[Case Study] Why Offering Too Many Services Destroyed This Boutique Consultancy
Here’s the story of the collapse of a 20-person boutique consultancy that was biting off more than it could chew (a true story, anonymized to maintain confidentiality).
In early 2022, I was engaged to assist a boutique consultancy in enhancing its market positioning and overall performance.
While I won't delve into every nuance, their primary challenge stemmed from offering a wide array of services (five distinct service offerings), even though they all fell under a single domain expertise 'umbrella'.
My perspective? With a lean team of just 20 individuals, making five distinct, pretty much unrelated services stand out in a competitive marketplace is an uphill battle. Why is this the case?
That's the intriguing subject I'll explore in this article.
Why over-diversified boutique consultancies are doomed to struggle
At the onset of our collaboration, I delved deeply into their service offerings, together with the consultancy's performance data. My findings were revealing.
Of the five services they offered, they aimed to cater to four distinct buyer profiles, each characterized by unique needs, contexts, pain points, and budget considerations.
Alarmingly, four of these services hadn't achieved market fit. In essence, they hadn't been sufficiently tested across multiple projects to ensure they met their target audience's specific needs and challenges.
While these services were conceptualized on paper (and with the help of a few initial small projects) and championed by five dedicated service leaders (a significant portion of their team - and overhead cost), tangible evidence of market fit (and deep buyer understanding) was glaringly absent.
This disconnect led to limited market traction and revenue development.
Lacking a compelling value proposition that resonated with their intended audience, these services found it challenging to establish a solid presence, resulting in squandered resources (not exchangeable between the services due to different expertise), lost opportunities, and reduced ROI.
In a fiercely competitive environment, failing to align offerings with the distinct needs of each buyer segment can be the dividing line between thriving and fading into irrelevance.
Many of our intense discussions, where I highlighted the pitfalls of a small team stretching across a broad service spectrum, often circled back to their firm (and naive - sorry to say) belief: “A broad service range is essential to remain competitive in the market.”
My answer: “You can never achieve market fit and decent consultancy performance (revenue, project margins, overall profit, expertise reputation) with five services and a lean team of 20 persons.”
Recommended reading: Evaluating and Improving Performance of the Founder-Led Boutique Consultancy
One new service takes two years to mature
What? Two years? Kidding me, Luk?
That’s how people often react when talking about maturing a new consultancy service.
A new consulting service targeted at a new or different buyer profile needs or pain points (like in the consultancy in this article) takes two years to mature (it can go a little faster when it’s the same buyer profile with an adjacent service).
Not everybody agrees with my vision of maturing a new consultancy service.
But here's the thing: introducing a new service goes far beyond conceptualization and launch. It's a multifaceted journey that begins with understanding the intricacies of the target market and buyer.
1. Understanding the Target Buyer
This includes the macro and the microelements. What is the profile of the target buyer? What are the pain points this target audience struggles with (and in which context)? Understanding how these buyers make purchasing decisions is vital – the buyer journey. The consultancy should be hyper-aware of the priorities of these buyers and how they go about finding solutions to their problems. This will drive the development of the value proposition.
2. Project Repetition and Pattern Recognition
As the service is repeatedly delivered, the team begins to recognize patterns. This repetition allows for fine-tuning methodologies and approaches, ensuring that common challenges are addressed more efficiently with each subsequent project. Over time, this pattern recognition becomes a valuable asset, enabling quicker problem-solving and more effective service delivery. I always talk about 'the golden triangle' of focus, repetition, and pattern recognition.
"Just as a researcher discerns patterns in data, a medical specialist diagnoses conditions from symptomatic patterns, or a scientist makes discoveries from repeated experimentation, a consultancy derives differentiating expertise by undertaking similar projects repetitively."
3. Data Gathering and Benchmarking
With every project undertaken, there's an opportunity to gather data and establish benchmarks. This data-driven approach provides insights into the service's effectiveness and positions the consultancy as a thought leader. Armed with benchmarks, the consultancy can offer clients tangible metrics on success, further enhancing its value proposition.
4. Client Wins and Reputation Building
As the service matures and the consultancy garners more client wins, its operational and market dynamics begin to take a clearer shape. Each successful engagement is not just a testament to the consultancy's expertise but also a valuable lesson in understanding the intricacies of the business landscape.
Sales become a fine art. The consultancy learns the rhythm of deal closures, gauging how long each potential client takes to convert and adjusting their approach accordingly. Pricing isn't just a matter of estimation—it's honed through market feedback, understanding what price points can be achieved without compromising the consultancy's value proposition.
Post-engagement reflections become vital. Understanding where pitches excelled or faltered and why, helps refine the consultancy's approach. Feedback loops are put in place to grasp typical questions and objections prospects might have. This continuous learning aids in fine-tuning the consultancy's messaging and value articulation.
Behind the scenes, managing client relationships and potential leads requires systematic attention. The consultancy begins to leverage its CRM system efficiently, ensuring every client interaction is tracked and every lead is nurtured.
This meticulous management extends to the consultancy's pipeline of opportunities. A clear view of potential engagements, combined with historical data, aids in forecasting revenue, allowing the consultancy to plan its growth and resource allocation more effectively.
All these elements culminate in strengthening the consultancy's reputation in the market. The snowball effect, where success breeds more success and insights fuel improvement, becomes pivotal. It positions the consultancy not just as a go-to expert in its domain but also as a mature, strategic player adept at navigating the multifaceted world of consulting.
5. Financial Performance and Profitability
A true indicator of a service's success is its financial performance. To me, achieving a margin of at least 40% is a good starting point. However, as the service is refined and its reputation grows, there's potential for this margin to increase. A well-established, in-demand service should aim for a margin exceeding 50%, ensuring the consultancy's profitability and sustainability in the long run.
Yes, it takes two years to mature
Reflecting on the story of my former client, their ambitious endeavour to manage five services with a modest team of 20 underscores the challenges. Based on my experience and observations, it takes at least two years to fully embed these elements and achieve the desired success for even a single service.
The boutique consultancy's struggle is a testament to this. Only after this foundational period, when a service has matured and proven its value, would I recommend cautiously introducing another (adjacent) service. Expanding too quickly or without this groundwork risks diluting the consultancy's focus and expertise, leading to the pitfalls observed in the case study.
A boutique consultancy is not a Big 4 consulting firm
Unlike large consulting firms, boutique consultancies do not have the resources and the manpower to diversify their service offering heavily.
It’s one thing if a Deloitte or KPMG-type international consultancy with offices worldwide and thousands of consultants decides to offer a new service. These large companies always have excess capacity to make the new service practice stand on its feet.
Boutique consultancies don’t. And they don’t need to. We (iNostix - acquired by Deloitte) were able to beat the MBBs (McK, BCG, Bain,...) and Big 4 consultancies in pitches multiple times, driven by our deep expertise and market reputation.
A consultancy of 20-25 people will never be able to compete against the industry giants on the variety of services it offers. Or even medium-sized firms of 100-200 people. That’s a losing battle from the start.
- The depth of expertise that’s possible to acquire within a multitude of service areas will never be sufficient to become considered the go-to expert.
- The non-billable hours and overhead will always be disproportionately high (like in the case of my client, with five service offering leaders) when trying to market multiple service lines: client onboarding costs (= number of hours the consultants have to invest), marketing and business development costs, a dispersed gathering of data, high variation in procedures and systems which often have to be customized for each client, and so on.
Furthermore, the complexities of handling and onboarding diverse client projects, communications, contractual nuances, training requirements, and quality assurance for each service quickly become overwhelming.
- The ROI of marketing and business development efforts will always be inefficient. Why? Instead of putting 100% of the marketing efforts into a single service area for a highly specific audience, this consultancy disperses the efforts across multiple areas and a larger audience.
- Clients will always prefer to hire a consultancy with years of experience and a proven track record of delivering high-impact results in a narrow field. Variation in the service offering is destroying the predictability of outcomes. And clients want outcomes!
- There is no sufficient thought leadership and reputational footprint to drive leads and get noticed by prospects consistently. It was the foundation of our success (iNostix) for almost a decade.
There are many more reasons why boutique consultancies can’t adequately compete in the market when they offer too much to too many.
I want these consultancies to understand that they don’t have to. The weapon that gives them superpowers is not in the number of services they offer but in how knowledgeable and impactful they are in just one.
"Why does business growth stall? Because a superficial level of expertise doesn’t pay as much. Because it doesn’t encourage referrals and repeat business. Because firms that offer variation spread their marketing and business development efforts thin, targeting too wide of an audience. So many reasons."
Recommended reading: Why Variation in Consulting Does Not Sell
It’s been over a year since I was brought on board to audit the consultancy in this case study and advise them on the best course of action. I’m sad that this boutique consultancy is in serious trouble as I am writing this article.
They have lost several of the service-offering leaders due to low morale. Four out of five service offerings are heavily underperforming.
Unfortunately, I could not convince the consultancy owners to abandon their diversification plans and instead, laser focus on a single service offering, developing it into a high-profit offering that commands strong market recognition before looking into adding adjacent services.
Is it too late? It might be. But not necessarily. That’s why I urge boutique consultancies to rethink their business models and stop their endless chase of variety in work and clients. Specificity and focus – that’s what allows small consultancies to achieve extraordinary levels of success.
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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.