606. Joe O’Mahoney, Helping Boutique Consulting Firms Scale Up
Unleashed - How to Thrive as an Independent Professional
Transforming Consulting: From Manual to Automated Success
This chapter analyzes a cloud consultancy firm's transition from a manual operational model to an automated process approach, which ultimately enhanced their profitability and value proposition. It discusses the critical factors buyers consider when evaluating consulting firms for acquisition, emphasizing future growth potential and unique marketing strategies. Additionally, the chapter delves into the complexities of firm valuation, including the role of adjusted EBITDA and operational efficiencies in determining a consulting firm’s worth.
Show Notes:
Joe O’Mahoney is a part-time professor of consulting at Cardiff University and a leading authority on the growth and sale of boutiques and small consultancies. He has spent 20 years researching consultancies and interviewing hundreds of owners and senior leaders. He has developed a growth drivers model, which includes factors like leadership quality, client relationships, and market positioning. He conducts benchmark surveys and interviews with leadership teams and clients. Joe then conducts a SWOT analysis, and estimates the valuation of the firm. He helps the owner satisfy their equity goals, and pull the levers. Joe typically focuses on two to three priorities each year to drive up the firm's growth. He shares three key factors in leadership and team management that are crucial to a successful scale up.
Building a Sales Team for a Boutique Consultancy
Joe explains that, in the long term, building a competent sales team is crucial for a firm's valuation. This involves promoting, training, mentoring, rewarding, and recruiting sales capabilities. A culture that puts sales first should be complemented by a competent system that listens to sales calls and introduces new hires. This will help build a pipeline of capable sales people in the future. In the short term, implementing these strategies can improve marketing efforts. It is important to consider how your value proposition is translated into marketing themes and content, as well as the frequency and visibility of these posts. It is crucial to ensure that marketing efforts are effective and aligned with the company's goals.
Challenges of Scaling a Business
Joe discusses the challenges of scaling a business, particularly for those with a two to 3 million revenue mark. He suggests that firms need to focus on their signature service, which is high value, high growth, and can cross-sell. Marketing algorithms reward clarity in these areas, leading to better value propositions, marketing, and themes. This clarity allows firms to build intellectual property (IP) and increase margins. Once sales, project margin, or EBITDA are reached, firms can decide on additional products to sell alongside their existing offerings, such as parallel products, cross-selling services, or follow-on services. By building a logical sequence of events, firms can achieve high-quality revenue.
The Importance of IP in Scaling Consulting Firms
Joe shares an example of a firm that focused on a manual approach to cloud consultancy. However, when breaking down their service lines by revenue, the company realized that they should change their focus. In terms of branding and content, Joe explains that buyers are interested in the past growth, future growth, and margin of the firm, but they also want a marketing machine that generates clients, and an architecture of sales that generates high-quality leads. Joe explains that IP is a top priority for buyers, including the quality of the leadership team. This includes delivery IP, marketing IP, thought leadership, website design, and content. LinkedIn is an interesting example, as due diligence is starting to reveal its influence on a firm's success.
Valuation and Growth Trajectory
Valuation is a crucial factor for buyers and private equity, as they are interested in the future value of the firm. A healthy growth trajectory is essential, and a machine that can push up the multiple is preferred. Joe explains that it is often better to focus on building the architecture that will allow you to improve your multiple, rather than focusing on increasing your profit margin. This can be achieved by implementing a PSA system, CRM system, training people, and building out IP. However, it is difficult to drive up the multiple quickly, as everyone is talking about margin all the time. It is important for buyers to consider the firm's potential for growth and profitability before making a decision. Joe talks about the EBITDA and how it should be approached. The conversation turns to the treatment of owners' compensation and how it is recalculated during the sale process. He explains that if a board member is preparing a company for sale, Joe’s fee is taken out, and if a founder is paying themselves in dividends to improve profits, the EBITDA is adjusted accordingly.
Employees and Recruiting Talent for Boutique Consulting Firms
Joe discusses the importance of recruiting and training employees to provide better value to clients and charge more. He suggests that consultancies operate in two markets: the market for clients and the market for employees. Boutique consultancies often struggle to recruit decent consultants due to the lack of brand recognition and value proposition. To attract the right people, consultancies need to have a clear value proposition for both clients and employees. This includes a clear cultural side of the company, clear values, and clear due diligence rules. The architecture behind this includes competencies, promotions, training, and mentoring.
Buyers of Consulting Firms
The typical buyers of consulting firms are typically strategic and industry buyers, who have a gap in their offerings. Private equity has become more involved in the market, accounting for 55% of purchases of consulting firms, including private equity-backed strategic buyers. This shift has led to a growing number of non-consultancies seeking to develop consultancy arms, accounting for about 15% of purchases.
The Boutique Leaders Club for Consultants
Joe shares information about IP aspects he provides to his clients. He runs the Boutique Leaders club, a group of about 40 owners of consultancies above the 5 million revenue mark. Joe gives them access to 250 bits of IP. This includes competency frameworks, succession plans, and training on business development. The group can also conduct benchmarking surveys twice a year, tracking progress and creating plans for the future. The Boutique Leaders club also offers training materials, both online and face-to-face, to help firms prepare for the selling process, such as finding the best corporate advisor, selecting the right lawyers, and preparing for the selling process.
Joe’s Engagement Model with Consulting Firms
Joe also shares his engagement model with consulting firms, which includes three ways: Board Advisory, as part of his leaders club, and one-off projects. He typically works with clients on a monthly basis, with a focus on value proposition, business development, and marketing. His clients are mostly UK-based, with three US clients and some in Western Europe. He left corporate consulting due to his dislike of managing people, and he is currently the bottleneck to his own firm. He has worked with some good ex-CEOs but struggles with quality of revenues. Bachman asks O'Mahoney to share his website and LinkedIn profile, and he appreciates the opportunity to discuss his experiences and insights on the industry.
Timestamps:
01:59: Joe O'Mahoney's Consulting Services
03:48: Diagnostic Process and Growth Drivers Model
05:35: Improving Performance and Leadership Development
09:37: Building a Sales Architecture and CRM Systems
16:36: Intellectual Property and Digital Marketing
28:20: Recruiting and Developing People
34:45: Typical Buyers and Market Trends
37:46: Joe O'Mahoney's IP and Engagement Model
Links:
Website: https://joeomahoney.com/
LinkedIn: https://www.linkedin.com/in/joeomahoney/?originalSubdomain=uk
Unleashed is produced by Umbrex, which has a mission of connecting independent management consultants with one another, creating opportunities for members to meet, build relationships, and share lessons learned. Learn more at www.umbrex.com.
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