Creating and Using Intellectual Property (IP) to Increase the Value of Your Boutique Consultancy

Key Takeaways

• Intellectual Property (IP) is crucial in consultancy, encompassing client-facing products and internal processes, adding business value and enabling differentiation, leverage, and scalability.
• Types of IP include proprietary methods and tools for business development, delivery, and operations, enhancing efficiency and consistency.
• Buyer preferences show a strong preference for recurring revenue IP, especially among private equity buyers and in the US.
• Firm type influences IP focus: Brains firms emphasize thought leadership, while procedure or IT-led firms focus on well-defined processes and products.
• Effective IP management involves continuous improvement, senior oversight, feedback utilization, and clear ownership.
• Creating IP should be led by senior figures, focusing on standardizing processes and capturing valuable knowledge.
• Legal protection for IP can be challenging; trademarks, trade secrets, and copyrights offer some protection, with a focus on visibility over exclusivity.
• Successful IP management enhances project margins, reduces operating costs, and increases firm value.

In the realm of boutique consultancy, the strategic use of intellectual property (IP) is pivotal. It encompasses not only your client-facing products and services, but also the core processes and systems underpinning our firms.

In this article, I will explore different types of IP, their impact on growth, and strategies for effective management. Let’s explore how IP can be a key differentiator in our industry.

Introduction to Intellectual Property in Consultancy

By intellectual property (IP), I do not simply mean the products (proprietary tools, methods, and services) which your firm offers clients, but also the internal processes and systems which you use to run the firm.

For Professional Service Firms, I define IP as codified knowledge which adds business value. For most firms, IP is crucial for profitable growth because it enables differentiation from competitors, as well as leverage and scalability.

It can also provide more consistent delivery, better training and use of consultants and a means of accumulating and sharing experience and knowledge.

Understanding Different Types of IP

Proprietary methods and tools not only include the services and products that are delivered to clients, but also the operations and business development processes, methods, and technologies that firms commodify over time.

The table below highlights these different categories and provides examples of each. All these categories help the firm add leverage, value, scalability, and efficiency.

Categories and Examples of IP for Methods & Tools

Buyer Preferences in Consulting IP

When it comes to buyers’ own preferences, we know that revenue-generating IP is in first place, but not by as much as many might expect. For obvious reasons, buyers look for recurring revenue IP rather than revenue dependent upon constant sales efforts.

Over 60% of buyers say that recurring revenue is ‘extremely important’ for them, although this is much more important for private equity buyers (67%) than strategic buyers (45%), and much more important in the US (75%) than in Europe (42%).

In other words, if you do not have any recurring revenue, perhaps focus your attention on European strategic buyers! The reason for this is that private equity tend to be more focused on future financial returns from your services, whereas strategic buyers, whilst not uninterested in this, are more focused on the strategic synergies between the two firms. The US has a higher concentration of PE buyers compared to strategic buyers.

Impact of Firm Type on IP Focus

Your type of firm (Brains, Grey Hair or Procedure) will influence the focus of your IP. Brains firms will tend towards strong marketing IP, especially in the form of thought leadership: IP that demonstrates rather than captures experience and expertise (for example, thought leadership).

Since the problems they solve tend to be relatively unique, and the solutions they develop relatively creative, there are often low levels of service IP. This said, there are strong opportunities for these types of firm in operational IP and it is something that many neglect until it is too late.

The Special Air Service or Navy Seals frequently solve one-off complex problems, but this doesn’t influence the systematic rigour of their training, communications, and planning.

At the other end of the spectrum, procedure or IT-led firms will (or should!) often have strong levels of IP throughout the firm: well-defined products, operational processes, and sales IP.

Space for creativity and innovation is still important and still the basis for long-term competitive advantage, but this tends to be generated at the more senior levels as juniors are often maxed out with utilisation.

I would urge this type of firm to think about slightly lowering utilisation levels in exchange for greater involvement of juniors in IP development.

Types of IP should also reflect the firm’s UVP (Unique Value Proposition), whether that is making clients quicker, cheaper, higher quality, or bigger, it should help define your IP priorities.

Strategies for Successful IP Management

Managing IP is almost as important as creating it, because a central benefit for IP is to continuously capture improvements. As firms grow in complexity, they will need to create processes for IP storage, sharing, use, improvement, and retirement.

As someone who has been forced to use terrible IP systems as a junior consultant, I can point to a few important insights in its management:

• Take the system seriously as an asset. It has the potential to significantly improve the value of the work you do, and thus your pricing.
• Make someone senior responsible for ensuring a clean, fast, accurate, and useful knowledge/IP system.
• Request and use frequent feedback from people who have to use the system, especially juniors.
• Measure the usage of IP and prune what is not useful.
• Use version control.
• Invest in a great search function and sensible metadata.
• Subject matter experts should be gatekeepers in maintaining quality.
• Protect it: for example, what needs password access? What can be kept on laptops?
• Ownership of IP must be clear in contractor & employee contracts.

The great news for most managers of internal IP is that there is now a variety of inexpensive software solutions that can help. Platforms such as Guru start from $5 a month per user.

A good PSA (Professional Services Automation) will also help codify and automate processes and communication, and software such as MethodGrid provides sophisticated knowledge management systems to better manage, store, and communicate internal IP.

Creating Effective IP Within Your Firm

There is, of course, no point in having a great IP system if there is no IP created in the firm. The creation of IP should be led by a partner and should be prioritized for practice/business unit leaders.

My own recommendation (and something I have done here) is to separate out IP priorities for internal processes and external services, perhaps with different leaders.

They should lead to:

• Standardizing and codifying of common delivery activities, methods or processes
• Capturing knowledge that is valuable to the client or to the firm
• Creating, standardising and automating internal business processes
• Timetabling and standardising important events such as strategy development or market research

A useful way of improving internal IP is to focus on the business processes of the firm and gather ideas for developing the speed, efficiency, and quality of these.

Priorities for IP development should be communicated clearly to everyone in the firm. Ensure that there is time made available to work on IP, and that the work is incentivized to illustrate its value.

This said, it is also important to incentivize the right thing. I have seen a few firms incentivize the creation of IP through appraisals or even bonuses, only to find that a vast amount of time has been spent creating templates, tools, and processes which do not align with the firm’s strategy or priorities.

I have put together a workshop template at joeomahoney.com which should help you identify and develop your IP priorities.

Legal Protection and Sharing of IP

The final issue you will encounter when developing IP is how to protect it. Generally speaking, getting legal protection for management intellectual property is often difficult. In most countries (the US is one important exception) it is not possible to protect management ideas through patents.

However, some protection can be given through the use of trade marks (for brands, names, and logos), trade secrets (confidential information that provides economic benefits), and copyright (in the consulting context, usually for thought leadership).

As a rule of thumb, the more commodified a service or product (i.e., codified, branded, and standardized) the easier it is to protect.

However, as I know from personal experience, intellectual property lawyers are very expensive, and unless you have a large purse and are confident in your claim, it is generally better to focus on being ahead of the competition rather than suing them.

Many of my own clients worry about sharing their IP in marketing with potential clients, but my experience suggests that the more you share, the more successful you will be. These days, information is not a scarce commodity; it is freely available to anyone with an internet connection.

What is a commodity, however, is visibility. In the process of democratising knowledge, the internet has become a shouting match for millions of people that want to sell to your leads.

The easier you can make it for potential clients to access your ideas, the more visible and trusted you will become. This said, it is still worth making every effort to be clear with your employees, associates, and clients concerning the ownership of IP.

Being clear about this in contracts can act as a deterrent, and also put you on more solid ground should a question of ownership end up in the courts.

Conclusion

Managing your IP is a key method for improving your project margins, reducing your operating your costs and increasing the value of your firm. IP is not just a tool, but the manifestation / embodiment of your firm’s expertise.