How do I start a consulting service?

March 1, 2003
Do you have any advice for setting up a consulting service? And is there a professional association for consultants?
1304qa Chang New

Q. Do you have any advice for setting up a consulting service? And is there a professional association for consultants?

A. Duncan MacVicar, a long-time marketing consultant in the laser/optics/photonics industry, made a surprising statement in a speech he gave during a CLEO LEAP program. He said that it takes a customer base of several hundred to support a viable one-man consulting business. Another point he made was that it takes several years to achieve an income equivalent to having a regular job. So, being a consultant could be a great source of supplemental income, but you may have to establish realistic expectations going in.

He recommends The Institute of Management Consultants as a helpful professional association for consultants. This organization has about 2000 members, 20 local chapters, and conducts two conferences annually. Dues are only $300 per year. An important service IMC provides is to certify management consultants as CMC (Certified Management Consultant). Its website is www.imcusa.org.

Q. How does one become a venture capitalist?

A. I got help on this question from Winston Fu, who came from our industry and is now a General Partner at U.S. Venture Partners. Because quite a number of colleagues in our industry ask about this, I will go into some detail. I would like to preface by saying most venture-capital (VC) firms are at this time scaling back on people and/or fund size. So unless you have a special relationship with a given venture fund that you know is expanding, this may not be a good time to ask for a job.

VC firms look for people who have proven they have the judgment and ability to make money as investors. From that perspective, the best way to join a firm is to be "invited" to join as a general partner after you have been a successful CEO or top executive in a leading company in a leading industry. Companies such as Intel, SGI, Sun, and Cisco have produced their share of very successful VCs. These people know their industry well, can bring investment leads to the firm, are able to pick the right investment, and provide substantive help to their portfolio companies. Being specialists, they can also adapt quickly to market changes (for example, in the storage area, moving from disk drives to storage systems, to Storage Area Networks). Another route to being invited is to be a successful serial entrepreneur who has built two or three very successful start-up companies that have resulted in major liquidity events. There again, you have already proven yourself before joining the firm, especially to the VC firms that have profited by investing in one of your companies.

Another way to enter VC firms is as an associate. For that, VC firms look for executives from an emerging sector with operating experience and leadership capabilities. It can easily take four to six years to become a partner because your success is often based on liquidity events of the portfolio companies you are directly responsible for. An associate's income is far less lucrative, but can include some "carry," which is a portion of the investment profit that goes to the VC firm. Finally, star associates in top VC firms are sometimes recruited by smaller VC firms to become partners.

Can technical people work their way up starting off as a technology analyst? Those jobs are rare since most partners are technology savvy and know people they can call on to help them do due diligence. You may consider first branding yourself by working a few years and getting an MBA. For those with an advanced degree and more than four years of work experience, being selected as one of the few Kauffman Fellows (www.kauffmanfellows.org) is an excellent way to properly launch yourself as an associate.

About the Author

Milton Chang

MILTON CHANG of Incubic Management was president of Newport and New Focus. He is currently director of mBio Diagnostics and Aurrion; a trustee of Caltech; a member of the SEC Advisory Committee on Small and Emerging Companies; and serves on advisory boards and mentors entrepreneurs. Chang is a Fellow of IEEE, OSA, and LIA. Direct your business, management, and career questions to him at [email protected], and check out his book Toward Entrepreneurship at www.miltonchang.com.

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