The Evolutionary Growth of Consulting Firms

Key Takeaways

1. Survival and Adaptation: Both in nature and business, survival hinges on adaptability rather than strength or intelligence. Evolution occurs in bursts, reflecting cycles of investment and growth.
2. Stages of Growth: Each growth phase in a business requires different strategies and resources. Initial survival depends on founder connections, while scaling necessitates structured processes and junior staff.
3. Evolution of Business Practices: Over time, businesses must innovate and adapt their processes, technologies, and personnel. Founders and early-stage systems may need replacement to meet the demands of later stages.
4. Efficiency and Innovation: Efficiency in processes and continuous improvement are critical. Equally important is the ability to innovate quickly, which serves as a key competitive advantage for smaller firms.

Evolution is Tough

“Congratulations. I’m delighted you could make it. Getting here wasn’t easy. In fact, I suspect it was a little tougher than many of you realise.”

These are the introductory words of Bill Bryson’s a short history of nearly everything. In it, he is talking about the enormous improbability from an evolutionary perspective of your brief existence.

Each one of the million or so members of your ancestry tree not only survived only enough to reproduce but were (contrary to some evidence in this room) attractive and able enough to successfully mate. If just one of your ancestors had failed, you would not be here.

Why am I telling you this? Well, the same is true of businesses. It is relatively well known that 90% of start-ups fail[i]. But it is perhaps less well known that of those that do survive more than three years, around 90% of those never grow larger than ten people.

If one adds in the high failure rate of otherwise healthy firms due to COVID, high interest rates, Liz Truss, the Russian invasion of Ukraine and the most recent recession, then I hope this gives an indication of how tough it is for a young firm to survive, let alone grow consistently.

​For the last twenty-five years, I’ve been lucky enough to get paid to study, write and teach about, and also help consultancies who are trying to survive and even thrive in often hostile environments. Central to my thinking and advice on how success happens is the notion of evolution and adaptation.

Let me explain expand on this a little.

Evolution and S-Curves

Popular understanding of evolution focuses on the notion of survival of the fittest, but this is an error. What Darwin actually wrote was “it is not the strongest of the species that survives, nor the most intelligent that survives. It is the one that is most adaptable to change”.

For those of you that have studied business you will remember that businesses often grow according to S-curves.  Evolution, as with species, tends to happen in bursts, interspersed with periods of stability.

The same is true of firms as they grow – one tends to get cycles of investment (low profits) and growth (high profits), with the latter resulting from the former.

Often, these cycles of growth hinge around key ‘inflection points’ which are influenced by the number of people the firm employs and the maturity of the firm. Typically, for professional services, it looks something like this:

Now of course, this is just the theory – the shape of the curves and their association with the numbers of people depends on several things: the economy, the structure of the firm, and so on. 

The important point here is that each stage of growth requires different things to survive: what gets you to 10 people won’t get you to 25 people, and what got you to 25 people won’t get you to 130 people.

The T-Rex was a highly efficient killer, but it was the mouse that thrived. In the 1950s, one in every two cars sold in the US was a General Motors car.

Typically (and again, I generalise), when a consulting firm starts it will do anything to get cash through the door. It is often dependent on founder connections for sales and recruitment.

The ‘service’ is likely to be the founder’s time and the projects are likely to be very varied. Any recruits are usually similarly experienced and networked seniors that often take equity in the business.

The next phase starts when it has found its proposition and the firm starts to non-partners (or directors) to help with the work. This should mean that seniors can free up time to sell to reduce founder dependency.

“Proposition” here is still a long way from codified services, but these can be developed as time and expertise develops. Typically, in the growth phase, the firm experiments with, or at least evolves, services, pricing, propositions, methods and so on, until it has a clear offering and IP to support it.

The scaling phase typically builds efficiency. It does the same things, but with stronger IP, more junior staff and more effective systems and processes. It is here that some firms seek to bring in private equity to accelerate the journey. Scaling means a professional, ordered, and systematic approach to all aspects of the firm.

Of course, scaling isn’t the end of the journey because environments change, and as with natural evolution, an organism in a changing environment must also change.

New competitors, new markets, or even new strategies such as taking on PE or floating the company, mean different strategies, governance and leadership styles are needed.

I’ve written a whole book on this, so won’t expand further here!

What Does This Mean for You?

I often use the metaphor of a F1 pitstop as a model of efficiency. People who are trained, practiced and specialised will be both efficient and high quality, but this is only half of the metaphor. In the 1940s, the pitstop took 33 seconds.

Now it takes less than 2. The reason for this was improvements, and improvements don’t happen without innovation and investment. To get to that highly efficient firm you will need to evolve, and that takes energy. To better understand what this means in practice, consider:

People:

Some people (even founders!) that are great in Phase 1 are a hindrance in Phase 2 or Phase 3. Others can adapt. If you can’t adapt you should find someone who can do the job better. Your people won’t evolve unless change happens.

Process:

Overly engineered processes will damage innovation and flexibility in the early stages but are crucial in the later phases where the founder / CEO can’t know, let alone communicate with, everyone in the firm.

Technology:

See that wonderful CRM system that your using now? Or that automation you’ve set up to track your pipeline? They probably won’t be around when you’ve tripled in size. Using HubSpot or CMAP when you’re starting up is overkill, but they’re both pretty good when you’ve reached 30+ people.

Your success here will depend on two things: First, attention to the efficiency of the firm: the continuous improvement of the systems and processes which enable it, and adherence to those.

Speed and consistency are crucial. Secondly, innovation. As a smaller firm, you can improve things faster, spot new opportunities and innovate faster than larger firms. Your competitive advantage will lie as much as your ability to innovate as it will to be efficient.

[i] The figure is incorrect, but it’s not too far off….