Boutique: How To Start, Scale, And Sell A Professional Services Firm (English Edition)

There are two types of business strategies for boutiques. There are firms built around a small number of clients who are each spending a lot. Some refer to these as elephant hunters. They live and die on the big deal. And there are firms built around a large number of clients who are each spending a little. Some refer these to these as rabbit hunters. They live and die on volume. The type of engagement you deliver determines the type of firm you are. Engagements are largely classified by how long they take to complete. In general, the longer they are, the larger they are. For example, I recently met with a management consulting firm. They specialize in strategy development. Their typical engagement was sixty days. This firm spent thirty days in discovery and thirty days in producing a set of recommendations. Their typical engagement cost a client about $100,000. In contrast, my old firm’s typical engagement was nine months. Our average engagement cost clients about $500,000. The difference was in the type of engagement we performed. We performed discovery and produced recommendations, yes. However, we converted recommendations into solutions. And we implemented the solutions on behalf of the client. This added about seven months to each engagement. The type of engagement you sell and deliver has many implications. It determines who you market to. It determines how you charge and how you staff. It impacts the number of clients you can serve. The list goes on and on. Therefore, it is essential that you know exactly the type of engagements you deliver. Here are the yes/no questions to help you think through it: Do you want to serve a small number of clients? __ yes __ no Do you want to live and die on the big deal? __ yes __ no Can you handle the lumpiness that comes with elephant hunting? __ yes __ no Do you want to stay engaged with clients for an extended time period? __ yes __ no Can you get in front of big companies that can afford very large projects? __ yes __ no Can you hire the expensive talent needed to deliver expensive projects? __ yes __ no Can your cash flow support periods of time with low utilization rates? __ yes __ no Is the problem you solve complex enough to warrant long engagements? __ yes __ no Is the service you offer robust enough to require expensive engagements? __ yes __ no Are you comfortable with the risk that comes from high revenue concentration? __ yes __ no If you answered yes to eight or more of these questions, you are an elephant hunter. The task at hand is to sell and deliver a small number of large deals each year. If you answered no to eight or more of these questions, you are a rabbit hunter. The task at hand is to sell and deliver a large volume of small deals each year. Summary The type of engagements you sell and deliver determines a lot. The boutiques that offer both types of engagements have a high failure rate. The reason is that matching revenue and expenses with both is very hard. Pick one and be the...

The Market The size of the prize needs to be worth the effort. Starting a boutique is very rewarding, but it is very difficult. A market with one thousand clients spending $1,000 is worth $1 million. And that assumes you capture 100 percent of it. Not worth it. It takes as much effort to pursue a small market as it does a big market. Therefore, as they say, “Go big or go home.” The size of the addressable market is easy math. It can be oversimplified as the following: # of clients x $/per engagement = addressable market For instance, 10,000 possible clients x $10,000 typical engagement = $100 million market. The bottoms-up question is: “What is my penetration rate going to be?” Jumping off this example reveals the following: One percent penetration = $1 million. Five percent penetration = $5 million Ten percent penetration = $10 million. As you can see, the levers to pull are engagement size and number of clients. Most client markets will have thousands of potential clients to pursue. Therefore, increasing the number of targets is not helpful. However, increasing the penetration rate is. And increasing the average engagement size is as well. For example, continuing with the previous example: 5% penetration x $100,000 per engagement = 500 clients x $100,000 = $50 million market A boutique with $50 million in revenue will have approximately $25 million in EBITDA (earnings before interest, taxes, depreciation, and amortization). Assuming an EBITDA multiple of eight times says this boutique is worth $400 million. Creating $400 million in wealth is worth it. I made a mistake along the way that I would like to help you avoid. I did not think through the ability to reach the target market. For example, there are roughly 12.5 million business-to-business (B2B) companies in the world. My boutique served the B2B head of sales. In our minds, our market size was 12.5 million, as each company had one sales leader. Yet we were wrong for several reasons. Our services were being bought by two people, not one person. The chief marketing officer hired us frequently. This meant that our total market was 25 million, not 12.5 million. In addition, many of these targets were impossible to reach. Their gatekeepers had gatekeepers. This reduced our target market to the early-adopter community. Early adopters for us meant those willing to apply the science of benchmarking to the art of sales. We began publishing content and allowing the early adopters to self-identify by subscribing to it. This started with a book, followed by a blog, podcast, online video, and print magazine. This resulted in a subscriber base of about 250,000 self-identified early adopters. Our average engagement size in those early days was approximately $100,000. Therefore, our available market was $25 billion. One percent penetration was worth $250 million, 5 percent was worth $1.25 billion, and 10 percent was worth $2.5 billion. The size of the prize was worth it, so we went for it. The key lesson...