If you have managed to become a badass consultant you may find yourself a little bit trapped in your current place of work that does not support efficient people. You may start wondering about starting your own consulting business. For those of you who are considering this option I have prepared a short yet useful summary of things you have to take into consideration.
If you want to start a consulting business you will have to deal with 5 questions:
- Around what you should build your business?
- What is the best source of ideas for your consulting business?
- How to get first customers?
- Does the business make financial sense?
- How to deliver the product successfully?
I will try to help you answer those questions one by one.
Around what you should build your business
So, basically there are 2 ways in which you can build a consulting company. You can build the business around a segment of customers or around a specific service.
In the first one you find a segment to which you start serving on a very good level one service and then you branch out with other services the customers require. A very good example of applying this way is obviously the Big Four (audit companies) like PwC, KPMG, EY, Deloitte but also Alvarez & Marsal. What they do is basically satisfy a customer and since they are not able to sell more of the same service to this customer they have tried to come up with new services to sell to them.
The other approach is to build your business consulting company around one very specific service or product. In this method you pick one service around which you’re going to build a business and you just concentrate on this. You don’t try to branch out into new services but you rather look for new customers to sell the same service and you try to concentrate on the same product. Here we would have our companies like Simon & Kucher which are doing the pricing, Lean Passion which is doing the manufacturing Mandarine Project Partners which do a lot of things connected with theory of constraints and critical chain and LCP which is specialized in supply chain. Usually, those companies are smaller in size than the one which branch out around a certain segment.
Somewhere in between we’ve got consulting companies like McKinsey, BCG, Bain Company. They usually start from things like strategic management consulting and then they branch out a bit but not too much. So, they are not as versatile in terms of services as this group of the Big Four which usually includes also audit, legal services and tax advises, but they are much wider in services than the group of firms that build around one service. I would recommend to start with the second approach (build your business around a specific service). At some point you will have to decide how far you should go into branching out and whether you should be going with the same product to new customers or you should be concentrating on the customer you have got and trying to sell new services to him.
What is the best source of ideas for your consulting business?
Most of the people get usually stuck at the first stage – generating ideas. Therefore, I will give you some general sources of ideas that you can use:
- Satisfy your own need. Sometimes you are able to build a consulting company on the back of already existing business because you have a need that you want to be satisfied in a professional manner and there are not good suppliers on the market. In this case, you need first to have a business on the back of which you can build a consulting service (and later on an independent business). Once you identify the need you want to be met, you build it internally, become the best in this area. If you reach a certain scale and you have mastered the field, you can branch out and supply to other customers. If you are successful you will end up with 2 businesses: the old one on the back of which you build the consulting business and then second business – the consulting firm. When is it possible? Quite often it is due to the fact that on a specific market there is not enough knowledge on certain new area which arrives. This is what happened in the case of consulting on Adwords, Facebook Ads, Content Marketing. If you wanted to be good at this and you were not on American market then you basically had to build it on your own, because professional suppliers were still not existing. The other thing which quite often happens is that you have created a piece of software that is very useful but not easy to use. So, in a sense, you have to build a consulting company using the software to sell it properly and you start actually by selling first the consulting service rather than the software. In other words in this case, this consulting business is created just to sell properly the new software. Once you have a certain scale you can also think about branching out the consulting business into an independent business. The third option when this is possible, is whenever you have a piece of very sophisticated tool, machine that requires certain specific knowledge to be used properly or to be maintained. This is exactly the case of production lines, aircrafts, etc. In aircrafts quite often the airlines or MRO specialize in a certain area start and after some time they start advising others what to do and how to do with the aircrafts because they had to build it internally and then they could offer it to external customers.
- Carving out. Sometimes you can create a consulting business on the basis of existing company by just taking out one of the departments and changing it into separate standalone business. In practice, you take one of the departments from an established company and then you change it into a separate standalone business that is now offering services to his previous company. What used to be offered as an in-house service now is offered from the position of an independent contractor (3rd party). Later on you try to build on the basis of this and to expand further by adding new customers and adding new services. The good thing about this approach is that usually you are profitable since day one because you already have the first customer (being the old company, from which you took the department) and you just have to better utilize the people we’ve got and new services to make it much more profitable. Where it usually happens? It could be for example marketing department, sales department, marketing research, pricing departments R&D departments. We actually witnessed and took part in such a carving out in the case of the R&D departments and also in the analytics and the market research departments. You can also carve out technical departments, technical support, especially if you have a lot of engineers and the business is totally different and those engineers feel kind of foreign within the old company. A good candidate are also shared service centers. A very good example is what Accenture did in Europe. In many cases they would take over some of the function on behalf of the customer and build for their customers Shared Service Center as a part of a bigger consulting case.
- Cloning 1 to 1. Sometimes you don’t have to even come up with new idea about consulting business. You just have to clone it – copy an already existing successful consulting business. There are two types of cloning. The first one we’re going to be talking about is called cloning 1-to-1. In this type of cloning you take the business as it is in a specific market and then you just bring it to a new one. Usually, the original market is the USA. You go to the USA, you work for the company and you learn how they function. You take whatever you can from them and then you try to adapt it to your local market in Europe or wherever you are. If you want to do 1-1 cloning you have to pay attention to 3 things: adjust the model in terms of the way it delivers and sells the service (you may not have some of the resources they have in USA), market has to be mature enough, quite often you have to make adjustment for the difference in costs and prices (you may be forced to charge on the new market).
- Cloning the idea. The other way to clone business is not to clone it ideally 1-to-1 but rather try to copy the idea and apply it to a bit different set of people / firms, a bit different set of products. A good example of cloning the idea is SlideShare which you could name as YouTube for presentations. Another great example is Salad Story which is a fast food for salads. The approach to cloning ideas is a bit different than cloning 1-to-1. You don’t have ready-made business that you can just put on your market. Here you have to work on the idea and refine it. One of the ways in which you could do it is by narrowing the usage to a specific groups of users. The other thing you can do is to keep exactly the same economical model of the business but to change the product or the group. This is actually the case of the before mentioned SlideShare. It basically a copy of the YouTube model. The last thing that should be taken into account is to change the operations. You can take exactly the same model but you may be forced to change the operations. The aim is to deliver the product / service differently. So, in the case of consulting it might mean that you use a different pricing model or you would produce the service in a different manner (i.e. not with your own people but independent consultants).
- Walk away and become independent. Another way to create a consulting business is basically to take over one of the departments from a consulting firm and walk away with it to another company or just become totally independent. Once you are an independent firm you can expand by adding services or customers. This is something which happens quite often, especially when it comes to departments in organizations like banks or some sort of investment firms. Majority of small consulting businesses were born in this. The most typical cases is that you have a specific team of consultants concentrated on specific type of customers or an industry. At some point there are so successful in this narrow field that it makes sense for them to create their own consulting firm and get all the benefits from their work. I have witnessed this happening in Poland quite often, especially when it comes to Big 4 and McKinsey. The most famous case of applying this method is Bain.
- Product or service transformed to consulting. In many cases you can try to build a consulting company on the basis of a new or complicated product. When a new product or technology arrives there are many firms (also the big ones) that are not able to master them fast enough. This creates a space for consulting services. We have seen this happening with Google AdWords, Facebook or Instagram. It was extremely difficult for people and companies to understand and use it for commercial purposes. That’s why consulting companies and agencies have appeared like mushrooms after the rain and they have taken quite a lot of the business and turn it into a consulting service. All of a sudden you have consulting firms specializing in SEO, paid campaigns and social media. The same goes for the software. A very good example are the SAP implementation companies. They are not software companies by themselves, but they actually help you set up the product and to use it to the full extent. And the same goes for the complicated machines or production line.
How to get first customers
Once you have a product / service that you find appealing enough it’s time to reach the customers. Selling consulting services is difficult as you sell practically something which is hardly tangible and you cannot test it in advance. This is one of the reasons why consulting firms try to pack their advices in as many slides as possible 😉
Nevertheless, there are some standard ways to get the customer convinced. Below some of those methods:
- Sell through your network. Since the product is not tangible the customer tends to buy from people he likes and trusts. That’s why you have to know the people and make yourself likeable. This means reaching out to a lot of people, having a lot of coffees and lunches but most of all providing value to them ahead of time. It can be small advice on something, it may be connecting them with certain peoples or recommending them the right specialist, tools etc. when they need them. You can also provide value by educating them about trends or potential improvements. The best customer is the customer that is afraid 😉 So, on now hand build actively your network and on the other hand provide value.
- Steal customers. Quite a popular method is simply to steal the customer from other consulting firms. There are some condition under which this may happen. The customer is more incline to switch when: he has been doing too long business with current provider of consulting business and wants to try something new, he is forced by the law to change, you offer him a better product at a much lower price. You may also try to “buy” the customer from current supplier (the consulting firm) or to “bribe” the customer by offering him something for switching to you. It can be some sort of software, training or take over something which is problematic for him (i.e. one of the departments) as a part of the consulting deal.
- Take over a director / partner from other consulting firm. Projects are sold by people. In some cases the easiest way to get a project or a customer is to take over directors / partners from other consulting firms. This method is often employed by consulting firms both the big and the small ones.
- Event / Training marketing. In many cases you don’t have to sell consulting services straight away. Many consulting firms first try to sell something smaller: participation in an event or a course / training. In this way you not only get additional cash but you can also use it as an opportunity to up-sell and cross-sell your consulting services.
- Content Marketing. In many cases you can do the first warming up of the customer or customer education thanks to the content marketing. Smaller consulting services can be also sold through this. You can treat content marketing either as a supporting tool or a sales channel (a very long one). The most famous example of applying this method is McKsiney Global Institute and their publications
- Cold Calling. Cold calling is tiresome still it works. The tickets in consulting can be quite big so it makes sense to try cold calling. Still this has to be done at scale and get a good reason to meet with the potential customers (you have some value to offer them, you are a specialist in the field in which they have problems etc.)
- Old / Existing customers. 60-70% of the projects consulting firms get from previous customers (firms as well as directors that have change the firms). That’s why nurture your relations with your current customer base and try to have always a reason to stay in touch with them. Remember to always provide value, even when it is not needed. This will be an important source of customers after the first few years.
- Partners. It is always a good idea to have a net of connected firms that can supply you with potential leads. Management consulting firms can get their customers from: other consulting firms (subcontracting for bigger brands), training firms, lawyers, banks etc. Think who could provide you with leads for your specific consulting services.
Does the business make financial sense?
Once you know what to do and how to sell it is time to calculate whether the business makes sense. You have to remember that in every service business, especially in consulting you buy certain amount of man-hours (usually to large extent this cost is fixed) and you try to maximize your revenues by striving to achieve high utilization / share of billable hours (percentage of man-hours that were sold). Below some detail on you can calculate whether the business makes sense:
How to deliver the product successfully
At the end you have to deliver the projects you have sold, especially at the very beginning it is crucial for your future. For the (first) projects try to under-promise and over-deliver.
This requires you to know quite a lot about the area you are trying to provide consulting on or to be able to learn fast during the assignment. On top of that I would recommend learning ahead of time 2 important skills:
- Managing efficiently the project to be able to deliver it ahead of time
- Preparing the presentation (the end-product) that will summarize your work done for the customer
That’s in short. More on running and scaling consulting business you can find in my online course Start and Run Consulting Business along with some nice templates and examples. Below the post in the form of a presentation. Enjoy and if you have any questions let me know 🙂