If you’re a consulting firm and you want to know the hows of business development and expansion, then this episode is for you. Michael Zipursky’s guest today is Tom McMakin, the CEO and Partner of Profitable Ideas Exchange. There are generally two ways to grow your business: getting new clients and deepening your relationship with existing clients. Guess what? Most companies agree that 80% of their revenue comes from existing clients. How then do you deepen and expand your relationship with your existing clients and their referrals? Tune in and discover practical tips on business development for consultants like yourself!
I’m with Tom McMakin. Tom, welcome.
Thanks so much for having me.
It’s great to have you on. Tom, you’re an author, a speaker, you’re the CEO and Partner of Profitable Ideas Exchange, where you help expert services firms with business development. Your company has conducted over 10,000 best practices, interviews with senior executives at over 350 Fortune 500 companies. Before that, you cofounded a private equity firm and you worked as a Chief Operating Officer. Your work has been featured in Fast Company, Inc. Magazine, Wall Street Journal, a whole bunch more. You also have a new book that came out. Let’s dive right in because there’s a lot to cover, Tom, and I’m excited to have you on. When we talk about consulting firms, professional services firms, most people think about two ways of growing business. Number one, from new clients, and number two, from existing clients. In your experience, which do people spend most of their time thinking about and focusing on?
We wrote the book, How Clients Buy, to answer the question, “How do you bring new clients into the fold?” We interviewed a slew of people in professional services and consulting firms to ask that question. We wrote the book and it was well-received. Then I got this incredible feedback from the consulting world that goes, “That’s nice, but if you look at our new revenues year-over-year, 80% of our new revenues come from existing clients. New logos are fun but tell us how to land and expand.”
Given that’s the case, what is the recommendation that you typically have? Let’s say I’m running a consulting firm, and now I understand that you’re probably right. Most of my business has come from referrals or existing clients. What do I do about that? What’s the first thing that somebody should start to think about or look at? What analysis should they even run to identify? Do they have opportunity to grow their existing accounts? Any exercises or best practices that you can offer?
It’s helpful always to make distinctions and not just look at that big block of a challenge, which is, “How can we increase our business?” One distinction you can make is, “Am I trying to do more of the work that I have already done for a firm, for the buyer in that firm that I now serve?” For example, if I stand up a conference for a buyer in the general counsel’s office once a year, I could go back to that same buyer who knows me, trusts me and knows my competence. I could say, “We can do your spring conference as well.” That would be more to the existing buyer, but the adjacency to that is to sell more of the same thing that you’ve sold already into a company, but into other divisions or other business units or other geographies. That’s a distinction.
There’s a third type of new work that you can get. That’s where you offer conferences for the company, but someone else in your business is quite capable of writing pithy and compelling newsletters. You want to introduce newsletters either to the people that bought conferences from you or even harder, sell newsletters to people in the organization that you don’t now serve. You can think of it as a matrix in that way. As you can imagine, the easiest thing to do is to sell more to somebody that already knows and trusts you. It gets harder to introduce colleagues or other capabilities in your firm to a firm that you’re serving. It’s harder to reach outside of the vertical that you’re now serving in a client to other verticals. There are different tactics that help us scale those two walls.
The other thing that you’ve found is that the Pareto Principle holds true in business development that 80% of the business and profits typically come from 20% of a firm’s clients. Tell me more about what you’ve observed with that. It’s not surprising to me because the Pareto Principle applies to so much of life and science. It was especially interesting to hear your take regarding business development. Dig a little bit deeper into that and share with everyone what your findings were.
I interviewed a head of strategy inside a massive IT integration professional services firm. Think $15 billion. They had two businesses, the technology half and the consulting half of the business. Each half of the business had forced ranked their clients, who were their best clients. That 80/20 rule kicked in, so 20% of their clients on the consulting side produced 80% of their revenues. Likewise, on the technology side, 20% of their clients produced 80% of the revenue. What shocked me and shocked this head of strategy is there was precious little 20% overlap between each group’s major clients.Shrink the pond and be number one in your pond. Click To Tweet
If the consulting side, their number one client was Pfizer, the technology side didn’t know business with Pfizer, and vice versa. If the technology side of the businesses major client was AWS, the consulting side of the business did nothing. It speaks to what is called the cross-selling problem. In the previous matrix that I outlined, that would be the problem of introducing other services to a client that you already serve. It’s interesting, I’ve seen that over and over again. We develop consulting practices, mid-sized, small consulting practices even. It could be a three-person firm and I have a specialty and you have a specialty and Jane has a specialty, and there’s little overlap between our various practices.
Let’s dig a little bit deeper into that to make this actionable for people. Likely they’re going to be seeing that in their business as well if they’ve been in business for some time. Let’s even take your firm, PIE. When you look at your clients and you see there’s some distribution of 80/20, maybe it’s 70/30, 90/10, but there’s some Pareto Principle that is playing out. What do you do within your company? What actions do you take? How do you rally the troops? How do you move forward knowing that is the distribution of clients to revenue and profits?
I’ll offer up three things. One, when a person that does a project wants to do more of that work for the project manager that they serve, it’s generally easy. You have to reverse-engineer when the budget processes. If the budget for your client ends in September, you might reasonably ask, “When do you start planning?” You’ll get an answer of, “We always have to submit a wish list deck around March, and the powers that we decide on how much money we get.” We have found it helpful to get on top of that cycle in March. We call our program manager and say, “We do a number of things for different clients. Would it be helpful for us to brainstorm other things that you might do to further your objectives and put it in the form of a slide deck?” I’m surprised 8 out of 10 times, the program manager lifts our slides and puts it in their deck and passes it on and they’re grateful.
In the case where you’re trying to do the same work for a client, but in a different business unit, it’s harder than you think. One of the reasons that it’s hard is that your program manager is proud about the success that you and she have put together. They’re not always eager to share it with people that might be in competition for them for the next job up, or even worse in a global corporation. They flat don’t know who their counterparts are in Berlin, or they don’t know who their counterparts are on the technology side of the business, so they can’t be helpful to you. At the end of the day, they’re doing you a favor. They’re taking some political risk within the organization, but with little return to them. We have found that successful to have a second partner on every assignment, and that’s a senior partner, and that’s what a lot of the big professional services do.
They have an implementing executive and then a senior partner that flies in every once in a while and says, “Is everything going well?” We have that senior partner level up above the program manager and talk to the big boss and say, “Is this working for you? How do you feel about the ROI? By the way, would you mind introducing me to other people that report in to you?” It eliminates some of the problems that we see. The last thing, and people have been doing this forever, is when we’re trying to include another capability in our offering set. Oftentimes, we’ll take out our program manager for dinner, and at the last second we’ll say, “Do you mind if I bring Michael along with me? He’s my partner. He does the training half of our business. We’re in New York and he got nothing to do tonight.” We introduce him and we’re like, “Michael does a ton of training for consulting firms across the country. His specialty is small and midsized companies. He saw tremendous success. Michael, I’ll let you introduce yourself.” Michael asks a question of the client, “I’ve got to ask, what do you do for training?” There’s a transfer of trust and a transfer of trust around capability that occurs there. I don’t know if that makes sense.
It makes a lot of sense, that’s valuable for people. Thanks for sharing that. You touched on, Tom, about maybe 1 or 2 reasons why clients within an organization hesitate to refer you to their colleagues within that same organization. You mentioned you can have a senior partner fly in, spend more time with a higher-level partner, but let’s say that you don’t have that ability. Maybe you’re running a small firm, maybe you’re a solo, independent consultant, you’re doing great work. You know that because you keep hearing that from the clients. You’ve been kept around for a year or two, but you’re unsure of how to move deeper into that organization. What would be some recommendations that you would offer for people to consider or explore that might help them as a solo, independent or small firm to be able to get their tentacles deeper into that client organization?
There are a couple tactics. One is not to ask for a referral from your program manager that loves you so much. That can be hard for them and they cannot get to that. We’ve all had the experience of talking to somebody and they say, “I’d be happy to introduce you to Bob.” It never happens. A better use of those people is to take them out to lunch and to think of them as seeing eye dogs and go, “I’m curious about the wider organization and I’m interested in selling more of my services like I do for you elsewhere in the organization. Tell me what’s going on. What are the strategic priorities of the company? Are there divisions that they’re putting money into or not? Are there group presidents that are old and tired and about to retire and aren’t taking any risks? Are there also young whippersnappers that are about to take over and want to make a name for themselves? Tell me the lay of the land. That’s all I’m asking for.”
Another thing that we’ve learned over the years is a foundational principle of all business development, which is own the action, own the next step, never leave the next step in someone else’s hands, because it’s not as important to your program manager to grow your business as it is for you. One of the ways we do that is go, “I was wondering if I might use your name as a reference when I reach out to your counterpart in Berlin. I’m also wondering if I could include a short case study, which I’ll send you for review.” You own the action. You figure out what the email is. You write Hans and you copy Marsha, your Program Manager with the case study. You say, “I’ve worked for Marsha for a long time, and I’ve admired at a distance what you’re doing, Hans. It seems like we might be able to help you in a similar way we’ve helped Marsha.” Copy Marsha and then say, “With your permission, I’d to like follow up with a call.” Owning the action is a crucial habit.Give without expectation of return. Click To Tweet
A lot of this has predicated, Tom, on having that existing relationship with the existing client, which is what the new book is about. What would you say to those who don’t yet feel they have that relationship with someone? Maybe they’ve been prospecting, they’ve been having a bit of reach outs, not a lot of success, and sitting down on the table with someone, but they want to find out more about their budget so that they can provide some ideas and some potential ways to serve and support them. What advice would you offer to professional services firms that want to essentially generate more “leads,” more opportunities to have conversations with people that they don’t yet have relationships with? What’s working best to get a seat at the table?
I have a bunch of thoughts on this, one is narrow cast. Shrink the pond. Be number one in your pond. You’re in the training, consulting and coaching business, the education business, and you have shrunk the pond, Michael, to focus on people in professional and consulting services firms. That means you’re not focused on helping retailers do a better job of reaching out to customers and selling more shoes. By delimiting what your stated area of expertise is, your domain, you’re able to niche yourself and create a brighter identity. One that’s memorable, “There was this guy that does coaching for consulting firms. They were cousins. They’re in Canada.” They can find you that way because they know who you are. That’s the first thing is stop trying to boil the ocean. Figure out where you’ve sold 2 or 3 projects well, and where are the through line on the story is.
“We did some work for a mining company in Nevada, then we did one in a mining company in Edmonton. We have the right to reach out to other CFOs of mining companies in North America. Let’s figure out a list of those folks. There are only 200 of them. What’s the function that we sell into? Sometimes the CEO knows somebody, and we get in that way, but it’s the chief supply chain officer that pulls the trigger on what I do. Let’s figure out the names of the 200 chief supply chain officers of the top mining companies and set ourselves the objective of getting to know them over the course of time.” That’s the biggest single piece of advice that I would get give people is niche sharply, invest in the conversation, give without expectation of return to that limited community. It’s like what you’re doing, Michael, you’re giving this show, you’re giving your expertise to the community you most want to serve. In that way, you’re elevating yourself, not only as an expert, but as a bee that’s cross-pollinating best practices between all the work that we do in the world of consulting.
My daughters love honey. It’s a good thing that I’m a bee because lots of sweetness. That aligns and resonates, Tom. In your new book, Never Say Sell, you say, “We shit on the immutable wall of diseconomies of scale. In some business, the cost of production goes up, not down with growth. As it turns out, expert services firms also face these economies of scale, and understanding and overcoming the diseconomies of scale presence in your industry is key in growing our work with current clients.” Can you talk a little bit more about what you mean about that diseconomy of scale and how it relates to expert and professional services firms?
Economies of scale are, if you build a plant and it costs you $1,000 to create one widget out of that plant, it’s got so much more capacity. When you run 1,000 widgets through that plant, the cost of that widget goes down up to $1. That’s economies of scale. On some level, we suffer from the opposite in our world. Like massage therapists and psychiatrists, the only way we get new work is by increasing our time and we hire people to serve clients that we work with. That’s how we augment our time over a period. The problem is that those people require management and training and houses, offices and all sorts of support. That drives a diseconomy of scale. Working out of your guest bedroom as a sole proprietor is monstrously efficient. Your overhead is almost nothing as you kneel down, crawl under your desk and fix your own IT by detangling your wires. That doesn’t exist at McKinsey, where they have a whole department of 500 people whose job is to keep computers humming across the globe. That’s what I meant by diseconomies at scale.
That does connect with what a lot of people are dealing with as they’re scaling up their own consulting businesses. They’re looking to add more people or whatever it might be, and more can often translate into more complexity. Complexity doesn’t scale well. Knowing that, what’s the way to overcome that? As you mentioned, the key to growth is learning how to overcome the diseconomies of scale. For you and your firm, is there anything that you’ve done specifically that you found has been helpful in overcoming that challenge to allow you to scale or to make a greater impact and maintain profitability?
We raised our prices, and I mean something specific about that. Even if they spun out of IBM and they were somebody in charge of digital transformation, they don’t have the right to take on a global digital transformation project for General Motors. They don’t have the capacity to do it. They don’t have the people to fly around the world and make it happen. Sole proprietors tend to take on smaller gigs, and those smaller gigs, the barrier to entry tend to be lower and consequently, they tend to be bid more fiercely and the margin or the price on the services are lower. We’re not a sole proprietor, but we’re also not big. We have 60 people in our company, but it gives us the capacity to take on a national or global contract, particularly for a business unit, and cover it up with resources and execute well. The truth of the matter is when you do big projects that, you’re allowed to charge more per unit of cost because it is baked into the world of pricing and competitive pricing. There’s an understanding that there are those overhead costs that get baked into any bid.
You mentioned that one of the things you did was increasing prices, that’s a great approach and strategy. Is most of your pricing and the projects that you work on the engagements, is it on an hourly basis, a daily rate, is it a retainer, project based or using value in ROI? How do you approach pricing, and has that changed at all over time?Own the action, own the next step, never leave the next step in someone else's hands. Click To Tweet
We’re scared to death to price on our costs. We refused to do that. We didn’t do everything on a project basis. We say, “What are the outcomes? We’re going to drive business development by creating cohorts of likely buyers and putting your practice leads in the center of a series of conversations. We’re going to recruit a certain number of people. You don’t need to know what happens behind the curtain.” We priced by project. Otherwise, you’re defending hourly wages and you’re tracking time. We don’t track time like a law firm. Everybody that I know in professional services that tracks time, lawyers and accountants principally, are desperate to figure out how they can get out of that box.
You mentioned that boutique smaller firms should focus less on innovation and more on other ways to grow their business. When I read this in your book, it resonated because a lot of people do believe like, “I need to be innovative and I need to come with new ideas.” Always sharing new stuff with clients. I want to hear from you a little bit more about when you say that a boutique smaller firm should focus less on innovation, and more on other ways to grow their business. What do you mean by that and what do you find in your conversations and research?
We’ll go back to that example of mining. You did some good work for a mining company in Nevada, and then you did some good work in Edmonton for a mining company. You write up some case studies and you think, “I’m going to get to know all the chief supply chain officers of the 100 biggest mining companies in the country. I’m going to go to the conferences. I’m going to try and present. I’m going to publish. I’m going to set up round tables. I’m going to do a podcast. I’m going to engage and add value to this group of 100 people, because this could be a $50 million business if I did that.” Over it again, you see people doing that, they invest in that way. They get another mining client. They get two more mining clients. They hire someone from a mining client to add to their staff to be a consultant, and then someone goes, “This vein, no pun intended, that we’re mining right now is so profitable and no one else is mining this vein. How about we spend some time and resources to figure out what else we could do in this world?”
It’s silly, as long as the vein is continuing to produce, you’ve invested ten years of time and momentum into establishing yourself as the preeminent supply chain consultant to mining companies. Your consumer product’s good vision for what you do is a distraction. Founders have this disease the worst, they see the virtue of grinding away at a niche that they’ve established for themselves. Founders oftentimes are creative and they’re like, “This was so much fun. I’ve got another idea. My expertise could be used to help transit systems in the far East, so I’m going to start dabbling in that world as well.” They never get any momentum, any scale and reputation in the industry for excellence.
Until you have 100 employees or so, what you should do is focus on the one, or at best, two niches that you figured out that you can own and do well. When I say own, I mean as delimited by expertise, supply chain management, industry, mining, and maybe geography focused on North America with the exception of Mexico. I don’t do any mining projects in Brazil or Africa, because that means I live on a plane all the time. Delimiting in that way takes time to build a reputation, but don’t fritter it away.
I was sharing this similar concept with clients in our Clarity Coaching Program from a marketing perspective. Often, people will start to do some marketing, they see it working and go, “This is working good. What else could I do that is different that might work even better?” They take their eye off the ball of what’s already starting to work for them. Whether it’s playing out from a specialization focus perspective or service offers perspective or marketing perspective, that focus, and that consistency is so important. Tom, I want to thank you again so much for coming on here, sharing some of the research from the book and what you’ve been seeing playing out in the space, which I know you’ve been in for quite some time. I want to make sure that people can learn more about the new book and about the work that you are doing. Where’s the best place for them to go?
You can go to our website, ProfitableIdeas.com. Our services are there and the books, How Clients Buy, Never Say Sell, are there. It’s available on Amazon or Barnes & Noble, either of those books. You can find resources there. We have a blog on our website. We continue to generate some insights based on interviews. I’m a big fan of your work and your book. When you’re on Amazon and you’re buying Never Say Sell, I want you to reach out and pull in some of Michael’s books as well.
I appreciate that. It’s great to have you on. We’ll talk soon.
Thanks so much for the opportunity.