As a stock market analyst working for an investment bank, we were paid a lot for having an opinion about a lot of things related to companies and their growth opportunities – or lack thereof. Since we had achieved a #1 ranking by institutional portfolio managers, we may have even been right once or twice. As a VC at an Internet Incubator in the late 1990s, we were paid for having an opinion about the multiple hundreds of Internet startups that we visited. As a CFO, we got paid for having an opinion about future growth opportunities of one company.
As a consultant, how does one get paid for having an opinion?
Quite clearly, one has to “ask to be paid” before one gets paid. Yet, does one give away information and insight for free, while building a brand, or does one ask to be paid while the brand is being built concurrently? Obviously, the latter is preferable to the former, but the success of the latter will be a function of the market for opinions – of which there are a lot today.
Over the last several months, we have met numerous entrepreneurs and numerous startup companies. We have given them a lot of free advice. Question: did any of them listen, or did they value that advice the same as the amount they paid for it (ie: value = zero, since cost was zero)?
A couple of days ago, we re-visited with one company that we first met two months ago. At that first meeting, we understood that there was probably a very large market for the virtual online product that they had defined, and that their specific virtual product had merit. However, we suggested that they needed to build a minimum viable engine that would produce their virtual online product before they would get funding from an angel investor or even a professional venture capital investor. We also explained to them that the funding market was such that no one would write them a check for a few hundred thousand dollars in order for them to go into stealth mode, and create the engine for their virtual product. We strongly recommended that they produce a minimum viable engine that would create their product. All this “advice” was given “For Free”.
A month ago, we received an email indicating that a “prototype” was being completed that week.
Last week, we received an email indicating that they were ready for a follow-up meeting.
We attended this meeting two days ago. The entrepreneurs didn’t show a prototype. They showed the market research about their market, and the outline of financial projections. They engaged a former CFO and marketing executive and paid them $6,000 to produce the work that they were revealing.
We were dumbfounded.
When we discussed the divergence of expectations at this meeting, the entrepreneurs revealed that they couldn’t produce their engine, or even a minimum viable engine, unless they raised the money which would allow them to work full time on the engine. This was no different than the situation two months ago.
What’s the moral of this story? Well, if we had offered our services as a “fee for service” consultant, rather than provide the advice for free, perhaps the entrepreneurs would have listened, and actually produced that minimum viable engine. Perhaps not. However, a few things are extremely clear – two months have gone by, they have spent $6,000 – money which they really couldn’t afford to spend – on market data and financial projections that are currently worthless until they get their minimum viable engine built. The irony is that the entrepreneurs are now angry at us because we told them……get this, …….the truth!
Going forward, we will do a lot of listening, as we always do, and we will offer advice – but the advice will be for a fee. Perhaps someone will actually take the advice – which is valuable.