Do You Need New Consulting Services to Fight the Recession?
“World Bank warns of looming global recession” or “55% of CEOs say this recession will be worse than the global financial crisis” – these are the headlines we’ve all been seeing in our news feeds for months.
There are various strategies that businesses adopt to survive economic uncertainty. Some impose severe budget cuts. Some streamline their product and service lines. Many go on hiring freezes.
A common strategy I observed many consultancies adopt when anticipating challenging economic periods is creating new services to catch more opportunities.
I consider this a mistake. Why? Let me explain in this article.
2023 – a difficult start of the year
Undoubtedly, 2023 will be a more demanding year for business development in consulting.
Most consultancies I talked with towards the end of 2022 already saw the economic stress affecting their sales cycles. Closing consulting deals has been getting more difficult and taking more time.
Adding new services is an understandable reaction (I’ve been there), BUT it’s also a risky game to play for four reasons:
- Clarity: It comes with the genuine risk of abandoning the clarity and simplicity consultancies had when their positioning and service offering was laser-sharp and more focused;
- Resources: It forces consultancies to spread internal resources too thin. This, in turn, risks weakening the expertise levels and causing decreased client satisfaction in existing projects;
- Validation: It lacks market validation (market fit of the service). Consultancies risk investing much work to get the new services going without even testing/piloting the value proposition – a bad habit in consulting.
- Profit: It decreases near-term profit. It might take a year (or even longer) to make a new service profitable. This doesn’t improve the financial situation. More often than not, it negatively impacts the near-term financial position of a consultancy.
Recommended reading: Why Vertical Service Integration Is the Future of Growth for Boutique Consultancies
Why staying focused is particularly important in difficult times
Focus is the only way to get the genuinely tremendous results that will make a consultancy top of mind with its prospects. Firms that offer a wide range of services and market to a wide range of prospects will invariably attract many clients who aren’t a great fit.
This is particularly dangerous in a challenging economic climate. Such uncertainty always results in clients looking to maximize the value they derive from the services they purchase.
Buyers understand that they will get the most value for their needs from a highly specialized consultancy. This means that those offering a wide range of services will have to compete for much more on prices. In challenging economic times, the competition gets even more ruthless.
"Success is 20 steps in one direction, not one step in 20 directions." (Anonymous)
Furthermore, consultancies that need to focus in times of economic downturns will find it hard to re-adjust when the economic outlook of their market gets more optimistic. Why? Because prospects already have their go-to focused consultancies, they’ll most likely want to continue working with them since these are the firms delivering significant value.
Recommended reading: 10 Consulting Trends: 2023 Edition
Three ways of addressing the ‘new service risk’
Having said that, consultancies need to adjust to changing economic climates.
However, instead of adding brand new, unexplored, unvalidated services, consulting leaders should protect the consultancy's positioning and the revenue of existing services using the following three methods.
1. Crossing the sward with the longer sales cycle by doing these five things:
- Improving Win Rates (outcome-driven proposals are gold);
- Improving the Average Deal Value (however, with the risk of becoming ‘too big to close’, see next point);
- Avoiding long deal-closing discussions by chunking up the project into smaller parts (easier to decide and digest but with the risk of decreased overall deal value, see previous point);
- Increasing the Number of Opportunities in the pipeline (and implementing a rigid pipeline follow-up as of now);
- Avoiding doing projects that are not a good fit, as it might take much longer to build trust in the expertise, with longer sales cycles as a result (and most likely with lower pricing).
2. Extending the existing services or expertise in a vertical way to protect the market positioning
This approach refers to the practice of developing new and deeper components of already existing consulting services, as opposed to creating entirely new services. By moving away from order-taker requests (in front of the wall) and developing new and deeper components of existing services, consulting firms can move upstream, differentiate themselves from competitors, command higher prices and margins, position themselves as trusted advisors to their clients, and improve client retention.
Here are a few examples of what I have been doing myself or together with my clients to deepen or extend existing services:
- Developing a discovery audit (to get projects started faster or provide a more accessible entry point);
- Agreeing on retainer fees to support CEO/CXO implementing existing/recent projects (I find this 1-2-1 support an easy sell);
- Offering '100 days support' for newly hired CXO of existing clients (and helping them deal with recent/existing projects);
- Helping existing clients with capability building, supporting the development of the existing team, maybe even providing support with interviewing, onboarding, etc., of new team members;
- Literacy development: improving the client’s literacy skills in, e.g., data, digital, transformation, risk, etc., if this would fit into recent/existing projects;
- Providing training and education on relevant topics such as project management, business strategy, or industry-specific technology trends or issues related to recent/existing projects;
- Offering ongoing support, maintenance, or audits for recently completed projects to ensure that implementation or adoption is running smoothly;
- Conducting regular check-ins to assess satisfaction with current/existing services and identify areas where the consultancy can improve. This can be done through surveys, focus groups, or one-on-one meetings (ideal ‘moments of truth’ to suggest additional support);
- Developing a customer success program to identify and address any issues or challenges clients proactively may face with existing services;
- Bundling existing consulting services: bundling related services together can create a sense of value for the client and make it easier for them to justify the purchase. An example from my work: offering to develop a specific KPI dashboard to monitor project progress (and maintaining the dashboard).
- Offering additional service customization: upselling can also be done by introducing additional customization options to existing clients. This can help to demonstrate the value of these additional services and make them more appealing to the client—an example from my work: integrating external customer research/interviews in the project.
To name a few…
Recommended reading: Replicate the Secret of This Highly Profitable Consultancy
3. Productization of existing services
I have always been a big fan of the productization of consulting services. In the context of economic challenges, this is another way of avoiding creating brand-new services and building on existing services or expertise.
Productization of consulting services can extend existing services by creating a standardized, repeatable process or framework that can be easily replicated and scaled.
This allows the consulting firm to focus on delivering the core service to multiple clients rather than constantly developing new services for each client.
Productization can also lead to cost savings and improved efficiency, which can be passed on to clients through lower fees or faster delivery times. There's a lot of pricing pressure in the markets, so that productization efficiencies might help now.
By productizing consulting services, companies can maintain focus on their core competencies while increasing scalability and profitability.
But Luk, we love the variation in our work...
And that's how many consultancies I meet justify creating new services all the time.
Heck. Variation is not a consulting strategy, and variation doesn’t sell.
I hear this ‘we love variation’ almost every week. And that’s why most consulting leaders and their consultancies go unnoticed. With their generic and shortsighted diversification approach, they fail to connect with prospects and/or to leave a lasting impression.
Rather than blending in with the crowd, a consultancy should strive to stand out with its focused, deep expertise by igniting a spark and burning brighter than the competition. Especially now.
Variation in consulting is exciting at first. I get that. But to be honest, it’s wearing off over time. Then, fatigue hits the road. A narrow focus is maybe dull at first but becomes more exciting over time. People start inviting the expert consultancy that knows (almost) everything, has the most compelling data, can spot intriguing patterns, explain fascinating solutions, gets admired for thought-provoking ideas, and doesn’t need to sell or convince.
Variation is tiring and is not a strategy for economically challenging times.
"Most consulting leaders keep all options open, reject focus, and never become experts. They fear losing opportunities, and they are scared to make the jump to deep expertise. Their ego tells them not to narrow because they believe they can crush everything. So, in their heads, they are stuck. That’s terribly tiring. I’ve been there. With burnout as a result.
Takeaway: adapting without diffusing the focus
Only a few consultancies can get away with changing absolutely nothing about their daily operations and/or their strategy in uncertain economic times. Even in periods of economic growth in their markets, consultancies must consistently audit their positioning, services, and market fit, adjusting when necessary.
However, I strongly urge consulting leaders to avoid going down the rabbit hole of adding additional services from scratch to create new revenue streams. This is risky in the short term and can damage the market positioning and business strategy in the long run.
Instead, consulting leaders should expand revenue-generation opportunities by digging even deeper into their niche areas of expertise by identifying improvement opportunities and upselling clients in the context of existing services.
Consultancies should focus on looking for new ways to expand on the value of their existing expertise instead of creating new services and, as a result, weaken their market positioning and near-term profit.
Consultancies must consider that before starting (expensive) new service experimentation.
"When I talk to real, profound experts in consulting - consultants who have gone deep in their focus and expertise - they no longer feel the pressure of choosing between variation in the work or depth. Depth, they keep telling me, is their utmost variation."
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Hello, I’m Luk Smeyers, and I’m helping mid-sized consultancies become high-performing consulting firms. I have been in the consulting businesses for more than 20 years, in very different roles: as European CHRO in a global consultancy, as a founder of a mid-sized analytics consultancy, and as a leader in a 'Big 4' consultancy, post-acquisition of my consultancy. I had the privilege of achieving global visibility as a consulting leader, 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 advising consultancies in the past years.