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December 22, 2008

The Curse of Commoditization

I wrote about this yesterday but it is so vitally important that it bears revisiting.

Laid off executives and white collar workers invariably try their hand at consulting. Either as contractors or as full blown consultants.

This factor can make recessions hazardous times for consulting professionals. It goes down to supply and demand. Supply rises while demand is contracting.

Another dynamic is that the new consultants entering the profession are generally willing to charge less than their work is worth in an effort to secure part of a shrinking market.

I can’t recall how many ex-Accenture, ex-Oracle, or ex-SAP employees I have met selling their services at a lower cost than SAP, Oracle or Accenture does.

This commoditization of consulting adds to an already large trend focusing on price rather than on value. and are examples of this. Freelance sites where anybody can bid on work that someone else is offering.

The bottom line? Track record still matters. You need to be trusted, you need to have recommendations, and you need to have a provable record of success.

But in the final analysis it is still about price. Lowest price wins. And in a flat earth you are competing with freelancers from Pakistan, India and the Philippines. Countries where fees are based on survival not on profitability.

Add to that the growing market for outsourced knowledge work, and you start to get a perfect storm for consulting fees. Cheaper and abundant supply, shrinking market demands, and the technology to rapidly outsource work to cheaper labor nations.

The problem with consulting, is that there are too many commodity companies and too few real franchises.

Resisting Commoditization

A commodity sells what many others also sell. There are very few ways to gain a competitive advantage in a commodity business except, mainly, through being the low cost provider.

Commodity consulting includes functional and technical consulting on technology solutions. At first there is scarcity, but as a product becomes more successful the number of people with this scarce knowledge increases.

Many areas of training, marketing, financial accounting, project management, scheduling and logistics are all commodity industries.

I receive at least three or four emails each week offering me pre-packaged courses that I can license. Generally from companies who don’t actually deliver training.

A franchise on the other hand, has an element of scarceness about it. All consultants who are able to generate high yields, even in touch times, do so primarily because of their brand.

This means that people want to do business with them personally or with their company.

Guerilla Marketing is a franchise business. The name stands alone and means something to small business owners, marketers and consultants all over the world.

There is some assumed quality in the brand, and this creates independent demand. Demand based on who the company is, and not necessarily what they do.

John Janstch is another example of a consultant who has leveraged his brand to create a franchise. Duct Tape marketing trains and licenses people around the world to deliver their materials.

Duarte Design is a presentation design company headed by Nancy Duarte. They continue to attract clients, and they continue to attract healthy fees because of their brand. They developed the presentations for Al Gores speeches on “A Convenient Truth” which later led to the movie, an Oscar and a Nobel Peace Prize.

Not a bad thing to have your company associated with.

On the independent front, consultants like Alan Weiss, Ford Harding and Bob Burg escape the commodity trap through their own distinct brands.

The key element here is scarcity. They all have their own IP, their own Brand (or market perception), and they all have their own provable track record of results.

The result? Clients seek them out, and pay a premium to work with these companies, people and brands. A premium that they believe will translate into high value results.

Building a Scarce Resource

Scarcity starts with your people. Are they people that others would pay a premium to work with? Product and methodology knowledge is a great start, but experience, a rare combination of skills, and a provable track record of success are the differentiators here.

A second area of scarcity is that of IP, or intellectual property. What is yours? What works, is protected, and can only be delivered by you?

Weiss has Value Based Fees®, his Million Dollar Consulting College® and no doubt many others. And they are all exclusively his. He has taken the trouble to protect these methods and approaches which gives him an added level of scarcity.

IP comes in many forms. The Guerrilla Marketing franchise has scarce IP related to methods of marketing. But Accenture and IBM also have a lot of IP contained within their walls. Software, methods, processes, tools and approaches are all relevant areas of IP if they provably create value.

The last, and probably the most important area of scarcity is around your own brand. Are you seen as a thought leader? Do you inspire people to achieve more than they normally could do? Will they actively seek you out, or do you have to call on them?

When you are able to show scarcity of skills and experience, IP that works and is exclusively yours to deploy, and a list of clients and ex-clients who will line up to attest to your track record of success – then you are not a commodity.

You are a franchise, and companies will pay good money to have access to you.