onsulting—especially for the complex and fast-changing information technology (IT) field—is a burgeoning and potentially lucrative business. Yet, if truth were told, not every CPA firm that tries its hand at IT consulting can report financial success. For the past decade my accounting firm has been providing IT consulting, and for the past five years I’ve been conducting workshops on how to make IT consulting a profitable business. In the process, I’ve had the opportunity to discover why some IT consultants succeed financially and why others struggle, even though they are competent in technology. Although my experience has focused on the IT field, the advice in this article applies to any consulting practice.
WHY STRATEGIC PLANNING?
There’s no such thing as a single universal cure for an unhealthy consulting business, but the one that comes closest is strategic planning. If consulting firms with low profits have one thing in common, it’s that they function without written strategic plans. The result? Most decisions favor the short run, so when they try to set a long-term course, they flounder; they can’t capitalize on the opportunities in the marketplace. As the adage goes, When you don’t know where you’re going, any road will take you there.
Understand, however, that strategic planning is not about trying to guess where the market is going; its purpose is building an organization that’s adaptable to a changing market. For those that can adapt, opportunities are always available. Understand, too, that the most successful enterprises aren’t necessarily the largest or those with the most formidable market presence.
The problems run deep: Without a marketing plan, consultants generally struggle to find new clients; without a recruitment plan, they experience gaps between workload and available staff; and without a compensation plan, they struggle with motivating and retaining staff.
At a minimum, a consulting organization should have strategic plans for the following areas: business, marketing, recruitment, compensation, new staff training, new niche development and quality control.
If you have to continually reinvent your business processes for each client, you’ll have little time or energy left for consulting. The solution is to standardize most of your processes around best-practices principles. Here are a few techniques we use in our practice:
This kind of standardization helps manage each consulting engagement—from reviewing the work completed on a project, to tracking the outstanding issues and change orders, to keeping a time line of the job.
A good book that provides the tools needed for standardization—including checklists, procedures and forms—is The E-Myth Revisited, by Michael E. Gerber (HarperBusiness, 1995).
SHARPENING THE MARKETING MESSAGE
A consultant usually doesn’t invest much effort in his or her marketing message—what’s said to a new prospective client or referral source. The following should hone that message:
One of the biggest challenges facing most consulting organizations is the feast-or-famine cycle—they either are swamped with business or have nothing to do. Inconsistent marketing efforts, such as using one type of marketing one month and another the following month, produce inconsistent results—and a wide ebb and flow in workload.
One of the keys to profitable consulting is to keep your staff producing billable hours for at least 70% of their time. With wide workload swings it’s hard, if not impossible, to achieve that goal. A good marketing plan that eliminates those swings contains the following basic components:
After you develop the first draft, seek out a smart business colleague outside your firm and ask for honest feedback.
MANAGING CLIENT EXPECTATIONS
One of the greatest challenges facing consultants is managing what is euphemistically called client expectations— that is, when a client thinks the engagement should include something that you don’t. Not only do such disconnects lead to bad feelings but they also can result in writeoffs, slow payments and, worse, no repeat business from that client.
Identify the services that carry the most significant risk of false expectations and make it a point to give those areas special attention when outlining the engagement to the client.
INVESTING IN THE WRONG SERVICES
Avoid offering consulting services you’ve rarely performed and are not likely to do often. The most profitable services are those you perform repeatedly. If you decide to undertake the less frequently done services, be sure to evaluate the risks and manage the expectations carefully. And, of course, charge accordingly.
In addition, develop a process for evaluating each new potential skill or service you plan to offer, addressing these questions: Will it be done often enough so your staff will become proficient at it? What is its billing-hours potential?
Develop a skills inventory worksheet to monitor the breath and depth of the services you can provide. Create an alliance network you can draw on to help your clients find professionals in areas in which you have chosen not to offer services.
BARRIERS TO PROFITABILITY
After polling a number of IT consultants, I discovered to my surprise that the average time invested to gain proficiency in a new technology skill or service was eight months. Talk about a barrier to profitability!
It’s difficult to sustain healthy profits when dealing with such a steep learning curve. Obviously, you need to seek out ways to shorten the learning time. Start by brainstorming the subject. My organization found we learned faster when we used outside experts to assist us on our first two engagements.
Another significant barrier to profitability comes from poorly managed consulting engagements. Ask yourself whether you have for all engagements
If you answered “no” to any of these questions, you’re endangering the profitability of your engagements.
NEGLECTING POOR PERFORMANCE
Ignoring a staff person’s poor performance creates problems that affect more than that person’s work. It often has a negative effect on staff morale, client satisfaction and, as a result, the firm’s profitability.
Many consulting firms reluctantly retain poor performers because it’s difficult to find competent people. If you stop to realize how many of your resources are consumed by dealing with a troubled employee, you’ll likely raise your hiring standards.
In the long run, it’s best to deal quickly and directly with poor performance. After all, by failing to do so, you’re sending the message that poor work is acceptable, and that may be a great disservice to the poor performer.
For guidance on whether you’re addressing the problem, answer the following questions:
WEAK FIRM CULTURE
You may be surprised to see weak culture listed as a barrier to profitability. While it’s hard to define, you know it when you experience it. A firm with a strong culture is both professional and ethical; while it’s a good place to work, it also strives and compensates for first-rate performance.
Firms with a strong culture generally have low turnover, highly motivated employees, excellent recruitment success and a good track record for capitalizing on new business opportunities.
The best book I’ve read on how to build a strong company culture is NUTS! Southwest Airlines’ Crazy Recipe for Business and Personal Success, by Kevin and Jackie Freiberg (Bard Press, 1996).
Each of these barriers to profitability can have a profound effect on the success of your consulting practice. Spend some time identifying which of these barriers pose the biggest challenge to your organization and create a plan to turn whatever weaknesses you’ve discovered into strengths. It’s the formula for healthy profits.