Build a Consulting Business Before You Build a Product Business

So you want to build a business. You have two options:

Offer consulting.
Build a product.

(This, by the way, assumes we’re already way too deep in the “startup bubble”, where the only two viable business models appear to be based on consulting or a product. We blissfully ignore the wider economic reality that there are lots of other viable businesses, like building houses, assembling cars, flying airplanes, etc. Those provide actual value to people. But we, on the other hand, are in the startup bubble. So let’s continue with the working assumption that we have to choose between consulting and product, two cushy options where you get to sit at your desk and stare at a screen.)

Back to topic. So – what should you do? Consulting or building a product?

Start with consulting.

But here’s the thing: In my experience, 99% of founders choose to build a product instead. Why?

I think it boils down to 1) vanity and 2) ignorance. Specifically:

Vanity: It’s cool to be at a conference and point at your company and say “we built this cool product”. It’s less cool to say “we do consulting”.
Ignorance: Many product businesses like Slack, Zoom and ChatGPT are perceived to be very successful, and future founders want to emulate their “success”. However, they are unaware of the fact that these businesses are bleeding money – Slack, Zoom and ChatGPT are not profitable and propped up by (continuous) investor funding.
Ignorance: A consulting business doesn’t “scale” – your revenue scales more-or-less linearly with consultants, so you have to hire more staff to make more money. A product business, on the other hand, doesn’t need any staff and magically prints money, because it’s subscription-based software, and software runs itself, right? Wrong. If you add in on-call duty, customer support and sales, the 99% of software businesses suddenly look like a consulting business (they probably look even worse as many are not profitable).
Vanity: I call this the illusion of productivity. Once you’ve got some investor money (or savings), you can retreat to your software engineering cave and build the product for 1-5 years, feeling ignorantly productive every day. The problem, however, is that you’re procrastinating the hard part which is finding customers who pay you money. Selling software to people is at least 10x harder than selling consulting (more on that below).

So founders prefer product businesses, and they prefer them for irrational reasons.

But telling you that building a product business is hard is about as useful as telling an unhealthy person that being unhealthy is bad. It’s not very helpful, and it’s unlikely to change the course of their actions.

So I’d like to go even further and show you that building a consulting business is easy. Let’s talk about finding your first customer and making some money.

Finding Your First Customer

How long does it take you to find your first customer with consulting vs. a product?

Let’s look at some best-case scenarios, starting with consulting:

You find a client (10 minutes).
You set up a call (30 minutes).
You write up an offer in Google Docs and send it over (10 minutes).
Your client signs and wires you a prepayment.

In less than one hour, you’ve landed your first client and got money in the bank. Let me linger on that for a moment, because the second-order consequences of this are huge:

The variance of outcomes is low. What I mean by that is that the worst-case scenario is not too far away from the best-case scenario: Sure, maybe you won’t find your first client in a few minutes. Maybe it’ll take a few days or weeks. But almost certainly not months, definitely not years. Low outcome variance. High probability of making money in your first month.
Talking about money – the amount you’re receiving from your first client is probably going to be quite significant, say in the hundreds of thousands of Dollars / Euros. That might already be enough to pay yourself a salary and make your business profitable in its first month.
You learn how to run a real business: Talking to customers, sending out invoices, managing your time, and most importantly, managing a bank account which has a positive balance (!) which tends to grow over time (!). Most other startups, which are product-based and investor-funded, miss out on these huge learning experiences entirely: When to hire employees (do you have the monthly revenue?), which business experiences are reasonable (will you remain profitable if you rent a fancy office?), and having a relationship with your bank which goes beyond “this is the place where my shrinking bank account is located” as you’ll learn about lines of credit, cash flow, dividends and taxation.

So those are the benefits of the consulting business. How long does it take you to find your first customer and make some money with the product business? Here’s a best-case scenario:

You build your product (2 weeks).
You find your first customer (1 week).
You set up a call (30 minutes).
Your first customer purchases.

If you add everything up, you’re looking at 3-4 weeks minimum until you make some money. But you might now say “well hey, it’s worth it because we just sold a product and don’t have to sit in exhausting consulting calls every day”, right? Wrong.

Let’s look at some underlying thoughts here, too:

Two weeks for building a product is extremely optimistic – this assumes borderline crazy things like that you’re an extremely good developer and you’re extremely good at self-management (we already have the first contradiction there, chuckle). But in addition to being an extremely good developer, you have to be extremely okay with cutting corners and shipping an extremely mediocre, bare-bones product (another contradiction).
And even with that aside, the variance in outcomes is huge here: Instead of two weeks, you might take six months. Or two years. Or five.
And even if you make money in a few weeks, how much will that be? Assuming typical SaaS pricing of $50 / month / user, with one user you’re making, well, $50 / month. Barely enough to cover your hosting costs, and nowhere close to the hundreds of thousands you’re likely making from your first consulting client.
You’re not profitable and you can’t pay yourself a salary.
You get used to running an unprofitable business and living off your savings. You miss out on learning “real” business skills like talking to customers, sending out invoices, doing actual bookkeeping and managing a realistic business bank account with revenue and expenses.

So yeah. Building a product business is hard. Brutally hard. I’d say it’s at least 10x harder than building a consulting business. I’ve seen some massively incompetent people build large, profitable consulting businesses; and I’ve seen some really smart people fail at building product businesses.

Time for an anecdote!

Selling Products Is 10x Harder Than Selling Consulting

At OpenRegulatory, I got to experience both sides. In the first two years, I built a consulting business and started hiring people. Afterwards, we built our own product. Nowadays, it’s mostly a product business. But the interesting part is that I was doing our sales calls most of the time, both for consulting and for software, so I can compare how easy or hard they were.

Here’s the #1 takeaway: Selling a product is 10x harder than selling consulting.

A typical consulting sales process would maybe include one call (30 minutes), one or two follow-up emails in which the client has questions, and maybe another call to answer those questions and finalize our offer. And then they’d sign – sometimes projects at the order of 60k€ or so. That’s almost a full-time salary for me or one of our employees for one year – crazy!

Contrast that with a typical software sales process: First, the customer would schedule a software demo call to which they would arrive completely unprepared even though there are lots of “demo” videos on our website. So the overall call would be rather useless because I give them the same demo which they could have watched themselves, and their main motive likely was that they wanted to check that the company is run by humans. Next, they would come back with a catalogue of ~20 questions, most of them phrased in useless legalese like “How does your organization ensure IT security” etc. Then, they would forget about everything for a few weeks, and request another demo call because they forgot how the software worked. Bonus points if the employee heading the effort has left in the meantime. But then, maybe, maybe they would purchase. More likely, they would simply ghost us.

You might of course now say that I’ve been doing something wrong and that normal software sales are easier. That may be true. My experience is of course a tiny point in a highly complex Venn diagram: We’re B2B, we’re selling to startups, our price point is 500€ / month, we’re in the compliance industry, people hate dealing with compliance, etc. Those were our variables. If you tweak only one of them, you might maybe face a vastly different outcome. Or maybe not. I don’t know. That’s my point.

All I’m saying is that, for me, software sales were 10x harder than consulting sales.

For what it’s worth, I can at least confirm that other companies in our industry face the same problems:

Other consultants are very hesitant to build their own products. Some have tried, and they haven’t succeeded.
Quite a few of our competitors are not profitable.

Again, tons of disclaimers here: Maybe our industry just sucks. But unless you have some real data to prove that your software sales process will not suck, I would respectfully suggest you to assume that your software sales are going to be just as hard as mine.

Onwards to my final point: Doing consulting is marketing magic, and that’s awesome.

Consulting Is Marketing Magic

The hard part of a product business is not building the product.
The hard part is selling it.

Do you have a strategy for that?

Before building your product, you must have at least one marketing channel lined up for it, and you must have proof that this marketing channel works.

A few examples:

You say you’ll do content marketing: Do you already have a website with lots of content related to the industry of your product? Is that website getting visitors every day?
If not: Will you create a website now? Can you commit to writing one article per day?
You say you’ll do SEO: Do you already have a website ranked highly on Google?
If not: Do you have a plan for how to rank highly on Google?
You say you’ll do paid ads: Do you have experience with paid ads (Google Ads etc.), and have you already set up a campaign which is getting clicks at an affordable price (can be an empty landing page)?
If not: Have you checked what the PPC prices are on, say, Google Ads, for your industry? Can you afford to burn a few thousand Dollars just to find out whether paid ads might work for you?
You say you’ll do YouTube marketing: Do you already have a YouTube channel with many videos and subscribers?
If not: Are you comfortable standing in front of a camera and “putting yourself out there”? Do you think your content will be engaging enough to compete with other people in the industry and get ranked by the YouTube algorithm?

Look – all of those strategies are fine strategies. But it’s not enough to point at one and say “we’ll do this in the future, it’ll work”. You have to actually do it, and you have to actually do it now. Now meaning before you build your product.

Marketing is the hard part.

But here’s the good news: If you start a consulting business, chances are high that marketing magically takes care of itself.

As you’re not building a product (yet), your days are spent either 1) doing consulting, i.e. working with people in the industry or 2) talking to customers who might be interested in your consulting, i.e. talking to people in the industry. You can add all of those people on LinkedIn. You’re expanding your network, and ultimately doing marketing.
While doing consulting, you regularly learn new things about problems customers are facing and the (broken) solutions they’ve chosen. Great material for writing up an article for your crappy WordPress website. You post it on LinkedIn. The people you added earlier from your day-to-day consulting and your sales calls like it and comment on it. More people add you. Your network expands. Your website starts ranking on Google.
Alternatively, you record YouTube videos. Same thing.
At some stage, your crappy WordPress website actually has a significant number of daily visitors. You add a new page about a mysterious new software product you’re working on, with a crappy contact form to “sign up for a waitlist”. You get new sign-ups every day.

Imagine that. A few months down the line, your consulting business provided you with 1) a great network of people on LinkedIn, 2) a website with regular visitors from your industry and 3) a growing waitlist of people interested in your future product.

Imagine trying to build a LinkedIn network and a content-driven website all while sitting in the dark cave of software engineering, building your product for months / years. In the product business, marketing is hard.

In the consulting business, marketing happens naturally.

Some business dudes would beg to differ. They cite the “Lean Startup” book and say that marketing isn’t that hard if you find some early adopters who give you feedback. But that misses the point: The fact that you need to read a a whole damn book for how to do marketing for your product business is already a “smell” that something’s terribly off here. So save yourself some time and build a consulting business instead. No need to read “lean” and “agile” books.

Conclusion: Build a Consulting Business

So yeah. Build a consulting business. A consulting businessst is great, it’s more likely to be successful, it’ll bring in more money in a shorter period of time, and it sets you up for marketing success if you ever want to build a product. But the best part?

The best part is that, once you decide to build a product on top of your consulting business, it’s extremely easy to sell that product to your consulting customers. Those people already love you, they trust you and they’ve deemed you competent to be involved in their business. So if you genuinely recommend a your product to them, they will purchase. And you know your product is useful, because you poured all of your accumulated consulting knowledge into it.

Contrast this with your competitors who started out as a product business: A bunch of poor, disheveled dudes emerging from their software engineering cave after 6 months, no revenue, no savings, and a product which doesn’t really solve customer’s problems, because they’re lacking day-to-day consulting knowledge.

While you’re happily selling your consulting customers your product, the disheveled dudes come knocking at their door, trying to do “marketing”.

Who’s going to get the sale?

Don’t be one of those dudes.

Build a consulting company. Build it first. You can always build a product later.

Appendix: Actual Examples

I was about to hit “publish” when I realized that my abstract ramblings above were lacking some real-world examples. So here you go.

Project Management: 37signals started out as a web design consultancy – they built websites for clients. During their work, they realized that the currently-available tools for project management didn’t work for them. So they built Basecamp which became a wildly successful project management software. Along the way, they wrote up many blog posts on their blog named Signal v. Noise which gathered a large following.
Email Marketing: What is now known as Mailchimp actually started out as (another) web design consultancy. They built an email marketing tool to solve their own and their client’s problems.
Medical Device Compliance: OpenRegulatory (hey, that’s us) started out as a consultancy for medical device compliance. A few years down the line, we built a software which would make it easier to create and manage medical device compliance documentation.

So there you have it.

Why are you still here? Go off and build a consulting business! 🙂