Auctioning Consulting Services

It’s nearly 3 am, and I’m having one of those sleepless nights, where
my mind is racing with new ideas and lists of things I have to do. I
know (from experience) that I won’t get back to sleep until I’ve
written things down. And while I’m at it, I decided to blog about one
of these new ideas.

For several months I’ve been contemplating a shift in my career from
pure startup entrepreneur to venture capitalist. I’ve been studying the
history of venture capital and have learned that many of the pioneers
of the industry and many of the leading VCs today don’t just look for
deals, but they create them. They help form companies, generate
business plans, recruit management, and act in many ways like
founders–they just don’t often run the companies.

This appeals to me a great deal. In fact, it is really what I’ve been
doing as a so-called "parallel entrepreneur" — the difference being
that I have been using a bit of personal seed capital for each of my
startups. How much better, I think, it would be if I became a
full-fledged VC so that I could invest more significant funds in these
startups, as well as providing training and mentoring for them.

So I’ve been pondering ways to make this shift.

In the meantime, my startups such as 10x Marketing, Infobase Media,
FundingUniverse, Web Evident, and Worldhistory.com are experiencing
growth (and growth pains) and overall are looking more and more promising. It
is difficult for me to take capital out of these companies in the form
of salary or consulting fees, when every dollar that I can keep in the
company is one dollar that can be used to help the company turn the
corner and get to cash flow positive. And my return in the form of
shareholder value will be far greater than any return I can get from
mere income.

Last night a relative asked me why I don’t just get a normal job. I
responded by asking: would you rather have a normal job with a salary
of say $100,000 per year or a harvest of $1 million every three years?
Internet startups can easily generate millions of dollars of
shareholder value in a short period of time (say 3-5 years). In fact,
the highest percentage growth in the equity value of a startup occurs
in the first few months of its existence where reasonable people
(such as venture investors) look at a business idea and the team that is determined to
execute on it and they often give the company a $3-4 million valuation
before it has even finished its product and taken it to market.

It’s not easy to get a multiple million dollar valuation for a raw
idea. Only 1-3% of companies that pitch venture capitalists get
funding. The strength of the team is of course a major factor. But tens
of thousands of new companies get started every year with investment
from personal savings and from family, friends, and angel investors,
and in almost every case there is an initial valuation that is
significant. If the company succeeds, then the early equity holders can
eventually cash out and do quite well.

I totally value equity in startups more than I value a salary or a
traditional income. But that can create a bit of a dilemma between
harvests — in fact, I am accustomed to experience serious personal
cash flow issues as my appetite for being involved in startups far
exceeds my ability to fund them. The good news is that perhaps 3-5
years from now the harvests will come more quickly, as multiple seed
deals per year turn into harvestable businesses.

But what to do in the meantime? I don’t want to take cash out of my existing startups, but I haven’t yet joined a venture fund.

So here’s the idea that is keeping me up. I’ve done some consulting
over the years, but I had a very hard time pricing my consulting
services. In one instance, I got a wonderful client in Canada, spent a
few days with them, worked feverishly on a marketing plan and internet
strategy for them, and delivered it. But while I was working for them I
discovered how serious their cash flow problems were and how the
founder was going into debt personally to pay my fees. I also realized
that my plan would work (of course I thought it was brilliant) but
would take additional capital for them to pursue it. I felt bad for the
company and waived all my consulting fees. All they did was cover my
travel expenses.

So I’ve learned that I will never been good at charging for my consulting servides.

But, maybe, I wonder, I could auction off my consulting services
through eBay or some other online system. The market demand for my
services would bring potentially dozens of companies into the auction,
and the ones that want my services most and could afford them would win
the auctions.

Since my consulting time during this transition period from internet
parallel entrepreneur to investor would be very limited, perhaps as
little as one day a week, then the limited supply of my time might
drive the prices up to a reasonable level.

I need such an online system to remove myself from the process, since I can be too soft or generous for my own good.

At 10x Marketing when we used to help companies set up auctions on eBay
for their products, we learned that conversion rates on eBay were often
significantly higher (sometimes several times higher) than our clients
pre-existing web sites. With that knowledge, we started directly
pay-per-click traffic to go directly to the eBay auctions. The more
people you can get into an auction, the better the conversion rate and
the higher the selling price.

So with my personal consulting, how could I generate online demand for such an auction?

I could of course use email, and notify some of my 2,600 personal contacts that I’m offering a day a week of my time.

Also, FundingUniverse has more than 1,500 registered entrepreneurs who
are currently seeking funding to grow their companies. Some already
have dozens of employees and significant revenue. These would be
candidates for consulting as well.

Also, I could use LinkedIn.com where I am two or three degrees away
from more than 650,000 people. I wouldn’t spam my LinkedIn connections,
but I might get introductions to a few dozen companies that I would
like to consult for, and invite them to participate in the auction.

And finally, I could always use Google and other search engines to drive traffic once the auction has started.

So here’s the question for all my kind readers (so that I can get back
to sleep): do you know of any individual or consultant or team that has
auctioned off their professional services? Also, what do you think of
this concept? Could it work? Could it work for me? Could it work as a
business model–an auction for consulting services–if the marketing
engine created enough demand to generate decent pricing for the service
providers?

I know there are lots of online systems such as eLance and rentacoder
where companies post projects and individuals or companies bid on how
much they will charge to do the work. But is anyone trying the opposite
approach? Are any attorneys, or accountants, or business consultants
using market demand to fill up their schedule and determine pricing?

Okay. So I’ve let everyone know where my career is heading, and I’ve asked you all for advice.

So g’night.

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10 Comments

  1. Paul,

    I think that you have learned one thing with most of your ideas, GO FOR IT! Then at least you could say that you once auctioned yourself on eBay.

    Honestly though, I do believe it could work and be especially effective for smaller law/accounting/consulting firms. As Jordan said, allowing for evaluations, provide escrow, contracts and managing all payroll functions would be a boon to your small time consultant. You could even have a portfolio aspect of it for demonstration purposes and interview the consultants using a certain Utah company, but that is beside the point. Go for it, give it a shot, put a portfolio together for interested people to look at etc. and I am sure you will do great.

  2. Paul, I believe it could work. It is a different sort of idea, but with your credentials and charisma even those you do not know you, given 5 minutes to read about you, can find a value in your services. Additionally, I have contemplated speaking to you on occassion but am waiting for the right opportunity. I would almost feel more inclined knowing that I wasn’t being given a favor, but instead it was a business transaction.

  3. Paul, what an excellent idea!

    You are doing explicitly what the market does for jobs. When there’s a supply of people who can do “MySQL database administration” and a demand for those services, workers and employers are in an auction, even if they don’t think about it in those terms.

    There’s only one Paul Allen offering these services (so far!), so an auction makes perfect sense.

    I can’t resist mentioning that I heard from Dan Miller (www.48days.com) that two college-bound teenagers decided to sell a week of their time to the highest bidder on eBay.

    Dan Miller writes: “The teens hoped for fortune and adventure, but got neither. When the auction closed Monday, the teens learned the winning bidder – a St. Joseph resident – had offered a mere $246.50 for their services.

    “I certainly admire their ingenuity but perhaps they needed to be more specific about what it is they can do of value,” Dan Miller comments in his newsletter.

    “‘I’m kind of disappointed, but it’s money,’ said Chris Pullen, 19, of St. Joseph. ‘I think it was exciting while it lasted. But it’s still money, nothing to be disheartened about.'”

    🙂

  4. Brian McMurdie

    I can’t imagine the possibility of providing complimentary services because “I felt bad for the company.” But this is beside the point…
    Your idea has merit, however most consulting relationships are established through referral. It sounds like you already have created a plethora of relationships and an enormous amount of potential clients, now it’s just a matter of stating that you have a service to provide that they value. An auction is one form of determining an appropriate value, but is only appropriate if multiple people need it at the same time. The college student example explained by Andrew is quite poignant. What if your client low-balls you and no-one challenges the bid? Do you still provide the service? Or do you just hope they will “feel bad” and give you a gratuity?
    Interesting idea, but the execution is a little tricky.

  5. Janet Meiners

    Can you ask your wife do a guest blog on what it’s like to be married to an entrepreneur? It’s got to be rough sometimes…like health insurance for your kids, the income gaps, etc. My sister is married to a very successful entrepreneur. It took him about 20 years though. There were lots of tough spots.

  6. Jack

    I think this depends on what you want to get out of helping others out. If you are just looking for maximum profit on your time, then yes, an auction would work for you. However if you are looking for the personal gratification of working with startups, then no this is not the way to go. Why? Well think about it, a lot (if not most) of the people you enjoy working with have little money, if you start auctioning, you’ll only end up at the places who have lots of money who can afford you and you will probably miss out on a lot of things you would have enjoyed much more.

    From your posting, I gather that you are more into the “experience” than the “money” of this. If that is true, I would suggest you avoid auctioning yourself off.

  7. David C

    Though this traffic is over two years old, I have only stumbled on it today. Have you in the intervening time found a means of auctioning consulting time? I think it’s an interesting idea.

  8. Jordan Gunderson

    I don’t know of any consulting auctions, but it seems like a good business idea. I know a lot of IT consultants who are very good at what they do, but don’t want to do all of the billing, bookkeeping, scheduling, etc. I hear it all of the time. You allow consultants to post resumes, catagorize themselves into areas of specialty, post availability, minimum fees, travel preferences, etc. You also allow companies to post feedback and ratings on consultants and then charge the companies a small percentage of the consulting fee. Companies pay the money when they win the auction, and you sit on that money until the service has been performed. Consultants come because you offer them a place to advertize themselves and you handle the minutia for them. Companies come because you have an extensive list of professional consultants in their area; they trust that consultants will do a good job because they can punish them with negative feedback if they don’t. They also know that if a consultant receives high ratings, he or she is not just full of hot air (which sadly a lot of them are). Many companies (including the one I work for) are afraid to hire consultants because they charge a lot of money for no guarantee. An auctioning site at least gives them some evidence (at least without doing a ton of research) that a perspective consultant know his or stuff, and that they aren’t being overcharged for the services. I think the idea, if done on a large enough scale, could be a huge success.

  9. Russell Page

    The one challenge I see here is that you are likely only going to have people participating that know you and have a perception of the value of your service. Part of the challenge of the service business is that you end up selling the value of that service whereas products seem to show value on their own.

    I find that even when we already know someone we are selling our service to, we still have to sell the benefits of the service.

    Will it work? Will people drive automobiles? You will only know if you try. If you succeed. Great. If it doesn’t work, at least you know.

    In addition, part of the process of

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