Spinning a Startup Out of a Consulting Firm

Recently I was talking to an entrepreneur that has owned his own consulting firm for many years and...

Recently I was talking to an entrepreneur that has owned his own consulting firm for many years and is in the process of spinning out a startup based around a product they had built for a customer. After hearing the pitch, and seeing the product, I thought about it for a minute and offered up a few suggestions.

Spinning a Startup Out of a Consulting Firm
Here are a few ideas around spinning a startup out of a consulting firm:
  • Ensure the startup is truly separate from the consulting firm including separate employees, payroll, financials, etc (shared office space makes sense but the startup needs to be a completely different business)
  • If the consulting firm is owned by one person, it’s important to unwind the use of “I” and to start using “we”, assuming the startup is going to have one or more co-founders and an employee stock option plan
  • With a handful of paying customers courtesy of existing consulting relationships, there’s a good chance there’s solid progress towards product/market fit, but it’s important to separate out the consulting value from the product value so that the majority of future clients buy the product without buying the consulting
  • Building a repeatable customer acquisition process will be one of the most difficult things as the sales and marketing process for a product company is often very different from a consulting company, and most consulting companies don’t have a repeatable customer acquisition process, so they don’t know what it looks like (most consulting companies generate customers via word-of-mouth)
  • Determining the startup’s core competency early on (e.g. product/engineering focused or sales focused) is important as well as it’s a different mindset from a consulting firm where the core competency is the domain expertise and specialty of the consultants
All startups are hard regardless of origin. Spinning a startup out of a consulting firm is especially difficult as there’s a tendency to not fully separate the two and resources eventually get pulled back into the larger entity as it’s the one paying the bills. Figuring out how to get the startup self sustainable as quickly as possible through sales or investors is key.
What else? What are some other thoughts on spinning a startup out of a consulting firm?

You Might Also Like

0 comments

Follow by Email