Hiring people and managing an agency will feel very different than doing consulting yourself. For me, it meant I now had to worry about getting enough work for two people, and managing cash flow so that I could actually make payroll all the time.
For example: before, if I didn't have work then I could just stop paying myself for awhile, and then make up for it by paying myself more when the contracts started coming in again. With an employee though, I had a fixed burn rate (since I couldn't just stop paying him), so I had to manage my cash reserves a lot better. It's a good practice to have anyway, but it took some getting used to.
So my recommendation would be to start small - and don't start by hiring someone full time right away. Instead, start by subcontracting some of your work out to someone else. How does that feel? Can you get enough work to keep two people busy? Can you manage your cash flow so that you can pay people on time?
My #1 answer to "how to do this" has the virtue of simplicity: stop billing hourly.
What would be interesting to see on a thread like this is which people offering advice have actually scaled a consultancy.
Happy to answer specific questions, for what it's worth.
Billing daily/weekly/monthly means losing flexibility/freedom - everyone assumes you will work magic 8 hours per day or 40 hours per week.
In case of an indefinite (or a very long-term) work inflow, billing hourly is preferred, and it means you have a freedom to work e.g. 2 hours on one day, maybe 6 on another...
It is also simply not the case that if you work for 2 hours for a client in a day, you can only charge them for 2 hours of work. This might be the single most damaging myth in all of freelancing.
Or, in case of weekly billing, invoice mentions "1 work week", and you've "showed up"/worked only 1 or 2 days on that week (and even not "full-time"/8h on those days).
Or, do you mean to never mention the time in the invoice and just bill for particular completed tasks?
in the latter case, you will be in a constant negotiations/agreements regarding the scope and costs of particular tasks. The time-based charging doesn't have this issue - again, I mean when you have an "open-ended" work inflow, so you don't say/negotiate in advance how much time you spend on particular task... So it is work/get_paid as you go.
I have been a one-man-show consultant for about 12 years and just this year I have decided that I've had enough. Fat/thin times, clients who hate to pay even for good work, fighting the rest of the world in a race to the bottom, never working on one thing long enough to make it into something great, being the first to be let go when a client has tough times.
It's a bitch being a software consultant.
I'm going to build a product and wind down my business, I'm done.
Just yesterday I came across this video of Steve Jobs talking about consulting, it really hit home for me.
He's right, you never quite get deep enough. It's a shallow existence. I've worked for some of the worlds biggest brands and you know what? Nobody gives a shit. They just think you are expensive when they see all that. Seriously I've worked on 100 brands you'd recognize; nobody cares. Big clients squeeze you and small clients don't have the money.
The key was always having a few good clients to keep you going but then you are just basically working a job, right?
I make good money but I'm tired of the grind. I can't work in a reguar job, so, I'm going to grow a product.
Sorry about the rant. I hope you can learn something from the 12 years I just spent asking the questions you are asking.
Exactly same can be said about employees.
a. hiring is hard - even more so when you are small. I was lucky to start with a senior hire who had a little more experience than me. I think your first hire is more or less determined by luck.
b. delegating and trusting your hires is learned habit and takes time. I messed up badly so I don't have any tips for you.
c. you need to probably carry a larger bank balance to tide over any downs. Don't inflate your lifestyle just because you are making more money now.
d. there are several small, nagging chores that need to be done regularly (accounts, payslips, interviews, invoices, follow-ups, exit interviews, etc.). Over time, this becomes easier and you will discover good help.
e. most days will be normal but there will be a few days when you wish you had stayed as a lone consultant and there will be a few days when you are genuinely happy to be running an agency. I still struggle with this and don't have too many tips.
f. you will go through a phase where you will do almost zero technical work. The phase can last for years until you hire the right people to free you up. Just be patient - you have to navigate this phase if you want a stable business.
g. once you start and are not a failure (i.e., even if you are mediocre), you are on a treadmill that is hard to get off. You employees want to see growth and direction even if you, as the owner, may be content with a lifestyle business.
The worst recoverable mistake I unknowingly made in early days was to focus a lot more on the client and not bother about the image of my own company. We felt more like an extended team of another company than our own. I feel this is a recoverable error and that you don't need to avoid this. And as a disclaimer, I'm not in a hurry to scale so I avoided or have delayed many other problems that people more successful than me have hit.
The transition is fantastic and very financially rewarding if you have the desire and skillset to hire, manage (and fire!) others. The biggest change for me was the added stress on sales of having to "provide" for not just myself and my family but the individuals I hired and thinking about their families as well.
Also, my days became much more about things going wrong. Not because they were at a high rate, but because at the top people bring to you problems they couldn't solve themselves. So, it's a lot of problem solving, client repair work and coaching.
But after 5 years, I made more money than I thought I'd ever make, so to the victor go the spoils.
Step 2: Pick the one thing you do the worst. Hire one person (probably a part-time contractor) to do that.
Step 3: Do everything else until you can't.
Step 4: Goto "Step 2"
Hopefully referrals are a bit better than lottery
I still see where op is going, but accountants, lawyers, and doctors aren't the greatest counterexamples to use here.
Some years ago, I thought I wanted to scale from a solo freelancer into an agency. I had two reasons: 1) money and 2) accomplishment. It's now my belief that building an agency is not a good way to achieve either of those two goals.
I went a small ways down the path of building an agency. I worked on a project where I hired two other freelance developers and one designer to help me. It was a lot of mental overhead and at the end of it, I didn't make that much money. Taking into account the stress of managing other people and the risk of being responsible for other people's work (including mistakes), I ended up wishing I hadn't gotten any other people involved at all.
One of the least attractive parts of running an agency I can think of is the boom-and-bust cycle. Almost every freelancer/consultant has a boom-bust cycle. With an agency the symptoms of the boom-bust cycle are amplified and made much more painful and serious. I've seen agencies have to lay people off when times are lean. Then when times are "good", you have to scramble to hire more people to do all the work - or make your employees work overtime, which I think is pretty unfair (I've been in this position at agencies).
So at some point I decided I didn't want to build an agency after all. Instead I decided to make as much money as possible (in as few hours as possible) as a solo consultant. Based on the fact that [Alan Weiss](https://www.amazon.com/Million-Dollar-Consulting-Alan-Weiss/...) claims (in such a way that I believe) to earn over a million dollars a year as a solo consultant, I understand it's possible to earn quite a lot as just a single individual.
My biggest success in increasing my earnings has been to move from development to training. I haven't succeeded in charging more than $100/hr as a developer (except some tiny projects and emergencies) but I've charged as much as $13,000 a week as a trainer. Some trainers I know charge $20,000 a week or more.
I've also had some small successes selling products. I wrote an ebook in 2016 that sold about $8,000 worth. Now I'm working on the next product.
So if someone came to me with this question of how to scale into an agency, my answer would be that I think there are way better ways to get what you think an agency will get you, unless for some reason you really want to start an agency for the sake of starting an agency.
This is no small feat! But I'm curious: was the time+effort to create and sell that ebook more or less than the time+effort it would have taken you (back then) to sell and deliver an $8k consulting gig?
Thanks for sharing @jasonswett, would love to hear more.
I'm in the same boat, transitioning from development to training. It's a long road but I feel it's worth it, I love to teach although I have to get out of my comfort zone. The biggest challenge is finding customers for on-site training & time investment, creating a course takes substantial time.
I recently thought about being a full time consultant but the problem I ran into was that I didn't have the network to do it directly and going through recruiters meant they would get their 20% cut. It wasn't worth it for me over taking a full time salaried job with paid time off and holidays. That's not even taking into account someone who would need to pay for insurance for a family or the time between gigs. I'm insured under my wife.
I wasn't able to make the numbers work. I live in a large metropolitan area with plenty of tech jobs - not on the west coast.
If I started a consultancy and hired a recruiter, a marketing person, etc., that would just increase my overhead and either my hourly rate to cover the non billable employees wouldn't be competitive or I would have to pay them from a competitive hourly rate and be back in the same boat of just using a recruiter.
No permanent employees, only self-employed contractors. They only pay the employees once they get paid by the end client (normally after 30 days) and all the work is based on Statements of Work with large corporates so no real chance of non-payment.
This is in the financial sector in the UK. Obviously they have feast and famine as well, but they have had 20-30 consultants all working at once. I think the main issue with replicating what they have done is a) getting the necessary client contacts, and b) the fact that banks are moving to preferred supplier lists with major consultancies rather than smaller niche suppliers.
Agencies live by their brand and flair, you are selling not just a service but the idea of your service. So think hard about what differentiates you. Try to build dedicated sales funnel... Ok I could do this for hours...
Our biggest "problem" is - the team gets lion share and im now more of a lead generation parent company.
6 months later...
Find a sub or outsourced service to take on the task that consumes the most time for the least net gain. I suggest bookkeeping or AR.
The last things you will relinquish will be the actual work you enjoy doing, which is good.
First read "The E-myth".
Then read "Built to Sell".