Effective Scaling Strategies for Smaller Consulting Firms
By Moira Alexander, Founder of PMWorld 360 Magazine and Lead-Her-Ship Group
Of the approximately 2.4 million professional services (PS) and consulting services (CS) businesses in the US, a whopping 96.3% employ less than 20 people. With a complex project lifecycle, massive competition, and limited resources, smaller firms face tremendous challenges when it comes to scaling effectively. They likely only have one shot to get it right.
To ensure overall success, consulting firms usually prioritize:
- Creating and retaining loyal customers
- Making more informed decisions
- Maximizing profits
However, smaller firms may find it difficult to focus on all three simultaneously. So, how can they scale efficiently and effectively? In this blog post, we’ll discuss the top priorities for consulting firms, the drivers behind wanting to scale, how they can successfully build out a consulting bench, and how to remain profitable while scaling. Let’s start by looking at why smaller firms are looking to scale in the first place.
4 Key Drivers for Scaling Up
The consulting industry is undergoing tremendous growth, with trillions of dollars expected to flow in over the next few years. The factors disrupting the status quo are also driving change within individual firms.
Reaching beyond your geographical market can widen the potential client pool for smaller firms. However, clients from other regions will likely expect you to have a solid grasp of those markets and be able to offer advice or relevant, specialized services—which may require hiring, training, and retaining new talent.
2. Evolving Client Demands
Clients today expect more versatile, innovative services—and this includes the use of personalization and automation, with real-time access to data. Firms must scale their talent, processes, and technologies to keep up.
3. Changing Workforce Trends
The way we work has changed drastically in recent years, with remote and hybrid models becoming the new norm. Consulting firms, especially smaller ones, are struggling with how to attract and retain talent with the right skills who can also work on premises, remotely, or in a hybrid environment.
4. Shifting Business Models
Digital transformation, talent wars, globalization, changing client demands, and workforce trends; any one of these disruptive forces would throw a wrench into consulting operations. As small firms grapple with all of them at once, they must adapt their business model to one that’s easily scalable. Taking a holistic approach that encompasses people, processes, and technologies will help firms remain profitable while meeting changing client needs.
Building Out Your Consulting Bench
Consulting firms are always looking for opportunities to offer more services, but adding more people to your consulting bench isn’t necessarily the best option. If you have fewer than 50 employees, try these tactics to add service offerings that are sure to remain in demand.
1. Strategic Partnerships
From a Professional Services Maturity™ Model perspective, the most successful firms continually staff and train to meet future needs. They have a highly skilled, motivated workforce, and they outsource commodity skills to meet peak demand using sophisticated variables combining on- and offshore workforce models.
2. Leverage Technology To Generate New Service Options
Professional services organizations are investing in vertical solutions to mitigate the challenges associated with their unique needs, and 89% agree that vertical SaaS is the way of the future.
3. Mergers & Acquisitions
Developing additional service offerings can take significant time, which isn’t always feasible — especially if your competitors are already ahead. Mergers and acquisitions (M&As) offer another way to thrive, even during uncertainty, and can provide the perfect opportunity to expand consulting services without delay in getting to market. According to Deloitte, M&As provide firms with both a defensive and offensive strategy that offers the following business model impact.
- Defensive Strategy: Builds resilience
- Offensive Strategy: Accelerates business model transformation, unlocks value from the ecosystem, and changes the game
Maintaining Personal One-To-One Relationships
The cost of acquiring a new customer can be up to five times that of retaining an existing one. Bain & Company research shows that increasing customer retention rates by just 5% can increase profits by 25% to 95%. In other words, as Smallbiz Tools puts it, “The easiest way to grow your business is not to lose business.”
Firms that think long-term know that maintaining positive customer relationships is critical to ongoing success at any scale.
How Quickly Should Small Consulting Firms Scale?
The speed at which a firm should grow will depend on a number of factors, such as how mature various operational processes are (SPI’s Professional Services Maturity™ Model can be an invaluable tool for seeing how your business measures up), how they plan to expand their service offerings, depth of industry leadership experience, and financial strength.
Before they can scale successfully, smaller firms may need help with things like forecasting resource needs, retaining talent and clients, and achieving viable margins. An outside partner that’s experienced in scaling professional services can help firms evaluate timing and develop and execute an effective plan.
How To Remain Profitable When Scaling
Maintaining a healthy bottom line while scaling up your operation takes planning and intent. According to the Harvard Business Review, focusing on strategic positioning, the right mix of clients, and future direction will allow firms to maintain a strong market profile as they grow. Start by connecting your clients, capabilities, and strategy.
Clients: Achieving exceptional client portfolio performance hinges on a firm’s ability to assess, track, and modify its project development, execution, and management processes.
Capabilities: Firms may need to align their team’s capabilities and professional skills with the types of projects they’re taking on as they scale. Expanding or cutting back on different skills will have varying impacts on margins.
Strategy: Think strategically when making decisions about expanding your clients, employees, and partners. For example, who you hire will impact what types of clients you can serve, which in turn affects how your team’s skillsets will evolve as they complete new projects. Likewise, the types of clients you take on will directly impact staffing and partnering needs.
To remain profitable while scaling, small consulting firms must evaluate and solidify their strategies, internal and outsourced capabilities, and client mix, with a focus on scaling where they can deliver and derive the most value.
Solve Your Scaling Challenges With Kantata
Successfully solving your scaling challenges for well-managed growth and consistent scaling requires a software solution for increased visibility and collaboration across a growing and changing business. The Kantata Professional Services Cloud is designed to give companies the insights and control they need to maintain positive relationships, leading to loyal customers, more informed decisions, and optimal profits.