Funding your startup by consulting on the side

May 26th, 2009 by Prateek Dayal | Print Funding your startup by consulting on the side

I was part of the panel discssion at the  xtremestartups event on Sunday and one of the topics we discussed was funding a startup by consulting on the side. I strongly believe in two things – bootstrapping and working full-time on one’s startup – but there are real costs involved in starting up that one needs to take care of. In case one doesn’t  have enough money saved up, consulting is the only feasible option (other than getting funded). It’s best to avoid even consulting (by running a lean and mean start-up) as it takes one’s focus off the start-up. But most times it is inevitable and I recommend the following tips to make the best out of your consulting stint.

Pick the right projects

Of all the things that I have learnt about consulting, this is the most important one. Here are a few guidelines that can help you pick the right projects.

  • Charge by the hour and never opt for fixed budget projects however-much enticing they are. All software projects tend to get delayed. The delays don’t mean much if you are in the consulting business, but if you are trying to raise cash for your startup, every extra day lost  reduces your product development runway. If billing is by the hour, you can make sure that such delays don’t hurt you. It also makes sure that you get only relevant change requests (since the client is paying for every hour spent).
  • Pick projects that you like working on and teach you things that can be applied to your own idea. For example, if you are planning to work on an e-commerce portal (or want to add a payment gateway to your existing product), you can pick up a similar project and learn relevant stuff there.
  • Don’t mind dirty maintenance jobs as they are short and well-paid. As engineers, we tend to love working from scratch and hate fixing bugs in someone else’s code. End-to-end product development cannot be delivered in a few sittings unlike a well defined back end work. Also you will make big bucks  in projects that are already live, because  your contribution as a subject matter expert  is extremely important for the company in fixing its product.
  • On a related note, avoid projects that involve working on the UI. These jobs involve talking to the designer, taking the CEO’s viewpoint on buttons/boxes and cross browser hell. Compare this to backend work, where you can work all by yourself, whenever you want and finish the job much more quickly. You want to avoid any sort of job that has too many stakeholders.

Don’t grow your consulting business

Once you pick up a project, there are inevitably more such project offers coming your way and most often you will be tempted to hire a couple of freshers and a manager and spin off a consulting business – an amazingly self sustained money generating machine of a business that requires minimal effort  that can keep funding your product development. If you go down that Utopian path, before long you would realize that most of your time is spent in business development, following up on payments, motivating your employees and other mundane activities. If product company is what you want to build, do not shift focus. Take up just as much  as you can do than sinking into the quagmire of a services business. The cash reserve that you build should be just enough to give a decent runway for growing your startup.

Get Paid

While this looks like the most obvious one, many people make a mistake here. As engineers, we tend to charge based on our needs and not our skill set and its value in the market. Talk to  few of your peers and figure out how much to charge before you quote. Don’t charge lesser than the market rate and make sure that you get paid. Sometimes, your clients are too busy and paying you may not be the top priority item in their to-do list. Follow up and get paid. If possible, take an advance payment before starting out and decide on milestones for remaining payment.

You can’t always balance it right

One more setback which is not quite obvious on first glance is the time-sink that can happen due to continuous context switching between consulting projects and your start-up idea. Consulting is going to take your focus away for a while and your startup’s growth may suffer because of that. The idea is to accept that upfront and not let it bring you down. The last thing you wanna do is to end up demotivated. If you are working all day on consulting projects, there is no point  forcing yourself to work on your startup at night. There is only so much one can code every day and any spare time should be used to reflect upon your  start-up’s growth and strategy. If you are adventurous, you can also use this break to catch up on your reading or hang out with friends :)

In the end, figure out what works best for you and do it. Idea is to make some money, learn something new and have some fun. When you get back fulltime to your startup, you should be richer and invigorated!

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This entry was posted on Tuesday, May 26th, 2009 at 1:52 pm and is filed under Uncategorized, activerecord. You can follow any responses to this entry through the RSS 2.0 feed. You can leave a response, or trackback from your own site.
  • http://twitter.com/indimeme indimeme

    Funding your startup by consulting on the side: Prateek Dayal I was part of the panel discssion at the  xtr.. http://bit.ly/u2saZ
    This comment was originally posted on Twitter

  • http://twitter.com/indimeme indimeme

    Funding your startup by consulting on the side: Prateek Dayal I was part of the panel discssion at the  xtr.. http://bit.ly/u2saZ

    This comment was originally posted on Twitter

  • http://twitter.com/prateekdayal prateekdayal

    Funding your startup by consulting on the side – http://bit.ly/pSSCh
    This comment was originally posted on Twitter

  • http://twitter.com/prateekdayal prateekdayal

    Funding your startup by consulting on the side – http://bit.ly/pSSCh

    This comment was originally posted on Twitter

  • http://twitter.com/guglanisam guglanisam

    Very practical advice RT @prateekdayal: Funding your startup by consulting on the side – http://bit.ly/pSSCh
    This comment was originally posted on Twitter

  • http://twitter.com/guglanisam guglanisam

    Very practical advice RT @prateekdayal: Funding your startup by consulting on the side – http://bit.ly/pSSCh

    This comment was originally posted on Twitter

  • http://twitter.com/nileshtrivedi nileshtrivedi

    @prateekdayal Great post! Most of your recommendations are bang on. :) Funding your startup by consulting on the side: http://bit.ly/pSSCh
    This comment was originally posted on Twitter

  • http://twitter.com/nileshtrivedi nileshtrivedi

    @prateekdayal Great post! Most of your recommendations are bang on. :) Funding your startup by consulting on the side: http://bit.ly/pSSCh

    This comment was originally posted on Twitter

  • http://nileshtrivedi.in Nilesh Trivedi

    Bang on. Great post :)

    The idea is to do a less-risky business to fund a high-risk one, while not ending up getting tangled in the less-risky business itself.

    Sorting by risk, the order would be corporate job, consulting, service business and product startup. Keep moving on towards the higher risk side because that is where the highest returns lie. :)

    cheers
    nilesh

  • http://nileshtrivedi.in Nilesh Trivedi

    Bang on. Great post :)

    The idea is to do a less-risky business to fund a high-risk one, while not ending up getting tangled in the less-risky business itself.

    Sorting by risk, the order would be corporate job, consulting, service business and product startup. Keep moving on towards the higher risk side because that is where the highest returns lie. :)

    cheers
    nilesh

  • Rohit K

    Hi Prateek,

    I just discovered your blog today, and it has fired my imagination. I have been wanting to become an entrepreneur myself, but my only source of income was a corporate coding job, and that left me with no time or energy for starting my own business.

    This consulting idea intrigues me. I thought consulting was a viable career option only in the U.S. etc., and that in India there was not much work for freelance consultants. In your experience, is it otherwise? What kind of clients can one expect to work for – other startups, or mom-and-pop businesses?

    Thanks for any guidance you can offer, and thanks for the great posts on your blog.

    Rohit

  • Rohit K

    Hi Prateek,

    I just discovered your blog today, and it has fired my imagination. I have been wanting to become an entrepreneur myself, but my only source of income was a corporate coding job, and that left me with no time or energy for starting my own business.

    This consulting idea intrigues me. I thought consulting was a viable career option only in the U.S. etc., and that in India there was not much work for freelance consultants. In your experience, is it otherwise? What kind of clients can one expect to work for – other startups, or mom-and-pop businesses?

    Thanks for any guidance you can offer, and thanks for the great posts on your blog.

    Rohit

  • Prateek Dayal

    Hi Rohit

    I am glad my blog could fire your imagination :)

    There is a good market for consultants in India currently. There are a few companies that outsource projects to you. You just need to know the right people (which you would, once you are here)

    I feel that there is a certainly a great market for Ruby on Rails (probably because its not as crowded as Java/PHP). However I am sure that if you are good at a technology, you will find work in it. Typically outsourced work pays more than local work but it sometimes varies

  • Prateek Dayal

    Hi Rohit

    I am glad my blog could fire your imagination :)

    There is a good market for consultants in India currently. There are a few companies that outsource projects to you. You just need to know the right people (which you would, once you are here)

    I feel that there is a certainly a great market for Ruby on Rails (probably because its not as crowded as Java/PHP). However I am sure that if you are good at a technology, you will find work in it. Typically outsourced work pays more than local work but it sometimes varies

  • http://bizconnectionsnow.com/ Stephanie Elizabeth

    That was an excellent post with some great information. We published some information on this topic too. You can see it here.

    http://bizconnectionsnow.com/blog/business-funding/business-funding-where-to-start/

  • http://bizconnectionsnow.com/ Stephanie Elizabeth

    That was an excellent post with some great information. We published some information on this topic too. You can see it here.

    http://bizconnectionsnow.com/blog/business-funding/business-funding-where-to-start/

  • Random Guy

    Did you guys try the traditional VC route. It might be a easier given that you are getting good traction. I can see the hockey stick growth in one of your earlier posts.

  • Random Guy

    Did you guys try the traditional VC route. It might be a easier given that you are getting good traction. I can see the hockey stick growth in one of your earlier posts.

  • http://www.ThoughtMedia.com Marketing company toronto

    Excellent! I’ve shared this already!

  • http://www.ThoughtMedia.com Marketing company toronto

    Excellent! I’ve shared this already!

  • http://www.khaitan.org/blog/2010/08/bootstrapping-a-startup-via-consulting-gigs/ Bootstrapping a startup via consulting gigs « Parisista

    [...] all the time. Some short gigs here and there  — I do it a few in a year.  Muziboo is a good example in India where the founders did consulting to bootstrap it. Even Paul, Bill & Co. did the same [...]

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