Adopting the Buyer’s Lens to Improve Consultancy Performance

Having spent years assessing and improving the performance of boutique consultancies, I've developed a keen eye for the nuances that differentiate a successful consultancy firm from the rest. My approach goes beyond traditional financial analysis, delving into the deeper operational and market dynamics. 

I discovered that a consultancy performance assessment is almost exclusively conducted by looking at the P&L/financial statements. That’s absolutely needed, of course. However, for me, it never felt enough. These methods always failed to give me a deeper understanding of how a consultancy performs both externally (in the market) and internally (operations). 

So, step by step, I've built an additional 'evaluation layer' by incorporating the typical considerations an external buyer of a consultancy would use in making a purchasing decision, focusing on key areas that influence their choice in selecting and evaluating a consultancy.

I will call it the ‘buyer’s lens’ in this article. 

The ‘buyer’s lens’ doesn’t compete with the standard assessments. Instead, it complements them, offering a more nuanced representation of not only the level of maturity and profitability of a business but the driving factors behind it.

I invite consulting leaders and boutique consultancy owners to reflect on this evaluation approach to assess their business through a more independent lens and use it to improve their consulting businesses' sustainability and profitability.

Understanding the P&L is key to success - of course

I deliberately exclude the typical P&L analysis in this article. Still, I cannot stress it enough: it’s critical to be on top of all the numbers and details of the consultancy’s P&L. 

I still get surprised by the lack of insight depth of the P&L and balance sheet of consultancy owners or partners, and if they monitor it at all, they tend to do it infrequently. Some of the owners I meet only review it once a year when the external accountant closes the books for the fiscal year. They consider it as an administrative ‘must do’. Amazing. 

Nevertheless, if you - as a consultancy owner or partner - are not on top of these financials, you’d better get external help or coaching. You cannot successfully run a consultancy without understanding the core components of the income statement and balance sheet. 

Collectively, these elements ensure a thorough understanding of your consultancy's financial health, operational efficiency, and long-term financial viability.

But there’s more to assess the performance of a consultancy

As consultancy owners and partners, with the lens of the buyer, I recommend to ask themselves these four questions:

1. Are we crystal clear who we are? (aka 'positioning clarity')
2. Is the consultancy a go-to expertise destination?
3. Do we have a reliable revenue and margin trend?
4. Can the consultancy run founder-independent?

1. Are we crystal clear who we are? (aka ‘positioning clarity’)

In my assessments, positioning clarity is always the starting point. 

What is positioning clarity? It’s knowing precisely who the consultancy caters to, what pain points these clients suffer from, what outcomes the consultancy can achieve for them, and how it achieves those outcomes. The most successful consultancies, in my experience, are those with a crystal-clear identity and positioning. 

How does the buyer’s lens help me with the positioning assessment? 

This clarity is exactly what potential buyers, be they portfolio investors or strategic acquirers, look for when they scout for valuable additions. They gravitate towards firms that offer distinct, specialised expertise and services, rather than those with vague, undifferentiated offerings. 

This buyer-specific approach can be a powerful metaphor for consultancy firms: to be desirable and competitive, they must be unequivocally clear about who they are, what they offer, and the unique value they bring. 

It's not just about having expertise; it's about ensuring that the expertise is well-defined and aligns precisely with the specific needs and expectations of the target market. Such clarity in positioning makes a consultancy visible and genuinely sought after in a crowded market.

Recommended reading: How Consultancies Can Get Started With Value Proposition Design

2. Is the consultancy a go-to expertise destination?

In my assessments of a consultancy as a go-to destination for its expertise, adopting the 'buyer's lens' always offers me a unique and transformative perspective. 

Buyers, be they strategic acquirers or portfolio investors, are invariably attracted to consultancies that stand out as knowledge powerhouses in their specific domain. Through their robust reputation for expertise and thought leadership initiatives, such firms have naturally transitioned from traditional outbound marketing and sales tactics to a powerful inbound growth model. 

This shift not only lowers business development costs but also magnetises new clients. A consultancy focusing on educating its target audience effectively positions itself as an indispensable resource, drawing new clients more organically and cost-effectively. 

Herein lies the essence of the buyer’s lens when assessing a consultancy: it prompts consultancy owners and partners to evaluate their firm's appeal as an expertise destination, a client magnet hinging on educating its target market with its indispensable expertise. 

Recommended reading: (Case Study) Replicate the Secret of This Highly Profitable Consultancy

3. Do we have a reliable revenue and margin trend?

Buyers, of course, are looking for a decent overall revenue volume when targeting an acquisition. That’s obvious. However, in collaborating with buyers, I’ve also learned how vital the RELIABILITY of the revenue and project margin trend for them is. 

This reliability goes beyond just impressive numbers; it signifies the stability and predictability of the consultancy business. From the buyer’s perspective, consistent revenue and healthy, stable gross margins indicate a well-managed consultancy with a strong market position and effective operational control. 

This focus on reliability is a vital metric for consultancy owners and partners to assess their firm's performance. A trend of reliable revenue and margins suggests a business is resilient to market fluctuations and adept at delivering value consistently. 

Recommended reading:

• How to Balance Hunting and Farming for Sustainable Consulting Growth
• Why Repetition Is the Path to Becoming a High-Performance Consultancy
  

4. Can the consultancy run founder-independent?

When a potential buyer evaluates a consultancy, a key aspect of their assessment is the firm’s ability to operate independently of its founders. This evaluation angle is crucial because it speaks to the consultancy's long-term viability and scalability. 

From a buyer's perspective, a consultancy that thrives without leaning on its founders' direct involvement is more attractive as it indicates a sustainable business model. 

The buyer's lens provides consultancy owners, partners, and advisors like myself with an invaluable perspective on owner independence, highlighting the importance of creating a self-sustaining business model that is not overly reliant on any individual. 

Thus, through the buyer’s lens, the emphasis shifts from mere financial achievements to the sustainability and future potential of the consultancy, offering a more comprehensive and strategic view of its performance and prospects.

This independence lens encourages implementing robust systems, processes, and infrastructure that ensure long-term stability and the resilience to sustain and grow without constant oversight, thus theoretically enhancing its appeal to potential buyers and ensuring its long-term success in a competitive market.

Recommended reading:

• Why A Boutique Consultancy Should Productize Its Expertise
• Moving Away From Early-Stage Characteristics as a Boutique Consultancy
  
• How to Break Your Consultancy Out of the Service Delivery Mindset
  

Conclusion: why don’t you start using the buyer’s lens?

Utilising the buyer's lens as a metaphorical assessment tool offers a profound approach for consultancy advisors like myself and consultancy owners or partners to evaluate and improve their firm's performance. 

This perspective highlights critical areas such as expertise, financial stability, operational independence, and market positioning, guiding consultancies toward more strategic, effective management and development practices. 

By adopting this lens, we gain invaluable insights into what constitutes a truly successful consultancy, not just in profitability but also in resilience, market relevance, and internal robustness. 

Ultimately, the buyer's lens metaphor can catalyse fostering a consultancy that is not only thriving and robust but also profoundly attuned to the evolving needs and expectations of its clients and the market at large.

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