55
Chapter 7
Founding a Management
Engineering Consulting Firm
John L. Templin, Jr.
Introduction
Unless you are a newly minted master of business administration (MBA), you most likely started
work with a hospital or a company. As your career progressed and you gained both knowledge and
experience, you may have begun to entertain thoughts of becoming a consultant and running your
own rm. is may be especially true if your organization has engaged an outside consulting rm
and you have been working with their consultants. You may believe you are as qualied and per-
haps more qualied than some of the consultants. Perhaps your position or department has been
eliminated in a downsizing or you have recently retired. In this chapter, we will discuss founding
a management engineering consulting rm and several of the questions you will have to answer in
order to determine if this is the right step for you, at least at this time.
Contents
Introduction ...............................................................................................................................55
Solo or Group? ..................................................................................................................... 56
What Will Be the Legal Format? ........................................................................................... 56
What Name Will You Use? ................................................................................................... 56
How Do You Set Your Consulting Rate? ................................................................................57
Where Do You Market and Want to Consult?........................................................................57
How Do You Market? ............................................................................................................57
How Do You Price the Services Rendered? .............................................................................59
How Do You Invoice for Services Rendered? ......................................................................... 60
56 ◾ John L. Templin, Jr.
Solo or Group?
at is the initial question. If your department has been eliminated or if you and some of your
associates have been let go, you might consider starting a small group. More likely, you will be
starting on your own. Either way, the next questions are: What skill set am I oering? Have I
developed a unique set of skills that can be marketed and for which there is a demand? If I have
the skill set, do I have the ability to market my skills? Do I have adequate personal nancing or a
second income until I both sell my services and actually get paid for the consulting? If the answer
to these questions is no, you are not ready to start a consulting rm. If all the answers are yes, n-
ish reading this chapter.
Is your skill set unique to a product such as one software package, or one department? Twenty
years ago the author was one of very few nationally who fully understood the College of American
Pathologists (CAP) workload recording method. He was easily able to obtain contracts to evaluate
stang levels for hospital laboratories. With very short notice, the CAP decided to abandon support
of the method due to potential liability from instrument manufacturers. It was necessary to transfer
that knowledge to other departments or to have additional skills in order to continue consulting.
A person may be fortunate and have an initial contract in place when their “regular” or “real”
job ends. Usually this is not the situation. It could take a few months to establish the rm or your
identity as a consultant and to obtain the rst contract. If you know well in advance that you are
transitioning to consulting, you can plan and hit the starting line at full speed. Initial questions
include the following:
◾ What will be the legal format—sole proprietorship, LLP, C, or S Corporation?
◾ What name will you use?
◾ How do you set your consulting rate and how do you charge for various expenses?
◾ Where do you market and want to consult?
◾ How will you market your services?
◾ How do you price out and invoice for the services rendered?
What Will Be the Legal Format?
A sole proprietorship is the simplest for an individual and is the easiest and least expensive to estab-
lish. As a solo enterprise, expenses and income from the business are included on your personal tax
return. If more than one person establishes a rm, it could be a partnership and the business will
be owned and operated by several individuals. If you are certain you are in consulting for the long
run, you likely want to consider establishing a corporation. It will be an independent entity from
the owners and it will require compliance with more regulations and tax requirements. However,
your personal assets will not be at risk. In making the legal format decision, you should seek the
advice of a tax professional and a lawyer.
What Name Will You Use?
Do you simply use your name, for example, John or Jane Smith, or Smith Consulting Services?
Have you developed name recognition in your eld or will very few decision makers even know of
you? What key words, if any, do you want to incorporate in your business name? Will it be Smith
Management Associates, or perhaps Smith Healthcare Management Associates? You need to be
aware of legal restrictions and copyright infringement. For example, you probably would not be
Founding a Management Engineering Consulting Firm ◾ 57
allowed to use Smith Microsoft Consulting Associates. If you are going to incorporate, the lawyer
you use should be able to assist in avoiding potential problems. For example, you do not want to
print marketing materials or prepare a website and then nd out you cannot use it.
How Do You Set Your Consulting Rate?
Too many consultants initially charge too little per hour or per day on the assumption that they
will invoice close to 40 hours per week. After a few months, they nd that not to be the case and
their income is not adequate to cover expenses and draw a salary. Years ago, the author developed
an Excel spreadsheet with which one can enter varying assumptions on salary, expenses, and
billable hours. An example is provided at the end of this chapter (see Figure7.1). In your cur-
rent position, you enjoy paid time o including vacations, holidays, sick time, and professional
development. You also spend several hours a day or a week in sta meetings and other meetings
not directly related to your work. As a consultant, you will still want paid time o. Instead of
meetings, you will spend time developing marketing materials, doing marketing, and getting your
name in front of others. After allowing this time, you will likely only have 1,200 or so hours left
during which to actually consult and bill. In order to meet your nancial goals, it is likely your
hourly billing rate will need to be 3–4 times your current hourly salary rate. If you are making $50
per hour, you will need to invoice at perhaps $175 per hour to be nancially successful.
Where Do You Market and Want to Consult?
Is your plan to market and consult locally, regionally, or nationally? If you are in a major met-
ropolitan market, there might be enough business within a one- or two-hour commute. If you
live elsewhere, you at least need to consider oering your services regionally. e author denes a
region as anywhere you can get to in about 4 hours or less. is could include taking a one-hour
or so plane ride. A 4-hour drive provides a range of about 200 miles. You need to remember that
some of your trips will be for marketing, so the longer the trip and the greater the number of trips,
less time will be available to actually bill for services.
In addition to the travel factor, and really more important, is your personal situation. Are you
a single parent of school age or younger children? Who will provide the child care or be able to
pick up a sick child from school? Are there any personal or family healthcare issues that require
attention on short notice? Are you heavily involved in local organizations such that you have com-
mitments one or more evenings per week? If any of these situations are yours, can you and will you
make the arrangements or reduce your commitments so you can be away from home overnight or
until later in the evening? You will have to consider this if returning from an assignment that is 3
hours away with the last meeting ending at 9 p.m.
How Do You Market?
is depends on whether you plan to be the consultant or a subcontractor on a larger project. As a
subcontractor, you will have to accept a lower hourly billing rate, but it is likely you will be able to
bill more hours per week since you have little or no marketing time. In order to be a subcontractor,
the primary contractor must have enough condence in your ability that his or her reputation is not
at risk. More commonly, you will be the consultant. e ideal situation is to be aware of a need that
you can satisfy. If your skill set is tied to a software system, you may be able to nd out which orga-
nizations have purchased but not installed the system, or which organizations have installed the
58 ◾ John L. Templin, Jr.
Figure 7.1 Development of annual consulting hours and gross prot.
Founding a Management Engineering Consulting Firm ◾ 59
software but are having implementation issues. e issues could involve medical sta or employee
dissatisfaction, lost charges, other billing issues, or the recent departure of in-house expertise.
In the more usual situation, you are starting out, so you have to make your presence known
to the decision makers. Traditional marketing methods include announcements, magazine ads,
and letters of introduction, perhaps with an enclosed brochure. ese methods rarely work and
are almost never cost justied. A good way to get your name in front of others is to become active
in professional organizations by serving on committees, attending local meetings, and national
conferences. Your marketing should include a website, and you need a domain name. Do you want
it to end with dot-com, dot-net, dot-org, or something else? Your website should look professional
and it should be refreshed frequently. Information on the site should include your skill set, any
client endorsements, and examples of the value you would bring to the next client.
Getting the word out through your professional organization and colleagues is a good way to
start. Let them know you are now a consultant and what you can oer to their organization or to
others in their networks. Introduce yourself and your new role at local chapter meetings. If you
have some unique knowledge, you might present a free webinar or oer to speak at local meet-
ings. You might want to join the local Chamber of Commerce as many chambers have forums
for introducing yourself and your service. In addition, many oer discounted services including
healthcare insurance, website hosting or listing, other types of insurance, discount phone service,
and the like.
You will have to make some cold calls. Do not be surprised when you encounter diculty in
getting past the gatekeepers (the administrative assistants) to the decision makers. Be persistent
and courteous as it may take several tries. If you can obtain the email address of the decision
maker, you can try sending an email. Again, the gatekeeper will likely monitor the emails. Try
sending the emails at times when the assistant might not be available, and do the same with phone
calls. Many executives work late while their assistants may leave at 5 p.m. If you call at 5:15 p.m.,
you might get through. Keep your calls short and to the point. Do your homework before even
making the call. Go to the organization’s website and read the recent articles including any that
specically mention the person you intend to call. Google the organization and the individual so
you will have talking points when you call them. It is likely you will have to make multiple con-
tacts before you are successful in speaking with the decision maker. Remember, even if you are not
successful this time, you want to imprint your name in their minds so the next time consulting
assistance is needed, you will be on the short list.
How Do You Price the Services Rendered?
e rst step of identifying your hourly or daily consulting rate has been made. You have met with
the prospective client and have obtained a project scope and timetable. Both parts are necessary
in order to set a consulting fee. If it is a small project, for example, less than 10 or 15 days, you
do not have to worry too much about the timetable. It will take a little time for the client to get
ready for the service and it will usually take some time to obtain any data you need. en you will
analyze the data, develop your recommendations, and prepare your report. e problem is more
prevalent with larger projects where you have limited time for additional clients or for market-
ing. An axiom in consulting is that you should market when you are busy so that you are never
without work. A related issue is that it can take almost as much time to market a small project as a
large or long-term project. If the project scope and timeline are clear, you can condently provide
a specic quote. For example, this will be a 10-day project at a rate of $1,600 per day for a total
consulting fee of $16,000, plus expenses not to exceed $2,000. You might include language such
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