We recently held our annual leadership meeting where we debated the future of Firmsconsulting and made some important decisions. We have come a long way since starting as a blog exactly 4.5 years ago. Yet, it seems like we are just getting started.

This is a special and deeply sincere thank you to all our readers who built a tiny blog into a full company operating around the world.

This update discusses the significant changes we will make. Some of these you would have deduced based on the changes to the website, though the others will be new.

All of the studies and shows we discussed in the February update will proceed as planned. There will be no changes to those commitments. The big decisions in this email simply explain what we are doing and why.

Most importantly, we want to be more focused. So when you read everything below, it does not mean we are doing more. We are actually going to do less and focus around just TCO + its spin-off shows and the consulting studies + related training. That is all.

Overall strategy in one word: crowdsourced

Why do we exist?

We will remain committed to our training objectives. We will remain the firm that teaches strategy, operations and implementation at all levels: from those trying to get into consulting to active consultants to executives. That will be our single goal.

How will we achieve that goal?

First, we will remain focused on finding and nurturing a new generation of consulting leaders. In that regard, all our work on TCO, case interviews and some new productions will continue. We will, in fact, expand the work we do here.

Second, the big change is that we will significantly build out our capabilty to solve significant and complex management consulting studies. In other words, we will be a consulting firm. However, you have to read on to see how we will do this very differently and why we will not be a typical consulting firm. It is more correct to say we are a training firm with consulting capabilities.

Why significant and complex studies you ask? It is simple. Life is too short to get up in the morning and help someone sell sugared water or pulverized potatoes. We want to solve problems that matter. We want to do things that push the world forward. We want to solve fundamental problems.

The principles to build out the consulting side

Values first: Our values have been the central reason for our progress. We want to be more stringent in applying our values. For example, we have not been as effective at promoting younger partners who are female or minorities. We will make changes here this year.

We will do more to find outstanding females and minorities, and offer them roles which develop them into leaders within our firm. Why should our internal policies matter to readers? When readers only see males as senior partners it creates a psychological barrier that this is a male profession. We need to change this.

Training first: Everything we do is done with the objective to record and publish it to train our subscribers. If we cannot publish anything on our website, to benefit subscribers, we will not do it. This is a fundamental principle we will follow.

B2C vs. B2B: We are a B2C firm in that we place the needs of our subscribers first. We will always be a B2C firm. We will not take on consulting clients, for any amount of fees, unless we are allowed to publish the studies on our website. The needs of our B2C clients trump those of B2B clients.

All other consulting firms are B2B firms. Their primary clients are businesses. Our primary clients are subscribers.

In other words, we place the needs of the key stakeholder first. This is crucial distinction, because the key stakeholder is the consumer and our subscribers are consumers. We work for the key stakeholder and not the CEO.

We believe this is a long-term trend where more power passes to the key stakeholder and stakeholders should be the group selecting and vetting consultants. The history of business in the last 100 years is one of increasing power to consumers and stakeholders. We believe this trend will continue and we want to be at the front of it.

As technology increases and stakeholders become more savvy, they will want to be involved in business decisions. This is a long-term bet on technology and the changing nature of corporate governance.

Not billing consulting clients: We will no longer bill consulting clients. We billed LAB and the Power Sector clients for the work done. This will no longer be the case and we have developed an approach which can work and avoid moral hazard.

All the big studies we conduct around the world will now be entirely funded from our subscription revenue.

This change is one reason we are asking readers to pick studies from our shortlist. Stakeholder / subscribers should select the issues that are important to them, and we will conduct the studies by negotiating with the client.

This flexibility gives us enormous advantages.

This is crowd-sourced management consulting. This model allows us to conduct high-end work in poor parts of the world without compromising quality standards. If we selected a non-profit model we would no be able to hire great people and invest in new ideas. Both are expensive to do. In the long-term a non-profit model would always see declining quality standards and that hurts clients.

If we charged the client, many worthy problems could not be fixed since the fees are too high for many clients.

By breaking-up the costs into tiny potions and passing it to subscribers, we can focus on fixing pressing problems for clients who do not have money to pay for consulting fees, but we can do so while maintaining the highest possible standards.

We will soon allow readers to suggest studies and vote on them. The studies with the most votes will be selected, and provided the client agrees to do the study after we approach them, we will undertake the study and publish it here.

Want to do a major study to restructure the economy of a poor but major city in Latin America? Want to undertake a climate study in a poor economy? Want to restructure an inner city hospital? We can now do that since the client need not pay for the study.

Crucially, we can deploy the best skills and invest in research because the client need not cover the costs. The stakeholder / subscriber / consumer does.

This is not to say that all our work will be done in emerging markets. We expect 60% of all studies to be in the US and Canada. The remaining 40% will be split among the BRICS + Turkey, Mexico, Indonesia & Nigeria. FYI – of those 9 countries, studies have already been scheduled in 5 of them.

Full transparency: Every slide, document, excel model and report in every study we undertake will be broken down into training videos and published on this website. We will never undertake a study that cannot be shared with our subscribers.

We will continue to make our entire intellectual base open to any subscriber and client. A great firm does not stay great by hoarding knowledge. It is about attracting and motivating the finest minds to solve business problems in more creative ways.

We are far from being a great firm, but that is what we aspire to be.

Invest ahead of the curve: We no longer want to attain parity with other consulting firms. We no longer want to be as good as they are. We no longer want to merely leverage our skills developed at the consulting firms. We will develop new ideas and analyses techniques in strategy, operations and implementation.

The basis of being competitive is taking an extreme position and investing in it substantially. That is how one becomes productive. You will see us invest in unusual but effective ways of doing things. We are not trying to do things other firms can do.

We will soon be rolling out centers of excellence to support the studies already published. That will be very exciting and we are looking forward to it.

Adhering to our principle of transparency above, we will share all intellectual property and teach you how to replicate exactly what we did.

Competing with McKinsey & BCG: In the LAB study and Power Sector Study we inadvertently “competed” against BCG and McKinsey to earn the right to serve those clients. We where very successful. As we work with important clients, we expect to bump up against these consulting firms often.

We will probably lose more opportunities to them than we win, but we are certainly going to not walk away when we believe our approach is best for the client.

Adhering to our principle of transparency, we will share all intellectual property including proposals, our concepts used and approaches to obtaining the work.

Changing Competitive Advantage: Since we where founded, we built our competitive advantage on the fact that we where ex-partners from the most elite firms.

That worked wonderfully when we where serving clients who could not afford nor had access to McKinsey or BCG. LAB and the Power Sector Studies showed us the stark limitations of that model.

This model fails abysmally for clients who can easily afford and have access to McKinsey. Why would a multi-billion dollar company hire a firm of ex-BCG and McKinsey partners when they could just as easily hire the current BCG and McKinsey partners?

Do you see the problem?

We have not yet developed a solution to this problem. Make no mistake, it is a problem.

Where we will work: Fortune 1,000 private companies like GE and Ford are not yet ready to share all their data in our transparent approach, even though we hide identities very carefully. In time they will get there as stakeholders become more powerful.

Yet, that will take time.

Governments on the other hand must share all data. We will focus on governments for this reason. Note, we do not say the public sector since governments own many large private businesses and this definition is narrower than the public sector. We will rarely do public sector work and currently have none planned.

We will advise businesses owned by governments: Etihad, Emirates, Codelco, USPS, Import-Export Bank etc.

Specializing in any one sector, the financial services sector, for example, drastically narrows our scope to that one sector. Subscribers would not want to see studies from just one sector. Governments, however, operate across sectors.

Governments own companies operating in every single sector in the world: banking, insurance, food, transport, aviation, autos, healthcare etc. Therefore, by focusing on the government we can publish studies across sectors.

This does not mean you will see no work for private companies. We are talking to a Fortune 100 firm to apply our open-approach to management consulting.

Nothing changes from what you have already seen, but this explains our thinking and rationale in far more detail.

We always welcome comments and suggestions.

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Comments

18 responses to Update, Big Changes to Firmsconsulting

  1. Michael,

    Thank you for your comments. Finding the right people must be a critical challenge, especially with the ambitious goals you’ve played out.

    Zander

  2. Zander,

    Another important point. We do not want parity with the other firms. Bringing along a new senior partner means he/she will simply do what they already know. There is no incentive to change.

    We need fresh, new ideas and new ways to advise clients. Hiring people who can only do more of the same means we never will change.

    Michael

  3. Hi Zander,

    In theory, hiring ex-partners will work. The problem is they are completely ingrained in their own way of doing things and have a different culture, from their own firms. It is tough to get them to adjust.

    Ex-partners also rarely work as hard. Most tend to coast along on their reputations. That is a fact.

    That is one reason McKinsey and BCG do not like direct admit partners. They tend to struggle to adjust.

    We are far smaller. One partner who does not adjust causes more turbulence for us.

    Michael

  4. Won’t the presence of ex-partners from other firms at Firmsconsulting matter less over time if you set high standards for your people and projects? Bain was founded by ex-BCG partners, but is now judged on it’s own merits. So if Firmsconsulting selectively recruits ex-partners from the best firms, but keeps its values and does good work, wouldn’t it develop it’s own independent reputation?

    Actually, I wonder how the other firms will respond. The new business model could be a bit disruptive.

  5. All,

    The biggest change is the difference in our business model. The major factor is not that the client does not pay, it is ultimately who does end up paying – subscribers.

    That is an unusual model and are still to see the implications.

    Michael

  6. Hi Hannah,

    We came up with the policy by examining how much freedom we could have if we could pick clients widely, irrespective of their ability to pay.

    The idea of charging some clients and not others is probably how we will start as we roll this out. It is experimental, and managing moral hazard is the single biggest obstacle we will face.

    We are working on more ideas on the theme of motivating CEOs.

    Michael

  7. Hi Michael,

    It was such a surprising change, I didn’t expect to hear a consulting firm not charging consulting clients. FC definitely thinks outside the box.

    I agree with the high-impact studies only, like Marvin said.

    How did you come up with the no billing policy? If it’s to ensure that poor clients get help, can you do it for free for them while still charging the profitable companies? That way you can address important issues at all levels. Also charging (maybe a bit less than MBB) makes you appear competitive.

    Also I would love to hear more about how you motivate CEOs as mentioned in another article.

    Thank you.

    Best,

    Hannah

  8. Hi AB,

    Thanks for the good questions. I should have addressed them earlier.

    1 – The subscriptions will not change in any way. In fact, the price may go down.

    2 – It is too early to discuss this – more will follow as we think this through. Their goal will be to teach about a study the way the maps/studies do, but to be more immersive. So teaching subscribers how to do the analysis is the goal, but to go deeper across an issue. For example, we only study an issue as much as required to prove an hypothesis in a study. Never more. The centres of excellence will explore the topic further.

    3 – We will only share the profiles where a partner takes a role like I or Kevin does whereby they have a public-facing presence. Discussing their profile for these reasons is valuable to readers. Where someone has a role on a study or internal only, we probably will not discuss their profiles.

    Hope that helps.

    Michael

  9. Hi Michael,

    Thank you for keeping FC rolling and growing. A couple of questions:
    1) Will the subscription price have to be raised to absorb the additional costs passed on to subscribers?
    2) Can you elaborate on what the centers of excellence will do?
    3) Are you planning to give an overview of the new people joining the firm, their background, etc?

    Thanks

  10. Hi All,

    When we moved to a subscription model in late 2013, many clients assumed we where simply chasing passive income. They were concerned about this.

    That is not the case. As you can see, this subscription model gives us the wide freedom to do some very creative things in the long term.

    Income is only passive if it is hoarded in bank. My goal is to declare no profits each year and push capital into these exciting ventures, which every single one of you makes possible.

    Michael

  11. Hi Davison,

    You are most welcome.

    The simple answer is we are hiring more people, and partners, and investing heavily in technology.

    Michael

  12. Hi Jen,

    Thanks. We will publish our ideas but white papers seem so 1990’s. We will think of a better way to share our ideas. We are already working on that for some of the existing studies.

    Michael

  13. Hi Renzo,

    On the first point of valuing the work, it is a legitimate concern. We plan to use an escrow like system. Clients will pay a retainer into that account and only if the full terms of the agreement are met, will the full amount be returned to them.

    If not, we estimate the lost effort we made and deduct it. This is the model we are now planning to use for engagements starting in 2016. It is a work in progress and we may adapt it.

    This is how we prevent moral hazard.

    On the quality of the work, remember that the technology merger study was fully funded with subscription revenue and we managed to keep the quality levels high. One idea we are thinking about is potentially phasing this to see how it works.

    That said, we think it will work and believe our subscription revenue can cover all the costs. So it is not like we are expecting consultants to live in motels, pack their own lunch and fly coach. That is unsustainable. We will not do that.

    You cannot attract and retain great people on that model.

    At no point does this change to our business model imply we are cutting costs and corners. it merely changes the source of our revenue, not the size of the revenue, and we are already there at the point where our subscription revenue covers all costs.

    Hope that makes sense.

    Michael

  14. Hi VRM,

    Thanks for the comment. You mention a theme and studies are defined by an initiative.

    So, it would help if you fleshed out an initiative to see if it aligns with what we are doing.

    I can them comment on that initiative.

    In general, we want to solve big problems, affecting millions and at the root cause. Those three criteria must be met.

    We do not want to focus on symptoms / band aid solutions since they actually fix nothing of consequence but can suck up a lot of time and effort.

    I hope the that helps.

    Michael

  15. Michael,

    While I understand your reason for not charging clients a fee for your consulting services – do you think they (the client) will end up valuing the output of your services as much as they would for a paid product

    Also – will you still be able to provide your consultants with the support (laptop, hotel, etc.) that they need in order to feel on par (or higher) than BCG if you are not charging a fee?

    Outside of those two concerns – I really like your approach to picking projects. The sentences below really clarify your selection criteria.

    Why significant and complex studies you ask? It is simple. Life is too short to get up in the morning and help someone sell sugared water or pulverized potatoes. We want to solve problems that matter. We want to do things that push the world forward. We want to solve fundamental problems.

    best of luck

  16. Michael,

    Thank you for the excellent updates. I continue to be in awe of what Firmsconsulting is, but even more so, what it could and would be.
    By applying innovative technology to important problems such as power and healthcare, FC has earned the right to not only compete against the elite firms, but to chart a path for them to follow. Along these lines, I would suggest investing in publishing white papers as a natural next step to consolidate what we members already know is excellent thought leadership.

    I look forward to one day opening the NYT, HBR or WSJ, and seeing a piece from FC charting new territory in strategy, Ops, or implementation, and not just regurgitating existing frameworks as is the case for most “white papers” these days.

    Jen

  17. Michael,

    Outstanding demonstration of FC’s values in action, and thank you for providing a clearer picture of FC’s refined direction. How does FC plan to augment capacity beyond partners and TCO candidates to execute additional consulting studies and stand up the centers of excellence?

    Regards,
    Davison

  18. Michael,

    Irrespective of where I am in my career and where I will be – I will always consider myself a long time “contributor” to FC, as FC has been till date. With that the changes that you announced are very welcome, and raises the bar ever more. One question, you know that I have personally been very interested in bringing FC to underprivileged candidates and or in low ranking schools. Does that align with where FC is going? Is FC going to facilitate if a “crowd” wishes to socialize FC to the aforementioned segments of candidates?

    Regards
    Venkat

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