Consulting Can’t Scale

I was talking to some friends last night about how we have a nice team of consultants that could do some really interesting projects, when I was reminded of some lessons I learned working for a small consulting firm.

During the dot-Com explosion, a small consulting firm couldn’t hire people fast enough, and it was easy to cherry-pick the jobs that made sense. When I first joined the firm, the focus of the team I was on was to take on full projects for companies that were having similar problems (nobody could find people, so they were willing to have outside teams of experts help them invent their core business). During this period, our biggest problem was not having enough people to take all the cool projects that were coming our way, so we never even considered placing less than a full team on a project at a client site.

As the dot-Com explosion became the dot-Bomb implosion, we were (like most consulting firms) faced with a different problem. There was nothing in the pipeline. Worse, the company had spent a bunch of money on things they thought they needed to do to go public (like building an ASP hosting service) and taken money from investors, which left the management with difficult choices to make.

There were lay-offs (mostly sales staff), and cut-backs. And naturally, the business model changed, since to keep the doors open it was important to keep everybody billable. So we placed people wherever we could, which meant a lot of “body-shop” type of gigs, where we were supplementing people to projects. This, combined with the layoffs, meant our bench was thin, which in turn meant we could no longer handle full projects. Eventually this resulted in the company turning to a policy of “if you’re not billing, you’re not getting paid”, which resulted in a lot of the more effective consultants (like me) leaving the company.

The most interesting thing about this to me is the fact that there is some critical mass of consultants that you need to have in order to do project based consulting (where you “own” the project). You need enough people so that you have teams working all of the time, and to be able to support the teams between engagements. If you aren’t large enough (or the economy is bad enough), you can end up trying to keep the firm going by placing individuals, but that will almost certainly reduce the number of projects that you can do (since now that critical person is no longer available for the team).

In fact what we saw was that the “body shop” approach, kept the most critical people extremely busy at the expense of those who were not in such high demand. Project managers, architects and DBA‘s were placed, and so when a project came along, were not available for a team based project. And of course the vicious cycle would be that since we couldn’t take these projects, the people who weren’t being placed would leave, which inevitably led to other people leaving …

Eventually the economy recovered (as did the consulting firm), but I’m thankful for this magnifying lense on how difficult it really is for a small consulting firm to be successful.  It almost always comes back to focus, except of course when it comes down to survival.