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July 17, 2008

Building value into your consulting practice

Congratulations, you are making it!

Your step out on your own has gone well so far. You now have four other people working with you, revenues in the low 7 figures and you are starting to realize your dreams of independence.

The fast cars, nice houses and great vacations are taken care of. So now what?

If you look around it seems that all the people you have hired are strangely like you are, each year you need to spend the same amount of effort driving work into the firm, and what happens if you want to walk away tomorrow?

If you are honest the firm is probably not worth too much. All the value is locked away inside the skills of you and your four colleagues, and your best exit strategy is probably either to just close the doors, or to sell it to the guys you hired.

Not really a great value proposition even though it is generating good revenues. So how can you build real value into your consulting practice? The sort of value others would pay millions to have?

Tiffani Bova, a Research Director for Gartner Group, puts it like this "When you look at this type of business, the value of the company must be greater than the 'projects' you deliver to your clients and the people in your company." She makes the point that successful consultancy firms build their business on a combination of both project based work and some form of predictable revenue which delivers long term predictable value.

Paul Collins, a Managing Director of Equiteq in the UK, agrees and he should know. In his career he has sold a 30% stake in his own consulting business WCI in 2004, valuing the firm at £50m. He has also built a further 2 service firms, bought 2 and sold 3!

Paul is a strong advocate for developing a strong sales pipeline, one that can be used to predict fture reveunes accurately based on todays leads, yesterdays sales, and tomorrows aspirations. Predictable revenue is the baseline requirement of any firm looking to create permanent value for stakeholders of for eventual sale.

So how can you do this?

Octavio Ballesta, a Technology Project Manager at Inelectra, believes the basis of generating value within a consulting practice revolves around strong branding, good long term relationships with clients, and strategic partnerships. However, he pays special attention to resource diversification.

"In order to consolidate a competitive advantage you should hire, train and retain progressively world-class consultants with insights in Business Process Management, Six-Sigma methodology, Knowledge Management, CRM and Change Management to offer to the relevant market an enterprise-wide solution in different disciplines of consultancy. You should avoid dependence from one superstar consultant to manage your firm."

This is a recurring theme in all the experts we spoke to about building value. The importance of a system over one or two superstar consultants is always emphasized as a way to build permanent value into the organization. Stephen Hancock, CEO of enCONCERT, offers the following advice in this area "f you have a particular skill that is valuable then you could try to systematise it using technology and then develop consultants or solution partners that can deliver the service without you being ever present. This could create income streams in license fees or royalties which earn "while you sleep"

The last area to explore in terms of developing a pipeline of repeatable sales and performance is to do with the elusive art of developing IP. "You need to build your IP as part of the practice" Says Brian Macleod, "This could be inherent in the way you train, explain or connect with your client. It must be defined as methods and techniques that can be communicated to others with the team."

So experts agree, if you want to build permanent value into your company, the sort of value that is worth more than the value of your projects and the people who work for you, then a few of the key areas you will need to focus on include: diversification of resources, systematizing your approach, guarding and internalizing your IP, and finding a way to generate predictable recurring revenue streams.

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