On scaling your professional services or consulting business
02 Oct 2015
Professional service firms focus on building strong business relationships and serving clients, not necessarily on the creation of new products or repeatable services that are easily scaled. The growth of a consultancy is typically linear, being tied to the number of consultants and hours that can be billed per project.
In this article, we discuss some of the issues faced by professional service firms, as well as suggest 3 possible solutions for growth: 1-Maximise, 2-Multiply and 3-Metamorphosis.
Consultants solve complex problems
Geoffrey Moore (2005) proposed that there are two main types of business architecture, complex systems and volume operations (see diagram below). Consulting firms clearly fall under the complex systems category. Complex systems businesses tackle difficult problems and deliver custom solutions, requiring high level expertise. High-end examples of complex system enterprises include IBM, Cisco, Goldman Saches, Boeing and IDEO.
Volume operation businesses focus on mass production with little or no customisation. Examples of well-known volume operation businesses include Nestle, Apple, Sony, Hertz, Hilton, ebay and Amazon. For more details on this model see Geoffrey Moore's excellent book "Dealing with Darwin" (2005).
As a consultant at a small consultancy firm, dealing with the complexity of client problems can sometimes be overwhelming, leaving consultants time poor and without a repeatable solution to leverage into the next client project. This can reduce the effectiveness of the consultant, as shown in Moore's diagram under "small business".
Selecting a growth strategy
Clearly there are a myriad of ways in which to structure a professional services or consulting firm. However for our purposes here, we propose 3 options, being Maximise, Multiply and Metamorphosis.
The goal here is to stay small as a sole-trader or small group of consultants, focusing on maximising profits and rates by providing a high quality and custom service in your niche, that other firms can't compete with. By being very selective in choosing clients and keeping your team of consultants small, you can focus only on profitable projects.
In this approach, it is important to focus on developing your personal brand, enabling you to charge by your perceived value and reputation as an expert, rather than by output or project hours. The goal is to position yourself as the go-to person in your niche. You may need to embark on a speaking career, blogging and book writing to build your profile. See Alan Weiss' book Value Based Fees for detailed treatment on how to implement this type of business.
This type of firm can stay nimble and profitable, by avoiding many of the overheads of larger firms. Consultants can work from home-offices or the premises of the client. A sales-force is not needed to constantly bring in new leads.
However, it is easy in a small consulting practice or professional services firm to become over-worked and stressed out. Every client wants the lead consultant to manage their project, so it is often difficult to outsource work. It is also typical to get stuck in the feast or famine cycle, oscillating between finding the next client and completing client work. Feeding the engine and working the engine are very different skill-sets. Working on both at the same time can vary from exhausting to impossible. As such it is crucial to focus your time on profitable clients and building long term relationships.
The goal here is to expand your consulting practice to approach the "sweet spot" for complex systems, as shown in Geoffrey Moore's model. In order to remain effective, complexity must be closely managed.
Custom solutions need to be provided, but these should be underpinned by an array of pre-adopted solutions, core expertise, proven processes and technologies that are used on in all client projects. In this respect, the consultancy can succeed through integrating existing resources and assets to meet client needs. This approach is shown in the Moore's diagram below.
Clearly in this approach there is a need for continual focus on expanding the business, often through a dedicated sales force and ongoing advertising budgets. Often a firm will be made up of partners, supported by juniors that can do the back-end work, while partners interact with clients and secure new projects. Sales cycles may be long, complex and competitive. As such the primary focus of partners needs to be on building relationships with clients, and acting as an internal consultant to juniors that implement the solution. One challenge with complex systems businesses is that client work is typically based around projects, which are normally calculated by person-hours, making the business scalable on a linear basis, proportional to the number of consultants. As such there is often huge pressure to maximise utilisation of consultant hours to maintain profitability, resulting in the high burn-out rate of consultants (for war-stories see young bankers fed up with 90 hour weeks).
By looking at Geoffrey Moore's model, you may consider transitioning from complex systems business to a volume operations model to deliver a unique and innovative, scalable product or repeatable service.
Moving to Products & Services
Products and commoditised services are inherently scalable. However their development is high risk and typically requires development of a niche leading offering.
Shifting your consulting business to a product or service business is possible, but it requires commitment of dedicated resources to research and development - essentially incubating a start-up company from within your consulting business. These resources must be isolated from the consulting business, otherwise staff time on these projects will invariably be absorbed by more pressing client work.
Having a steady and consistent consulting income can be a great way in which to fund risky R&D, rather than looking for outside investment or venture funding. You also already have a ready group of clients you can test your offering out on, insider knowledge and networks, as well as a credible name in your industry.
If you do find that your product or service takes off, you can progressively shift from consulting work to focusing exclusively on products and repeatable services. This transition can be difficult, as the culture and ethos of a professional services firm is in many ways the antithesis of a volume operation that is focused on products rather than individual client needs.
What products and services could you provide to your clients, that don't require customisation or complex consulting work?