How To Build A Sellable Consulting Firm

Is your firm’s growth strategy inadvertently creating more complexity and less value? David C. Baker, Practice Lead, Advisory Services at Punctuation, and leading expert in strategy and M&A, joins Michael today to challenge conventional wisdom and reveal the fact that fear of insufficient work often dilutes positioning, turning specialists into undifferentiated generalists.

David dissects firm growth, the generalist/specialist paradox, and effective marketing, and explains why truly insightful marketing, distinct from mere content, must offer a clear, research-backed, and memorable point of view. He shares his rebranding journey to Punctuation, the impetus for his new M&A book, and current M&A trends favoring sellers. David also offers a pragmatic view on AI, emphasizing its role in enabling better, not just faster, work. Tune in now and learn the critical factors enhancing a firm’s sellability and overall health.

In this episode you will learn:

• Fear of insufficient work as the biggest positioning obstacle.

• Generalist versus specialist firm dynamics and evolution.

• Distinguishing insightful from standard content marketing.

• Strategic publishing for impactful, resonant messages.

• Current M&A trends, including a seller’s market.

• Key factors for higher valuations: profit, process, team.

• Optimizing client concentration and recurring revenue.

• David’s “Sellability Index” for firm valuation.

• Challenging the “always growing” expectation for fulfillment.

• Leveraging AI for research and strategy as an opportunity.

Welcome to the Consulting Success podcast. I’m your host Michael Zipursky, and in this podcast, we’re going to dive deep into the world of elite consultants where you’re going to learn the strategies, tactics and mindset to grow a highly profitable and successful consulting business.

Before we dive into today’s episode. Are you ready to grow and take your consulting business to the next level? Many of the clients that we work with started as podcast listeners just like you, and a consistent theme they have shared with us is that they wished they had reached out sooner about our Clarity Coaching Program rather than waiting for that perfect time. If you’re interested in learning more about how we help consultants just like you, we’re offering a free, no pressure growth session call. On this call, we’re going to dive deep into your goals, challenges and situation and outline a plan that is tailor made just for you. We will also help you identify where you may be making costly and time consuming mistakes to ensure you’re benefiting from the proven methods and strategies to grow your consulting business. 

So don’t wait years to find clarity. If you’re committed and serious about reaching a new level of success in your consulting business, go ahead and schedule your free growth session. Get in touch today. Just visit Consulting Success – Grow to book your free call today.

Dubbed “the expert’s expert” by NYT, David C. Baker, Practice Lead, Advisory Services, at Punctuation, is a leading authority on positioning, reinventing, and selling firms in the creative and digital space. David has managed publishing operations and run a marketing firm, and now, through Punctuation, advises over 1100 firms globally. He is the author of The Business of Expertise and Selling Your Professional Services Firm, owns RockBench Publishing, and is a co-host of the 2Bobs podcast. David’s sage insights are routinely featured and discussed in such top publications as the Wall Street Journal.

Connect with David C. Baker

Discover more about Punctuation

Hey, David. Welcome.

Thank you. Good to talk with you again. I always enjoy the chance to chat with you and a fellow consultant. Like, when people ask you what you do, it’s like, “Oh, God, I don’t know how to describe it.” Right?

I literally still have family members to this day who say, like, “What do you do again?”

And “Why didn’t you get a real job?” And “Why did you go to school?”

Yeah, they just don’t get it. One of my uncles, he said this for over a decade now, but he’s like, “So how are the books going? You know, did you sell any books?” I’m like, “Uncle Ken, man. The books are going well. Thank you.” But, yeah, he has no idea what we do, still to this day. But anyway, he thinks we’re in the book business.

Yeah. And my motorcycle buddies, they make fun of me. It’s like, “Oh, so you basically, you tell people what to do and then you disappear, right? That’s what you do, right?” Or, “You borrow their watch, tell them what time it is, and then charge them for it, right?” Okay, enough of the consulting jokes.

And, David, the worst part is when I say to people, if I try and explain, like, “We help. We work with consulting founders, and we help them to grow.” “Wait a second. So you’re a consultant to consultants?” And then their mind is blown. “How is that even a thing?” Well, yeah, we’ve been doing this for almost 20 years now, but, yeah, no, it’s one of those kind of meta concepts. All right, let’s dive in. So what do you think is the most overlooked element of positioning that keeps experts from just becoming another consultant or just a commodity player? What’s the secret in your mind to positioning?”

Well, the secret obstacle, in other words, the thing that keeps so many firms from being well-positioned, I think, is this fear that they won’t have enough work. They’re always thinking about, “Oh, that’s their biggest fear.” They lie in bed at night wondering. And so the notion of positioning brings with it this idea that, “Okay, we’re going to narrow things,” and their instincts are telling them to make it broader, so I never run out of work. I think that’s probably the biggest obstacle.

But I, like when people come to me and they want help, they’ve kind of decided, “Okay, I really need to be positioned, now I need someone’s help in crafting our positioning.” They usually come to me. What forces them? The forcing function for positioning is, “Oh, I need more work. I look at my generalist positioning, I can’t come up with a marketing plan that’s addressable to the right prospects, so I guess I need to have a tighter positioning.” When I think that’s just one of three reasons why they should be. You should be drawn to positioning because of the marketing plan ease, but also because you’ll make more money, and also because you’ll do better work for clients. It’s like, it’s an ethical thing to me. So anyway, yeah.

[02:47] – Generalist vs. Specialist: What Really Drives Success

Have you ever seen a situation where somebody is more successful because they are a generalist? They actually take a wider approach to work with more people and offer more varied services?

Yes, I have. And I kind of hate, to be honest, in that moment because it’s sort of, it fights the whole premise here. But yeah, because there are many people that start advisory firms of all kinds, whether it’s just pure consulting or marketing or whatever, that are really confident and that just oozes. People, clients, want to work with them and they’re just confident, right? But if somebody isn’t confident, then they have to find some other way to attract work, and then the clients will understand why they’re so good, but they don’t pick that up right away. So they have to position themselves tightly. But yeah, there are quite a few examples of firms that are generalists that are very, very successful.

The other thing that enters the picture, I should mention this, is that many large firms appear generalist, but they’re actually specialized because what they’re specialized in is being large enough to do the work. Now, you can’t borrow that as a smaller firm, like a 20-person firm, and say, “Well, we’re large enough to-” That doesn’t work. But once you are above a certain size, like 40, 45 people, then being big enough is the first order of differentiation. And then the second order of differentiation isn’t called positioning, it’s just called category experience. So to answer your question, yes, you can be a very successful generalist firm, but that means you had to have a great relationship with your mommy and your daddy who instilled all kinds of confidence in you and said you would never fail in spite of all the evidence otherwise.

Do you think it’s confidence or do you think it’s connections? And I’m asking because when I think about the people who I know that have been successful in being generalists, they almost always, in my observation, are successful or their business launches on the back of the relationships that they already have. And so they’re known as a management consultant or just doing consulting or strategy work. And so there’s no real- They haven’t yet defined who they’re going to work with and what they really want to be known for, but they have a lot of experience and they just know a lot of people, and so that kind of kicks things off. And so maybe it’s both those things. You need to be confident and you need to have the connections. But I mean, what’s your thought on that? Like, can you be successful just with confidence as a generalist without having a connection, or do you think the connections part from what you’ve seen is critical?

I think it’s either or. You could be successful with confidence or with connections. But there’s two different categories of connections. There’s the kind of connections that new life insurance agents have where they run out of friends and family quickly, earn clients, and they fall short, right? In consulting, you kind of run out of that. Usually you don’t start a firm unless you have some general assurance that this person’s going to use you and your old client’s going to use you, your old firm, your old employer is going to use you, and so on. And then that runs out. But the other, and that’s not good.

But there are other people who never do traditional marketing, but they are amazing networkers and they can spoon up referrals and they’re generalists, and they can be quite successful, right? So my market is not those people. My market is ordinary people that have ordinary weaknesses and they need to buttress those and they really want to do good work for clients. Because those generalist firms who are successful, I still think they’re ripping off their clients because they’re not bringing the benefit of seeing all of the patterns that come from similar situations dropped in their lap.

Yeah, no, it’s amazing when you do focus, not only do things become much easier in my mind, because you’re not trying to do as many different things or having to explain, you know, all the different things that you do. But also I always kind of come back to that, like the swordsmith or the blacksmith back in the day doing the samurai swords. The reason those swords could just cut through anything is because all they did, they worked on the swords over and over and over again, so they got better and better and better and better. They weren’t off making, you know, random nails and different parts. That’s like the one thing they did. Or at least that’s my understanding. When you talk about the larger companies and how they can be generalist, what I’ve often found, some of the research that I’ve done, is that most of the large firms, when you look at them today, their websites say, “We have 25 different capabilities, we work in all these different sectors.” And so you can look at them and go like, “Oh, they’re generalists, so maybe that’s what I should be doing as well as a smaller firm.” But what I’ve seen is that if you actually trace back to the beginnings, like how that firm got started, they often had a much more specialist focus. They got started in one specific sector or offering one thing that others didn’t because that’s what allowed them to get that initial traction, have the differentiation. But over time they just become bigger, a little bit more bloated or added on a lot more people, so therefore they can have more offerings to the market.

Yeah, and the difference is that like a seven-person firm can’t credibly say that they’re good at all of those things. But as that firm grew and started as a specialist, like you said, I agree. Their current clients trusted them and asked them to add these other capabilities and so they grew with the clients, saying that they do all of those things. But you hear smaller firms all the time saying, “Wait, you’re telling me I need to specialize? But look at this huge firm, they’re very successful and they’re not specialized.” Well, yeah, they’re big. That’s the difference.

[08:29] – Content vs. Insight Marketing: Creating Work That Resonates

Is there a difference, speaking of differences, between Insights Marketing or Insight Marketing and just content creation? How do you view those two things? Are they the same? Are they different in your world?

I think they’re different. But you know, that terminology can get a little bit sloppy. But you know, content development firms are a step above content mills, for sure. That would be a pretty derogatory way to describe them. But the content just doesn’t really serve a purpose except just to be content – sort of to check something off on a list. I want, so I want the- like here’s the big difference in my mind:Insight to me is something that has a clear point of view. Not a stupid point of view just because you want to be- have a hot take or something, but a thoughtful, based on research point of view. When somebody reads your insight, they should have a reaction. They should say, “Oh, that just doesn’t make any sense.” Click unsubscribe. Or it should resonate with them so much so that they forward it to somebody else. Now that’s a little bit artificial. That’s not going to happen every time. But I want, I want the insight to have a point of view that’s memorable and not just content that’s meaningless. The worst thing that your content can do- Well, that’s not necessarily true. I can think of a lot of bad things-

Well, it can waste your time.

-but is to be ignorable. Just ignorable. Ignorable content is not, it’s actually not going to help you and it’s probably going to hurt you.

Is that a real word, ignorable?

Probably not.

Okay, it sounds pretty good.

I’m good at words.

Yeah, I’ll probably start using it from now. But that makes, I mean, a lot of sense. And what I’m wondering is, do you actively think, when you’re developing your content – because I mean, you’re very prolific, David, especially on platforms like LinkedIn and on your website as well – are you actively thinking about polarization? Like before you post something, do you ask yourself, “Is this going to polarize and really push away some, but attract others?” Or do you look at it differently? How do you decide what to publish or what angle to take?

[10:39] – Publishing With Confidence: Sharing Strong Points of View

Sometimes – I will never intentionally be polarizing, I think that’s just sort of immature – but I’ll write something and I’ll say, “Oh, this is going to be polarizing.” Okay, so then I just fast-forward and say, when I- I should always be a little nervous when I post something. So I should always have a firmly held belief that’s tentatively held. So I want to be open to learning something new. I don’t want to be arrogant about my insights. I want to be open to that. But I want to take risks. And if I’m never nervous about hitting send on an email, like I send out an email to 13,000 agency principals every Sunday afternoon. If I am never nervous, then I’m probably not pressing the boundaries just a little bit. And I should always press the boundaries. So it’s not so much being polarizing, it’s more pulling some unique insight out that maybe people haven’t thought of in quite that way. So I don’t want to piss people off unnecessarily, but I do want to help them see things in a new way.

Have you built a consulting business only to find yourself feeling stuck? Are you tired of relying on referrals, struggling to bring in new clients while serving the ones you already have, and knowing you need to raise your fees, but feeling overworked and spinning in circles under a revenue ceiling? The problem isn’t your expertise, it’s clarity. And that’s why we created Clarity 2.0, our newly upgraded coaching experience. Powered by our ROI verified growth system, Clarity 2.0 is designed for one thing: real results. With coaching personalized to you and your business, proven consulting frameworks, intelligent AI-powered tools that accelerate your learning and amplify your results, and a curated global peer community, you’ll finally gain the clarity, confidence, and control to take your business to the next level. And the numbers speak for themselves. Over 80% of our clients raise their fees, refine their niche, or reposition within 90 days. Many double their revenue in under a year. More than 1,000 consultants across 75+ countries, from solo specialists to multi-seven-figure boutique firm owners, have transformed their businesses through our methodology. And now it’s your turn. Head over to consultingsuccess.com/grow and book your Growth Session Call today. It’s time to stop grinding and reacting and start intentionally leading your next level of business growth with Clarity 2.0.

[13:12] – Rebranding to Punctuation and Launching a New M&A Book

All right, so, David, speaking about changing things, your company, from what I remember, was called ReCourses and you rebranded the business to Punctuation. Can you just walk us through why you made that change and what kind of spurred that decision?

Yeah, yeah, you’re just determined to embarrass me here, aren’t you? ReCourses was a name I picked back in, oh God, ’94. So I could have chosen any name in the world and registered a domain, and I was trying to get cute with some Latin name and it meant. Anyway, it didn’t. It was, it kept getting misspelled and the alerts would send me resources instead of ReCourses. And it’s like, “Anyway.” So I said, “Okay, I’m just going to rename it to David C. Baker.” That was the middle thing before I went to Punctuation. Our M&A practice, which is thriving, was too big for me. I was doing all the consulting and the M&A. It was too big for me. I brought on a full-time person, Jonathan, to run that division. And it’s like, “I don’t want to be David C. Baker. We need another name.” And so- because I didn’t want it named after me.

So I’ve always believed that naming, you ought to just come up with sort of an empty vessel and fill it with something, and it ought to have a great domain. So I’m just, you know, at night, both Jonathan and I are looking, researching, looking mainly for domain names that were available and figured we could, we could back a meaning into a name, you know, and we found, I found Punctuation.com, and it was available for 10,000 bucks. And I said, “Oh my God, that is a great name.” And there’s so many things you can do with that, you know? And 10,000 was really cheap to me. So we bought that and renamed the company and then redid all the branding and the design and the imaging. And I love it. It’s simple, it’s fun, it’s interesting. So that was the story. It was mainly to get away from David C. Baker.

That’s a great explanation. And I think it is a really great name, so well done. And I think, yeah, that $10,000 investment, I mean, some people might look at and go like, “What, $10,000 for a domain name?” But when you think about the future and the value that something like that can have, I mean, I think it’s, that’s a steal. So, well, well done on that.

[15:25] – David’s Inspiration for Writing Selling Your Professional Services Firm

Let’s talk about your most recent book, Selling Your Professional Services Firm. What was the inspiration for, there we go.

I’m Vanna White here.

Like, yeah, there you go. So for those just listening, David is holding up a beautiful copy of his new book. Why write that book? What kind of, what was the impetus for you to do that?

Yeah. Well, I wasn’t going to write another book. I finished the sixth book, Secret Tradecraft of Elite Advisors, and I thought, “Okay, I’m done.” That’s what I told my wife. And then I went to this retreat. Blair Enns and I and April Dunford, you may have heard of April. I love April. She’s just one of the smartest people in the world. We were on a weekend retreat in Chicago, having open-book relationships with each other about everything that’s going on. And I said, “I can’t write another book. I should write another book on M&A because that’s where most of our work is these days. And I don’t think the world needs another book on M&A, because there’s so many of them.” And they said, “Yeah, but the world maybe needs a book that you would write on M&A.” And I thought, “Oh, okay, I see that.” So on the flight home, I outlined the whole thing. And then I took about, I think it was 17 or 16 long weekend trips by myself in the RV. And I wrote the book, start to finish. It was a really quick- I absolutely loved it. It just flowed. I had so much fun writing it. It’s the best book I’ve written. And now that’s the last book I’m going to write until I get another idea.

There we go.

[17:02] – M&A Trends: More Buyers Than Sellers Driving Demand

You mentioned before we even hit record here that the M&A part of your business is doing really well. What’s causing that? I mean, just explain, what are you seeing in the market right now, and why do you think the market is the way that it is, specifically around M&A in this space?

Yeah, so this is more about the marketing side. I don’t know how much this would apply to your clients. It might, I’m not sure. But I think there’s lots of things happening. For the first time ever, there’s this regression in that- or inversion, I should say, in that there are more buyers than sellers. So that if you’re interested in selling in this market, and you’re a marketing or digital or creative firm, you’re more likely to be successful. That’s one thing that’s changed.

The other thing has changed is the mind of the principal. This used to be, like, “Okay, I’m going to do this and I’m going to do it till I retire.” But now people realize, “No, I could have two or three careers,” you know? Like, Michael, you could quit your job and you could have another career if you wanted to. And it’s just sort of acceptable nowadays. And so people are saying, “Oh,” you know.

And then there’s another one too. And I think it’s, in the past, it was almost always what made you lose your love affair with your firm was annoying clients. And that isn’t the issue as much anymore. It’s more, “Do I want to manage these people?” And so they’re kind of rethinking their relationship with the firm. And so it’s- other than that, I don’t know. I think those three things combined are what are forcing it.

[18:39] – Growth Choices: Building the Firm You Actually Want

So I just want to clarify something that you mentioned, and that is that in the past for a firm owner, one of the big factors was clients that were non-ideal, right? Annoying clients, as you call them. But now it sounds like it’s more about the management of your internal team. Is that what you’re referring to? So why that change between those two things? What’s-

I think it’s parents, actually. I think.

Okay. We’re putting all the blame on the parents today.

Yeah, yeah. I’m a parent and you’re a parent too. So we need to be careful how far we go with this. I think like here’s an interesting anecdote. If you’re running a firm and you have Stateside or Canadian side, North American side employees, and you also have employees that are either near or offshore, there’s a stark difference in work ethic. That’s part of it. But I think it’s just sort of the expectations that people bring to employment. It’s like constant promotions, more accommodation. They, they’re not- In the world that you and I grew up in, there was a focus on, “Yes, let’s absolutely not be discriminatory.” But one thing that is just not a- It’s just not up in the air is like there’s going to be high performance from everybody. It’s like, “We’re a culture of high-performance people.” And I think that’s harder and harder to run nowadays. There’s different sort of expectations. People leave and start their own firms, which has always happened, but it’s happening more than it used to. So it’s just sort of a weariness.

It’s not that- I’m not blaming a new generation at all. I don’t think this has anything to do with age. I think it’s more- and if we could take the blame and move it away from employees and more to principals of these firms, it’s that they just decided to grow. And all of a sudden one day they woke up and realized they don’t even want to go to the work- to the firm they work at and own. It’s like they’re. “Oh, I like, I don’t. I’m not having as much fun as I used to.” Like, “Why did I let myself run a 30-person firm when I loved being a 10-person firm?” Right? I listened to the marketplace and now all of a sudden I’m a firm that’s running somebody else’s image. Somebody else’s image. So lots of things.

I mean, that last part really resonates. I’ve heard this quite a few times recently. I think over the last probably 8 to 12 months, multiple people that I know running very successful businesses have said similar types of things that they’re really looking at like, “We’ve worked so hard to build this business to this level,” but it’s almost sounding like “we’ve created a business that isn’t really what we want.” And I wonder, “What’s causing that?” Like, so some of it sounds like, yeah, maybe the way that we’re working with, with our team has changed. The expectations that people have have changed. My sense is also the uncertainty in just this rapidly kind of evolving environment that we’re in. It doesn’t help that there’s, you know, conflicts and the news and the media is just like such a- feels like a poisoned environment to a degree. But I find it interesting that I keep hearing this from multiple people that I respect, you included, about this concept of, you know, like working so hard to build something, but maybe, but is it like what we really want to build or did we just build it because it’s almost like the societal impacts or you know, guidance of like, “This is where we’re supposed to go.” But now everyone’s looking and going like, “Well, is that really where I want to be? Or is there a way that I can rework this and adjust it to something that’s actually better for myself and my family and so forth?”

And I think maybe the biggest thing to pull out of all of that is this expectation that unless you keep growing as a firm, you’re failing. And I just don’t think that’s true at all. I think you should always grow in terms of your capabilities and your curiosity and how well the work is landing with clients. But you could be, you could be a three-person firm for the rest of your life or a 30-person firm and be wildly successful. It’s just make a choice, right?

[22:51] – Preparing to Sell: Profitability, Processes, and Team Strength

100%. I just had that conversation actually with my cousin Sam, co-founder here at Consulting Success, yesterday about that exact same thing. So let’s talk about what people should do when they’re, if they’re thinking about, you know what, “At some point I want to sell this business that I’ve built,” or “I just want to make sure that I have the optionality to sell it at the highest potential value.” What are one or two things, David, that you would say, “Hey, if you’re ever going to think about selling your firm, and if you’re maybe two or three years away, or even, you know, four or five years away, start doing this or these things right now.” What’s at the top of that list?

Well, you know, the really cool thing is that you could ask a different question and all the answers would be exactly the same. And that question could be, “How do I run a firm that’s really great that I never want to sell?” Right? So it’s so fun to answer that question because all the answers are exactly the kinds of things that make you never, never have to want to sell. Right? So yeah, the first is absolutely profit. It’s like unless somebody’s just buying you for capacity, and if they are buying you for capacity, they’re not going to pay a lot of money for that. They want to buy for profit. And then there’s sort of an asterisk around that. It’s like, that’s profit at least 20% consistently. Roughly consistently. But that’s after paying yourself fairly. Like you don’t want to subsidize your net profit by underpaying yourself. So that would be at the very top of the list would be profit.

Good. When you think about the most successful sales that you’ve been involved in or just that maybe you’ve, you know, you viewed from the outside, is there anything that the firms that sell at higher valuations tend to do differently or have in common aside from just being very profitable?

Yeah, for sure. So it’s a mix of things. And so when the potential buyer asks you these questions, you have ready answers and they’re the kinds of answers that they want to hear. So when they say, “Hey, how do you get new business?” They don’t want to hear about your great ability to network. They want to know how you fill the top of the funnel in a repeatable process-driven way so that they could actually add a little bit more gasoline to that fire and help you grow even faster, right? They want to know about the arrangements, like this would be a quality of earnings audit, they want to know what your client relationships look like. So if they’re recurring revenue of some kind, they love that they, even if it isn’t recurring revenue, they want to know like, “What’s the average lifetime value of your client? What does it cost to acquire a client?” So that kind of thing as well. They want to know that there’s a number two team there. They want your- they want you to be willing to accept part of the payment for your firm in an earn out. It doesn’t have to be a long one. They used to be five years, now they’re never more than three. Sometimes they’re even shorter than that. Your openness to rollover equity so that you’re kind of putting your money where your mouth is here. All of those things together send the right signal, and all of those things make the firm more fun to run too.

Right. Okay.

[26:18] – Sellability Index: Measuring What Buyers Value Most

I’m going to bring up here- let me see if I can just pull this up, if this will work for me. You sent over your sellability index, and I thought that might be a good thing to just have you walk through and explain.

And while you’re doing that, let me just sort of introduce what- So when you’re focused, you. You’re now not a generalist firm. You now have a smaller number of competitors. Maybe it’s 10 or 20 competitors or something. So your job with positioning isn’t completely done because there are still other viable choices for the client to choose. Then you go into secondary characteristics, things like your pricing or your process or your IP. And that’s what this is an example of. So there are lots of firms that do valuations and M&A work in the same field that we do. We try to distinguish ourselves with our own IP. And so this is just an example. And you could use- your listeners could use this and say, “Okay, what’s, what kind of data can we collect from our clients and turn it into something unique that our competitors do not have?” And this is an example of that.

And we have five different kinds of IP. This is just one example. It’s what we call a sellability index. So it’s just a number on a scale of 1 to 100 that at a glance, a prospect knows, “Okay, how sellable is this firm?” So when we first developed this years ago, Jonathan and I sat down and said, “What are the key factors that we can also measure?” There’s some things we can’t measure. “What are the key factors that we can somehow measure?” And how can we put those into an index so that it’s more scientific?” And we took an early stab at it. And then you start measuring it and you say, “Okay, that sellability index was a 72 out of 100 on this firm. But that firm strikes us as a whole lot healthier than that. What’s wrong with our index?” And we go in, we tweak it, right?

So this is in, I think, pretty final form. And what we’ve decided is that we want to measure your EBITDA percentage. So not the actual amount, but your EBITDA percentage. We’re looking for 20%, 25%, something like that. We want to look at your client concentration because a buyer should be nervous if too much of your revenue is tied up with one client. Then we want to look at what part of your client revenue is recurring revenue so that you’re not starting and stopping projects all the time. We want to make a judgment call about your positioning. So where is that? How defensible is that positioning? How unique is it? We want to look at your actual EBITDA, not your percentage, because if you are above certain thresholds, you’re going to attract higher multiples as a bigger firm, right? Even if it’s the same percentage.

So we put all that together, we weight them differently, and then we add up the score. So where this becomes powerful is that we can flip to this in a, you know, in a presentation with a client once we’ve done the valuation and say, “Hey, here’s your sellability index.” It’s a very simple number and it’s something that you can work on over time. And now we’re going to show you exactly how we came up with it so you know what factors to improve, to improve your sellability. And then we interpret it for them. We say, “Okay, if you’re between 61 and 70, this is true. If you’re between 81 and 90, this is true,” and so on. So this is just an example of IP, how you can make yourself more different from your competitors.

Yes, fantastic. And just for anyone who’s maybe only catching the audio version of this, just head over to YouTube and type in “Consulting Success” and you’ll find this interview with David, as well as the visual that comes up as we’re going through so you can see what we’re referring to. So David, you mentioned in regards to profitability and EBITDA 20, 25% or greater is considered, you know, a good place to be or at least what you’re looking for. What do you typically counsel your clients on in terms of client concentration? How much diversification should they have? Where are the warning signs or alarm bells going off in terms of client concentration being too high?

I love this question. And our approach to this is a little bit different than most people in that we are a little bit more forgiving of large clients. But everybody knows about the danger of a client that’s too large. We say any single related source above 25% should be sort of a warning signal. Most people tag that lower, but we think 25% is safe. But people don’t think about the opposite. They don’t think about all the disadvantages in having so many small clients. So we want every client to represent somewhere between 4% and 25% of your billings, we would like you to have between say, 12 and 20 clients somewhere in there. Some clients will represent much smaller than 4% of your billings, but they could grow. So we don’t care so much about what they’re spending now, but what could they spend if things go well? So that’s how we think about client concentration.

That’s fantastic. And then recurring revenue. If there’s a firm right now or a company right now that has zero recurring revenue, how important do you think it is? So let’s say they’re doing well, they’re making money, they’re profitable, and maybe they have no intention to sell, but they want the option to, or to be in a position that they could in the future if they decided to. Would you still suggest to that person that they should really start developing some aspect of recurring revenue in their business? Or do you think that’s not necessary?

I don’t think recurring revenue solves everything, and I’m not a recurring revenue bro. But I do think it’s, I do think it’s useful. It’s not absolutely necessary. So if you’re a firm that’s been around and you are on a project-to-project basis and you have been consistently profitable, well, why does it matter? Because you have this established track record of making good money from clients. You will see a difference on the buyer side, though. Unsophisticated buyers are sometimes scared by lack of recurring revenue. But then when you sit down and explain it to them, and this is especially where you need to bring in how you fill the sales funnel to help them be more comfortable, it’s like, “Oh, okay, well, to whatever degree you don’t have recurring revenue, how good are you at, at bringing new clients in then?” Or you have account people who are tasked with growing accounts, and you can see that with the numbers, then it’s usually, okay. I think recurring revenue is good, but I don’t think it’s the, it’s the big massive thing that other people do.

What do you see right now as the biggest threat in the current environment or even as you kind of think about the future, what’s, what’s on your mind? And let’s just frame this from the perspective of those that are consultants. They’re experts, they’re advisors. What comes to mind for you, David, or what are you kind of currently thinking about in terms of threats now and into the future?

[33:29] – Future-Proofing With AI and Navigating Global Complexity

Well, the easy answer to that is AI right. But I’m not sure that’s the correct answer. AI is introducing all kinds of uncertainty, but I’m not sure it’s actually undermining our field. I think what AI is probably going to do is create a divide between the haves and the have-nots. The people who are really good at incorporating AI and doing better work, not cheaper, faster work, but doing better work with AI are going to really thrive. And then the ones that are simply using AI to replace humans are just going to be content mills at the bottom or consulting mills and not have much of a future. I’m not worried about AI. I think AI is going to open all kinds of doors that we don’t even realize yet.

So I think probably the increasing complexity of our world is probably the biggest factor that’s going to- that we have to conquer. It’s, you know, we were promised that this world would be simpler because it was digital. It’s not. It’s so complex. And the world, it’s the world now. It’s not the country. And something over here can impact, like a supply chain thing can impact something right here. So I think the ongoing complexity of the world is the big thing. And for that I would just- it’s like just be a world citizen, be widely read, be curious, be really open to new things, right? So other than that, I don’t think there’s any big danger on the horizon.

And you talked about how in your view AI is really an opportunity, right? It’s not something you’re scared of, you’re embracing it. You think it’ll separate some. Those who don’t use it will be left behind to a degree. Those that learn how to use it strategically will, you know, kind of catapult ahead. Is there any specific use case for you? Or like, how are you using AI right now in your business? Or how are you maybe planning to use it in a way that you think is really going to be beneficial for you and your company?

So I’m using AI as a replacement for search in many cases, but I’m using it mainly for deep research and I found that the higher level of perplexity is really useful for me. And like, here’s a project I’m going to do next week. I haven’t even started it yet. I’m going to, I’m going to download all the stats, like, all the way down to the, like all the data from our podcast to Bob’s and I’m going to say, “Okay, tell me which topics are most interesting to people and why and what should we quit talking about?” It’s like those are really interesting cases where it’s probably better and faster- Or like this morning I said- I was working with an agent, we’re with a client, and we’re renaming them. And I said, “All right, Perplexit, give me a bunch of names that are based on French, Latin, Italian and Spanish that are less than 15 letters, that are not real words for which the domain is still available.” And it’s like, in three minutes, it gave me seven. Great. It’s like, “Man, that kind of stuff is amazing.” I think a lot of the agentic side of AI is just pretty lame right now, and who knows exactly where it will go? So it’s- I just am not enough of an expert to speak to that. But I love AI. I think it’s pretty remarkable. And if you feel like- and I’m a writer at heart, right? So if you feel like AI is going to replace you as a writer, then, I don’t know, I guess you’re not a very good writer. I mean, AI doesn’t. Doesn’t do nuance. It doesn’t do humor. It’s just really lame. I’m sure it’ll get better, but it’s a great research tool. But no, I’m not worried about it at all.

Well, I think the other part of that too is that you still have the choice to write yourself. Right? So when you’re writing on your website or LinkedIn, you could use AI if you wanted to, you know, do a bunch of that writing for you. But that’s your decision, right? Whether you want to do that or not. And knowing you, David, likely you don’t right now. It’s still mainly your writing.

It’s 100% my writing. Yeah, I just can’t imagine. I’m just such a better writer than AI but that’s just arrogance too.

No, that’s confidence. Remember? Confidence and connections. All right. Hey, David, thanks so much for coming on. I want to make sure we respect the time in the calendar here, but I know we could keep talking a lot more here. Where’s the best place for people to go to to learn more about everything that you and Jonathan are building over at Punctuation?

Punctuation.com, yep, that’d be the best place if you want the free email. There’s 2Bobs. And I want to say too, Michael, I just really respect your work. There are not that many people out there that are doing really good work ethically, with a great reputation, and I think Consulting Success is one of them. So I’m happy to be on your podcast.

Really appreciate it, man. Thanks again for coming on.

Okay, take care.

Important Links:

David C. Baker
Punctuation
2 Bobs
Love the show? Subscribe, rate, review, and share! https://www.consultingsuccess.com/podcast