- When you run a consulting firm,
you're going to face a lot of potential pitfalls.
Beyond the big mistake of not doing great work,
here are the top pitfalls I've seen people face
as they build their firms.
First is being overly reliant on a small number of clients.
Having a few big clients can be awesome.
They're predictable and easy to work with.
That is, at least, until there's major upheaval
and they stop being a client.
To avoid this, diversify your client base
as quickly as you can.
Monitor client concentration at least once a year.
At thoughtLEADERS, every December I pull up
all our client revenue for the year,
and I make that pie chart to see
where the revenue's coming from.
In the early years of the firm,
I noticed one year that we had two clients
that were 65% of our revenue.
That was pretty scary.
If one of them stopped being a client,
I had a big hole to fill.
The following year, I invested a lot of time and effort
into diversifying that client base
to reduce that customer concentration risk.
Next, focusing too much on delivering services
and not enough on selling your services.
When you're on a project, things are great.
You're working with clients and money's coming in.
But what happens when the project stops?
If you haven't been conducting sales
and business development activities
while you've been serving other clients,
you'll end up with a slack period
of no work after your project.
That can cause massive cashflow issues.
To avoid this, schedule 15 to 20% of your time
for sales activities and stick to that schedule.
Another pitfall is not managing people well.
People can be challenging.
It's easy to avoid difficult conversations
and put off disciplinary actions.
The problem is those issues will eventually come to a head.
To prevent this from happening,
make a commitment to yourself
to handle issues as soon as you see them.
It's hard to do,
but it's easier than fixing a bigger issue down the road.
The last pitfall is making mistakes on contracts,
accounting, administrative, or personnel issues.
A missed clause on a contract, a forgotten invoice,
a late document filing, or an incorrect personnel form
can lead to big headaches.
These mistakes waste time
that you could be spending on sales or client service.
They could also expose you
to significant financial liability.
To fix this, involve experts to handle these areas.
Outsource some administrative functions.
Put recordkeeping processes in place
to track key deliverables.
The better you know these common pitfalls,
the easier it is to plan and avoid them
or to recover quickly if they happen.