Pros and Cons of Hiring Consultants For Your Startup

As more and more startups are finding, it is getting increasingly difficult to find and retain quality engineers. Some engineers are hopping onto the next project, which they hope might become the next Pinterest or Instagram. Some engineers are more interested in pursuing their own ventures or joining a company at a stage where they can be off more value. Others pursue their own ventures for no reason other than to avoid a technology stack they hate, or to have increased flexibility in their work arrangement.

Savvy engineers are leveraging the current state of hiring engineering talent to command high consulting fees for their engineering services.

Can you blame them? As a salaried engineer, you could make $85-$120,000/year with full benefits and stock options that MAY become valuable in the future. As a consultant, you are more expendable than a full-time employee and hence must be compensated adequately. The best engineers I know command anywhere between $100 and $250 an hour for consulting services. This means that with a steady amount of work, even factoring for health insurance, life insurance and the other attractive benefits of working for a company (hence steady paycheck), you could work a lot less and make the same amount, and in many cases, a lot more.

Hiring Consultants for Your Startup: Increased Reality

Most startups today have to deal with the reality of hiring consultants to implement their technology offering. While this may not hold true for every startup (depending on their traction, stage, founders etc.), it holds true for many, at least until one has raised a significant seed/angel or Series A round to pay an engineer’s salary (unless you are lucky enough to have an engineer or two, for co-founders).  As with every startup decision you will make, there are drawbacks and benefits to whichever option you choose. In the case of hiring consultants, this aspect is especially pronounced.

Pros and Cons of Hiring Consultants

The pros of hiring consultants:

1. You don’t have to worry about paying someone a fulltime salary and being an employee (which has its legal obligations). If you work with a reputable consultant, you will feel as though they are a partner and not a disposable component of your business.
2. Consultants are particularly valuable during the MVP stage of your project, where all you need is help in prototyping and bringing your idea to life. Once you gain traction with your idea, it is much easier to raise money. They also thrive in particular aspects of your startup where you need temporary support, or need help in implementing industry-standard practices with (e.g learning real Agile Methodology, Hadoop Implementation etc)
3. A good consultant will often contemplate joining your team on a fulltime basis if they truly believe in your idea (or like you enough). Many engineers don’t want to deal with the fundraising/business development aspect of new ventures, so if you can demonstrate your competence in this area, you are more likely to convince them to join your team.

The cons of hiring consultants:

1. Given that the person is a consultant/contractor, they are not bound to working FOR you. You cannot legally force them to do some of what you might expect from an employee.
2. Unless you are paying them extremely well, good consultants are likely juggling one or two projects and hence you may not have their undivided attention.
3. Also, it is much harder to build company culture and some of the other intangibles of having your own in-house employees around consultants.
4. Ensuring Vested Interest. Some consultants may not really care about your startup.

Ensuring Consultant Has Vested Interest in Your Startup.

Some people are wary of hiring consultants because they feel as though the consultant will not be sufficiently committed to their project. While this is sometimes the case, there are several ways to ensure your consultant has a vested interest in your project:

• Negotiate stock options
  • Give your consultant an ownership stake in your startup. This will make it much more likely that he goes above and beyond to offer great service.
• Negotiate deferred billing
  • Similar to above. Be sure to negotiate some of the consultant’s payments as a deferred billing arrangement contingent upon some event (fundraising, user milestones etc.).

For you to successfully convince a consultant to agree to one of the above, your project must have one of the following traits:

• Competent Team
  • The consultant must feel as though you are capable in executing your business since software is just one small part of the entire picture.
• Product with a sufficiently High Total Addressable Market (T.A.M)
  • The higher the total addressable market (and the smaller the number of strong competitors are), the more attractive your startup will be.
• Project has ability to generate a lot of cash very soon.
• You are willing to be 100% transparent about your startup’s finances.
  • Consultants will want to know where their equity stands at all times.

For one of Digitalvaliance’s early clients, we implemented much of their branding and internet requirements before they were able to secure serious funding because we believed their product’s T.A.M was over a billion dollars and we really believed in the management team. The company went public a few years later and at one point our shares were worth 100x more than we would have to pay to exercise the option. It has since plunged but because we have ownership in the company, we have a vested interest in it doing well.  One of the ways we do this is by being extremely flexible with their payment terms and extending the company other benefits.

In Closing

Consultants can be valuable members of any startup. If you engage with them properly, they can contribute immensely to your startup for the long term especially in scenarios where hiring a full time engineer would be an overkill. This will allow you to focus on making product strides versus spending valuable time trying to recruit engineering talent.

Ismail Maiyegun is the Creative Commander in Chief of Digitalvaliance, a mobile and web applications development company in San Francisco. He is also the Founder of LogoBakery, a logo design company and the CTO of Music for Tomorrow, a non-profit founded by Jude Law that seeks to stimulate the creative economy through Jazz.

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