The Next Level
Avoiding the pitfalls of fast growth.
Most small businesses won’t touch them with a 10-foot pole, but corporate America has had a long, slobbering love affair with them. I am talking about consultants. The question is, should fast-growth companies use them?
My answer is yes — under certain conditions. Most important, make sure they have actually accomplished what you are trying to do and not just what they are trying to sell. And sorry, but this does not include what they have done for other clients; they have to have done it for themselves. For example, if you want to expand to 500 people, from a staff of 50, you want someone who has experienced this as chief executive, chief financial officer or maybe as head of human resources. The dynamics of that journey will never be understood except by those who have taken it.
This is why I often encourage fast-growth companies to look for mentoring rather than consulting. I have found that most people who have really done it themselves are not interested in the world of consulting — but they are glad to take phone calls, attend meetings or just be there when you need them. I had a mentor, and his only requirement was that I run with him every morning at 5:30. Believe me, there were mornings when I wished I was paying a consultant rather than running 6.2 miles. But my mentor enjoyed the run, and I needed the help, whether I wanted to hear it or not.
Still, sometimes, you really do need a consultant — but it’s not going to help unless you find the right one. When my company, STI Knowledge, reached 200 employees, we tried to transition from QuickBooks to Great Plains accounting software (now Microsoft Dynamics). The consulting firm we chose to help us had about 25 people, and it was fine to get us set up. But in the next six months, we added 150 people, and the accounting system started going up and down 15 times a day. We didn’t really panic until it started providing incorrect numbers. At that point, we couldn’t balance, bill or pay. All the chief executive of the consulting firm could say was, “You don’t understand how much stress you are putting on the system. Have you ever heard of an anxiety attack?”
“Yes, I have,” I responded. “You are giving me one. I am living it 24/7.” I soon learned the consulting firm did not have a clue how to make the system work with our growth rate. I was advised to hire one of the big consulting firms, which would come in and straighten it out. And I did reach out to the big firms, but they all wanted the long, slobbering love affair — the critical success report and scope-of-work analysis before they would touch the nuts and bolts of the system.
I told them the foreplay was unnecessary: “Just fix the system and I will pay you 100 grand.” They wouldn’t do it, so I picked up the phone and called Great Plains. I told them I did not want a recommendation of another value-added reseller. I wanted to know all the companies within a 50-mile radius of us that had installed Great Plains in the previous three years. They eventually agreed and started citing names, and we hit pay dirt on about the 15th one: MindSpring Enterprise, the Internet service provider.
My next call was to the controller of MindSpring who did not know me but had heard of our company. He told me he had been with MindSpring from the early days and that it had more than 1,000 employees. I invited him for lunch that same day and popped the question before we had ordered iced tea: “Who did you use for consultants?” He said that Great Plains had set the system up initially and that it had been his job to manage the growth ever since, using the Great Plains special project division as a resource.
Long story short, I hired Jeff Hayes as our controller, and in three days, our system was functional. In three months, he was a nationally recognized expert on fast growth and Great Plains accounting. He came in as a one-man show and was far more valuable to us than the 25-person or 250,000-person companies. Why? He had done it. He had been where we wanted to go.
What would we have gotten if we had hired one of the big consulting firms? About 70 percent of all expenses in a consulting firm are for payroll. When they figure out what they need to bill hourly, they load it up with all that recurring payroll expense, which includes people and partners who don’t even know your project exists, much less make any contribution to it.
In a fast-growth company, getting cash flow ahead of expenses is a race. You can’t carry people or expenses that do not help you run that race. And don’t convince yourself that you can work out a deal where the consulting firm is paid only on results with no up-front commitment from you — it rarely works, and you will spend more time and negative energy arguing over the bill than trying to get ahead with positive traction and results.
If you must, try paying the consultants a nominal up-front sum on a project basis with a bonus or an hourly basis that covers only their on-site talent costs with a huge upside if the organization gets you where you want to go. I remember one arrangement where we reduced the firm’s hourly rates from $295 an hour to $35 an hour — but the consulting group picked up two nice bonus checks.
Fast companies run on a culture of shared values — like the folks in the early days of Southwest Airlines who wanted low prices to get people off Greyhound buses so the travelers could enjoy their vacations. They know why they are at work, and they know the cause is bigger than they are. It is honest, and it can make a difference in lives. This level of commitment and dedication is not for everybody, and your job in human resources is to figure out who can make the ride and where you can find more high achievers to join in.
This is the human factor of growth, and quite frankly, most consultants contaminate the whole place. Keep them out of this part of the business. Think about snakes in a wood pile. In fact, go back and find that 10-foot pole and grow without them.
Cliff Oxford is the founder of the Oxford Center for Entrepreneurs. You can follow him on Twitter.
Article source: http://boss.blogs.nytimes.com/2013/05/02/fighting-the-consultant-temptation/?partner=rss&emc=rss
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