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Launching A Consulting Firm

We spent Saturday holed up in a beautiful Victorian-themed hotel. We were helping to develop the business model and business strategy for a new management consulting firm. The founders, eight ex-partners from BCG and McKinsey, had left their previous employers over a 12 month period. This delayed departure was done to make sure they did not create the impression of a mad rush to the door to create a new firm. In reality, they could be a profound competitor since they were tightly focused on a region and specialized in the financial services, telecoms and healthcare sectors. Moreover, they all had worked in the Middle East and would be able to create a strong franchise in this area.

The session was an all-day event from 8am to 8pm to debate and discuss the focus of their new business. The questions they asked of themselves are very enlightening. All consulting firms should be doing the same, especially newer consulting firms trying to take on the established giants.

• Will we be a value or values based partnership: Will we promote and reward people on sales alone or will our values be our most important filter for recognition?

• Why did we create this business: Was it driven by personal financial reasons or did we see a real gap in the market not satisfied by incumbents?

• What do we want to be known for: How would we want clients and competitors to describe us?

• What are our long-term goals: Are we simply trying to earn a living or are we aiming to build a firm which outlasts us?

• Are we going to choose an area to own or simply position ourselves to exploit a high-margin and undeserved market: If we think we can do telecom’s operations consulting better than AT Kearney, are we prepared to take them on in this space?

• What sectors will we focus on: We have eight partners and 12 employees. Therefore, what is the logical number of sectors we can focus upon?

• What geographies will we cover: Should we be based out of Dubai, Abu Dhabi, Riyadh or Istanbul? Should we have more than one office?

• What kind of work will we do: Will it be strategy, operations and implementation? Where is there a logical gap that we can cover?

• What is our financial model: Do we do success based fees? Do we have annuity-income products?

We have sat in business planning sessions with most of the major firms and many consulting start-ups. Very, very few have such an honest and clear discussion. The nine questions discussed over the day, struck to the core of management consulting and allowed the company to honestly decide where they wanted to operate and why they have chosen this path. They were also very honest with themselves. They had been around the block long enough to know that producing biased but pleasing answers would hurt them in the long term. Every year, there are many, many consulting companies founded but very few survive and even fewer make a meaningful contribution to clients.

Below I have summarized the decisions taken:

• Will we be a value or values based partnership? Value-based. Significant sales will be pursued but only rewarded if the right type of work is done for the right reason

• Why did we create this business? Partly financial, but also a need to serve underserved regions like Syria, Jordan and Iran

• What do we want to be known for? Helping clients with some of their toughest problems.

• What are our long-term goals? Build a firm which outlasts us. We will not consider growth by acquisition.

• Are we going to choose an area to own or simply position ourselves to exploit a high-margin and undeserved market? Stake out an area.

 We will initially be based in Istanbul. An interesting decision since Turkey is not officially part of the Middle East and the cultures are different.

• What sectors will we focus on? We will start with healthcare, telecoms and financial services, but remain open to all sectors since we are general management consultants.

• What geographies will we cover? We will initially be based in Istanbul. An interesting decision since Turkey is not officially part of the Middle East and the cultures are different.

• What kind of work will we do? Only advisory work

• What is our financial model? No annuity income. No success-fee. Flat rate

These guys also realized that they will be at a serious disadvantage within 2 to 3 years. All the intellectual property and ideas which they bring with them has a short shelf-life. After a few years they would lose traction in the market. Therefore, they needed a means to produce fresh ideas. Going forward, they split the workload into the following activities:

• Client Management – Everyone’s responsibility but two partners assigned to lead this.

• Developing Ideas, Themes and Intellectual Property – Three partners assigned to develop this capability.

• Operating Details – One partner assigned to set up the office and other logistical arrangements.

• Operating Model – One partner assignment to coordinate all the moving parts.

• Public Sector – One partner assigned to manage public sector relationships.

It is really telling that 3 partners have been assigned to develop and coordinate new ideas. Most firms would have assigned the majority of senior time to sales. This split indicates they are far more worried about the quality of work, than the volume of work.

They will be worth watching over the next few years. Though, I cannot help wondering why any partner would leave BCG and McKinsey to start a mini-version of those firms. Is there some unique competitive advantage in being so small?

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