The Productization Dilemma In Consulting
The past few days, I had another interesting discussion with a client about the topic of productizing an internally developed tool (technical audit) that gets used in the daily consulting work.
The tool was developed to improve the quality of the consultancy work. Still, after a while, internal discussions about the opportunity to sell licenses for the productized tool started taking place. This is a regular discussion, and I’d like to give you my point of view.
Consulting firms love to create ‘products’. But most of these consulting firms get it wrong. I always get that question from consulting firms: “How can we turn our self-developed tool into a product that we can sell at scale?” I get that. We are all looking for new revenue sources.
Recommended reading: Regain Control as a Consultant by Packaging Your Services
Unfortunately, I haven’t seen that many productization successes in consulting firms. Why is that? Mainly because of these two reasons:
1. Because of the big, fat consulting cannibalization monster
A self-developed tool cannot automatically be turned into a standalone scalable product. I’ve seen this many times, consulting firms selling license fees for a software tool they have developed for themselves, built to improve their consulting quality, speed, and pricing of a consulting service. It’s a great way to leverage consulting expertise, at least that’s the belief.
But selling (mainly a modest number of) user licenses for such a tool to existing clients in the context of a consulting firm's core expertise or service increases the risk of revenue cannibalization or even the entire delusion of a core consulting service!
I’ve seen many times already that the revenue from selling (too few) licenses didn’t compensate for the loss of (core) consulting work, and ‘the product’ ultimately gets buried in the office basement. What a waste of money and energy for all the people involved.
2. Because ‘real productization’ of a service requires product development expertise
Here’s what I always say: you either do productized consulting with your existing tool/approach to sell better, bigger, faster, more expensive core consulting projects, OR you scale it the startup way (selling 1000’s licenses to compensate for the core service cannibalization, and…make a lot of money from those licenses).
It’s either-or. Use it to improve your core consulting service or sell it as a product the startup way. And when you build a product 'the startup way', you stop doing consultancy with it. You can’t combine. If you confuse (in- and externally), you lose.
If you believe you can make money by scaling your tool, great! Cool! But don’t forget, you will need to hire developers, build a tech stack, hire a product development expert, a sales team, maybe get investment money, etc.
Again, I am not against it, but it’s usually unfamiliar terrain for any traditional consulting firm. It’s a totally different business model, so consider it 10x before going that route as a consulting firm.
Here are 5 tips that might help
- Cannibalization: watch out for cannibalization of your core expertise by selling (too few) licenses for your tool to core existing clients;
- New clients: if at all selling licenses, I’d advise you to sell them to new clients segment you are not yet selling consulting services to. E.g., you start selling your tool/licenses to SME clients instead of a core focus on, e.g., enterprise clients;
- New service: you could also think of creating a new, additional service that didn’t exist before to avoid cannibalizing your existing service. I call this ‘the innovation-driven productization’;
- Disrupt old service: I have seen this a few times: consulting firms disrupting an ‘old’, existing service without a future (knowing it will fade out over time) but with a productized ‘new life’ opportunity;
- The startup way: the most radical of all (for traditional consulting firms): you scale your tool ‘the startup way’. It means selling a massive number of licenses to a much broader market. This is a very different business model with expertise and capabilities most consulting firms don’t have.
I wrote about this client discussion from the point of view of a consulting firm struggling with the dilemma of selling/scaling internally used tools to clients.
I’d advise being very careful not to erode/cannibalize a core consulting service offering by selling (too few) licenses of a so-called ‘productized tool’.
As a consulting firm, I’d always prefer to use such tooling to make a core consulting service more differentiated, better, faster, more expensive, more attractive, easier to train a team, and easier to gather great data and benchmarks.
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Hello, I’m Luk Smeyers, and I’m guiding consulting firms through the journey of growing their business by helping them transform into go-to experts in their market. I have been in consulting businesses for almost 20 years, in very different roles: as European CHRO in a global consultancy, as a startup founder in an analytics consultancy, and as a leader in a 'Big 4' consultancy, post-acquisition of the startup. I had the privilege of achieving global visibility as a consultant and I never had to sell, persuade, or negotiate as a result. I have now bundled all those experiences, expertise, know-how, research, reading, successes, struggles, and failures from managing and growing that visibility in the past years.