Hi everyone and welcome to another episode of the management consulting podcast series where we discuss the business of running a consulting firm. In today’s episode I would like to talk about the route behind the creation of most boutique strategy consulting firms and offices of larger firms.
For example, if KPMG wants to open an office in a new territory, it will bring in a consultant who has either worked at KPMG or a consultant with expertise in that local region from a rival firm. If you are launching your own business, the odds are very high that you have already worked at a Deloitte, a McKinsey, Accenture, or even at a tech firm.
In fact, you bring in the skills of your prior firm into your new organization.
A majority of strategy consulting firms and smaller offices are created by consultants who worked at larger firms and larger offices.
One of the biggest challenges faced by such consultants is that they take an idea, concept, toolkit, framework, or some kind of intellectual property which is usually a very narrow set of frameworks that they repurpose for their new role. This is the way all such consulting firms are founded whereby the root of the firm is that they have been exposed to a toolkit of frameworks which the consultants feel they know enough about and feel there is a market for. The challenge is what happens after that narrow set of skills is exhausted in the market.
Every firm is founded this way whereby the founders learn a set of skills and they feel that that narrow set of skills can be the foundation of a new firm.
There will be challenges if this is the sole source of the value in the strategy consulting firm.
Every single strategy consulting firm when it is founded or every single person interested in management consulting looks at books or journals such as the Harvard Business Review or McKinsey Quarterly. So, for example if one wants to learn how to do a corporate finance strategy study, they will most likely go to the McKinsey Quarterly or read a book on valuation and hope to be exposed to a framework or an approach.
Even when consultants think from 1st-principles, they will use this approach to solve a problem and realize that approach is useful across more than one client. This is how a methodology is born. So there are always these tools and techniques sitting at the heart of a firm and/or office.
When information or publications are written about strategy, there are two audiences. The first audience is executives, people that run Ford, Google AT&T, who are not interested in how to develop a framework. They are not interested in how the study is structured or in the thinking that goes into the development of the approach. They just want to see the overall final picture. A lot of strategy publications cater to this audience.
The other audience are strategy consulting practitioners, the people that put together the analysis and the thinking that serves a client executive. Those are the people who need to know how to develop a framework to figure out, for instance, how AT&T can reduce expenses for the capital needed to rollout a new network.
A lot of the things you read about strategy, if you are a strategy consulting practitioner aka strategy consultant, is not designed for you.
When McKinsey is publishing the McKinsey Quarterly, it is not trying to advise other consultants on how to develop new ways of thinking and develop new frameworks and new ways to solve a problem. In fact, it is trying not to educate you to do that because then you become a competitor to McKinsey. So, its audience is executives and the material it publishes is about how those executives can understand some important insights to manage their business.
But it’s not explaining to the executive “okay if you’re in the telecom sector – how do you go about figuring out the problem you have? How do you go about constructing the framework to solve the problem?” McKinsey does not want to train people to do that neither does Bain neither BCG or the Harvard Business Review.
Although with the Harvard Business Review, maybe 10% of the articles do concentrate on that category but it is a very tiny group and shrinking as well.
A lot of strategy consulting practitioners assume that the content in publications such as McKinsey Quarterly are targeted at them. But the McKinsey Quarterly audience is not that of strategy consulting practitioners, but the end user of the engagement. The client. So, as you are learning how to do things as a strategy consulting practitioner, your job is not to memorize frameworks. Those frameworks are for executives. Your job as a strategy consulting practitioner is to figure out how to develop a framework.
Even today the most sophisticated MBA programs in strategy in the world teach you the Porter’s framework or a corporate finance or corporate strategy framework. I have colleagues who are ex-partners at McKinsey who teach at major MBA schools and they also teach frameworks.
But as a strategy thinker your job is not to source all the frameworks in the world but to figure out how to develop them. For instance, if you go to a telecom client you need to ask yourself ”How do I develop this framework to solve this problem?” And it is a very hard skill.
So, how do I learn how to develop these frameworks?
There are two ways to do it.
One is to look at what we teach in TCO around brainstorming and how to develop structures which are frameworks. The other two areas where you can learn this is in our program called “Follow a full McKinsey, BCG et al. engagement”, which has about 270 videos. My favorite one is the Corporate Strategy and Transformation Study where FC Insiders can go to the beginning of the study to see how we structure the problem.
The reason I like this particular program is because in this study there is no clear objective function and no clear problem statement and nothing that you are maximizing. So, it’s a much harder problem statement to develop and then you have to build out the way you’re going to solve it. That becomes your structure, which is a fancy word for saying framework.
You will quickly realize that the brilliant concept you have – probably learned from your previous employer – does not have that much traction and quickly loses its luster in the market.
As I mentioned before, developing frameworks is very hard. I know many partners obviously and what I have noticed is that over time they develop a framework of a concept, which they think is incredibly useful, and then just stick to it forever. That means that every single client they go to, they have this framework which they have spent their whole lives thinking about and they use it to solve every problem.
There is nothing wrong with that. In case you have a way of thinking about shareholder value creation, you should take it to every client but it shouldn’t be the only thing you take to every client because shareholder value creation is a big field. You have to manage assets within assets, and you need a way of thinking about how to maximize returns on those assets. You would need to develop another framework because every client is so different, and every issue is so nuanced.
Now if you look at the latest work we do around market entry strategy, you would see that our thinking on market entry strategy is radically different from anything anyone else has out there.
When we explain it to people, it makes perfect sense to them but the gist of that is that the first rule of market entry strategy is not to consider entering a market and when we teach that to people they don’t really see how that makes sense until we explain it to them.
FC Insiders have access to all these programs (email [email protected] to learn how to become an FC Insider). Although, for a limited time only, if you go to firmsconsulting.com/promo and optin for email updates you will get access to sample advanced episodes that we used to teach FC Insiders. But I am also going to teach you some concepts here.
I have known many people who have left consulting firms at various levels. One of the primary reasons they leave is that they have an idea that they have been exposed to at the consulting firm. They have used it with the client in an engagement or a series of engagements and they love the idea. They think there is a market for the idea. They love the idea so much that when they take it to the client, they evangelize the idea. They think so highly of it and the client listens just because the consultant is so captivated by the idea.
But here is the thing you are going to face.
You develop idea fatigue. You have less enthusiasm. You need to dress up the idea.
Over time, if you are still repeating the same idea to clients, even if the idea is new to a client, it is not going to be new to you. You know the idea is getting old. You know your original employer is coming up with new ways of thinking. Even if the client does not know your idea is old, you are aware that your idea has a sell-by date.
So, whether you like it or not, you develop idea fatigue. You’re so used to repeating the whole song and dance about the framework, structural approach to solving a problem that you go into a mechanized approach whereby you just talk through it not because you’re excited or because you’re following what the client is saying, but because you have an elevator pitch.
You stop thinking and just talk.
When you have an elevator pitch, you always have less enthusiasm and you feel the need to dress up the idea. So over time when you take the approach to 50 clients you think that at least 12 of them need to be more impressed, even though its really you suffering from idea fatigue. So you start expanding the idea even though the idea may make perfect sense and still may be valuable.
You start dressing it up because in your mind the idea does not make a lot of sense anymore or at least it’s tired.
The idea is now officially old. You have no new ideas because you never learned how to develop frameworks. You just memorized a few that got your business off the ground. Your entire model of being a consultant was to go find a framework and then show it to a client and get paid for it.
Just because you have a new framework that you do not fully understand and do not know how to use properly doesn’t mean you are adding any value to a client. The job of a consultant is not to have a good framework that they misuse, but to have at least an okay framework that generates a good solution for a client. So, focus less on having the best framework and doing more with that framework you have.
We get a lot of emails from people asking for frameworks and I understand that they are under pressure and they want to use a framework but what if you have a framework? How many people have the Porter’s five forces framework? I think we can all agree that Michael Porter probably spent a lot of time thinking through that framework. But I have never seen a strategy developed on the Porter’s five forces framework mainly because people do not know how to use it.
Same with the profitability framework. It is probably the most well-known framework in the world, but most people do not know how to use it.
An older framework used correctly is far more effective than a new framework that you cannot use appropriately.
Coming back to this. You are stuck with the framework you have. You left the firm so you cannot get access to new frameworks, so you double down on the framework aka the type of business you have. I was looking at something developed by a pharmaceutical pricing consultant from McKinsey a few days ago and he has this very detailed approach but that is all he has because it is the only thing he knows.
Every single problem he sees in pharmaceuticals is related to his framework and even if it is not related he will bring it back there. That is the danger you face when you have not developed a skill of building unique frameworks for a particular unique problem. If a client problem arises which could be very lucrative but you don’t have the ability to build an approach to solve it, you will default to the frameworks you already have.
And if problems could be solved with standard frameworks no-one would need to pay consultants millions of dollars. Clients could buy a textbook with frameworks for $50 and use the frameworks from there.
Now as you get older, and in consulting we age much faster, it is hard to develop new ideas. Never ever develop age defying serum from the DNA of a management consultant. Its a bad idea.
What I have seen is that all the consultants who have not developed the ability to develop frameworks, and new ways of thinking, double down on the idea that started their business and develop methodologies around it. So rather than approaching every problem as new and building a unique framework around it, they take that framework that they inherited from their previous employer and start building in detailed steps behind it.
Then they will go to clients saying this is their approach and that they know exactly what they are doing. They will then make themselves an expert in the idea and may trademark the framework. They will start saying “My name is Malcolm Peterson who is the founder of the advanced procurement optimization methodology. Registered trademark…”
These things develop with good intentions but indicate bad underlying problem-solving skills. And this happens to all firms. Even firms founded by ex-McKinsey partners. How many ex-McKinsey partners have founded thriving boutique consulting firms? Think about it, how many of them have lasted more than five years, let alone 10 years? I personally only know of one. They all have given up.
Not because they are not smart. They get lazy. Developing a new customized approach to solve every problem takes up a lot of brainpower and nobody wants to do that. It is incredibly hard to really solve a problem from 1st-principles each time. But each time you do, you create a new framework.
And if you could develop that knowledge, which the is the main competitive advantage of a consultant, it is virtually impossible to use. That sounds counter-intuitive, but it is not. (Let us know if you want to know more about this competitive advantage and why consultants fail to maintain it.)
So, for example, if you are an MBA student or you are starting your own firm you’ve been taught that strategy is a set of frameworks. Remember, that is strategy for an audience that are executives. They are interested in frameworks. If you are a strategy practitioner or strategy consulting practitioner, you need to start developing frameworks and approaches and not memorizing them and collecting them.
So, here is a self-assessment. When you are talking to clients, ask yourself this, “I will focus on a problem versus an approach because…” I have explained to you why you will focus on the problem versus the approach. The approach is the framework. You do not focus on the framework because if you only focus on frameworks and never focus on the problem, you never learn how to build a framework to solve the problem. You need to focus on the problem and then develop an approach to solve the problem, which becomes your framework. If you focus on the approach, all you are doing is looking for the right framework.
I use the market entry strategy as an example because it is a classic example where everyone is taken aback when they see why a very conventional framework is wrong for market entry. You must explain this to the client because clients always see standard frameworks. You must be able to explain to them why you are not going in with the standard framework.
Or let us assume that you have a framework that is perfect for the client. In that case use it. But a lot of times what you find is that the framework that the client wants is not correct because they have not assessed their problem correctly. If the problem statement changes, the approach to solve the problem will change. If the approach changes, the framework will change because the framework is the approach.
So, must get comfortable explaining to a client why in certain situations you are not using a traditional framework. But you need to develop a new way to solve the problem.
How will you lower resistance to this? Well, I’ll talk about it more later but basically you lower resistance by offering them a chance to see how you would do this for free and I’ll show you how this is done in a few more episodes but when I say free I don’t mean working for free completely.
I have done such work when I was at the firm and we charged hundreds of thousands of dollars, but there are times when you do free work. You have to do it strategically and I’ll talk you through that.
Avoid the urge to build long presentations. People always fall for this trap whereby they think that things will just be easier if they can have some long-detailed presentation to support their thinking and talking. It never works that way. It is just going to slow you down and never teach you how to talk to clients. Clients buy on trust. Not the length of a presentation.
If you are interested in more information on how to build a strategy consulting firm, what I would recommend is to write a comment on YouTube under this video. This is because we use the comments on YouTube and Reviews on iTunes to guide future episodes. So, tell me what are the things that you liked about the episode and questions that you want answered in future episodes. Put it in and we will build it into future episodes. As always, I look forward to speaking to you in the next episode.
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