Speaking of Business: Rewards outweigh cost of employing consultant

Q: My company has been growing quickly, and everything seems to be running great. However, some of my friends have suggested to me that this is the time that I should get some help from some outside/third-party consultants in order to stay on top of my game. Do most businesses use consultants to grow their businesses? Why?

A: My experience tells me that most successful companies seek the services of a consultant at one time or another. By doing so, they are able to bring in an objective third-party person with special skills to assist them when they meet a fork in the road. That fork is usually where they start to explode with success or begin to decline from previous forward-motion work. As a consultant myself, I can tell you that companies that seek the advise of a consultant are those companies that choose to continue on the road to success. They don’t want to lose what they have spent so much time, energy and capital working toward. And, they know that by spending a few dollars on a consultant they will have a greater chance of overall success with their business, and the rewards substantially outweigh the initial cost.

The easy answer to your question is that a consultant has specialized knowledge that can help your business. This is knowledge that you or a member of your existing team might not have, or you may not have the time to complete a certain task. It may take the form of setting up a computer network, contacting key customers, reducing employee turnover or cutting the fat out of a budget.

You may want to perform the work yourself. However, if you can afford a consultant, your time and money will be saved time and time again. Ask yourself just how long it will take you to get up to speed on the project and then perform the task. Then determine if a consultant can step right in and do the same or better job in less time. I believe the answer will be clear.

Remember that in some work there is no substitute for the experience of an expert. You may have previously launched a company, but the consultant may have launched more than 20 companies.

Q: Whenever I use a consultant, their fees always end up higher than expected. Is there anyway to keep them under control?

A: In any service contract, you are buying either time or deliverables. If you hire a consultant by the day, then you are buying time. If you hire a consultant to do something such as write your business plan, then you are buying a deliverable.

Most consulting contracts get out of hand when you want something done that is not well-defined. If you ask a consultant to ‘improve your market share’ in an industry that is new, this is very vague. This will usually result in fees without end.

Don’t expect a consultant to agree to a fixed bid for services on a loosely defined deliverable. You will be told that there is not enough information to fix a price. One way to handle that is to step into the consulting agreement in stages. First stage, for a fixed time period, allow the consultant to familiarize himself or herself with what information is available and then, in the second stage, ask the consultant to bid to produce deliverables at a fixed price.

I have found that the best consultants are people who are usually willing to do work on a reduced fee plus commission or equity fee basis. These people have refined their business practices to a point where there is no fat, and they have not developed infrastructures that result in higher overhead costs with inflated fees. The fact that these people usually charge based upon success is a good indicator of their level of confidence in their own work and the likelihood of a positive outcome.

Another common question is, “If I can get someone to work on a commission or contingency fee, why would I pay them a daily fee or retainer?”

When you hire someone to get a job done, you seldom get the benefit of learning how to do the job yourself. However, with a consultant, you should take advantage of the opportunity to learn what the consultant knows. You can observe the work while it’s performed and ask questions. You can participate in meetings and presentations. You can set aside times to discuss the pros and cons of a particular strategy. In this way, you are being privately tutored while at the same time moving your business forward. This is a significant benefit that you will not obtain from working strictly with sale reps, brokers and other relationships.

Greeley resident Russell Disberger is a founding member of Tekquity Ventures LLC, a Louisville-based specialty venture-capital firm investing in technology development and licensing. He can be reached at (303) 926-3990 or by e-mail, disberger@tekquity.com.

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