You find that a lot of product companies and their founders do consulting work to survive for a while. Consulting has several advantages over other methods of funding including helping you keep control of your company and its direction, allowing you to have ownership of your work and potentially working with your customers first hand.
On the downside, consulting by its very nature takes you away from your work on your product (unless you can get them to pay you for working on your product but that could have "work for hire" ownership issues) and it can be a major distraction. As Paul Graham articulates, consulting has certain implications:
"Consulting is the only option you can count on. But consulting is far from free money. It's not as painful as raising money from investors, perhaps, but the pain is spread over a longer period. Years, probably. And for many types of startup, that delay could be fatal. If you're working on something so unusual that no one else is likely to think of it, you can take your time. Joshua Schachter gradually built Delicious on the side while working on Wall Street. He got away with it because no one else realized it was a good idea. But if you were building something as obviously necessary as online store software at about the same time as Viaweb, and you were working on it on the side while spending most of your time on client work, you were not in a good position."
"Bootstrapping sounds great in principle, but this apparently verdant territory is one from which few startups emerge alive. The mere fact that bootstrapped startups tend to be famous on that account should set off alarm bells. If it worked so well, it would be the norm."
Paul later mentions:
"At Viaweb we were forced to operate like a consulting company initially, because we were so desperate for users that we'd offer to build merchants' sites for them if they'd sign up. But we never charged for such work, because we didn't want them to start treating us like actual consultants, and calling us every time they wanted something changed on their site. We knew we had to stay a product company, because only that scales."
By the time Elluminates Software started it was relative easy for us to start consulting right off the bat and provide the bootstrapping funding we needed as well as understand one of our potential customer bases. We had people who came from the consulting and product worlds, which I think has been an advantage.
However, product companies and consulting companies are a tough mixture of personalities - one is very investment driven and the other is oriented to count every minute and meet typically short and sometimes difficult deadlines.
If you are thinking of going the consulting to product company route I have one key suggestion - don't forget who you are along the way. At some point you have to decide what kind of company are and which side, consulting or products, drives things and which one follows.
