So, for those of you listening to this podcast channel, remember we have two other podcast channels. We have the Strategy Skills podcast channel, which dives into, usually, one particular study and explains the mechanics of how we develop the thinking. So that’s heavy on the analysis side of things. And we have the Case Interviews & Management Consulting podcast channel, which is about case interviews, where we help people develop the skills to secure employment at firms like McKinsey, BCG, Bain, and so on.
But that is very useful channel because we teach foundational skills like brainstorming, business judgment, hypothesis generation, and so on, which will be useful to anyone, whether you’re launching a boutique consulting firm or you are trying to do analyses. This channel is about the business of running and growing a consulting firm.
Your point of differentiation is the reason you think clients will hire you. This is the difference you continuously emphasize to clients as you market your business consulting services
Today I want to talk about your point of differentiation. So, for example, I’ve talked about what should be your strategy (How Should You Develop Your Strategy). Your strategy should be trying to figure out the process of how you’re going to get sales. The point of differentiation for your business consulting services is that reason you think clients will hire you.
Clients will agree to pay for your business consulting services because you are different from someone. If you are the same as someone else, they would just hire the other person, if they were cheaper. For example, if a client perceives you to be exactly the same as three other types of consultants, it will come down to things like pricing, ease of working with you, and so on.
If you Business Consulting Services have a point of differentiation, you need to emphasize it to clients
But if you have a point of differentiation, you need to emphasize that with clients. So, your point of differentiation is the difference that you continuously emphasize to clients, and (hopefully, I would say) organize yourself around. Because if you have a point of differentiation, but you don’t organize yourself around that to protect that point of differentiation, over time, your point of differentiation will erode your point of differentiation (perhaps without you even knowing) until you become a different type of firm, whereby you are differentiated in a different way.
When firms do not protect their point of differentiation
So, I have seen this with many, many organizations, whereby they have a point of differentiation but they don’t protect it. So that over time they lose it. An example of this is Tiffany & Co, American luxury jewelry and specialty retailer. They have a very strong reputation based on many movies done about them, the powerful branding, and so on. But if you’ve visited some of their flagship stores today, it’s a bit of a surreal experience. It’s not what many would expect!
I visited one of their flagship stores and it was run down, grimy. It was not a magical experience. And they’d built that image, that was their point of differentiation for a very long time. And they lost it because they didn’t protect it.
You see this with consulting firms as well. They are known for one thing, but in the quest for growth, they try to be known for many things. And at the end of the day, why are you hiring them? Well, that is not very clear but they are growing and that is what matters to the them. But what happens when things are not so good, when a recession comes through and so on?
Your point of differentiation is the thing you choose to keep during bad times
Here’s the rule. Your point of differentiation is the thing you choose to keep during bad times. So, no matter what firms say as they grow in times are good when things go bad and they’re forced to sell divisions, the part they keep is the part that they think differentiates them (and during recessions, companies always sell off). But consulting firms are notorious for that. They’ll sell off the entire consulting practice in a recession. They do it all the time. I mean, it’s like musical chairs going on there.
Different ways to differentiate your business consulting services
There are different ways to differentiate yourself. I want to talk about some of the major ways here and what I think you should be doing.
Business Consulting Services point of differentiation #1: Generate Deep Insights
The first is “we generate deep insights.” This is the one everyone goes with. When I say ‘everyone,’ I mean it in inverted commas. Obviously, not everyone, but the majority. If you go to the websites of most boutique firms — or most firms — they always talk about deep insights because they want to be like McKinsey and BCG.
They don’t say it; I’ve spoken to many people, whereby they’ll tell you they’re not like McKinsey and BCG… but they’re doing everything in their power to be like McKinsey and BCG. The word insights is so sexy, so magical… it’s like decadent chocolate mixed with a nice bottle of Barolo red wine (well, don’t mix them and drink them, but you know — eat the chocolate and drink the wine at the same time).
The point is that the assumption, invariably, is made that insights are valuable, clients will pay for insights, so if we brand ourselves as a firm that generates insights, we’re going to be different from everyone else. Although, if everyone is branding themselves as being a firm that generates insights, I don’t know how you’re actually different! But that’s for a different discussion, So that’s one way firms differentiate themselves. They call themselves organizations that generate insights.
Business Consulting Services point of differentiation #2: Trusting through Pedigree
Another way organizations (consulting firms) differentiate themselves is that they brand themselves on pedigree. You see this from alumni of all consulting firms, whether it’s Deloitte, Accenture, Ernst & Young, McKinsey, BCG, whatever big firm it is. If you were an alum of that firm, that is the way you have a pedigree in the market. You may make a big deal about the fact that you were an ex-McKinsey person, or an ex-Deloitte person, and so on. You also see graduates of elite schools do this. If you went to Harvard, Stanford, INSEAD, HEC, Richard Ivey in Canada. Every country has their own super-elite school. You’ll use that as a major point of differentiation.
Alumni of powerful brands within a sector do the same thing. For example, let’s assume that BP is the number-one refiner of oil in the world, and you have 15 years as senior executive vice president, running the refinery division. That’s going to be your calling card. That’s going to be your pedigree!
So, pedigree is not only the firm you worked at (if it’s a consulting firm), it can be the school you went to, it can be the (non-consulting) company you worked at. It could even be where you were born. In fact, I’ve seen in Switzerland, Germany, and the UK, even the high school you went to is a form of pedigree. High school! Can you imagine that high school can be a form of pedigree? I mean, there you are, a 65-year-old consultant and you start up a meeting by saying “Hey, jolly good old chap, remember the time we beat Oxford at…” (I don’t know what they’d beat Oxford at, but you get the point, right?) So, Oxford University and these guys were in high school together. They played the university. But I have actually seen consultants do that. I’ve seen partners do that!
Business Consulting Services point of differentiation #3: Bankable Value
There’s nothing wrong with any of these things. They are all wonderful ways to build points of differentiation. But, if you lack deep insights, and you lack pedigree, then I would go at bankable value.
It’s simply a better way of saying implementation but I like “bankable value.” It’s very uncommon, but when you talk about implementation, it doesn’t mean that you generated the results you promised as a result of implementation. It just means you implemented it. True implementation is, whereby if you said you’re going to generate 20 million dollars of savings at the end of the implementation, the client had 20 million dollars extra in their bank account.
If you get results, clients will not care about your pedigree and your insights. This is a very important thing to remember!
When clients hire you because you have a reputation for insights, the assumption is that, if they hire you, insights will lead to bankable value. But it may not. If clients hire you because of your pedigree, the thinking is that if they hire you because of your pedigree it will lead to bankable results.
Finally, if clients hire you for your implementation skills, the thinking is that the implementation will lead to bankable results. But if clients hire you due to your reputation for bankable results, there is no implication. You get bankable results.
You have to pick the point of differentiation that will work. Don’t pick the one that sounds glamorous! That’s what I always tell people. They always want to talk about insights and new ways of thinking, and being innovative… I say, if you can do what you promised for a client, they’ll hire you.
Think carefully whom you would hire below based on the principle way they differentiate their business consulting services
So let’s think about how this plays out.
If you generate deep insights, what you’re telling a client is “we produce deep insights, which allow us to find new ways to create value and beat the competitors.” But there are no guarantees here, implicit or explicit. If it’s because of your pedigree you are basically saying something along the lines of “with 20 years of combined experience at General Motors Plant Operations, we understand manufacturing and can help you rethink your positioning.” No promise, but it’s kind of implied when they say that, because they’ve done it at GM for 20 years, “if you hire us” (they can’t say it, but…)” you can expect the same results.”
But here’s the word about bankable value: “We have created two million dollars of average verified benefits for five clients, and the value we create is typically ten times the fee. So, we don’t take projects on unless those bankable savings (or the bankable benefitsm it may not be savings, it could be cost-avoided) is at least ten times our fees.”
Most consultants don’t want to do this, because it means you have to pay careful attention to what you are doing to make sure you generate the savings. And unfortunately, I hate to say this, but most consultants just want to get the sale and do as little as possible to deliver it (as long as they get paid).
But think if you are hiring someone, who would you hire of these three? The one who promises deep insights to beat competitors and create value but can’t stand behind it, the one who has deep experience — 20 years! —but can’t stand by what value they create for you. Or the one who is only going to take this work, whereby if they think they can generate at least 10 times their fee, and this is the way they’ve always operated?
Bankable value always wins, all other things being equal. Now, all other things are not equal. If two guys went to Oxford together, or if the executive vice president of some company that you were trying to enter went to Stanford and only hired Stanford people, you’re going to lose (if you don’t have a Stanford degree).
Or, maybe your firm is new and they’re not really sure if you can do this. There might be people reading this who will want to put it into their point of differentiation but they but don’t really believe it. So they say it, but they do everything, body language and so on, to indicate that they don’t really believe it. If you are one of those people, people are not going to hire you.
Your positioning strategy should be that people who work with you get results. And if that’s your positioning strategy,if people know that when you are brought in there’s always results they will always hire you.
Would you rather hire someone who implies they could create banked benefits or who only works on that condition?
“We generate deep insights” … again, this implies banked benefits but does not guarantee it. “Insights” sounds amazing, but here’s the thing: you can produce insights without any banked benefits. I’ve seen this in many situations, where an insight is produced — wonderful — but there’s no benefit to the client.
Pedigree also implies benefits, but does not guarantee it. The firm is implying that their experience will lead to great results, but they don’t talk about it. We create bankable results that can be measured. There are no implications. This is the goal. This is more powerful.
Examples of how this can be done across variety of projects
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You must be explicit and get to the point of your value
The point is, you must be explicit and get to the point of your value. If you lack pedigree, stick with results. If you feel lack insights, stick with results. Generally speaking, stick with results!
Even if you have the right pedigree and skills you will find it really hard to set up a consulting firm if you pick the wrong path
And this not a hypothetical thing. Even if you got the right pedigree. We at Firmsconsulting work with consultants all over the world. What I point out to people is that, even if you have the right pedigree and skills, you’ll find it really hard to set up a consulting firm if you pick the wrong path.
An example of a non skill-market fit
So, let’s assume we have an ex-McKinsey engagement manager who launches a strategy boutique consulting firm in Boston. But here is a problem with the Boston market, it is saturated with ex-consultants. There are so many of them all over the place.
So the supply meets, and often exceeds, demand for strategy skills at the engagement manager level. So, if you’ve got a lot of McKinsey people launching boutique firms in the market, how are you different from them? If your point of differentiation is that you’ve worked at McKinsey, and can generate insights (you can substitute any firm, you worked at Deloitte and you have this kind of insight), you will first have to compete on price… or change your position.
Now if you stay in Boston, over time you’re going to notice that you’re going to have to drift towards a positioning that is easy to explain. This is because if you go out and meet clients and you just say, “Look, I worked at McKinsey (or Deloitte, or Accenture) for five years” which would make you a very slow progressing in EM, but that’s beside the point. But if I worked at McKinsey or Deloitte and I have these skills, why would people hire you? It’s going to become difficult, because there’s an excess of supply in the market.
So you’ll have to figure out very quickly that you need to make your work easy to explain. Now, what happens is that you start moving towards bite-size packages of work. A client understands a market-sizing piece of work, a client understands a market-entry analysis, a client understands a financial model. So, rather than saying, “I worked at McKinsey. I understand how to find issues and identify them” because the client doesn’t understand how to create a scope of work around that, but can understand a financial model — you start bidding for financial model work.
Now because you have McKinsey or Deloitte or whatever in your name, you can charge slightly more than the average person building a financial model. But the opportunity cost is still significant, because you could have been earning a lot more if you could position yourself as a generalist. But you can’t do that, because there are so many generalists in the market. Even if you did, there’s no reason why people would hire you because your point of differentiation is not that different.
Now what’s going to happen here is that, when you start bidding for financial modeling and so on, while you are differentiating yourself from other McKinsey people (and other Deloitte people, and other Accenture people) in the market, you are entering another market, whereby there’s a lot of people bidding for financial modeling work (and market entry analysis, and market sizing work).
You’ve actually entered a much toughermarket, and the only reason you’re winning in that market is because you have a strong name on your resume. You may be earning a premium relative to other people who are building financial models, but who don’t have your pedigree, name, and experience, yet you’re not earning that much.
So the fees are smaller, you have to do more work, and fatigue is going up. And after a while, even if you have McKinsey (or Deloitte, Accenture, Goldman Sachs, or wherever you worked) on your resume, if you keep doing financial modeling work for five years, you’re going to become a financial modeling consultant, and that will become your pedigree.
Lower level consulting work
Now, if you’re building financial models where the margins are generally lower, and you’re going out there and trying to meet clients to sell them the work clients generally don’t want to meet you to do financial modeling work. No executive wants to meet anyone to award financial modeling project.
They’ll ask some of their junior people to award it. So, what’s going to happen is that you take time, you prep for meetings, you spend money to go out and meet an executive (it costs a lot!). But even if he awards you a financial modeling project, which he most likely will not, the amount of revenue you’re getting is so small that you ask yourself, why do all this work for a financial modeling project that isn’t earning that much?
Even if you earn a lot of money for the first financial modeling project, you will very quickly notice that the client organization is going to say, “You know what? We paid this McKinsey guy a hundred thousand dollars to build this model, and Bertie O’Malley from XYZ Financial Services, who has started his own consulting firm, can do it for twenty thousand dollars, and the models look exactly the same! So, why did we give it to this McKinsey (or Deloitte, or Accenture, or whatever the firm you worked at is) guy?” So, very quickly, even if you succeed the first time, your second time becomes harder, and harder, and harder.
Drifting towards commoditized work
What’s eventually going to happen is that you’ll realize that the effort to sell is going to become so difficult that you’ll need to reduce your cost of selling… which is why these online platforms have been created whereby the derogatory term ‘McKinsey Mom’ has been created, whereby a woman who worked at McKinsey, who went on a maternity leave, wanting to take care of the kids, can build financial models and do market analysis on these platforms, whereby people can go in, put up a project, and people bid for work. But the point is, I don’t think some McKinsey Mom is pleased for a $10,000 market entry analysis! But that is what is going to happen to you. You going to drift towards commoditized work.
You’re only valuable relative to the scarcity of a skill you have
So, the lesson here, you’re only valuable relative to the scarcity of a valuable skill you have. A skill is not valuable if it’s not scarce. Economics 101. I’m not teaching anything new!
If you’re in a market where everyone is pitching themselves as insightful strategists, it is hard to stand out. It takes work. If you have phenomenal skills, but there’s no scarcity of that skill, it is not valuable. That’s economics 101.
So it doesn’t matter what your pedigree is. It’s about the relative pedigree of the market, right?
Doing the same work but positioning yourself in a different way
Now, you have a couple of options. You can be doing the same work, but position it in a different way. Now, if you want to know how to do that you’ve got to listen to The Bill Matassoni Show, where he talks about how he repositioned McKinsey away from being a “strategy firm,” or you can read Bill Matassoni’s memoir, which is on Amazon).
Or, you can stay in the same space but take on increasingly commoditized work just to earn a living… which you don’t want to do, right? And this happens to many consultants who start their own consulting firms. I know many partners who started consulting firms. I think all of them shut it down, because the market very quickly values you (mark-to-market size, as they call it).
Skill, positioning, and market
The combination of skill, positioning, and market that you pick is more important than any of the three alone.
Here’s the thing. When most of us start, we just look at the skill gap. We don’t care about the positioning and the market. The positioning is how you explain the skill in the market. Do you position yourself as being the same as everyone else, or different? The market is where you want to operate. Are there enough buyers? Positioning is how you distinguish yourself from other sellers. It’s that combination.
A weak skill, well-positioned in a strong market is going to work. A powerful skill, poorly positioned in a strong market may work. A powerful skill, poorly positioned in an average market, will not work. But too many of us are just worried about the skill.
Self-Assessment: Compare your own performance/planning to where you should be
So, what you need to ask yourself is. Well, don’t ask yourself, state it out. “My point of differentiation is…” And remember, your point of differentiation is not your skill. It’s the way you going to position your skill in the market. The way McKinsey does not position itself as a strategy firm but as a leadership firm. We see this with multiple companies. They position themselves in different ways.
Your client pays attention to your point of differentiation
Your point of differentiation is important to your client. Don’t just pick a point of differentiation that is not important to your client.
How will you lower resistance from the client?
When I worked as an Associate at a major firm, the partner would send me to work for free for a senior executive over Christmas time. “Here’s a guy. A smart guy, hopefully. You’ll find out, anyway, in a week. What do you need him to do for a week?” I’d work there for a week, and come up with some business case, and some idea for the firm to do work. That’s what I used to do. I would avoid doing long presentations. Resist desire to do long presentations to prove your point.
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