How A Consulting Business Is Different From Other Businesses
posted by Michael Olafusi , on ,
A manufacturing company can push its revenue up by cranking out more products and hiring more salespeople. A trading firm can borrow money to expand its business. Even a professional training firm can market its training programs aggressively and get more revenue. Unfortunately, I am moving out of the training sphere. I prefer having to creatively solve problems for companies and building life/work enhancing productivity boosting programs. And as long as I have enough problems to keep me busy I turn down training. So I see my company as a business analysis/intelligence consulting firm. And to my shock the most valuable resource in the consulting world is reputation.
What you are providing is like a luxury service. Only few people understand what it is, still fewer need your service and a very tiny fraction can afford it. And what plays the biggest role in how much you can charge is your reputation. No one cares how big your company is or how cool your marketing materials are. They only want to know that you can solve their problem, a problem that there is no ready made tool to fix. A problem that requires critical and creative thinking, and then intensive programming. They will also be trusting you with their confidential data. All these make them care only about your competence and reputation. It's easy to convince them that you've got the competence and worth being paid to get the job done. But they will only pay you based on the industry reputation you've got. There's a limit to what your competence can command, an earning ceiling. Then to get above that ceiling, you will need to cash in on your reputation like PwC and KPMG do.
The trouble is that you can't buy a reputation or get it through marketing. It comes only from consistent high quality jobs over a long time. And that is what makes consulting very different from other businesses. You have to slave away at the beginning to grow your reputation. You'll get paid less than you expect. And as you continue delivering high quality jobs, getting positive visibility and being long in the game can you comfortably raise your fees.
And that is what it has been like for me. Clients care a lot about my portfolio (past clients) and greatly value recommendation of my service by someone else. So I have to bear with low fees and gradually raise it as my reputation increases. And it's like that for all consulting businesses. Your real currency is your past work collection for similar companies and reputation.