Consultant tsunami

This article first appeared November 19, 2009.

Australia’s army of consultants is growing quickly, with many taking packages and turning from corporate samurai into guns for hire. But the growth isn’t just being driven by rising redundancies. In a cash-constrained economy, more businesses hire consultants to improve operations and systems without hiring staff.

But what does it take to make a consultant? What are the advantages? What’s the downside? And how do the best consultants get work in a market likely to get even more crowded over the next five years?

Certainly, the consulting space has been growing strongly since the downturn. Figures from IBISWorld show that revenue for the consulting industry in Australia in 2009-10 is expected to grow 2.5% to $6.69 billion. That compares with a 0.2% drop last year when consultants were struggling to command premium prices for their services. Next financial year, total turnover is expected to increase another 2.9% as the recovery kicks in and companies start expanding.

And that’s just the beginning of the boom – IBISWorld expects revenues will be growing at 5% per annum from 2012. IBISWorld senior analyst Raghu Rajakumar says while consultants focused in niche areas are not doing as well as the big consulting firms like McKinsey and Accenture, they will start to grab a bigger share of the market when companies are in stronger shape three years from now.

“A lot of niche providers will be in a good position to provide services in growth areas in demand like IT, environment and consumer analytics,” Rajakumar says.

He says the numbers demonstrate the resilience of consulting during a downturn. According to IBISWorld, there were 3,673 consulting practices in Australia in 2008-09. In 2009-10, this had grown to 3,732 and IBISWorld expects there will be 3,997 next year.

The IBISWorld data is supported by research by Roy Morgan Research and Melbourne think tank Marshall Place Associates, which shows there are now 314,000 home based workers. The number of self-employed home based workers increased from 19% of the workforce to 23% from 2007 to 2009, the same period when the world economy went off the rails. Significantly, most of these workers have occupations in senior management. The numbers also show the average home based worker’s income has increased, up from 20% earning more than $130,000 per annum to just under 30%.

The demand is clearly out there. The latest PricewaterhouseCoopers private business barometer shows that two out of three small businesses have called in consultants during the downturn. According to the barometer, 64.6% of private businesses employed an external consultant. Consultants specialising in computer technology seem to be doing well. According to the barometer, four out of 10 businesses called in an information technology professional while one in five used a consultant assisting them with human resources or strategy related matters.

PricewaterhouseCoopers partner Greg Will says the growth of consulting in a tight market made sense.

“For IT, HR, strategy operations and marketing, it’s not a full-time role that they need, so when you haven’t got a full-time role or even a significant part-time role – it might only be a day a month – it’s just not worth the administration to try to employ someone and in any case, no one would really take a job for a day a month so they need someone on an ad hoc basis and someone who can charge an hourly rate.”

“Particularly in a downturn, they can manage not only the expectation of how often or how long they’ll use them but also they don’t have this permanent employee on their books that they have to deal with if things didn’t turn out right.”

Interestingly, many of the new self-employed consultants appear to be working on a part-time basis. Figures from the Australian Bureau of Statistics show there were 629,400 “own account” workers around Australia in October 2009, marginally down from the 652,300 the year before. However, the numbers show an increase in the number of people working for themselves part-time, from 337,200 in 2008 to 388,900.

The 15% increase suggests more people are trying it out first part-time, testing the waters before making the plunge. With their hours cut, many are now using their spare time to explore consulting as a career alternative.

The national secretary of the Institute of Management Consultants Sophie Carson said her association was getting many queries from people interested in pursuing consulting on a part-time basis.

Asked what was driving the trend, she summed it up in one word: redundancy.

“It’s a horrible thing to say but a lot of people in their 40s to 55 year range are being made redundant or hitting a ceiling in their current work situation so they are moving out to consulting,” Carson says.

“They are looking to diversify their experience so they are using all their skills and not one specific skill.”

Of course, working as a consultant is not the same as getting paid in a regular job, regardless of how much work you put in. Consultants have to deal with the uncertainty of living from job to job which is why many head back to paid employment. Carson says women tend to do that more than men. “It’s a gender specific thing, it’s a cultural thing, it’s a psychology thing with the women where they can’t afford to have that insecurity.”

To differentiate themselves, sole practitioner consultants focus on particular niches. Look around and you will find specialists in clothing retailers, particular types of franchise operations, small law firms and small accounting practices.

Others make themselves stand out by adopting some sort of proprietary tool or “black box”. These are the specialists with their own methodologies in such areas as business process re-engineering, team building, leadership or change management. But the box needs to be constantly updated. Competitors will copy it and clients will become more capable of working on their own.

Consultant Rob Nixon says he differentiates himself by the success of his clients. “If the client case study is a success then I can differentiate,” Nixon says. “Too many consultants do not want to give away their perceived intellectual property. They hold it close to their chest because they want to sell it. When in actual fact, if they gave away some value then they would get more business. I like to give for free the ‘what to do’ but sell the ‘how to do it’. Differentiation is a marketing opportunity.”

Joel Barolsky, a principal of Beaton who trains consultants, says differentiating yourself when you are a one-man band in a crowded market is the challenge. “Finding a niche and finding a focus makes it easier,” Barolsky says. “You have to define your pond. Which pond do you want to go fishing in? And if you define it too broadly where it becomes the ocean, where would you put your effort? Then you have to work out what the bait and hook will look like.”

Barolsky says the biggest attraction of working as a consultant is the variety. “I have been a consultant for 15 years and not one day has been the same as the next. Each day is different, every problem is different.”

“Secondly, you are constantly learning. The world changes and problems change. You always have to be gaining new knowledge and testing your assumptions and the pushing the boundaries all the time.”

Will says the other great attraction is self-sufficiency. “Some consultants choose that model because they want some work/life balance and also be the makers of their own destiny,” Will says. “Working for someone or being an employee won’t necessarily provide the same flexibility.”

The downside? Living with uncertainty and prospecting for the next job when you are flat out working on a particular project. The insecurity, Barolsky says, is inevitable which is why many who enter consultancy return to paid employment. It mightn’t have the variety and learning challenges but at least it’s a job.

The good consultants, Barolsky says, structure their practice to see them through quiet times, like for example, in December and January when work is scarce. That creates a sustainable business. “Some consultants structure their practice so they have a couple of clients on a retainer. If you get two or three of those, it pays the mortgage and basic infrastructure costs,” he says.

Most of the work comes in from referrals. But the good consultants will put in time networking to spread their name. Special breakfasts and thought leadership sessions, and writing in industry journals will all help.

But as Barolsky says, it’s not for everyone. Good consultants have distinctive skills and a certain mindset. “A number of people in commerce who have had line management roles think they can just take a package and set themselves up as a consultant,” he says. “Quite often, consulting does have a different set of skills. Sometimes, people are fantastic line managers and business managers, and hopeless consultants.”

Nixon says consultants should not charge by the hour or the day. That’s no way to build a sustainable business.

“This is promoting the wrong things to the client,” Nixon says. “It is not promoting speed of fixing or improving the situation. They should charge a fixed fee based on the value they provide to the client. Consultants must build leverage into their business. Instead of doing everything themselves they should sub-contract and bring in help.”

“To build a sustainable business somehow consultants need to leverage their intellectual property into product – DVDs, manuals, etc. If a consultant can develop something specific to them they can trademark it. I have been able to leverage my coaching model by getting other people to do it. I have also leveraged my coaching model in to a separate franchise business where we after two years have 52 franchisees. The rest is marketing.”

A warning though: consulting is not easy and you should look before you leap. But if you can make it work, it’s more rewarding than being miserable in a supposedly “secure” job.