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.
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.
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.
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.
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.
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.
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.
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 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.
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.
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.
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.
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.
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.
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.
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.
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.
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.
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