Invest.net

Startup Consulting: Pros and Cons of Consulting for Startups

The entrepreneurial spirit is stronger than it’s ever been. Globally, there are 472 million entrepreneurs launching some 305 million total startups per year. But according to data from the Small Business Administration (SBA), 90 percent of these startups experience failure (with 51.5 percent flopping within the first two years).

Some of the reasons for startup failure include running out of money, being in the wrong market, a lack of research on the industry or idea, poor/misaligned partnerships, ineffective marketing tactics, and not being an expert in the chosen industry. 

Too many founders launch startups because they need a job, are tired of working for “the man,” or have a sudden epiphany and feel compelled to go all-in on an idea. And while there’s nothing technically wrong with any of these things, it often breeds unprepared founders who quickly find themselves in over their heads.

On the other end of the founder spectrum, you have extremely talented and skilled professionals who have a ton of knowledge, great ideas, and even a burst of initial success. But with no experience running or scaling a business, they find it difficult to take the startup from making $1 million in top line revenue to $5 million (or from $10 million to $25 million).

In all of these situations, startup founders can benefit from surrounding themselves with skilled people who can provide guidance, insights, coaching, and direction. Sometimes, a startup consulting is the right fit. And in other situations, it’s not. Read on to learn more about the pros and cons of consulting for startups.

What is a Startup Consultant?

A startup consultant is basically a third-party independent advisor who specializes in working with businesses that are in the startup stage of growth. The consultant typically specializes in one or more areas, but may evaluate, analyze, and provide feedback around issues like finances, marketing, product development, brand presence, and supply chain or logistics.

Startup consultants typically partner with the company for a short period of time and spend most of their time evaluating the business and offering suggestions for fine-tuning your processes, messaging, or strategy. 

Most consultants are not going to roll up their sleeves and help you write an email campaign, balance your books, or hop on sales calls. Instead, they’re going to coach you up on how to do these things. They are not a permanent member of your team and they typically use their brains more than their hands. A startup consultant isn’t trying to catch “fish” for you – they’re teaching you how to fish so that you can continue to eat after they leave.

The Pros of Hiring a Startup Consultant

There’s a reason so many successful founders hire startup consultants in the early stages of their growth. In fact, there are several reasons. Here are some of the pros of working with a consultant:

Expertise

The number one benefit of hiring a startup consultant is that it gives you instant access to someone who is an expert in their respective field (whether it’s marketing, copywriting, finance, etc.). If you’re a new startup, having someone to lean on in the areas where you’re inexperienced is an invaluable asset.

Objectivity

As the founder, nobody knows your business more intimately than you. And while that’s fine, it can also be a detriment to your success. When you’re inside the fishbowl, it’s hard to know what it looks like. A startup consultant has a unique and objective vantage point that allows them to offer constructive feedback and criticism that would otherwise go unnoticed in your blindspots. 

Clear pricing

You know exactly what you’re going to pay. Whether it’s an hourly rate or retainer price, most consultants are very upfront with their pricing. This makes it easy to budget into your balance sheet.

No strings attached

A startup consultant doesn’t take any equity in the business. This means there are no strings attached to your relationship. When the consulting period is done, everyone says thanks, washes their hands, and walks in separate directions.

When you look at these perks, it’s easy to see why startup founders often hire consultants.

Whether you’re literally just getting off the ground or you’re already generating seven- or even eight-figure topline revenue, bringing in a consultant to accelerate your growth may be a smart move.

The Cons of Hiring a Startup Consultant

While startup consultants have a lot to offer, these relationships aren’t always perfect for every startup or founder. Here are some of the disadvantages: 

Expensive

The pricing for a startup consultant might be clear, but it can also be expensive. Consultants come very highly specialized, which means they can charge a lot more for their time than some general business “coach.” In most cases, you’ll pay a minimum of $150 to $200 per hour. There are even consultants who charge as much as $16,000 per day. In that case, you obviously need to see a pretty big return on your investment.

Limited context

While objectivity is a benefit, you have to remember that any startup consultant is going to have limited context on your business. It’s going to take them several days or weeks just to get the scoop on your business and understand your products, messaging, audience, etc. Until they do, the feedback may be vague or misaligned with your business goals. 

Priorities

Because startup consultants have no equity or stake in the business, they aren’t going to be as committed to your startup as you are. And it’s possible that you’re just one of several clients they currently have on retainer. In that case, you have to worry about where their priorities are.

Shortcut

There’s something to be said for learning how to drive yourself (rather than having someone drive for you). The best founders learn for themselves. When you have a consultant, it’s easy to learn too heavily on someone else and miss out on learning opportunities that would make you stronger in the future.

When you consider hiring a startup consultant, make sure you’re contrasting both the pros and the cons. In some situations, it makes sense. In other scenarios, it may prove to be an expensive mistake.

Start & Exit Your Business With InvestNet

Are you looking to exit your startup?

At InvestNet, our passion and specialization lies in helping companies find and vet the highest-quality private investors.

We’re always on the search for companies that have $10 million-plus in sales revenue, $1 million-plus EBITDA, and have target equity of at least $4 million.

If that describes you, let’s chat!

Sky Richardson
Latest posts by Sky Richardson (see all)