The reason for the growth of small consultancies is, my research shows, increasing client satisfaction with traditional firms. As large consultancy services have become more ‘productized’ and focused on sales (often at the expense of quality), many senior consultants have left to start their own firms. Others, who have developed strong skills and specialisms working in client firms often see the relative freedom, higher wages, and influence of consultants that work beside them and think ‘I could do that’.
But being a good consultant (or good specialist) does not mean you will be a good ‘business owner’. Many of my own clients are great consultants who quickly found that they are not experienced in many aspects of growing a successful small firm: recruitment, marketing, back-office, and even sales. Without the power of a big brand calling-card, new founders are often surprised that clients don’t queue up to come to them.
With this in mind, here are the key elements you’ll need to consider to start a management consultancy and the tools you’ll need to grow it.
Before you leave your regular salaried job, you need to ensure that the mortgage is not going to be in danger: do you have savings to last a few months of zero income? Do you have clients signed up already, or at least strong promises to work with you? Will your firm allow you to keep some of your existing clients? Do you have enough access to potential buyers to ensure you can build a pipeline?
Aside from the money, your mindset is crucial. Some people simply aren’t built to be independent consultants. Ask yourself: are you happy with uncertainty? Can you cope with boom and bust periods? Are you tenacious? Are you comfortable selling (you’ll be doing a LOT of this)? Can you build relationships easily? Are you prepared to work hard, travel when your clients need you, and even miss some important family occasions?
Finally, do you have the valuable skills and expertise that client will pay top dollar for? The ‘top dollar’ is crucial. Does your CV inspire confidence? Many of us have skills, and we might think that people should pay a lot of money for them, but will they actually? How do you know? This takes us nicely to our next point: research.
Moving to a narrow, specific niche is crucial. It allows you to market yourself more effectively, to accumulate expertise more quickly, and to sell more successfully. By ‘niche’ I mean that you sell to one role, you work in one type of client, and deliver one form of value. Typically, this can be expressed by stating “I help [X] achieve [Y] by doing [Z]”.
Ideally, your niche will be in a valuable market, which is preferable growing, and with minimal competition (though this matters less than people think). Think cybersecurity, artificial intelligence or mergers/acquisitions rather than change management or project management. Not all niches are equal. ‘Process mapping’ work in the public sector is very similar in content to ‘Lean’ in the finance sector but the latter will typically be charged at twice the rate of the former.
Getting to a niche is not always possible in the first two years, because you’ll need to experiment and see what works for the market and for you. However, the only way to find a great niche is to research: talk to potential clients, see what your competitors are doing and where you can be unique, read business magazines to understand the important trends in your market. This is a process which should be done every year.
Moving towards a three year financial goal will improve your motivation and inspire greater confidence among recruits and clients. Once you understand your specialization and the value you’re bringing to your target market, you can start working on a business plan. This is crucial to understand if your goal is realistic, and if so, what is needed to achieve it.
Key questions to ask yourself are: have you built a costed business plan for the first three years? Do you know how many projects you’ll need to cover your costs, pay your tax, and still make a profit? How many staff or associates will you need, and what will they cost you? How many clients will you need to approach in order to land your successful target? What will you spend on marketing?
Unless you are a huge consultancy with economies of scale and vast outsourced talent pools a low cost strategy will fail you. Focus on providing outstanding client value and then get them to market for you through referrals and testimonials (which are how most clients recruit their consultants). Focusing on quality doesn’t just mean working hard, but also ensuring that you have a learning mindset and systems so that you continuously improve your services and people.
Reflecting this, you should seek to price in the top 10% of your competitors. My research shows that clients do not buy primarily on price as long as you are in the right ‘ball-park’. Imagine shopping around for a brain surgeon, architect or lawyer. Low prices ring alarm bells don’t they? This isn’t to say that you shouldn’t occasionally discount (70% of consultancies admit they do this). On some occasions, when you are learning a valuable skill, working with a great brand, or believe there will be significant follow-on work, discounting at the right time can give you an advantage. But it is not a long-term strategy for success.
Many small consultancies thrive for the first couple of years as they live of revenue from past clients, family connections, and their old network. However, this will, unless you are very lucky, dry up. Many new founders believe that because they are great consultants, clients will come to them. But without the power of a big brand, you are just one voice among millions shouting for the attention of the C-suite.
Marketing still involves picking up the phone, attending conferences, and playing golf, but increasingly incorporates the digital world. Consultancies that invest in digital marketing typically grow at 25% faster than those who do not, and have higher margins. But this investment need not be primarily money if you are a small firm, but time. There are three phases to solid digital marketing:
The steps above are not necessary immediately, but something you should move towards over 2-3 years as you seek to establish yourself as a prominent expert in a specific field.
I find it quite odd that 90% of the advice for consultancies online concerns digital marketing. In my fifteen years advising small consultancies on growth, digital marketing isn’t a difficult problem to crack. Indeed, much of the work can be outsourced. What is trickier is sales.
Many, perhaps most, founders I meet are not natural sales people. Sales shouldn’t be outsourced or delegated to specialist sales people – again, would you buy from an architect or surgeon if you only met their sales team? Sales is a skill that can be taught, but also needs developing throughout every consulting firm so that everyone is clear on the value that is provided to clients, the messaging which is most effective, and the techniques such as proposal writing and negotiation that will maximize your revenues and cashflow.
Did you know that in surveys of why clients buy, ‘fit’, ‘personality’ and ‘values’ are often ranked above price? This makes sense to me. Consulting is, at heart, a trust business. In product sales, the customer trusts the product or the brand, but when dealing with intangibles such as knowledge, the trust is in the person. Being explicit and honest about your values will help you work with clients who are like you, and will like you.
Values are especially important if you are seeking to grow. You can rarely offer recruits the same prestige or pay of the large consultancies, but you can offer them better values: more work-life balance, working from home for those who need it, a family culture, lower utilisation rates, more training and development, or simply a style of firm that fits a certain type of person.
As your company takes off, you must be prepared to invest in systems and tools that will help you handle the workload. This is especially true if you wish to grow your firm. Stretching yourself and your team will only result in burnout and affect your business quality. Fortunately, there is a lot of software (search ‘professional service automation’) that will take the back-office load and provide you with useful metrics.
Such efforts should not just focus on the back office though. Your services should become more codified and predictable so you are not reinventing the wheel each time you work. You should use templates, check-lists, automation, and even bespoke software to offer better value for your clients and a cheaper price. As you grow, this is important so that you can recruit lower cost staff who can still generate high quality work. This is the basis of the ‘leverage’ model which most mid-sized consultancies rely on to generate their profits.
Prof. Joe O’Mahoney is a Professor of Consulting at Cardiff University, and helps small consulting firms grow successfully at Consulting Pathway. Joe is author of Growth: Building a Successful Consultancy in the Digital Age out now priced £25.99.