Step 2"

If you hire someone to do stufd you are bad at, you often end up in being unable to tell if they do it well

That's ridiculous. People hire accountants, lawyers, and doctors all the time.

I see op's logic. How would you know when or if they did a poor job? Would it be after your audit, your guilty verdict, or the malpractice claim?

Just look at marketing and sales. It's basically a lottery...

Maybe can be changed to "Use your network to find..."

Hopefully referrals are a bit better than lottery

For any task you should be able to find information to teach yourself at least basic monitoring. If you can't get good at doing it, you can at least be reasonably good to judge if it's working.

Accountants, lawyers, and doctors all have associations who set professional standards they must abide by. They often also owe you a higher duty of care than someone in i.e. marketing or sales.

I still see where op is going, but accountants, lawyers, and doctors aren't the greatest counterexamples to use here.

Sure they are. There's plenty of variation in quality among people in those respective fields, just like every professional field.

If someone were to ask me this question, the first thing I would ask them is: Why do you want to do that?

Some years ago, I thought I wanted to scale from a solo freelancer into an agency. I had two reasons: 1) money and 2) accomplishment. It's now my belief that building an agency is not a good way to achieve either of those two goals.

I went a small ways down the path of building an agency. I worked on a project where I hired two other freelance developers and one designer to help me. It was a lot of mental overhead and at the end of it, I didn't make that much money. Taking into account the stress of managing other people and the risk of being responsible for other people's work (including mistakes), I ended up wishing I hadn't gotten any other people involved at all.

One of the least attractive parts of running an agency I can think of is the boom-and-bust cycle. Almost every freelancer/consultant has a boom-bust cycle. With an agency the symptoms of the boom-bust cycle are amplified and made much more painful and serious. I've seen agencies have to lay people off when times are lean. Then when times are "good", you have to scramble to hire more people to do all the work - or make your employees work overtime, which I think is pretty unfair (I've been in this position at agencies).

So at some point I decided I didn't want to build an agency after all. Instead I decided to make as much money as possible (in as few hours as possible) as a solo consultant. Based on the fact that [Alan Weiss](https://www.amazon.com/Million-Dollar-Consulting-Alan-Weiss/...) claims (in such a way that I believe) to earn over a million dollars a year as a solo consultant, I understand it's possible to earn quite a lot as just a single individual.

My biggest success in increasing my earnings has been to move from development to training. I haven't succeeded in charging more than $100/hr as a developer (except some tiny projects and emergencies) but I've charged as much as $13,000 a week as a trainer. Some trainers I know charge $20,000 a week or more.

I've also had some small successes selling products. I wrote an ebook in 2016 that sold about $8,000 worth. Now I'm working on the next product.

So if someone came to me with this question of how to scale into an agency, my answer would be that I think there are way better ways to get what you think an agency will get you, unless for some reason you really want to start an agency for the sake of starting an agency.

"I wrote an ebook in 2016 that sold about $8,000 worth."

This is no small feat! But I'm curious: was the time+effort to create and sell that ebook more or less than the time+effort it would have taken you (back then) to sell and deliver an $8k consulting gig?

Can you talk more about the training aspect? Do you do it on site or rent a space? How do you find customers?

Seems to be Rails testing, according to his blog.

Thanks for sharing @jasonswett, would love to hear more.

I'm in the same boat, transitioning from development to training. It's a long road but I feel it's worth it, I love to teach although I have to get out of my comfort zone. The biggest challenge is finding customers for on-site training & time investment, creating a course takes substantial time.

As for the training - I believe being onsite is crucial, so this is not something easily achievable remotely.

Maybe the first step is to find abother good consultant to make a company, and then start hiring other people.

I've hired Software developers and I know first hand the difference in pay that the consulting agency gets and the actual developer - it's about 20% for a W2 contractor -where you officially work for the consulting agency and they pay the employeer's side of the social security and Medicare (9%).

I recently thought about being a full time consultant but the problem I ran into was that I didn't have the network to do it directly and going through recruiters meant they would get their 20% cut. It wasn't worth it for me over taking a full time salaried job with paid time off and holidays. That's not even taking into account someone who would need to pay for insurance for a family or the time between gigs. I'm insured under my wife.

I wasn't able to make the numbers work. I live in a large metropolitan area with plenty of tech jobs - not on the west coast.

If I started a consultancy and hired a recruiter, a marketing person, etc., that would just increase my overhead and either my hourly rate to cover the non billable employees wouldn't be competitive or I would have to pay them from a competitive hourly rate and be back in the same boat of just using a recruiter.

I've worked for an agency in the past which is not much more than two guys with a very deep Rolodex (both clients and potential workers) and a hired office.

No permanent employees, only self-employed contractors. They only pay the employees once they get paid by the end client (normally after 30 days) and all the work is based on Statements of Work with large corporates so no real chance of non-payment.

This is in the financial sector in the UK. Obviously they have feast and famine as well, but they have had 20-30 consultants all working at once. I think the main issue with replicating what they have done is a) getting the necessary client contacts, and b) the fact that banks are moving to preferred supplier lists with major consultancies rather than smaller niche suppliers.

Jason Swenk produces a podcast geared toward the Digital Agency space -- growth stories are a frequent subject amongst the interviewees > https://jasonswenk.com/category/podcasts/

It really depends on where you want to go, set yourself a clear goal what size and what kind of service you want to offer, in retrospect (5 years, 20 people and leading network with 40 people working for several global brands) that was my biggest mistake. We just happily tagged along and worked our way up... but an agency with 15 people works totally different than an agency with 4 or 40 people. The larger the agency gets the more defined are the roles, as a consultant you are selling yourself and doing everything yourself. In an agency of 40 clear roles have to be established for every process.

Agencies live by their brand and flair, you are selling not just a service but the idea of your service. So think hard about what differentiates you. Try to build dedicated sales funnel... Ok I could do this for hours...

Aquire people to do the job. We and approached two of our "competitors" and convinced them to join us as we built a brand, reputation & leads. The proposal was simple we'd supply them with leads, they take the lions share of income on a self employed contracted basis. The other seen this proposal as good but what sold it to them was the lower overheads than doing it alone - removing there costs. They kept own brand but did so under our umberella.

Our biggest "problem" is - the team gets lion share and im now more of a lead generation parent company.

The big mistake I made in trying to do this was to hire other people with my same skill sets. I am an engineer and I thought "Ok, I'll just hire more engineers," thinking I would transition to the business side of things. What I should have done was hire people with different skill sets like sales / marketing / etc.

you need to find a recruiter/sales type that wants and is able to start a company with you. you do the interviewing and help sell that you provide value add by picking up the slack compared to a standard people shop. They do the monotonous sales part.

Do everything yourself until you feel like you are about to break in half.

6 months later...

Find a sub or outsourced service to take on the task that consumes the most time for the least net gain. I suggest bookkeeping or AR.

Repeat.

The last things you will relinquish will be the actual work you enjoy doing, which is good.

One technique to consider is to also develops your own product. This way if your employees have any downtime between contracts AND you have the resources, then you’re not paying them for nothing and you don’t need to pay them off.

Two good books on the subject...

First read "The E-myth".

Then read "Built to Sell".

Have not read the "Built to Sell", yet the "E-Myth" is spot on. At least the first half of it.

Find other consultants that you can subcontract. Focus your time more and more on account management. When you’ve got enough accounts perpetually, bring in perms.

This whole thread was super useful as I try to grow a Shanghai based professional services biz for job seekers and academics 2-5x bigger. Much appreciated!

There was recently a good podcast about this on Freelance Transformation.

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