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June 15, 2008

Getting that competitive edge

Consulting is one of the worlds fastest growing industries for a number of reasons. Downsizing, increasing expectations on business, rampant demand combined with growing competition means that the need for truly unique, inspiring and effective advice is only going to grow.

Presents a pretty rosy picture doesn't it? But there is a down side to this also. We aren't the only ones to know about this.

New consultants are entering the industry every day, new companies are formed, and every day a consultant decides it is time for them to start making money for themselves rather than for somebody else.

So the demand side is up, the supply side is also burgeoning. So success over the long term means a few things;

  1. a good product or service offering in a good market niche,
  2. a great strategy for maximizing the returns from your service or product offering (BIG subject)
  3. and a great strategy for managing and reinvesting the cash that is produced by your company.
In most consulting posts/articles today everyone tends to focus on the range of areas covered under 1 and 2. But no-one really looks into number three, the management of cash produced by the company.

Yet this is imperative to growing the business. Cash loaded companies have a distinct competitive advantage when competing with companies who are cash strapped.

Having ready supplies, or flows, of cash on hand means you can:
  • Endure longer sales cycles, and pitch better resources during the sales cycle.
  • Adapt when the market turns, giving the company the resilience to endure down cycles
  • Easily engage in effective marketing techniques to promote their services / products
  • Secure good resources ahead of the curve, and to be able to spend the cash on development of resources. Rather than taking the chance on people "working it out" when they are in the heat of battle.
  • Purchase competitors or strategically aligned consultancies
  • Develop new and innovative products
  • Pay for market research
All of these issues are vital to maintaining a competitive edge; and while you could do a lot of this without using a whole lot of cash, it is always easier to have funds to back you up. (And I'm sure there is a lot more besides)

Managing the cash streams of every consultancy comes down to two fundamental areas; watching the expenses (without hobbling the business) and growing the revenues.

A 10 person team, with utilization rates of 70% (say) will gross around $1.6 at a daily rate of (say) $1,000. If the company can put a strategy in place to raise the daily rates by $100 per consultant, then they could increase their gross cash stream by around $150,000.

Thats a lot of marketing collateral, or its a lot of cash to spend on developing new products, or it could even be a lot of money to spend on hiring that super sales person with the enviable industry track record.

We are going to be looking a lot at cash stream growth strategies for consultancies over the next few posts. I think it is a fundamental yet overlooked part of the consulting game.

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