In the years I’ve run a consulting studio, I’ve noticed something odd about consulting studios: they often implode. Big ones, little ones, and ostensibly successful ones all seem have a weird habit of suddenly letting go half their staff.
I would very much like to not lose half my staff. To that end, I’ve been collecting anecdata about consulting firms’ rapid unscheduled disassemblies, and the problems that cause them. Was it a technical boondoggle? A nasty lawsuit? Simply failure to innovate?
Usually, no. Talking to more than a dozen people from various troubled consulting firms, I’ve identified the handful of key risks that most often lead to consulting shops’ ruin. Previously, I’ve written about not getting paid. Today I’d like to take a look at another common existential threat: the Big Deal.
Keep Working and Nobody Explodes
Often it happens gradually. You land a client, a company bigger than you with plenty of funding. The work goes well, and over time the relationship grows. The project expands, the work broadens. One thing leads to another, and before you know it most of your revenue is coming from this one Big Deal.
On occasion, this happens all at once: a potential contract is so huge and so juicy that you can’t help but put in a proposal, even if delivering would be a stretch.
Either way, the Deal is probably Big enough that the client gets a discounted rate. At this lower rate, they’re inclined to sign for even more work. You hire more people. Maybe you get a bigger office too. Everything is big, and getting bigger.
In some ways, a single big project is great. It lets you focus on delivering instead of switching contexts, making sales, and juggling different clients’ needs. It can make things feel predictable.
Except they are totally not predictable. Sooner or later, the client’s interests will diverge from yours. When that happens things can get dicey very fast if that client has become “too big to lose”.
If that happens, the least bad outcome is probably that they decide to acquire you. Negotiating from there is hard though, since if they don’t already know how reliant you are on them, they’ll sure as hell find out during due diligence. Still, when you’ve become chemically dependent on a single client, selling out even at a steep discount can be better than the alternatives.
That’s because all good contracts must end. Your client may change up management, scale back your project, bring development in house, or even go out of business. No matter how excellent your work, the cookie’s going to crumble eventually.
If you’re lucky, you’ll get some notice – some warning that things are amiss. If you’re not lucky, the first sign you’re cooked could be a bounced email or late invoice. Either way, unless you’ve been hoarding cash, you’re now in Big Trouble™.
Back in the day, I knew an 80-person contracting firm that had one client grow and grow until it was 90% of their revenue. The contract eventually came up for renewal, and at the last second the client decided to move everything to India. It turned out poorly for the client, but that was no consolation: losing that contract was the consulting equivalent of a nuclear bomb going off.
Eggs in Multiple Baskets
Getting dependent on A Big Deal is theoretically easy to avoid, but it can be emotionally difficult to do so. It’s easy to laugh at folks for letting a giant wooden horse on wheels into their gate, but who doesn’t want a sweet giant horse? It’s so huge!
That’s why it’s worth having a rule of thumb. At Steamclock, whenever a client wants more than 30% of our team’s bandwidth, we always tread carefully.
On the sales and marketing side, signing diverse clients should be an explicit goal. Instead of using discounted rates to help a Big Deal become even bigger, use them to land work that will broaden your portfolio, or to land projects where you can do exceptional work.
It can also be helpful to diligently avoid rushing projects. While piling 60% of your team on something might get it out the door a bit faster, there’s usually a path where 40% of your team could ship a higher quality product for less money, given a more thoughtful scope.
Strategically billing clients less can be an important skill. Some contractors work hard to bill as many hours as they can get away with in the short term. This gooses revenue today, but causes chaos later.
To build long-term relationships, figure out a billable pace that is actually sustainable for each client, and iterate within that.
Sustainability: it’s kind of a Big Deal.