New business models: Part 1

Recessions are extraordinarily effective tools for sorting winners from losers. Just as with retailers on the High Street, we’re seeing signs that the consulting firms with weaker business models are starting to sink to the bottom, leaving their more robust rivals bobbing around in the still choppy waters.

But a problem for one set of firms is unquestionably an opportunity for another. Recessions also give us a glimpse into the future, showing us which business models are likely to perform best.

That glimpse is long-overdue: anyone running a consulting firm will know that it’s the most difficult business to make work. Profitability sits on a knife-edge, with small changes in utilisation pushing the firm from super profits into loss. Moreover, the pyramid structure is difficult to grow, at least without an injection of cash from another source.

So what alternative business models are emerging? Over the course of this and the next couple of blogs I’m going to look at some of the contenders.

One is the type of research-based consulting firm that earns from subscription services as well as traditional consulting. We all know that thought leadership is the battlefield of the moment, at least where consulting firms are concerned, and who better to succeed than firms with dedicated, well-funded research arms? In a world where clients are looking for increasingly deep expertise and experience, these firms benefit from being seen as specialists. Annual subscriptions to their research also provide a solid, more predictable revenue base, especially in comparison with more volatile consulting fees.
But perhaps the single biggest advantage these firms have is that they don’t need to choose – as conventional consulting firms do – between brand and specialisation. The fact that more people can read their research than are ever going to hire them as consultants gives these firms extensive coverage, as does the fact they are more likely to be featured in the media.

The future of consulting may not be in consulting.