One of my good friends called me last night, and our conversation soon turned to concerns about a consultant he had recently hired for his start-up company. Like many new start-ups, he and his partners are experts in their field, and they are passionate about their products and services, but they lack administrative skills. Consequently, they have found themselves struggling to manage projects effectively and maintain adequate cash flow.
The company hired a consultant to help them work through some of these issues, and my friend was wondering if they made the right decision. When he saw the consultant’s proposed fees, he naturally wondered how they were going to afford the fees. Did it make sense to hire a consultant? Is this the best time to hire a consultant? Is this the right consultant?
These are good questions to ask. As we talked through several aspects of the engagement, we seemed to focus on a few key points:
Do the company and consultant agree on the outcome of the consulting engagement?
What is the expected outcome? How will it be measured? How will the company and the consultant know that the engagement has been a success, and therefore is complete. This needs to be specific. “Increasing profitability” or “reducing costs” or “improving process efficiencies” are not specific enough, because they cannot be measured. “Increasing cash flow by 25%” is better because it can be measured. But make sure you agree about how the goal will be measured; is this a going to be a year-over-year increase, or a month-over-month increase, for instance. If your consultant can’t talk specifics, then he or she may not really understand your business. If the consultant has a vague objective and an open-ended time frame, then you may as well just add him or her to your payroll — it would be cheaper in the long run.
Can the consultant demonstrate how he or she will make you money?
Consulting should be a “zero-sum” proposition. I’m not sure if that term makes sense (I just made it up), but here’s what I mean. The value that a consultant brings to the company should equal or exceed the consulting fees. Obviously, you shouldn’t be paying more for a consultant than the value you receive from the consultant. Unfortunately, many consultants approach an engagement as a time-bound, per-diem assignment with little or no accountability for results. Can your consultant clearly demonstrate how he or she is going to add value? Is your consultant willing to be held accountable for results? If your consultant can’t talk specifics, then he or she may not really understand your business. If your consultant isn’t willing to be held accountable for results, then the consultant may be harboring doubts about his or her ability to have a positive impact on your organization.
What is the consultant’s listening to speaking ratio?
If your consultant spends more time speaking than listening, he or she may be trying to implement solutions without truly understanding your unique needs and culture. There are many consultants who make their living selling and implementing a specific model (e.g. a Six Sigma consultant will help you implement Six Sigma). While there is great value in this approach, the consultant should be able to objectively consider whether or not the model is a good match for your organization. If your consultant speaks more than listens, he or she may not understand the unique needs of your organization, and you may end up a solution that works great… for someone else.
After talking to my friend for a few minutes, he was comfortable that his consultant met these criteria and that he was making the right decision. I’m pleased that my friend has the courage to invest in is business. That’s the kind of leadership that will keep his company in business for the long run.
If you have any additional insights about hiring a consultant, please leave a comment.
Virgin America has a new business partner — a two-year-old upstart ad agency aptly called Anomoly. The agency did not win the contact by pitching a traditional marketing campaign of slogans and 30-second commercials. Instead, the agency offered to “partner” with Virgin America by offering product design, strategic consulting, and other services in exchange for a cut of the sales. (See the full story in the January/February 2007 issue of Business 2.0.)
According to Spence Kramer, Virgin’s marketing chief,
“They never even mentioned ads. They were telling us how we could make more money.”
“Anomoly is in it to share risk. They’ve become a business partner.”
I was already mulling this over and wondering about the implicatons for the industry when I read Seth Godin’s surprisingly similar comments in his blog post:
“What ad agencies ought to do, in my opinion, is not focus on selling ads anymore. And instead, focus on getting in deeper within the clients, and help the clients make products that people want to talk about.”
This has implications not just for advertising agencies, but for any professional who offer services to businesses. No longer is it good enough for consultants to be tangentially related to their clients. Those who will succeed must be willing to get some skin in the game. And become business partners.