Skin-in-the-Game Solopreneur

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Hi there!

This was a big week for me: I officially announced that I’m now retired from consulting!

I’m now full-time with my partner as we look to build and grow Scholastic Capital!

It’s a really exciting moment, and it was entirely made possible by consulting and solopreneurship.

Consulting is a fantastic business model. I don’t know of any business that can scale faster than solo consulting.

However, consulting has some structural problems with it. Namely, you don’t build any equity to it, and it doesn’t scale.

If helpful, I wrote a lot more detail about this phenomenon here.

My solution to this has largely been real estate. However, there’s another model called “skin in the game” consulting.

Here’s what skin in the game consulting is, how to do it, and why to do it

What is Skin In the Game Consulting?

The big problem clients have with consultants is misaligned incentives. They pay consultants no matter what, regardless of how the consultant performs.

A better model for clients is consultants who stand by their work and get paid only when their work delivers.

Some examples could include:

• A cost savings consultant gets paid by the % of savings they create

• A sales consultant gets paid by the % of new sales they create

• A strategy consultant gets paid a % if the business strategy they created grows the business

• A consultant becomes actively involved as a “board member” type individual in exchange for a piece of equity in the business

How do you implement it?

The short answer is: clients like this type of model. They aren’t paying cash out of pocket and incentives are aligned.

So, it’s arguably easier to sell than a standard consulting engagement.

The downside is it’s legally more difficult.

For example, let’s say you get paid by the % of savings you create. How do you define the savings you made and the company made?

Let’s say you suggest not renewing the contract on a barely-used software. You do a lot of analysis to prove why it makes sense. You present it to the CEO, and they agree.

Later you find out: the CEO had approved a new strategy project earlier in the year. That software was also getting cut as part of the strategy project. The strategy project is so large, however, that people forgot the software was included.

So, who gets credit for the savings?

This might sound far-fetched, but cost-cutting projects frequently end in lawsuits. My old employer is suing Gamestop right now for exactly this.

If you do this path, expect some out-of-pocket legal fees to write an air-tight contract.

One other note

This model only works with some clients.

For example, let’s say you’re doing skin in the game where you get equity in the business you’re consulting for

You’re not getting equity in a venture-backed startup. Most boards have to sign off on equity grants. As a consultant, you’re not getting board sign-off. The same goes for F500 companies.

But, you could get a % of savings or sales you drive.

If your goal is equity, and I think it should be (see below!), then this works with small to mid-sized businesses.

Why should you implement it?

The upside here is recurring income via equity.

When done correctly, you could have a couple of clients who each pay you a good amount of money via your skin in the game.

Since you are the consultant and not day-to-day in the business, it’s possible to have equity in multiple businesses and make a good amount of money from it.

There are “skin in the game” consultants who make more than “regular” consultants at half the hours.

The flipside here is: you have to deliver for this to work. Your skin in the game won’t be worth anything if you don’t add value to the business.

How can I help?

If you reply to this email, it will come directly to me & I’ll respond early next week.

To head off a very common question: I’m sorry but I don’t have any quickstart guides, courses, communities, or other paid resources!

What would be most helpful to read about next week?

Let me know what would be most helpful for you :)

What am I up to these days?

This newsletter isn’t about me; it’s about you. However, I keep getting asked, so I’ve added this little section

Scholastic Capital

Most of this past week was spent talking with prospective investors! We have a decent amount of “verbal commitments” of capital and we plan to start signing on investors shortly.

If you are interested in following along, click here, or if you’re interested to talk with me about the thesis as a potential investor, feel free to grab some time here!

Skin-in-the-game consulting

95% of my time goes towards Scholastic.

However, I exchanged a bunch of voice notes with one client here. He’s in a great spot as a solopreneur; lots of potential clients reaching out constantly.

The caveat here is his business is scaling quickly. Internal processes tend to break every time revenue doubles in a business, and he’s about to double. For that reason, he is trying to balance building process while also closing clients.

Entrepreneurship is busy, and he was feeling it this week!