Monday, October 22, 2007
One of the principal concerns in startup land is maintaining the cash/resource balance. You have a certain amount of money. You try to make this money last for a specified period of time in which you anticipate having more money, in which case your cash spend can be raised in order to take advantage of some presumable market condition. In software companies most of these capital needs are around personnel (i.e. How do we get from here to there with the set of people we have?). Some positions that don't require fulltime personnel can and should be filled with outside consultants. Outside consultants will get paid somewhere between 50% to 100% more than you would typically pay the person if they were a fulltime employee, but presumably you're using them far less, so it ends up preserving capital for use elsewhere in the company.
Now, a bind that you can get into with consultants is their availability. They are trying to make ends meet and grow their businesses just the same as you are. They will likely have competing demands on their time as their customer list grows. There are a couple of ways to solve this bind. One is to put the consulting group on a retainer. This means that they will set aside a certain amount of time for you each month and you will pay them whether you end up needing them or not. The second is to have redundant consultants up to speed on your business and able to deliver identical types of work. I tend to use the latter solution. The advantages of having redundant consultants is that you will get more ideas into the process, you can have them work in parallel on projects with other consultants, they will still likely have someone open in a pinch, and gives you more flexibility on the cash spend.