606. Joe O'Mahoney, Helping Boutique Consulting Firms Scale Up

Key takeaways

Scaling requires transitioning sales dependency from the founder to a broader team.
A well-defined growth drivers model, based on detailed diagnostics, is vital for boutique consultancies.
Sales culture and a competent sales team are core to enhancing a consultancy's future valuation.
Buyers prioritize firms with solid IP and effective marketing strategies.
Attracting top talent hinges on a firm's value proposition for both clients and employees.
Private equity is a significant player in consulting firm acquisitions, reshaping market dynamics.

Summary

Scaling Boutique Consulting Firms

Joe O'Mahoney shares insights into how he helps owners of boutique consulting firms scale their businesses from 3-5 million in revenue to 10-20 million. His primary focus is on enabling owners to satisfy their equity goals to position their firms for sale. Joe emphasizes the importance of having a clear vision and the leadership team stepping up to develop business, shifting dependency from the founder to a broader group.

Growth Drivers Model and Diagnostic Process

O'Mahoney discusses his growth drivers model developed through years of research and experience at Cardiff University. This model includes critical factors such as leadership quality, client relationships, and market positioning. His process involves conducting benchmark surveys and SWOT analyses to understand a firm's current state, after which he outlines strategies to improve performance.

Building a Sales Team and Marketing Effectiveness

He covers how to develop a competent sales team and create a culture that prioritizes sales. In the long term, firms need to promote, train, and reward sales capabilities. In the short term, effective marketing strategies based on clear value propositions can boost the sales pipeline. Joe stresses that even junior staff should be aware of their role in sales efforts.

Intellectual Property (IP) and Valuation

The discussion dives into the significance of IP as an asset during firm valuation. Joe explains that buyers look for methodologies and marketing strategies that can yield future returns. Clarity in service offerings and a robust marketing architecture are pivotal in increasing a firm’s valuation multiple.

Recruiting and Retaining Talent

Joe highlights the dual market that consultancies operate in: one for clients and another for employees. He outlines the necessity for a strong value proposition for employees, which complements what firms offer clients. Effective recruiting, training, and clear promotional paths ensure that a consultancy can attract and retain high-quality talent.

Market Trends and Buyers of Consulting Firms

The podcast reveals trends in consulting firm acquisitions, noting that private equity firms are increasingly becoming prominent buyers, accounting for 55% of acquisitions. Additionally, some non-consultancy companies are aiming to develop consulting arms, driving industry shifts.

Joe's Engagement Model with Firms

Joe outlines his engagement model, which varies from board advisory roles to project-based engagements. He provides tailored consultancy services aimed at enhancing value propositions, business development, and marketing. His clients span primarily across the UK, with some American and European connections.

Show notes

Show Notes:

Joe O'Mahoney is a part-time professor of consulting at Cardiff University and a leading authority on the growth and sale of boutiques and small consultancies. He has spent 20 years researching consultancies and interviewing hundreds of owners and senior leaders. He has developed a growth drivers model, which includes factors like leadership quality, client relationships, and market positioning. He conducts benchmark surveys and interviews with leadership teams and clients. Joe then conducts a SWOT analysis, and estimates the valuation of the firm. He helps the owner satisfy their equity goals, and pull the levers. Joe typically focuses on two to three priorities each year to drive up the firm's growth. He shares three key factors in leadership and team management that are crucial to a successful scale up.

Building a Sales Team for a Boutique Consultancy

Joe explains that, in the long term, building a competent sales team is crucial for a firm's valuation. This involves promoting, training, mentoring, rewarding, and recruiting sales capabilities. A culture that puts sales first should be complemented by a competent system that listens to sales calls and introduces new hires. This will help build a pipeline of capable sales people in the future. In the short term, implementing these strategies can improve marketing efforts. It is important to consider how your value proposition is translated into marketing themes and content, as well as the frequency and visibility of these posts. It is crucial to ensure that marketing efforts are effective and aligned with the company's goals.

Challenges of Scaling a Business

Joe discusses the challenges of scaling a business, particularly for those with a two to 3 million revenue mark. He suggests that firms need to focus on their signature service, which is high value, high growth, and can cross-sell. Marketing algorithms reward clarity in these areas, leading to better value propositions, marketing, and themes. This clarity allows firms to build intellectual property (IP) and increase margins. Once sales, project margin, or EBITDA are reached, firms can decide on additional products to sell alongside their existing offerings, such as parallel products, cross-selling services, or follow-on services. By building a logical sequence of events, firms can achieve high-quality revenue.

The Importance of IP in Scaling Consulting Firms

Joe shares an example of a firm that focused on a manual approach to cloud consultancy. However, when breaking down their service lines by revenue, the company realized that they should change their focus. In terms of branding and content, Joe explains that buyers are interested in the past growth, future growth, and margin of the firm, but they also want a marketing machine that generates clients, and an architecture of sales that generates high-quality leads. Joe explains that IP is a top priority for buyers, including the quality of the leadership team. This includes delivery IP, marketing IP, thought leadership, website design, and content. LinkedIn is an interesting example, as due diligence is starting to reveal its influence on a firm's success.

Valuation and Growth Trajectory

Valuation is a crucial factor for buyers and private equity, as they are interested in the future value of the firm. A healthy growth trajectory is essential, and a machine that can push up the multiple is preferred. Joe explains that it is often better to focus on building the architecture that will allow you to improve your multiple, rather than focusing on increasing your profit margin. This can be achieved by implementing a PSA system, CRM system, training people, and building out IP. However, it is difficult to drive up the multiple quickly, as everyone is talking about margin all the time. It is important for buyers to consider the firm's potential for growth and profitability before making a decision. Joe talks about the EBITDA and how it should be approached. The conversation turns to the treatment of owners' compensation and how it is recalculated during the sale process. He explains that if a board member is preparing a company for sale, Joe's fee is taken out, and if a founder is paying themselves in dividends to improve profits, the EBITDA is adjusted accordingly.

Employees and Recruiting Talent for Boutique Consulting Firms

Joe discusses the importance of recruiting and training employees to provide better value to clients and charge more. He suggests that consultancies operate in two markets: the market for clients and the market for employees. Boutique consultancies often struggle to recruit decent consultants due to the lack of brand recognition and value proposition. To attract the right people, consultancies need to have a clear value proposition for both clients and employees. This includes a clear cultural side of the company, clear values, and clear due diligence rules. The architecture behind this includes competencies, promotions, training, and mentoring.

Buyers of Consulting Firms

The typical buyers of consulting firms are typically strategic and industry buyers, who have a gap in their offerings. Private equity has become more involved in the market, accounting for 55% of purchases of consulting firms, including private equity-backed strategic buyers. This shift has led to a growing number of non-consultancies seeking to develop consultancy arms, accounting for about 15% of purchases.

The Boutique Leaders Club for Consultants

Joe shares information about IP aspects he provides to his clients. He runs the Boutique Leaders club, a group of about 40 owners of consultancies above the 5 million revenue mark. Joe gives them access to 250 bits of IP. This includes competency frameworks, succession plans, and training on business development. The group can also conduct benchmarking surveys twice a year, tracking progress and creating plans for the future. The Boutique Leaders club also offers training materials, both online and face-to-face, to help firms prepare for the selling process, such as finding the best corporate advisor, selecting the right lawyers, and preparing for the selling process.

Joe's Engagement Model with Consulting Firms

Joe also shares his engagement model with consulting firms, which includes three ways: Board Advisory, as part of his leaders club, and one-off projects. He typically works with clients on a monthly basis, with a focus on value proposition, business development, and marketing. His clients are mostly UK-based, with three US clients and some in Western Europe. He left corporate consulting due to his dislike of managing people, and he is currently the bottleneck to his own firm. He has worked with some good ex-CEOs but struggles with quality of revenues. Bachman asks O'Mahoney to share his website and LinkedIn profile, and he appreciates the opportunity to discuss his experiences and insights on the industry.

Timestamps:

01:59: Joe O'Mahoney's Consulting Services

03:48: Diagnostic Process and Growth Drivers Model

05:35: Improving Performance and Leadership Development

09:37: Building a Sales Architecture and CRM Systems

16:36: Intellectual Property and Digital Marketing

28:20: Recruiting and Developing People

34:45: Typical Buyers and Market Trends

37:46: Joe O'Mahoney's IP and Engagement Model

Links:

Website: https://joeomahoney.com/

LinkedIn: https://www.linkedin.com/in/joeomahoney/?originalSubdomain=uk

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