Small Consultancies: Grow, Don’t Scale!

Key Takeaways

• Scaling Challenges: Consultancies typically do not scale until their revenue reaches at least £3m and employee count hits 25, relying on personal relationships and lacking structured systems.
• Misleading Scaling Promises: Social media ads often promote unrealistic scaling strategies, focusing on marketing funnels rather than tangible growth, leading to wasted resources.
• Growth Over Scaling: Growth involves understanding profitability, testing markets, improving offerings, and building firm culture and expertise, which are crucial before attempting to scale.
• Enjoyment and Profitability in Growth: Many founders find the growth phase more fulfilling and profitable, with a focus on personal, varied work rather than process-driven hierarchy.

You’d have thought that “help me scale my firm” is something I would be glad to hear from a potential client. However, it usually creates a little anxious feeling in my throat. Let me explain why.

The Reality of Scaling a Consultancy

No consultancy scales until its revenue is at least £3m.

Over the last fifteen years, I’ve worked with around 500 small consultancies to help them grow. In addition, I’ve interviewed another 100+ founders who have grown and sold and surveyed 2000+.

Virtually none of these has scaled until their revenue hits at least £3m, or their employee numbers hit 25 or so. Even then, I’m not convinced that scaling is the right metaphor. It just sounds too…. easy?

The exceptions to this rule are usually firms that initially called themselves consultancies, but developed software to automate, improve or modify their consultancy offering. Digitopia, for example, found it could offer more value using SaaS to benchmark the digital maturity of firms than delivering digital transformation consultancy services.

Why £3m? Well, for three reasons. Until this stage:

• Transaction cost economics (and institutional inertia) mean that small firms tend to be run on personal relationships, intrinsic knowledge and verbal communication. Without clear systems, roles and processes, no scaling is going to happen.
• The firm is not structured to ‘scale’. Scaling (usually) requires a leverage structure of juniors and partners which simply doesn’t make sense when you have fewer than 30 people. Indeed, to get to a leverage structure the consultancy will need to start doing different (bigger and simpler) kinds of work.
• For many partnerships, scaling, and the implied leveraged strategy above is not part of their strategy – at least while they remain small. A strategy or innovation firm will rely on the experience of its partners which in turn requires a strategy inimical to scaling: experimentation, personal relationships, and mentoring. This firm will generally grow rather than scale.
• The consultancy often does not know what it should scale. This really gets to the heart of the difference between scaling and growth. It often takes a while (in a good small firm, 3-5 years) to really work out what the profitable, do-able, and growing niche should actually be.

The Promise of Scaling Your Small Consultancy

Where does this obsession for ‘scaling’ come from? As is true of many of our ills, the answer is social media. Any consultancy owner that strays onto LinkedIn or Facebook will have seen ads to “scale” your firm.

In fact, more often it’s a call to “SCALE!!! TO SEVEN FIGURES!!!!”. Often emanating from a suspiciously young man who is photographed in “his” private jet or penthouse office.

Whilst these improbable youths can afford Facebook ads to sell you the online course which will deliver said scaling, oddly they rarely show any evidence of having scaled their own firm (other than the one that is selling you the promise).

More pertinently, they generally are selling nothing more than the design (not implementation!) of a marketing funnel. Indeed, that is what their own business is.

Let me take a second to tell you what you would have got your $5k marketing funnel. It would comprise:

• You will create a Facebook ad. that gets in front of a minuscule percentage of your target audience.
• Those that click on the ad (typically 1-2%) will be taken to your website, where they will enter their email and watch a ‘value webinar’ which promises to solve their problems without telling them how.
• After the webinar, they will be prompted to book a ‘strategy call’ with you where you (or your sales rep) will deliver a hard sales call. This typically uses 1970s psychological techniques to make the lead feel that only you can offer them salvation.
• For those that don’t buy, you will bombard them with a series of emails offering discounts (with countdown clocks) with the promises of a lifestyle of private jets and working from anywhere.
• You will realize, usually too late, that the cost of FB ads outweighs the revenue and you have spent £15k + the £5k course fee in exchange few some likes.

Consultancy is (still!) a relationship business. All research shows that clients buy on trust – either consultant they have worked with in the past or recommendations from trusted sources. Facebook is not a trusted source.

The promise of scaling is therefore highly attractive. “Scaling” sounds easy. Unless you’re a fish of course. Scaling is just doing the same thing but on a bigger scale. Bigger inputs, bigger outputs – simples!

Grow, Don’t Scale

Trying to scale a firm that hasn’t grown properly is like putting a Ferrari engine in a Model-T Ford – it will destroy it. If your company still has flaws, cracks, workarounds, or strategic ambiguities, scaling will exaggerate these, often to the point where they undermine the functioning and profitability of the firm.

It is much better to resist the temptations of the digital funnel salesmen (they are usually men for some reason) and focus on growth. Moreover, if you take private equity money on a promise of scaling (which you will usually have to do!), there is no getting off that treadmill.

Growth is a really, really important phase that is harder than the scaling phase. Growth is a phase where you:

– find out what you enjoy, is profitable, and you’re good at
– test the market to see what your pricing should be
– improve your offering through experience and research
– build the culture and values of the firm
– accumulate capital to invest in scaling
– build expertise at actually running a company
– understand what systems, people, and technology you need to scale

The Joy and Profitability of Growth Phase in Consultancy

The other important thing to say is that many founders find growth much more enjoyable than scaling. It is more personal, more varied, and often more satisfying to work in a smaller family-like team than in a process-driven hierarchy.

Indeed, several of my clients have pulled back from the scaling phase simply because they weren’t enjoying the work anymore. The CEO or Managing Partner of the scaling firm often becomes more of a process manager than a leader (again, there are exceptions). There is plenty of money to be made in the growth phase, and there is often plenty more joy.

So, please don’t stop picking up the phone to me, but let’s talk more about growth than scaling?