10 Powerful Insights to Help You Succeed as a Small Business Consultant
In the previous article “Freelance Consulting Online: a Step-By-Step Guide” we shared enough information for you to start your online freelance consulting business to help you replace your income if you lost your job or about to lose your job during current challenging economic times. If you have not read that article, please start there. In this article, we take it a step further and discuss 10 insights you need to succeed as a small business consultant. But first let’s briefly speak about what is happening with the global economy and how it is impacting consulting work and recruitment prospects with major consulting firms.
What is happening with the global economy?
For those of you wondering why you should consider following this online-only freelance consulting path, we will explain what is happening in the world because for many of you you were not yet working during the 2008 recession. You do not know how bad it was.
This recession will likely be much worse. The thing is people are not working. You know this. You walk out, restaurants are shut down. You go anywhere and there is nothing happening. There are a few restaurants that are open but mostly within hotels. Almost everything else is closed.
If people are not working, they are not producing something and they are not serving customers. If you don’t produce something you can’t sell it because you have nothing to sell. If you don’t serve people you can’t get paid, so there is less revenue.
If a company is taking in less revenue it must cut cost and reprioritize. It’s a fact of life. It is going to cut costs and reprioritize by shutting divisions, firing employees, call it whatever you want rightsizing, retrenching, getting rid of people, etc.
Business consultants will be hit very, very hard. Expect a lot of retrenchments at consulting firms. Expect massive hiring freezes. This is a reality. It is not possible for consulting firms to not take a sizable hit.
This is not going to be over fast
So if you think this is going to be over fast, you will apply for a new job, and things will get back to normal… We wish it was the case. When shutdown is over it’s going to be very bad for maybe a year or two. And you have to get ahead of it now and do something that is going to work versus hoping that things going to get better.
It may last for 3 to 5 years for professionals.
Can you find a job as a business consultant at a major firm?
In terms of new jobs, yes consulting firms will be hiring some people. Specifically, in areas like operations, turnarounds, restructurings etc, and will always hire at the elite business schools. But in terms of the percentage they are hiring versus the percentage that is applying that ratio has just gone down significantly. If the ratio before was they hire 5% of those that apply, it now has gone down to 0.5%.
So yes, you always going to hear examples of the firms hiring but the question is what is your probability and your probability is much lower. And the question you have to ask yourself is whether you can be one of those lucky people who gets hired. The net trend is negative.
Dealing with isolation
The second thing you need to know is you are isolated. There is a quarantine to some degree everywhere in the world. You are at home. Almost every one of you reading this, you going to be at home and you going to be at home for a long, long time. The social signals, social cues and the social routines that typify professional services like a handshake, like networking, like traveling, like being able to see a client and come home and not infect your family, being able to meet people, those are all gone.
So a lot of business consultants are just thinking I am going to do freelance consulting by myself. No, you are not. And you have to accept that. You have to accept that there is a different business model required now.
Previously you had a full salary, you had a physical presence with clients whereby you meet clients, you bill clients hourly and you get paid from your employer. But how can you make money when you cannot work at a major firm because no one is hiring?
So the net effect is that you going to be retrenched or see a dramatic salary cut, or feel some kind of financial pain. Little hiring and almost no chance to interview. You are stuck at home. Costs are going to go up and your revenue is going to go down. You literally only have one connection with the world. The internet. So you better pay your electricity bill and pay your internet bill.
Succeeding as an Online-Only Small Business Consultant
So, if you are a business consultant and your previous channel to a client was through the firm, which you lost or about to lose, you have to create your own channel. Play the odds and the odds are completely against you if you decide to apply for almost any full time role during this difficult economic times.
But the good news is you have skills for which there is demand. As a business consultant, as long as you can help businesses create more value than what they pay you, there will be demand for your services.
Hiring consultants online on dedicated online platforms was already taking away sales from traditional in-office professionals (small consulting firms, small marketing firms, small web development firms, etc.). What the COVID-19 has done is to accelerate a change in hiring habits.
And what we want to do in today’s article and part 1 we posted earlier is to show you how to take advantage of this trend and replace, and thereafter surpass, the income you lost or may lose.
Economics of Online Freelance Consulting – 10 Insights that Determine the Success of a Self-Employed Small Business Consultant
So, let’s talk briefly through the economics of on online freelance consulting business and what are the insights that determine the success of a self-employed online-only small business consultant.
Small business consultant success: insight #1 – start winning quickly and keep building
The first thing you need to keep in mind is this is a winner take all economy. Online means that you have to put yourself onto a platform somewhere to promote yourself and show your skills. But when you put yourself onto that platform it’s very easy for prospective buyers to see all other small business consultants on the platform.
And what happens is the small business consultants who have the best profiles, the best ratings, the best reviews, the best write-ups of their profiles, the best photos, they command the majority of the revenue because it’s very easy for customers to fire you and switch to them. This is what we call a winner take all economy.
Where the person who is very successful captures the biggest share of the economy. And we also call it the platform effect.
Whenever you promote yourself on a platform, whenever that platform standardizes the way your profile is presented so it makes it easy for people to shop for the best small business consultant, the most adaptable person, the small business consultant with best reviews, best profile write up, best photo, best completion track record, usually wins.
The “best” person wins and its a snowball effect. So you have to start winning quickly and keep building. That is very important.
Small business consultant success: insight #2 – bite-size niche work for smaller clients
Insight two as it relates to becoming a successful online small business consultant is you want to go for bite-size niche work for smaller clients. If you are thinking, “Let me source a $10,000 or $20,000 contract,” it is always possible, but it is very unlikely. What you want is small pieces of work for niche subjects for smaller clients.
So you want to do something like an excel review in the niche work of financial modeling for a tourism company. It is bite-size because maybe it is two days or 1 day worth of work. It is a niche because you are just doing financial modeling and it’s a smaller client.
If you try going after big pieces of work the issue is not that you will not get it. Because of the way the digital economy works with reviews, that we talk about in the course (see more on that below), you will not be successful in creating a good small business consultant profile for yourself. And if you do not create a good profile for yourself in a winner take all economy where every buyer can compare small business consultants’ profiles, you will lose.
So pursue bite-size niche work. It’s not just because it is easy to do, it’s because of the way internet works that you need to focus here.
Small business consultant success: insight #3 – learn to manage a volume business
If you are thinking you can do 10 projects and earn everything you want, no. This is going to be a volume business which means when you are taking on a lot of volume you have to manage your scope very carefully.
Because if you take on 30 projects and you let scope go wildly out of control, you cannot manage things, you fall behind and you get bad reviews from clients. And when you get bad reviews from a client on a platform where every buyer can compare the reviews of all potential small business consultants, you suffer.
So this is a volume business which means you must control the scope closely. This means you must do work which you know how to do. If you don’t know how to do something and you mess up with the client they may burn you with a bad review.
Even if you do the work correctly there are some bad clients who will say bad things about you. So you have to control the work carefully. Its a volume business. Know what you are doing. Don’t take things you cannot do.
Small business consultant success: insight #4 – be good at managing isolated work
The 4th insight about running an online freelance consulting business, it is isolated work. You work alone, usually in your home office, on a laptop, on a desktop, and you need to expect it. It’s not about meeting clients. You will likely never meet clients. You may never speak to a client physically. You may not even speak to them on the telephone. You need to be prepared for that.
Small business consultant success: insight #5 – understanding the margins
Another important small business consultant success factor is understanding how margins work in this business model. The margins are going to be low, but as a function of geography. Here is what we mean by that. Let’s assume you are bidding with someone from India. Let’s assume you live in New Canaan Connecticut and you are competing with someone in Bangalore India to do an excel model.
Because you are living in New Canaan Connecticut your cost of living is much higher, which means you generally have to charge more to cover your cost. The person living in Bangalore India his cost of living is much less so he has to charge a lot less to cover his cost.
But the reality is that if you do the same quality of work and charge the same price, being based in New Canaan you will make much less money.
Here is the thing you have to understand. Most clients don’t care that you picked to live in New Canaan. They just don’t care. So if you picked an expensive place to live why should they care that they have to pay you extra not because your quality is better but just because it is required to cover your cost of living?
So sometimes you have to be willing to burn yourself in terms of the fee you charge, knowing you are taking a loss, just to do some work and get a review. Because reviews are very important in the online market place. But don’t go out there and say” Well, I am going to charge so much because I live in Massachusetts and I need to cover my cost.” It’s not the client’s problem.
You live in an expensive place. That is the decision you made. But unless you can show the value you bring don’t charge more.
Small business consultant success: insight #6 – managing competition
The 6th insight about running an online-only freelance consulting business is there is going to be excessive competition. How do you differentiate yourself? There are many ways to do it. Once you get a client we find the best way to differentiate yourself is through superior customer service and quality of work. Email when you say you will email, respond when you say you will respond. Be available. Sometimes when you cannot work at a certain time and the client emails, you should respond to the client with something along the lines of, “Thank you for your time. I am busy at the moment. I will respond the next day.”
Be courteous. Keep deadlines. Tell a client if you will miss a deadline.
Try to deliver when you say you will deliver. And go above and beyond to deliver tangible value to clients. Do more than what is expected of you.
So don’t just think you are competing on price. Initially, you are. But once you get a client you can keep a client through superior customer service as well as exceptional work quality and adherence to deadlines. We talk about it in more detail in the course as well (see more details below).
Small business consultant success: insight #7 – be ready for a burning period
Another important small business consultant success factor is being able and ready to manage a burning period. A burning period is what we call a period when you want to get those 10 reviews, or 12 reviews, or 20 reviews. Whatever that number is. But the burning period is you have to do things at a loss at times, knowing you want a review.
And what a lot of people do is they are just not willing to do things for a loss because they think the goal of these 10 projects is to make a profit.
It’s not.
It’s to maybe make a profit but the ultimate goal is to get very good reviews. Because again, as in the first insight, the winner takes all economy exists on a platform, a system where buyers can compare everyone at the platform. So there will be a burning period. Expect that. Don’t worry about profits. Look at it as paying your dues.
Small business consultant success: insight #8 – reviews really matter
Insight number 8th about running an online-only freelance consulting business is it is largely driven by reviews. No matter what happens if someone sees you have 100% 5 star ratings, it means 100% of people gave you the maximum score. It is much more likely someone is going to take a chance in hiring you.
If you have anything below 90 percent, does not matter whose fault it is, it looks bad. People have much less trust to give you their crucial projects since quite a few of your clients are not perfectly happy with the outcome of your work.
So getting reviews is important, keeping reviews is important and getting more reviews is important.
It’s also about taking the work you can do. If you take work you cannot do and you spend a lot of time working, a client going to give you a negative review even if you choose not to bill them. They may say, “You wasted my time. So what if you are not billing me. This was urgent. I asked you to do it. You promised. Now it’s late. I have to find someone else.”
They going to give you a negative review. A lot of people think just because you give someone a refund you fixed it all. No, if the client’s time was wasted, if they lost sales because of you, they will not be happy. Since this is driven by reviews you must focus on reviews.
Small business consultant success: insight #9 – this is price-sensitive
Another important small business consultant success factor is ability to navigate a price-sensitive market. In an online market, it gets vicious fast and you are going to compete on price. Initially, you are going to compete on price to a large degree.
But as you can see with that example of Ranjeev (a case study of a successful small business consultant who more than doubled his income in about 3 weeks after he lost his EY job, covered in more detail in the course), you can very quickly scale up to a point where you have many ongoing clients, you are not competing on price and you are making a very good income that is much more than what you were making before. And you do it on your own terms.
Small business consultant success: insight #10 – don’t overshoot the audience technically
The final insight into running an online-only freelance consulting business, and this is very important if you are a small business consultant, is don’t overshoot the audience technically. The audience that is buying from you online is usually not that sophisticated. They generally don’t understand things like options based pricing strategy or agile strategy, or hypotheses. Maybe they do, but it is very unlikely.
You must know the language your audience is going to speak and speak that language. This is very important. Because if you speak in a language they don’t understand, and your profile is written in a language they don’t understand, they don’t know you are good at what they are looking for. Audience online tends to be less worried about terminology, the latest fads, and the latest trends.
“Replacing income with digital freelance consulting” course
If you found this article helpful, you will benefit from our “Replace your income with an online-only freelance consulting business” course.
In the course, we take you through how to set up your digital freelance consulting business. What to do, step by step.
So for those interested in starting an online-only freelance consulting business, above is the logic and overview to get you started. In the course, we focus more on how to do it, and how to be successful in doing it. We are spending time planning the steps. You are going to get some homework. You are going to go through it and do it. And then we focus on implementing it to get you up and running within a week.
If you do it right, you will work through all the episodes of the course. You spend one day, let’s say Saturday, working through the course. You prepare all your write ups and information on Saturday night and Sunday morning. And we want you to load it and go live by Sunday night.
If you tell us you need a week to do it, you are wasting time. Then its better if you dont even bother starting at all. If you need a week to do this, please stop now. Do it in 2 days. Do it in 1 day if you can. Work through the course in the morning, prepare from 1pm to 4pm, it does not take that long, load it by 6 pm and make your first bid. Its better to get out there and learn form your mistakes.
So what we are trying to do in this program is to show you what you can do, step by step, to rebuild a career that operates online in a knowledge economy. For most of you, whether you are a business consultant at a major firm like McKinsey or BCG, whether you are an executive, whether you are in marketing, whether you are a supply chain manager, when you get to this position in life without a quarantine and recession, you can still go out and try to become a business consultant to earn some money.
What we want to show you is you still can do that but you have to do that online.
And we going to give you practical steps to do this in this program. We don’t want to make you do something where the payoff is 6 months in the future. Where the payoff required building a brand new website costing you $10,000 or the payoff requires you to go do something you cannot do, like attend a conference or an event. We want to give you things that are practical. Below are some areas we address in the course.
Planning critical path
- Developing a critical path to follow.
- Picking a niche that is fairly large, using the language that the market understands.
- Getting reviews.
- Why is the process important? Documenting the process.
- The reason most people fail to start and build an online freelance consulting business?
- Which projects should you bid for?
- What kind of demands online clients have?
- The language you need to use to attract clients. What do clients want to know when they are considering you?
- Which websites/platforms should you use to build your online freelance consulting business? Platforms we recommend to ignore.
- Preparing your responses in a word document. How to quality check your responses.
- How to model your profile.
- Reviewing real profiles of ex-consultants (e.g. McKinsey), MBAs (e.g. Stanford, Yale) and more online. What did they do well and what needs improvement.
- The key thing about your profile.
- Profile photo. Dress code for your profile photo. Background to use.
- Creating your profile together. Picking usernames. Selecting a service area and specialization as well as keywords and expertise level for your profile. What happens when you are picking your level (e.g. entry-level, intermediary, expert) and how it will impact your success on the platform?
- Education, employment sections and languages.
- Picking an hourly rate. What you need to bill to be seen as legitimate but not to lose out on opportunities.
- Location.
- Creating a portfolio of work.
- Using the app from the platform.
- Creating a system of documents and processes. Mapping everything. Creating templates. Collecting emails.
- Scaling your online freelance consulting business.
Implementation
- Establishing the right mindset.
- The reality of competing on cost. What should you charge in the beginning.
- Per hour versus fixed-priced projects.
- Creating processes. Documenting everything.
- Managing contracts.
- What should you bid for?
- Following up with clients.
- Two-part strategy.
- Replacing your pre-crisis income.
- Working for yourself.
- Staying in the game. Managing your ego.
- Building an online freelance consulting business that not only replaces your income but gives you a great life.
- How the collapsing economy is impacting consulting work.
- Focusing on a narrow technical skill.
- Committing to the process.
This article reflects our perspective as of April 19, 2020.
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Recommended books:
When people think about the business strategy we often think about the field of strategy consulting/management consulting and firms like McKinsey, BCG, et al. If you are interested in learning how to conduct a management consulting engagement, you will likely enjoy this book. Succeeding as a Management Consultant is a book set in the Brazilian interior. This book follows an engagement team as they assist Goldy, a large Brazilian gold miner, in diagnosing and fixing deep and persistent organizational issues. This book follows an engagement team over an 8-week assignment and explains how they successfully navigate a challenging client environment, develop hypotheses, build the analyses and provide the final recommendations. It is written so the reader may understand, follow and replicate the process. It is the only book laying out a consulting assignment step-by-step. (Published by FIRMSconsulting.) One of the best business books if you are interested in management consulting and strategy. This book will be very useful as well if you are a small business consultant.
Bill Matassoni’s (Ex-McKinsey and Ex-BCG Senior Partner) Marketing Saves The World is a truly unique book. Never before has a McKinsey partner published his memoir publicly. This book is a rare opportunity – a true exclusive – to see what shapes the thought process of a partner and learn about marketing and strategy. The memoir essentially lays out McKinsey’s competitive advantage and explains how it can be neutralized. (Published by FIRMSconsulting.) One of the best business books if you are interested in marketing, strategy, how McKinsey and BCG operate, and overall in management consulting. This book will be very helpful if you are a small business consultant.
Bill Matassoni speaks highly of Kenichi Ohmae in his memoir Marketing Saves the World. He is one of a few people Bill calls “brilliant.” The Mind of The Strategist remains one of a few strategy books we recommend to understand how to think critically. Now you can read Bill’s memoir, a book about Bill’s mentor (Marvin Bower), and a book by one of Bill’s close colleagues at McKinsey (Kenichi Ohmae). Definitely, one of the best business books, especially if you are interested in management consulting and strategy.
One of the best business books of all time. The Innovator’s Dilemma – “By the nineties, most books on management were just rhetoric, but this book is the real deal. A well-researched classic,” says Bill Matassoni. Named one of 100 Leadership & Success Books to Read in a Lifetime by Amazon Editors. In his book, Clayton Christensen showcases how even the most outstanding organizations can do everything right and still lose market leadership.
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WHAT IS NEXT? If you have any questions about our membership training programs (StrategyTV.com/Apps & StrategyTraining.com/Apps) do not hesitate to reach out to us at support @ firmsconsulting.com. You can also get access to selected episodes from our membership programs when you sign-up for our newsletter above or here. Continue developing your strategy skills.
Cheers, Kris
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Business Consulting Firm Growth Guide
Our New Business Consulting iTunes Channel
Our new Business Consulting channel is about the mechanics or the business of running and growing a consulting firm. Business Consulting channel does not cover items covered in our other podcast channels such as the Strategy Skills podcast, which deep dives into real engagements and teaches how to structure, breakdown, and prioritize studies.
We also have the Case Interviews & Management Consulting podcast that prepares mostly students but also experienced hires for case interviews at major firms such as McKinsey, the Boston Consulting Group, Bain as well as Deloitte, and so on. These podcasts not only teach skills needed to pass a case interviews, but also the foundational skills to understand strategy. For example, if you need to complete a decision tree on an actual strategy engagement, the tools will teach you on how to build together decision trees, how to apply judgment, and how to do estimations.
We call these foundational skills. We teach these in the Case Interviews & Management Consulting podcast channel as well as in the case interview material as part of our membership programs.
Growing a Business Consulting Firm
In the Business Consulting podcast, we are not going to discuss foundational strategy skills a.k.a. how to join a McKinsey, BCG, or Bain. We are going to leave that for the Case Interview & Management Consulting podcast channel. Here, we are going to focus only on the business of running and growing a consulting firm and the issues that you would face largely due to generating sales but also building out capabilities, generating new intellectual property, and so on, which is a difficult task. We also have a video version of episodes from Business Consulting channel which are published on our YouTube channel.
Content Scope is not Exclusively Focused on Large Consulting Firms
I want to point out that this program is not going to be exclusively focused on strategy boutiques, or strategy practices at large firms. This program is applicable to any type of consulting whether it is operations, technology, digital, implementation, organizational, human resources, and even other types of consulting that may not fit within the traditional management consulting sphere. If you are consulting, irrespective of it being a food consulting business or any other business, all our teachings are going to apply because the principles are roughly the same.
But, of course, I will be using examples from the traditional consulting sphere because that is where I grew up as a Partner at one of the major firms and later running a very large boutique firm. So I will be drawing all of that together as a starting point.
Acknowledging That Launching A Consulting Firm Is Hard and A Remarkable Thing
As a starting point, I want you to take some time here to acknowledge what a remarkable thing you are doing by either launching your own consulting firm or even running the office or a practice of a firm. Let us say you are running the office of KPMG in some smaller location or smaller country, it is as if you are running your own firm because you are far away from the traditional support structures that those firms have. The same is true for McKinsey, BCG, Bain, and Deloitte, and so on.
So, whether you are working at one of these big firms in a tiny office or launching your own business consutling firm or have launched your own business consulting firm, it is important to pause for a second, go to your refrigerator, take out a nice bottle of wine, maybe a nice red. Pop it open and have a drink and celebrate the fact that you are doing something that is pretty hard to do.
And, oftentimes when you read about support for consulting firms, people do not take the time to acknowledge how hard it is and what a great achievement it is to start on this journey. Now, of course, if you are driving, I would not suggest you to be having a glass of red or white and maybe leave that for when you park your car in the garage, get out and are nowhere near a steering wheel. But the gist here is that what you are doing is impressive.
I have been in consulting my whole life. I was a partner at one of the major international firms, then at a boutique firm which I led through a turnaround. And I have been advising many consulting firms of all sizes since I left. It is a unique industry to be in. You do not get enough support.
It is not a regulated industry, so a lot of people are doing it. But it is almost as if you are alone 99% of the time, even though you know other people are doing it. Even if you get together with them and talk to them about the challenges you are facing, it is still a lonely journey.
What I am hoping through this new program is that, although I may not be able to remove all of the loneliness you will face, and I wish I could do that. But I want you to know that there is somewhere you can go where there is a dedicated support on the business or launching and growing a business consulting firm or any consulting firm.
Support on Launching or Growing a Consulting Business
So, there is dedicated support needed for launching and growing a management consulting or any other consulting business. And while I talk about celebrating and not feeling down about things, it is important to remember this quote from Theodore Roosevelt. It is a great quote. You can read it below.
But what I want to say here is that, whenever you launch a consulting business, it is a scary proposition. You are going to go to someone, and usually someone you don’t know, because it’s unlikely your contacts of a network will be so broad that you are going to know everyone you are going to serve in advance.
So, you are largely going to go to someone you do not know, and you are going to ask them to give you money so that you can advise them. You are like a therapist, a counselor to business people. And for better or for worse, it is an industry that is looked down upon.
A business consultant is looked down upon, unless you are working at one of the big gigantic international firms. If you are a consultant by yourself or part of a smaller collective, you are treated as if you are trying to break into something revered but haven’t made that transition yet.
If you try to explain to people that you are a consultant, they assume that you may not have been as successful in industry, which is why you are consulting. They feel you are trading some outdated knowledge for fees.
The bottom line is that you do not get the support you want. In fact, you are criticized. People treat you as if you have not made it, which is why you are consulting.
Do Not Worry about People Who Do Not Matter
When I was at a Partner of the major firm, I went to events whereby you meet boutique consultants and some of them are very confident. But there are others who are almost embarrassed to say they are a consultant. It is almost as if they failed.
So, what I want you to get comfortable with is that do not worry about what people say about you. The Dr. Seuss line goes something along the lines of “Those who mind don’t matter, and those who matter don’t mind”.
I want you to not worry about why you are doing consulting or what people think about you or how your friends are reacting to it. You are doing something quite important. You are helping businesses become better. You are helping them become more efficient, more profitable. As they become more profitable, they pay more taxes. Those taxes get recycled into the economy and everyone benefits.
So, it is an important role. It is a difficult role. I am not going to take that away from you. And I know that many of you listening to this have been through difficult times whereby you had to cut expenses. You had to maybe not take your family on a vacation. You maybe had to not buy clothing for a few years because being a management consultant especially an independent one, even within a smaller firm, is difficult.
When I was a partner I helped some offices turn themselves around. I have helped start up new offices within the firm. It is difficult to do that. Even if you have the backing of a multi-billion-dollar international consulting firm behind you. I can only imagine how hard it must be if you are by yourself with just one or two or three people.
So, as you go through this process and you are going to be criticized and people are going to say, “why do you work at this tiny firm” or “you are not like McKinsey or you’re not like Deloitte,” or “you’re not like Accenture”. Whatever the criticism you are going to get, remember you are doing it and that is what matters. So, expect the criticism but do not take it personally.
And, even though it is easy for me to say, “don’t take it personally”, I know you are going to take it personally. But if you feel someone is criticizing you, post a comment for this episode on youtube and I will respond to it through a future episode teaching you how to manage things.
But the point is you are not alone here.
Trying To Build A Consulting Firm Is A Daunting Challenge, But Through This Channel You Will Not Be Alone
The process of growing a consulting firm is daunting. Trying to build business consulting firm or any consulting firm that is sustainable is very hard.
I have put together a rough overview of what is involved.
New Ideas and Capabilities
So, let us start with new ideas and capabilities. As consultants, we sell an idea that we believe is going to help the client fix a problem, avoid a problem, or push a problem into the future. There is nothing wrong with pushing a problem in the future if you are not able to fix it now. The point is we have some ideas, some capabilities. Even in implementation, we are selling the idea that we can implement it to get results better than if the client did it alone. So, we do research, we write up previous work that we have done, and we market it.
Marketing the Ideas and Capabilities
Marketing is developing new ideas and capabilities by taking an idea to a client and getting their feedback you adjust the capabilities you have. So the capability maybe you know how to reduce costs in a supply chain. You may have a new unique way of developing corporate strategy and so on.
Client discussions and marketing go hand in hand. As you speak to clients, you find new things they want to do or problems they want to solve. As you take ideas to clients, they obviously respond, and you figure out new ways of doing things. You then take all of that and integrate it into your work and package it as a service you want to sell to a client.
You then need to make sure clients know you have this capability and they understand the value that sits behind that capability. So, you do not necessarily need to have a website, but we can talk about that later. You may have one, but you do not need to have articles, videos and audio programming, describing the work you have done at clients, discussing issues. You may have to have an office but you do not need an office.
Having an office is a bit overrated. I can talk about it more later but as an example, when we were setting up offices, we did not always have a physical office. Sometimes when a Partner goes into a new country, they work out of the apartment, which is very common, until they set up things. You may publish books, again, not necessarily but sometimes they can help. You sometimes email clients, you have social media, business cards, and so on. Now all of this is marketing to pursue a client.
11.01
FIRMSconsulting Insider – Access to Detailed Steps on Sales and Delivery
If you are an FC Insider and want to understand how to go about picking the clients, prioritizing the clients, if there is a scorecard for you to follow and so on, then you should follow the new program we have called growing a consulting business. This program has very detailed steps in terms of how to go about developing, for lack of a better word, “sales relationship” or developing a relationship that leads to a situation where a client will give you money.
That leads to sales which has multiple processes of preparation. You need to prepare for a sale, you have multiple meetings with the client, you have to build some proposals, and there will be some negotiation.
Then you need to prepare for delivery of the project. You will need to use some type of technology, whether it is a laptop and so on. Technology is an important part here. You need to prepare for the delivery. You need to onboard the client, prepare them for what is going to come.
You need to run the engagement itself. You need to develop a benefits case, which is the value of doing the study. If there is no value from having done the study, why are you there?
You need to sell on, which means that you need to get new work at the client.
Once all that is done, you need to do post-delivery work, which means that all of the work that you have done so far at the client, you will need to write up that study so that you can explain it to other clients, your colleagues and future employees.
You need to create templates. For example, if you have developed some new techniques for the client, you need to convert them into templates that you can use in other studies. You need to extract data from this previous engagement so you can build databases.
If you develop new concepts, you must write it up. You must use this to generate new sales. You need to populate your content library. And, of course, training and recruiting, which are very painful.
Prioritizing Work Through Moving from Variable Cost Model to Fixed Cost Model
You must do this to build a consulting firm. Whether you do all of this at the same time or you are a younger firm and you do not do all of this. The point is you must take a decision on if you are going to do this.
If you are generating sales, are you going to do it the way most firms do, which is based on a time and material, for lack of a better word. Even McKinsey and BCG largely have time and material.
You can also follow a model whereby you are charging a client for recurring sales, which is now the holy grail. Even McKinsey and Deloitte are going down that path. They are not very good at it, but we will talk more about it more later.
Are changes required?
Do you continue working the way you always have, if you are the senior partner in your firm. Because at a certain point as you start bringing in clients, you must move to a fixed cost model whereby as a person bringing in sales, you are not generating income for every hour you work. Instead you have leverage whereby if you were working eight hours a day, one year ago and you only had one sale per month, now you are working eight hours a day but you need something like three sales per month. That is known as a fixed cost model because the number of hours you work are fixed but you are producing more output.
Your team on the other hand, almost always is going to be on a variable cost model whereby they get paid as they work. But you need to introduce efficiencies for that. Of course, you could break that by switching to a recurring revenue model. We will talk about that possibly in future episodes.
Now, if you want to see examples of how all of this is done along with some examples of best practices and how to generate insights, for limited time only, we have advanced preview episoded of some of our best content. So, only for a limited time, if you go to firmsconsulting.com/promo and opt in, we will send you a series of emails with complimentary episodes from our FC Insider program. So, you can see how this is done at the highest level of operations as done by some of the most elite firms in the world.
This is the overall process. As we go through this channel, are we going to zoom in on different parts of it. Obviously, there are many things I could cover but I don’t want to just cover things that I know that are useful but may not be useful to you at this point in time. So, if you have a question regarding wanting a particular portion covered, my recommendation is to post a question in the comments on Youtube. We will use the comments as input for future episodes.
Maintaining the Overall Model Is Difficult But Not Impossible
So, this is your overall model. It is a model that is very difficult to maintain. I have lots of friends who are ex McKinsey, ex BCG partners. Some of them are very senior partners. But I can tell you that every single one of them, these are very senior guys, who launched a consulting business, they will not tell you it failed because they do not want to use that language. But they have stopped being consultants. Their little boutiques all closed up shop.
I do not know of anyone who successfully set up a boutique business consulting firm and made it sustainable. If you speak to them, they will always tell you, “I got a better offer” and so on. But obviously, if they had a better offer in corporate to return to, that means that the boutique was making less money or had potential to make less money or was less attractive than the corporate role they had.
And, for a lot of them, they did not even have an attractive role in corporate. They just retired. So even with that firepower, even being a McKinsey partner, this is hard to do.
Does it mean it is impossible to do? Obviously not. When you leave a firm like McKinsey and BCG, you are used to certain things running in a certain way. You forget just how much support the firm is giving you. When you go out by yourself all the support the firm was giving you disappeared. You need to recreate that support mechanism which is hard to do. But not impossible. And, in fact, a lot of the things that the big firms do, you should not do as part of a small firm. And that is what we are going to also cover as part of this series.
This Series Will Be Based on My Experience and That of Our Clients
Obviously, this is going to be based on my experience. If you have listened to the case interview podcast series or our strategy skills podcast series, if you have read our books or if you have been to strategytraining.com, strategytv.com, firmsconsulting.com, if you followed programs like Growing a Consulting Firm, Partnership. Memoir, Rebuilding a Consulting Practice, the very famous Andrew program, a typical McKinsey, BCG engagement, you will understand on what we are drawing the lessons in this podcast channel.
But we are not repeating what is in those programs because I want to introduce new content. Every time we put out material, we want to build our asset base in terms of intellectual property.
So, I am drawing out the things from the Andrew Program that are relevant to you. For example, The Andrew Program is a program whereby we help a senior manager at a major professional services firms, some of the biggest in the tax practice, leave the tax practice because it wasn’t a sustainable career path for him and become an equity partner within three years by building the innovation division.
Whether or not you work at a large firm, whether or not you are interested in innovation or in management consulting, that program is worth following because you can follow the steps we took to help them figure out what to do, how to convince people to back him and so on. Those are useful no matter what industry you are in.
So, if you want to do this in a right way, you are going to learn the underlying skills that were applied and we are going to be picking out all of the useful things and drawing it into this program.
I put together a little bit of a self-assessment here to give you a sense of where you should lie.
Self-Assessment: Compare Your Own Performance/Planning on Where You Should Be
Now I put together a self-assessment. This not an exact science, this is an approximation. If you look at anything in life, it follows a normal distribution, also known as a curve distribution, a gaussian curve. This is what the average firm should be doing.
You may be an outlier and that is fine. But approximately the first two years or the first three years of your firm, you are only going to be focusing on deliveries and sales largely. And what happens after delivery, which is preparing for the sale.
So, when I meet people who are running boutique firms and they are talking about selling, recruiting and training people, and they are just one or two or three years old, I think is that they are doing the wrong thing.
The first thing, one or two years goes so rapidly, it is so stressful, it is so nerve-racking, and so unstable. Why would you want to hire people and what are you going to get them to do when you hire them?
To hire someone means that not only will you have to earn enough billings to pay for your fees and cost, you have to earn enough to pay for someone else’s fees and costs.
I have once spoken to a boutique firm founder who told me that he is not going to take a salary. He is going to work for very little, if anything, and he is going to hire someone to do the work. And I am thinking to myself, “Why would you do that?” Because if you hire someone else you need to pay them roughly a market rate. They are not going to work for free. But if it is yourself, you do not have to pay yourself a market rate because it is your business. You can invest all of it back into the business.
First 1 To 2 Years
So for the first one or two years you need to just focus on sales and delivery and accumulating cash, building the systems and processes that you need. But, in most cases, you should not be doing any marketing, new ideas and capabilities, recruiting and training, mainly because most people setting up consulting firms come from some consulting firm. So, they bring some intellectual property with them. The half-life, the value, the relevance of intellectual property decreases very rapidly. So, within one or two years, maybe at the most three years, whatever intellectual property, methodologies, and frameworks that you took from your previous firm, is going to become less and less relevant until they are irrelevant. But at least for the first one to two to three years, you can build a business out of that.
So, when people say they are developing new ideas and capabilities, you need to do it but you don’t have to start with that unless this is new to you and you have tried and failed and you need something new.
If you want to see how to develop new techniques and frameworks, you can go into StrategyTraining.com. A specific program to watch would be “How to develop deep insights” in Insider because that teaches you how to develop a new methodology every time you are faced with daunting odds at a client.
First 1 To 3 Years
Now if your firm is 1 to 3 years old, even then you should not be recruiting. I know it may be counterintuitive, but it is hard to build a business around it. I have been involved in several offices being launched, several offices being turned around with the firm in Latin America and Asia and so on and I have also led a boutique firm with 150 plus people with multiple offices and it is difficult to recruit people.
So, after one to three years, you usually burn out your existing relationships. I don’t mean that they do not want to see you again, although that may be the case in some situations. But usually that you have mined them or you have done as much as you can for those few clients. Even though you can do more, sometimes clients just do not want to give the same work to the same consultant because they want to introduce fresh ideas.
For example, if you have done the same type of operations work at one client, after about two or three years they may just want fresh blood and there is nothing wrong with that. Clients want new thinking. The executive you knew may leave. You may make mistakes. You may suffer from burnout.
You need to find new clients, which is where the marketing comes in and you need new ideas and capabilities. The new ideas and capabilities is interesting and I will talk more about that later but basically, even if your idea is useful, what is going to happen is that after one to two years of speaking about that idea, you are going to become fatigued about speaking about it. So even if a client is interested in it, you are going to approach it like, “Well, I’ve said this a million times before. So I am just going to skim through it” and it becomes a process. It loses the enthusiasm.
Everyone says that is not true, but I have seen it so many times. I have got friends who are consulting partners at McKinsey and so on and I always ask, “Why are you speaking to the client like they understand the basics of how to solve a problem” and they look at me and say, “Well, it is obviously so easy”. Yeah, it is easy to you because you have discussed it for twenty years but for everyone else, it is not easy.
But what has happened is that that partner has become fatigued about speaking about something that he has always been speaking about. So, to him he starts moving the goalposts and starts making a concept more and more complicated, not realizing it is not what the client wants.
So, this is going to happen with you as well, and rather than making an existing useful concept more complicated, my advice is if you want to refresh a concept, make it simpler or introduce new concepts.
As you get to a firm being more than three years old, maybe four or five, then you need to consider recruiting and hiring. But who you recruit and hire depends on the business model you take.
Last Thoughts on Building and Growing A Consulting Firm
In the insider program I talk a lot about the concept of billing for time and billing on recurring revenue. It is basically the way consulting is going in the future.
So as a good ending point for today’s episode, what I want you to think about is the challenges you face as someone running the office of a major consulting firm in a far-off isolated new geography or as someone starting a new consulting firm.
It is difficult. I have clients who are partners for consulting firms, audit firms and even the boutique firms in new regions that are such small economies that the London, the New York or the Chicago office does not really support them.
If you have faced challenges, I would like to hear about it. If you are a boutique firm somewhere in Michigan or Chicago or anywhere in the world, think about the challenges you face. Think about what is stopping you from having a good month, a good year and if you have those questions, post in comments on our YouTube channel and I will be very happy to build that into the program.
Take care I will see you in the next episode.
If you want to see samples of our advanced training materials go to FIRMSconsulting.com/promo and sign up for free to receive sample materials.
Related content:
- How to Sell Consulting Services: Secrets to Selling High Priced Consulting Services
- Consulting Sales: How Should You Develop Your Strategy?
- Starting a Consulting Business With No Experience
- Consulting Sales: How Should You Develop Your Strategy?
- Business Case Analysis in a Consulting Study
RECOMMENDED BOOKS:
Bill Matassoni’s (Ex-McKinsey and Ex-BCG Senior Partner) Marketing Saves The World is a truly unique book. Never before has a McKinsey partner published his memoir publicly. This book is a rare opportunity – a true exclusive – to see what shapes the thought process of a partner and learn about marketing and strategy. The memoir essentially lays out McKinsey’s competitive advantage and explains how it can be neutralized.
Turquoise Eyes started off the groundbreaking new genre developed by FIRMSconsulting that combines compelling narrative while teaching problem solving and critical thinking skills. Set after a bank begins implementing a new retail banking strategy, we follow Teresa García Ramírez de Arroyo, a director-general in the Mexican government, who has received some disturbing news. A whistleblower has emailed Teresa with troubling news about a mistake in the loan default calculations and reserve ratios. The numbers do not add up. The book loosely uses the logic and financial analyses in A Typical McKinsey Engagement, >270 videos.
—
WHAT IS NEXT? We hope you enjoyed the above article “Business Consulting Firm Growth Guide”? If you would like to get more training resources sign up for our email updates on FIRMSconsulting.com/promo. This way you will not miss exclusive free training episodes and updates which we only share with the Firmsconsulting community. And if you have any questions about our membership training programs (StrategyTV.com/Apps & StrategyTraining.com/Apps) do not hesitate to reach out to us at support @ firmsconsulting.com. You can also get access to selected episodes when you sign-up for our newsletter above. Continue developing your strategy skills.
Cheers, Kris
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Consulting Business Positioning: The Cost and Value of a Sterling Reputation
Hi everyone. In today’s episode, I would like to talk about the cost and value of a sterling reputation for a consulting business or any other type of organization. This would apply to any industry, but it is a little more subtle than that. It is not an absolute statement. I will talk you through what I mean as I progress with this episode. I am going to cover this in this episode, and I will dig in further in a follow-up episode.
So, whenever I talk to the leaders, founders, or owners of a consulting business, they tell me the same thing. Their consulting business has a poor reputation, which is the ultimate arbiter of the margins and fees they are getting in the market.
Now, I will say something that is very important but is also very counterintuitive. The reputation of your consulting business is probably not the problem. I am going to unpack this a little bit in this episode, and I will unpack it further in a follow-up episode.
When an owner or a leader of a consulting business says their reputation is a problem, what they are saying is that given their reputation, the market segment, or the clients they are pursuing, do not value their reputation or do not think it is that important or that helpful to them. And because of this lack of perceived value, clients are going to discount the amount of money they pay.
The market segments your consulting business should target
The key words there are ‘the market segment your consulting business will target”, because no matter what your reputation is if you target the right market segment, you can earn incredibly large margins and fees. I know that sounds counterintuitive, but it is true. I will explain this a little bit in this episode, but in the follow-up episode, I will go through it in more detail and talk about the cost.
So, what that means is that when a consulting business owner or leader comes to me and says ‘well, my reputation is in tatters’, I am going to say that is probably not the case. The problem really is that the clients your consulting business is targeting are not appropriate for your reputation. And if you kept your reputation the same and changed either the clients you are targeting or the issues you are targeting within the same clients, you could probably dramatically increase your margins and fees.
In a simple way, if your consulting business has a reputation for only doing pricing work and doing it amazingly well, and you go to clients and start talking to them about operational improvement, of course, your reputation will be in tatters because you are not an operational improvement person. In that situation, a bad strategy would be to make dramatic changes to become known for operational improvement and the right strategy, to abandon everything else and double down on being known as a pricing person.
Now the common response I get to that is, “Michael, there is only so much you can do in pricing. It is a ‘very narrow niche’.” That is absolutely untrue. Your job if you are going to stick to pricing will be to reinvent pricing, and to find out new work you can do in pricing, the new value you can deliver for clients.
Positioning myself in my management consulting career
Even when I was just an associate, I was one of those people who felt that he wanted to specialize very early. I knew I wanted to do corporate strategy work, but I did not just want to do it like everyone else. I wanted to focus on the risk side of strategy because most strategy partners you talked to, in fact, everyone you talked to, wanted to focus on the growth side of strategy. How do you grow? How do you become bigger? How do you raise your margin?
So, I was looking at the risk side. When I came in risk, it was like a sleepy backwater whereby most of the work was non-risk management. A lot of partners asked me, “Why are you looking at risk? It is such a boring piece. No strategy partner looks at risk management. If you do risk management work, there is a real danger that the financial institutions group will be the only home you can have at the firm and it will be a very narrow sub-segment of work.”
But I stayed in risk and I worked with some very talented people to develop new ways of thinking about risk in strategy.
Picking a niche area as a focus for your consulting business
If you are picking an area, a niche, it is only up to you how you are going to interpret the way the work is done, the kind of new thinking, and the impact on your consulting business. It is up to you.
Think about how IT was 20 years ago. If you went to a client and said to them that the most important thing in your future is thinking about IT strategy, let us assume you went to a client in 1999 and told them that. They knew IT was important, but it was never a CEO issue at that point. But today digital and IT is a CEO issue. It is all about the way it is presented.
Any niche can be constantly developed to be important to the client.
Having a weaker and/or incorrect reputation impacts your profits at all stages of the growth and operations of your consulting business
So, if you are having a reputation problem with a client, remember that your reputation may not be the problem.
If you are an FC Insider and want to see this in more detail including how we mapped it, you can see the program whereby we help a consulting boutique firm to analyze their reputation but do not change their reputation. In fact, discard certain things they were doing to double down on being known for only one thing.
So if you have a reputation and there is a mismatch in what you are talking to clients and the clients you are seeing, given the reputation you have, this is what you are going to face:
- Your marketing costs are going to go up significantly because if you are not known for X and you are trying to do that kind of work at a client, you will have to spend a lot of time on your website, articles, books, emails, social media, and so on, communicating to clients that you can now do X.
- Sales costs go up significantly because you need to create a reputation and without a reputation, you must put in a lot of detail into proposals to compensate for lack of a reputation.
- Delivery becomes unprofitable because if you do not have a reputation for something and you are learning how to do it, the delivery becomes so expensive to do because things that you should have a way of doing, you don’t have a way of doing and you have to develop them. Things take longer. There are no best practices.
- It is very hard to develop new ideas and capabilities. If you are a pricing specialist and you are trying to get into operation improvement, you will have to develop new ways of doing operational improvement. That is difficult to do.
- Recruiting gets more expensive because if you are known for pricing, people who want to do pricing will come to you. People who want to do operational improvement will not come to you. So, you will have to go out there, find them, advertise, and convince them to join you, which means you usually pay a premium.
- You will have to develop the training. You do not know how to do operational improvement, so you will have to develop the training.
Everything goes up in price and obviously your free cash flow decreases and the available time you have decreased because you need to spend more time developing a reputation that you do not have.
Self-assessment: compare your own performance/planning to where you should be
So, there are a couple of important insights:
When I say improving your reputation, I do not necessarily mean that your reputation is wrong. It is most likely correct for you. What I am referring to is the fact that you may have a reputation for X but you are trying to do Y. In that situation, your ‘reputation’ is weaker.
It is wrong relative to the market and the issues within the market you are positioning yourself for. I see this very often and I will talk about it more in the follow-up episode.
But oftentimes it means abandoning things you want to expand into, but which is unrelated to your core. It basically means profit from your core. To quote Chris Zook from Bain & Company, “Stick to your core”.
If you do it right, you will always have ways to grow in your core. You will need to be creative, but you can grow in your core.
When I ask what the cost of your reputation is, I mean what is the cost if you are trying to do work outside your nexus or your sphere of influence of your reputation. Then you have a cost. How will your cost change with a different positioning of your consulting business? This assumes you want to change the positioning of your consulting business. I have never advised a client to change their positioning because if it takes five years to develop X positioning, it is likely going to take you an equal amount of time to develop a new positioning. It is painful.
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This is it for today’s episode. I hope you enjoyed it as much as I enjoyed doing the episode. Finally, I want you to remember that the only way to get access to our special offers, get our special pricing, and get samples of our content, is to join the list on firmsconsulting.com/promo.
It is the only way to get access to our unique advanced content that we make available to FC Insiders. So, if you want to take a sneak peek of things, test it out and see what is in there, this is the place to go.
Related content:
- McKinsey BTO vs. McKinsey Strategy
- McKinsey Associate Mistake
- McKinsey Digital
- McKinsey Solutions and McKinsey Analytics
- McKinsey Principal
RECOMMENDED BOOKS:
Bill Matassoni’s (Ex-McKinsey and Ex-BCG Senior Partner) Marketing Saves The World is a truly unique book. Never before has a McKinsey partner published his memoir publicly. This book is a rare opportunity – a true exclusive – to see what shapes the thought process of a partner and learn about marketing and strategy. The memoir essentially lays out McKinsey’s competitive advantage and explains how it can be neutralized. So if consulting business is of interest to you, you will most likely enjoy this book.
Turquoise Eyes started off the groundbreaking new genre developed by FIRMSconsulting that combines compelling narrative while teaching problem solving and critical thinking skills. Set after a bank begins implementing a new retail banking strategy, we follow Teresa García Ramírez de Arroyo, a director-general in the Mexican government, who has received some disturbing news. A whistleblower has emailed Teresa with troubling news about a mistake in the loan default calculations and reserve ratios. The numbers do not add up. The book loosely uses the logic and financial analyses in A Typical McKinsey Engagement, >270 videos.
WHAT IS NEXT? We hope you enjoyed the above article “Consulting Business Positioning: The Cost and Value of a Sterling Reputation”? If you would like to get more training resources sign up for our email updates on FIRMSconsulting.com/promo. This way you will not miss exclusive free training episodes and updates which we only share with the Firmsconsulting community. And if you have any questions about our membership training programs (StrategyTV.com/Apps & StrategyTraining.com/Apps) do not hesitate to reach out to us at support @ firmsconsulting.com. You can also get access to selected episodes when you sign-up for our newsletter above. Continue developing your strategy skills.
Cheers, Kris
PODCASTS: If you enjoy our podcasts, we will appreciate if you visit our Case Interviews podcast or Strategy Skills podcast on iTunes and leave a quick review. It helps more people find us.
COME HANG OUT WITH US: Youtube / Facebook / Twitter / LinkedIn / Instagram
ENGAGE ON FC FACEBOOK AND LINKEDIN GROUPS: Strategy Skills (FB) / Case Interviews (FB) / Strategy Skills (LinkedIn) / Consulting Case Interviews (LinkedIn)