The first challenge for any professional services business is to work out how to consistently attract clients, and convert opportunities into sales.
Once you've got that figured out, you're straight into the challenges of project delivery and growing your team.
With realistic maximum earnings of a consulting solopreneur at around half a million (and that's a rarity), you need to grow your team if you want to build a seven-figure business.
A quick aside: Whilst a few of the consultants I speak to are earning between £250k-£500k, the vast majority of solo practitioners are generating well under £100k/US$130k in annual revenue - many even after going it alone for years!
Also, those solopreneurs earning higher revenues typically find that 80% of their revenue comes from one client. Not only is that a very high risk business, but it's why they're always on the revenue rollercoaster, where one month revenue is up, and the next it's down!
So we can all agree that you need to build a team if you are to increase revenues and profits, and to be able to serve multiple clients simultaneously to reduce over-reliance on any one client.
But for the micro-business owner, the challenge of growing a team is very different to that of a more established firm.
In a micro-business (<10 people) team members need to provide a broader array of skills, and be much more flexible than is necessary in a bigger firm.
But where do you start when you need to grow your team?
Fear not! In this article I'm going to delve into this topic in detail, not only covering the pros and cons of each of the available options, but we'll explore how to effectively and affordably grow your team.
Your Team Make Up
Before we dive in to exploring the different options, let us first understand team structure in a professional services firm context.
In a consulting business, staff fall into one of two buckets:
- Billable staff - team members who are assigned directly to projects and who normally have a billable utilisation target. They are often referred to as delivery staff or fee earners
- Non-billable staff (overhead) - administrative staff, those serving business-wide functions like IT, HR and Finance, and management. These staff are not typically billed to projects (although it may happen on occasion)
The Leveraged Pyramid
For fee earning roles in a consulting business it is the norm to deploy a structure known as the leveraged pyramid.
A leveraged pyramid means that there are more junior staff than senior staff.
As stated by David Maister in his book, Managing the Professional Services Firm (ISBN: 978-0743231565), these different levels of roles are sometimes referred to as:
- Finders responsible for bringing in new work and client relationships
- Minders overseeing projects and ensuring they are delivered to time, budget, scope and quality
- Grinders the doers
The leverage comes from the ability to utilise lower cost resources to support a project. This has the impact of increasing a project's profitability.
A leveraged pyramid means that, as a firm, you can deploy the right team for the job.
Some projects will require a narrow pyramid - that is, there is less scope for the use of junior resources - and some projects will be better suited to a much wider pyramid, whereby more juniors can be used.
A firm will have an appreciation feel for the right overall model given its market and expertise.
Not all firms will be a perfect pyramid. Some might be more barrel shaped. I've worked in firms that are more of an inverted diamond shape (as below).
Most consulting firms vary to some degree, but the model is essential to train staff up, and to create the future leaders of your firm from within.
It should be noted that if you require fewer juniors (as in the inverted diamond model above), then at some point you'll need to source more senior staff from outside of your firm. There is a risk and cost to accept for that, and it should be weighed against the relatively low cost of junior resources.
The Now Generation
In more recent years - in what the Black Eyed Peas called, 'The Now Generation' - consultants have been impatient in their careers. They've expected to ascend the pyramid rapidly.
This shows disregard to the fact that a consultant has to hone their craft over many years.
A large element of the consultant's skillset is in understanding people and situations. This requires broad experience and time working on all sorts of projects, with different clients and different teams.
Whilst it is important to enable high achievers to progress rapidly, it must be balanced with ensuring what is also right for the rest of the team and the clients.
As the Guinness ads say...
So we now know that there are 2 core factors to take into account when building your team:
- Whether a required skillset is billable or non-billable
- That the billable team needs to built as a leveraged pyramid (although the exact shape may vary)
The next challenge is to determine where these resources - the people - are going to come from?
There are 3 main options to consider:
In the following sections we'll explore each of these in depth.
To outsource simply means to obtain the services required from outside of your own organisation. In a consulting business many aspects can be outsourced, including elements of project delivery.
What can never be outsourced is project leadership and accountability. That must always stay in-house as without which your business is little more than a recruitment agency!
The most appropriate and common elements to outsource are those activities that don't form a part of the core skillset of yourself or your employed consultants. For example:
- Admin tasks - predictable and regular tasks like document formatting, presentation creation, etc.
- Financial accounting - preparation of quarterly and annual tax returns, etc.
- Marketing - graphic design, web development, digital marketing, etc.
Outsourcing Pros and Cons
Notes from the field:
You soon learn in business that there's no shortage of people ready and willing to take your money in return for their services!
It's tempting to outsource those things that you don't know or understand well, and just want to be rid of. However, that can be a high risk strategy!
As I've always told my corporate clients, never outsource a problem that you don't understand.
Instead, learn enough about something so that when you do finally outsource it, you don't risk having the wool pulled over your eyes.
In my early days I wasted a lot of money on digital marketing agencies and cold calling agencies because I didn't understand the skills enough, and the agencies I used weren't professional enough (or made wild assumptions) to advise me appropriately.
Would I use them again? Absolutely, especially now that I understand what I would want to achieve (I just wouldn't use the same agencies!).
A subcontractor is another business that you develop a relationship with and who you can call upon to provide additional delivery capability and capacity.
Their skills may match yours and enable you to scale; they may be complementary and enable you take on a broader remit with the client; or they may be unrelated but necessary in order to demonstrate broad capabilities required to win work.
Subcontractors are my preferred way to grow your delivery capacity in the early days. They also enable you to have a flexible resource pool in the longer term.
A great place to find subcontractors is at networking events.
A good subcontractor will be flexible on your commercial arrangements with them. Be sure to determine a structure that you are both comfortable with, and that means they don't need to get involved in the commercial discussions between you and the end client.
Always remember that you have put in the effort to market your services, discover the work, and win the opportunity. That should not equal a 50/50 split!
Subcontractor Pros and Cons
Notes from the field:
A warning about contractors
Contractors are not the same as Subcontractors!
A contractor - someone who typically finds work through a recruitment agency and only works for one client at a time - is not what I would consider a business owner.
They are the equivalent of an employee, but just want to be paid in the most tax efficient manner. As a result, they take the risk of being a contractor, with the upside of getting paid through a limited company.
They do not, however, think like business people! They don't have to market their business beyond sending recruitment agents their CV, and they don't really have to make sales beyond having job interviews.
They also seldom have an understanding of consultancy, and the client relationship.
I got caught out by this twice!
The first time I discovered that the contractor I engaged to work on one of my projects had no concept of managing time and budget. Instead he simply recorded every hour he worked, working on the project as he saw fit, and he expected to be paid regardless of the project commercials.
The second time was when the contractor I engaged did not make the distinction between the client and us as a consultancy. The quality of the work performed was unexpectedly poor, and we embarrassed ourselves in front of the client's team.
The contractor, however, never understood the severity of what they'd done. It was simply another day at the office.
You have been warned!
Developing working partnerships
Another challenge with subcontractors is ownership of the client.
I once had an experience where the project morphed - as they often do - but to one where my subcontractor was more suited to the work than my firm was. We were adding no value to the equation.
In that situation I choose to bow out and hand over the relationship. In return taking a commission on any project fees.
Conversely, I had the opposite happen where the original project scope was put on hold, and a new project scope was required to be completed first.
My firm did not need any support in this new first project.
However, the subcontractor took umbrage at this situation and the relationship quickly deteriorated to an unrecoverable level. This was unfortunate (and not well managed on my part!).
When developing subcontractor relationships it's all too easy to ignore the small details whilst trying to win projects. However, it pays dividends to have all of the difficult conversations up-front, and to agree T&Cs beforehand.
Final points on subcontractors
If you choose your subcontractors wisely you should be fine.
It is important to stay in regular contact, and to nurture your relationships, especially during times when you are not working together on a project.
Treat your subcontractors as you would your clients - with respect and integrity.
Hire Permanent Staff
Finally we get to hiring permanent staff. This is a stage that many consulting businesses owners dream of getting to. When reaching this point there are 4 sub-options to consider:
- Recruit staff into non-fee earning roles - this could be administration, or marketing and sales
- Recruit junior delivery staff - these would likely be expected to be (and need to be) all-rounders, happy and capable of doing whatever your throw at them
- Recruit mid-level experienced staff - experienced hires that can hit the ground running, but are also good all-rounders
- Recruit senior staff - seeking peer, or near peer, level in expertise and status
What level to recruit at?
Probably the greatest problem with recruiting is when you create too big a chasm to cross. I've seen this many times when I led big teams of consultants.
The chasm is the gap in knowledge between your team members.
What often happens is that you need resources, but are reluctant to commit a lot of money to the problem, and so you decide to take on a junior.
The trouble is, as a junior, they don't know very much. And if you team them up with yourself or another senior, they're probably going to end up winding each other up.
You or the senior will become frustrated that the junior can't actually do very much; conversely the junior will be frustrated that they're not being shown enough.
In short, the gap, or chasm, in experience is just too wide.
When to Recruit?
The biggest challenge with hiring permanent staff is knowing when to do it.
In an ideal world you'd have a years worth of entire company expenses in the bank - your salary, their salary, all the business expenses.
Unfortunately, that utopian position seldom exists and you just have to bite the bullet.
Just remember that even the biggest of firms often only have 3 months of working capital available. You just have to be brave and take the leap of faith.
You never know, the extra pressure might make you wildly outperform your expectations!
That said, when you're taking on your first hire you should ensure that they can be billable quickly. The bigger your firm, the greater the potential leeway you'll have in this regard.
Permanent Staff Pros and Cons
Notes from the field:
I don't know about you, but I hate interviewing.
I find it very dull, and it's often just an hour long meeting where you both say what you think the other person wants to hear, whilst trying to read between the lines to get to the truth!
My first permanent hire was on a whim!
I met a guy that I thought had real potential. A maths graduate with a bit of entrepreneurial spirit.
Whilst he was a great guy, his heart proved not to be in it. Consulting is a demanding career, often with long hours and lots of travel. It seems that fewer and fewer people are up for the travel now days.
I ended up having to let my first hire go. Never a fun thing to do, and much more painful when it's your own business as it feels like a huge step backwards.
Since then I've always ensured to be much more structured, disciplined, and cautious when hiring people.
Other Growth Options
This article has focused on growing a team when there's one person at the top - the founder.
An alternative to this model is to partner with someone. To conjoin businesses, essentially resulting in two or more people at the top.
This model is how many law firms grow, often denoted by the firm being named after the original founders.
I know a number of consulting businesses that have done just that too. After years of trying to make a success of it alone, founders often benefit from joining forces, and so far I've only ever seen it have a successful outcome.
It certainly makes sense to do this when the skills that your consulting business provides are difficult to obtain in the marketplace.
Start the Business as a Team
The consulting industry is really a 'permie' industry. There aren't many freelance consultants, and because of the nature of the leveraged pyramid - where you work your way to the top to partner level - the industry doesn't really lend itself to a freelance model.
What is more typical is that a small group of consultants in an existing firm decide to leave and start-up on their own.
One of my clients did just that as 6 of them came together after leaving Deloitte's.
The challenge in that scenario is that the skillset required to start, run and grow a startup consulting business is very different to the skills required to progress your career within a big firm.
In this scenario there's also the need to keep a number of people utilised from the off. And with employment contract covenants, that can prove challenging.
The leveraged pyramid is here to stay
Growing your team should be the aim of every solo and micro consulting business owner.
Whilst a business without permanent staff is becoming a common thing in certain industries (especially online-only businesses), the risks to loss of intellectual property, the challenge of maintaining standards, and the financial metrics, are just not feasible in the long term for a consulting business.
Even in this world of flat organisation structures and transient workforces there's still a place for the leveraged pyramid.
There's no getting away from the fact that some skills take time to develop, and being a permanent employee is the only viable option to develop them.
As expert to professional services firm, David Maister says in Managing the Professional Services Firm:
People do not join professional firms for jobs, but careers
Always consider outsourcing
It makes perfect sense to outsource the specialist skills that you don't want or need to develop in-house. For example, digital marketing, or cold calling. But only do so once you have a reasonable understanding of what it takes to do that activity yourself, and have a very clear understanding of what you hope to achieve in outsourcing.
Just having someone else take on a task is not enough! There needs to be clear and measurable objectives.
Outsourcing should also be used for low cost tasks, such as administration. There are many very capable virtual assistants, both at home (UK/US/Canada/Australia) and abroad in low cost centres such as the Philippines.
Utilise subcontractors in the early years, but steer clear of contractors
Use subcontractors to support your early growth, but choose them wisely. Be sure they understand business basics, and agree the commercials up-front.
Steer clear of contractors until you are bigger and can better meet their needs. That is, you can offer a defined role i.e. project manager, for a single project that requires them full-time for a reasonable duration.
Don't build your team bottom-up
And finally, when you build your permanent delivery team start either top-down or from the middle. Don't create a chasm in skills as that just leads to dissatisfaction all around.
As you build your team of non-fee earners, focus on the greatest need and return on investment. For example, if administration is becoming a time consuming and thus expensive burden, consider taking on someone to fulfil an admin role.
Or if your greatest challenge is your ability to close opportunities, consider taking on a sales person.
So what's your experience?
Have you taken on staff? If so, was it successful?
What would you advise your fellow consulting business owners to avoid?
Feel free to share in the comment below.