Attracting and Keeping Talent: Recruitment Advice for Small Consultancies

Key Takeaways

• Talent Acquisition: Small consultancies face challenges in attracting talent due to lesser-known brands. Creative strategies include leveraging networks, strong brand and culture, and incentivizing employees to use their connections.
• Employee vs. Associate: Over-reliance on associates is inefficient. Employees better align with the firm’s culture, methods, and long-term goals, offering strategic and financial benefits.
• Balanced Hiring: Balance flexibility and commitment in hiring. “Hire slow, fire fast” is a useful guideline to manage growth and risks.
• Initial and Graduate Hires: First hires, like admin assistants, help establish firm culture. Target specific courses and institutions rather than just top universities for graduate recruitment, emphasizing personal development and entrepreneurial opportunities.
• Experienced Hires and Equity: Senior hires from adjacent industries bring valuable skills. Clear, future-oriented equity contracts align senior management with firm goals and ensure smooth transitions.

If you have left a large firm then a steady supply of motivated and skilled talent is often taken for granted.

Yet, smaller consultancies rarely have the brand to attract talent and early on generally rely on recruiting people they know, sometimes poaching talent from their old firms.

However, as firms grow, the connections of the founders are often insufficient to recruit the 10-20 talented people needed each year.

Navigating the Talent Landscape in Small Consultancies

It’s imperative to understand the unique challenges and opportunities that small consultancies face in the talent landscape. Unlike larger firms with established brands, smaller consultancies must navigate a more complex terrain to attract and retain skilled professionals.

This involves not only identifying talent with the right skills and motivation but also aligning them with the firm’s culture and long-term vision.

The journey of talent acquisition and management in this context is nuanced, requiring a blend of strategic thinking, cultural sensitivity, and innovative recruitment practices.

Leveraging Networks and Brand for Talent Acquisition

This often means that the firm needs to find creative ways to find talent that hasn’t been swept up by the large firms.

This might include taking similar actions to talent as you do business development:

• Incentivising new employees to draw on their own networks
• Using a strong brand and culture to attract non-vanilla talent
• Researching where the type of talent you are looking for might gather
• Winning awards which highlight your profile
• Finding people with the right attitude and potential and training them up in the skills.

The Pitfalls of an Associate-Heavy Firm

Often with new firms, in a drive to avoid employing people, the emergence of an associate-heavy firm is often driven by fear rather than strategy.

However, as I detail below, using associates for more than 20% of staff is not economically efficient (although I do add some caveats below). If you want to continue growing, bringing on employees makes strategic, financial, and cultural sense.

Employees tend to be cheaper per day, are more likely to conform to your methods and culture, are always available, and the value of their work experience and training is accrued internally.

Fundamentally, employees enable higher margins providing your pipeline is relatively full. Even when it is not, employees can be assigned to important internal business tasks: service development, marketing and sales, thought leadership and codifying processes.

Strategic Hiring: Balancing Growth and Risks

Yet, bringing on employees can have its risks. Employees are harder to remove, have a considerable administrative and management overhead and the sense of responsibility can weigh heavily on the shoulders of some founders. 

The solution involves balance: leaving some flex in the system for when a recession bites and to recruit only when the pipeline history is good and projections are looking consistently positive (six months to a year, depending on whether it’s full or over-flowing).

The best advice I have heard in this area was from Raazi Imam of Caiman Consulting, who told me, ‘Hire slow, fire fast’. I wish I had that advice twenty years ago as it would have saved me some pain with a consultant who was technically brilliant but a social disaster with team-mates and clients.

The First Hires: Setting Company Culture

An admin assistant is the first hire of many growing consultancies. This frees you from relatively simple tasks and allows more time to focus on expanding the business.

However, there are two caveats: you first need to ensure that your processes are encoded. You also need to ensure that really simple activites are outsourced to a local or virtual assistant (something which 83% of my sample did at some point).

Beyond this, the first hires are crucial in cementing the culture of the firm. Several founders told me that it is important to ‘recruit on values first’ as taking on a person with inconsistent values can ‘poison the well’. It is important therefore to have a solid recruitment process.

I suggest having (i) a competence interview focused on experience and skills, (ii) a culture / fit interview and (iii) a practical interview, (which could involve an assessment exercise such as a presentation.

In the assessment exercise(s), get the applicant to work on a task that you have worked on and push them, argue with them and ask them to justify their approach.

Throughout, you should try to score the applicant on the attitudes, skills, fit and competences that are important to your firm. Tom Hewson says, ‘Competence, character and commitment’.

Prederi, who were eventually sold to Bearing Point, had the following criteria for recruiting:

• Heart: will they fit with the values & culture?
• Mind: do they have the right knowledge, intelligence and skills?
• Gut: does your intuition say yes?

Attracting Good Candidates

Concerning attracting good candidates, a small consultancy may not have the brand attraction, but small firms do have some advantages.

Caroline Boston, MD of New Minds – a specialist in recruiting for smaller professional service firms – says this:

• Just as you build buyer personas when thinking about how to articulate your proposition to clients, do the same for candidates. Consider where the people you need might be working now and what you could offer them that is different and appealing.
• Understand your competitors. What are they paying their team, what sort of projects are they working on, what is their culture like? Be prepared to define how your business and employee value proposition are different (and better!).
• Bring personality! One of the exciting things about joining a smaller business is the feeling of being part of a great team – your culture and values are so important here. Give a sense of your team and culture on your website, in your recruitment materials and throughout the hiring process.

In addition to this excellent advice, it is also crucial to emphasise to candidates the entrepreneurial nature of your venture. Small firms often have difficulty in the brand wars, but people who avoid the big brands often do so because they have an entrepreneurial spark which is dampened in bureaucracies.

The potential to be directly involved in the creation of something bigger and better is a great incentive to motivate potential employees.

Graduate Hires

If you, like me, are middle-aged you would do well not to under-estimate the shift in attitudes of (especially younger and brighter) employees over the last decade or so.

The proportion of my MBA class who would leave a well-paid job because they were unhappy rose each year for fifteen years until COVID-19 hit.

The Dual Market of Consulting: Clients and Employees

In my experience, consulting CEOs forget that they are actually competing in two markets: for clients and for employees.

I interviewed one US founder who sold his firm recently and when asked about his approach to people management, he stated:

‘I say to new people “look, you’re not going to retire here, but while you’re here we’ll try and make sure you learn, are happy, and are a more capable person than when you joined”. Whilst you’ve got those people for maybe five years, you’ve got to not only develop them but get them to develop you. Their experience and knowledge needs to be captured, they need to mentor and develop others, they’ve got to leave the firm better than when they joined’.

Consultants are by nature ambitious, and the average tenure of a young consultant, even in a large firm, is typically less than five years. Finding ways to keep talent is therefore crucial to minimising the costs and risks associated with recruitment and retaining the best performers.

The challenge small consultancies have with recruiting is encapsulated in a quote from a very skilled MBA student of mine. When I asked her if she’d consider working for a firm I was advising, she replied: “they don’t have the track record or brand, so it would be a major risk for me… especially compared to say Bain.”

Attracting Quality Graduate Candidates to Smaller Firms

Yet there are ways to attract quality candidates without the benefit of an established track-record. Many graduates have heard horror stories about the processing machines that many large consultancies have become, with their fifteen hour workdays.

Many, though not most, would consider working for a smaller company which gave them personalised development, a wide array of experiences, and real mentoring with a partner.

There are several things that you can do to maximise your chances:

• build a distinctive culture and brand that is ‘sticky’
• develop messaging which is attractive to your target recruits
• do the foot-work: the bigger the pool you target, the greater chance of success
• respond, and even anticipate recruit concerns about your strategy and growth plans
• sell the benefits of working in a smaller firm: greater experience, better mentoring and more freedom

Recruitment Strategies That Yield Greater Success

You should also consider who you approach and how. If your target is bright graduates and you have very deep pockets you can compete with all the other major firms in targeting the top 5% of universities.

However, as someone that has taught or guest lectured at these institutions, it is clear that you will have a much greater rate of success, with no difference in the quality of recruit, if you are intelligent in your approach.

I recently did the following for a growing consulting firm, who received 163 great CVs, and ended up recruiting four outstanding MSc students:

• Instead of targeting top universities, target top courses. Many of the top 5% courses are not at the top 5% Universities.
• Target MSc & MBA students instead of undergraduates.
• Don’t just focus on business courses. First, consider what your culture and specialism requires (for example, psychology, IT, or HRM). Second, consider the skills that are required. Business schools are notoriously bad at imparting transferable skills to students, whereas engineering, mathematics, IT and even philosophy do much better at this. The best consultants I’ve met have often been historians by training.
• Target the ‘second rank’ of universities. Unless you have money to burn, you will find it hard to get in front of Harvard, Oxford, Cambridge, INSEAD and the other top institutions. These have strong and expensive gatekeepers, and you will be competing with all of the top firms. Instead, go for the Cornells and Northwesterns (USA), the Warwicks and Bristols (UK) or the IIFTs and SPJIMRs (India).
• Don’t rely on the annual careers fair. Find the emails of the course directors and the careers people in the relevant department and contact them. Offer to do guest lectures. Sponsor a prize or a competition.
• Build a relationship with top students by employing them through the University Jobshop for a small project (usually around £20/hour) and/or offering dissertation and research opportunities.
• Once you have a feel for the course and the quality of applicants it is worth building relationships with two or three key institutions and courses that you think provide you with the best fit.

These approaches also mean that you avoid the incredibly hefty fees associated with recruitment agencies, who, certainly at a junior level, rarely do a great job of selling your unique culture.

Experienced Hires

Many founders who had left a large consulting firm often found that ex-colleagues couldn’t wait to join them – though only once the new firm had demonstrated its success.

Big consulting firms increasingly put client needs a distant third after profit per partner and revenue growth, and indeed are often forced to do so by the short-term requirements of the stock market.

This has worsened as profit margins have narrowed, so it is always worth keeping tabs on other alumni from your previous firms.

The Role of Equity in Motivating Senior Hires

Whilst pay is generally a hygiene factor rather than a motivator, Damien at Solidiance argues that the same is not true of equity: ‘you need to build a family and give people equity. People behave differently when they have equity – they are much more aligned to the firm. If you know how to run the family it is a great self-defence mechanism’.

This insight can be combined with that of Raazi Imam at Caiman Consulting, who stresses the importance of having clear and strict metrics for the performance of seniors in the firm. The reward of equity should be linked to the high performance of seniors.

In finding senior hires, it is always worth looking at adjacent industries as well as your own. James Bamford, who co-founded Water Street Partners, told me:

‘It’s hard to attract people at the very top consulting firms if you are a smaller firm… We realised that transaction attorneys sitting in big law firms have really transferable skills and many of them are unhappy – people who McKinsey & Co. should have hired but didn’t’.

Remember with both experienced hires that there is no substitute for existing relationships when it comes to selling.

It is worth asking prospective hires to include a slide in their interview presentation about their relationships and the potential services that may be developed with these.

New Partners & Directors

When ranking factors that impact their purchases, buyers of consulting firms place the quality of the senior management team as joint most important (with a differentiated market proposition).

When recruiting and managing the leadership it is important to be clear about the different roles needed at different stages of the business and how this might evolve over time.

Recruiting Senior Talent: Insights from Industry Leaders

‘Recruitment is the most important thing’ says Prederi (and Tribal) founder & MD, Stewart Johns. ‘The secret by far is to recruit good senior people. Have people who have contacts and know people. You only get work from people you know’.

When seeking seniors it is common to look for people with complementary rather than overlapping service or market specialisations, but fit with your values and ambitions is most important of all.

It is also good advice to avoid recruitment and reward schemes whereby partners create their own fiefdoms and compete with each-other rather than co-operate.

As Roger Carlile of Ankura warned me:

Really great seniors wanted to be in a different culture [to the Big4]. They wanted to be in a place where the firm is sort of client-first, firm-first, not what P&L am I in, what bonus pool am I in, I’d better not tell Susie down the hall what I’m chasing because I might have to share credit. There’s a lot of those dysfunctions we know arise from time to time at consulting firms.

If you have a five- or even ten-year plan to sale, it is likely that the requirement for senior people to manage the growing organization will be greater than your capacity to promote internally. It will, therefore, be necessary to recruit senior people into the company.

If your aim is to be in the 10 per cent of sellers that avoid an earn-out, then building a large(ish) diversified team of senior directors is an important step in avoiding a dependency on the founder.

Equity Distribution Among Senior Management

On average, buyers want 23% of equity shared among the senior management team. Of course, equity rewards should be tied to growth and sale targets.

In one (anonymised) firm I interviewed, there was a big gap in equity and pay between three extrovert ‘rain-makers’ and the other seniors who ensured that quality work was delivered every time. The founder told me:

‘During the negotiation phase one of the Directors left because it became clear they were not going to do particularly well out of the deal. This led to a second round of negotiation, during which two other senior people left, so we had to negotiate again….. It not only led to a lower price, but to a longer and more stressful sales process’.

Key Considerations for Allocating Equity to New Partners

How much equity should you give a new partner? We’re discussing this tonight at my Boutique Leader’s Club: Here are the lessons I’ve learned:

1. Know what you want to achieve. Is it reward for past performance, to encourage future sales, to tie in key personnel, or to get financing from partners. Use this as your guiding strategy for equity decisions and the contracts that govern them.

2. Equity contracts should generally be future-orientated and future-proof. They should incentivise the type of behaviour the firm needs to grow (sales, margin, the right clients, etc.) AND guard against change (a partner leaving the firm, putting their feet up, or going part time). The latter should also include the possibility of adding new partners further down the line. This is not the time to skimp on a lawyer.

3. Unless you can’t afford the going rate, do not use equity to ‘make up’ the difference between the market rate for the applicant and what you can pay. This is what performance related bonuses are for. This said, it is not uncommon for firms to add equity to the mix of star-performers, but have the figure tied to future performance.

4. Generally, have a vesting schedule. Meaning that equity is earned over time. A common schedule might be 4 years with a one-year cliff, meaning if the partner leaves before one year, they get no equity, but after one year they get 25% and then more each month for the next 3 years.

5. Make it clear that equity does not guarantee control. Equity should be about sharing in the financial success of the firm, not necessarily about making key strategic decisions. Too many cooks spoil the decision-making.

6. Agree a clear and fair process for valuing the firm e.g. a third-party valuation, or a set formula that takes into account revenues, profits, assets, and other key metrics. This valuation will be critical when partners join, leave, or want to sell their equity.

7. Consider the impact on culture and team. Equity can motivate but also lead to conflict. On that note, unless there are very very obvious benefits, never split equity evenly. Growing firms need someone in charge.

8. Think widely about the types of equity, both in terms of tax efficiency and complexity. Phantom shares, options, buy-ins, interests and so on might suit your aims better.

9. Buy-ins can generate investment capital, but this arrangement can scare off potential partners in a firm that doesn’t have longevity and tends to work better in large LLPs.

Conclusion

Small consultancies must employ a strategic and multifaceted approach to attract and retain talent. This involves leveraging networks, cultivating a strong brand, and prioritizing values-based hiring.

Balancing the use of associates with strategic full-time hires is key for economic efficiency and cultural coherence. Targeting the right educational institutions and courses, rather than just prestigious universities, can yield high-quality candidates.

Additionally, thoughtful equity distribution and careful selection of senior management are crucial for aligning with the firm’s long-term goals.

Ultimately, success in talent acquisition and retention hinges on articulating a unique value proposition and fostering a culture that resonates with potential candidates, ensuring sustainable growth and competitiveness in the consulting market.