The Consulting Growth Podcast
Joe O'Mahoney is Professor of Consulting at Cardiff University and a growth & exit advisor to boutique consultancies. Joe researches, teaches, publishes and consults about the consulting industry.
In the CONSULTING GROWTH PODCAST he interviews founders that have successfully grown or sold their firms, acquirers who have bought firms, and a host of growth experts to help you avoid the mistakes, and learn the insights of others who have been there and done that.
Find out more at www.joeomahoney.com
The Consulting Growth Podcast
Episode 27: Leadership Appointments and Succession Planning with Deri Hughes, Caroline Boston and Simon Hemsley
Want the inside scoop on how to successfully navigate senior leadership appointments in consultancies? Don’t miss an enlightening conversation with our experts, Deri, Simon, and Caroline as they pull back the curtain on designing organisational structure, performance management systems, and effective team engagement to prepare for a prosperous exit.
We discuss strategies for growth and succession planning. Listen and learn from the experts as they share their personal experiences and strategies on building both internal capability and external recruitment to catapult a business to its desired size. Overcome the hurdles of building a talent pipeline and uncover the ways to maximize value at an equity event. Also, unearth the importance of finding the right people to fill gaps in your business and how to quickly make them value accretive.
Finally, we explore the recruitment order for growing boutique firms, the roles necessary as a firm expands, and the significance of each role in the business. Take note of the importance of a Chief Operations Officer, Chief Business Development Officer, the role of an operations lead, and when it's crucial to have these roles within your firm. Also, learn about constructing internal capability and external recruitment strategies to facilitate growth. Prepare yourself for an informative and insightful episode that you simply can't afford to miss.
Prof. Joe O'Mahoney helps boutique consultancies scale and exit. Joe's research, writing, speaking and insights can be found at www.joeomahoney.com
Welcome to the Consulting Growth podcast. I'm Professor Joe Omani, a professor of consulting at Cardiff University and an advisor to consultancies that want to grow. If you'd like to find more out about me and access some free resources to help your consultancy grow, do please visit joomanicom. That's J-O-E-O-M-A-H-O-N-E-Ycom. Welcome back, listeners, and thank you for joining us.
Speaker 1:This is a slight deviation from the normal format where I interview founders that have grown and sold consultancies, although actually some of the people on the call have grown and sold their own consultancies. This really came out of an inquiry I had of Deri, who I'll introduce in a second, and being really lucky to get three experts on sort of the growth and exits and purchase of boutique consulting firms and other types of firms onto the line. So who have I got? Who's in the magic box of treats? So we've got Deri Hughes, and those of you that have listened to my podcast for a while will have heard me mention Deri a few times. Deri's a strategy consultant who came from Bain and Company but also helped found credo business consulting, which was sold to Tenio in 2007, and at the moment is the both the founder managing director of Honeycomb Professional Services, where he works with boutique firms on talent and skill development and I'm doing a piece of work with Deri at the moment, so getting to know each other very well.
Speaker 1:I've got Simon Hemsley, who works with a strategy consultancy, as a partner at a strategy consultancy called Armstrong that works with due diligence to the and many other things strategy and transformation to the private equity sector. And I've also got Caroline Boston, who is the founder and CEO of Newmines, which is a specialist recruitment consultancy for recruitment partner for consultancy services. So I've probably done a terrible job at introducing you all, but is there anything that you'd like? I'll go around individually. But, deri, did I loosely get things right there?
Speaker 3:Brody, although I should clarify that I wasn't a founder of credo. I was the chief finance and operations officer wouldn't want to take credit for. But yeah, thank you, joe, great to be on here and it was great and Joe came on my podcast a few weeks ago, so we're swapping podcast guest things, which is really cool. But, yeah, great to be here and, I think, a really interesting subject for boutique firm owners about how the hell they go about putting together the right senior team and operational team to support their business.
Speaker 4:Yeah, well, thank you for the invite, joe, and good to be here as well. I've suffered. This is the podcast I've done now, so I always feel like I'm a little bit of an imposter, but hopefully I can base some interesting, useful things and learn a lot more. I think the one bit is to add to my bio. Before I joined Armstrong, I was CFO of an investment firm called Integraphin that listed on the stock exchange in about what was that about? May 2018? We listed that for 650 million and we had about 500 people, and growing that business over 2013 to 2018 was never easy, but it was somewhat less complicated and somewhat more straightforward than growing kind of Armstrong since then. Oh, okay, don't underestimate how difficult it is. Very small consultancies, right.
Speaker 1:Were you CFO whilst it was in the throughout the flotation.
Speaker 4:Yes, yes. So I joined. We were trying to sell this private equity for a couple of years and then we decided we had the valuation. The wealth management market is still and was really booming then, so we're able to get away from very good price. I'd love to say we were geniuses and we were responsible for building all that value, but we certainly we were quite clever. We managed to serve the wave.
Speaker 1:Good, good, excellent. That's what I like to hear. And, caroline, did I do a sufficient job of introducing you?
Speaker 2:I think we'll give you about a fish in the centre.
Speaker 1:Okay, sorry.
Speaker 2:No, no, no, I'm teasing and first of all, thank you for inviting me back. So I think last time I was on your podcast, we talked about people's strategy. So that's the other half of what we do. So we do work in the recruitment space, but the rest of the work that we do is broadly in the people and talent space for boutique consultancies. So how do you design the right organisation structure, the right remuneration structure, how do you manage performance, how do you develop people, how do you engage the team? All of those things as well. But, of course, senior leadership appointments is a core part of what we do and that's what we're here to talk about today. So thank you for inviting me Now.
Speaker 1:Thanks so much for coming and it is something that hits consultancies. I'm dealing with consultancies. You're kind of between the 20 and 120 employees and, as we all know, you get to a stage, especially when you're eyeing exit and looking at the assets of the firm. And the people side of things, especially the senior leadership team, is something that a lot of them struggle with, because very often you're put together with people who start the firm that perhaps aren't necessarily suitable to running a large firm or have different needs or want something out of the exit deal. So, simon, if you don't mind, we could start with you and almost work backwards in terms of the process, in terms of the due diligence and what buyers and private equity are looking for for a senior I'm thinking the senior team at, say, a boutique consultancy of somewhere between 50 and 150 people. What are the boxes that ideally should be ticked?
Speaker 4:In a senior hire? Yeah, so in some ways that's a fairly it's a very good question. It's relatively easy to answer in a kind of at a high level and it gets quite difficult quite quickly. So what, just stepping back a bit, why are our clients using us? Well, our clients are using us because we've got kind of creds in the sector. So, whether it's financial services, healthcare, professional services, they're looking for people who've ideally done something in that sector sub-sector before or know enough about it more generally to be able to do it. So you're selling yourself on creds. And then, secondly, you're selling us on I don't know where this phrase comes from, but we use it time and again.
Speaker 4:It's that kind of commercial gut instinct and what we mean by that is okay, you're buying a business strategy is all about a few things you're going to do and really focus on those and just kind of almost ignore the rest and just focus on those things.
Speaker 4:So really, the commercial gut instinct. This is okay, great loads about the wealth management sector, but actually within that wealth management sector, you're now looking at one business, one of the key drivers to pull or not to pull in that. So when we're looking for and this goes for any of our hires, but particularly at the senior ends we need people who can move the needle in both those areas. They need to have creds and they don't necessarily have to have done strategy or cd before. But if you haven't, you need to have a really good understanding of what drives the business now. So that means you might be in a council, you might be chief strategy officer, you might be in sales first and but those are the things that people are looking for. Of course you also need people who've got you know, who are personal bull, who've got excellent commitments kind of client service you can turn things around who are willing to work hard. But those two bits.
Speaker 1:If you don't have them those first two bits there's no point in hiring people okay if I'm a private equity firm looking to put money into, say, a consultancy, and you're taking on part of the due diligence for that. Perhaps how do I know if my leadership team is in a fit state to satisfy the requirements of the private equity? Because everyone says that the senior team is one of the most important aspects of a purchase or an investment in a firm. But how do I know I'm doing well there?
Speaker 4:so I'm going to be. I've stolen this off somebody else actually. So, uh, you can take this bit out of credit saying graham road knight at l cap or drax for this, so I suppose they're for second. He then sits. So we're giving commercial gd diligence advice.
Speaker 4:We're not giving what I guess is called management cd or talent development advice, but we are often asked for our opinions on that and the way we kind of sit there and think about it is there's a capacity thing. Do you have enough people? Do you have a sales function? Do you have a coo? Do you have a cfo? What quality of information we're getting? It's difficult to tell how good the people are, but you can tell how good the information is, how they think about. You can get some sort of judgment there, but we would be thinking about it in terms of okay, you're in a particular sector, what experience does the management team have in that sector? The functional experience, save sales, coo, cfo, etc. They have enough there.
Speaker 4:Something around the situation. Now the situation's quite difficult to tell sometimes because a lot of it's just organic growth. Okay, well, do you have a proper talent acquisition engine, for example? Or it may be that the business plan is driven by by built or international experience. So that's the situational bit do you have enough people got experience there? And the final bit, which we don't do, because you bring in specialists to do this and it is kind of witchcraft sometimes it's kind of the behavioral bit, how the team fits together. And that, I think, is where what we're doing commercially then would fit naturally into what kind of carolines firm is, I imagine, is doing where we would stop there and go okay, you probably need to get some leads, go look at it brilliant, thank you.
Speaker 1:This leads quite nicely into carolines area, which is imagine again, I'm the CEO of the consultancy and I'm perhaps three years from sale. I want to strengthen my leadership team. What should I typically be looking at? How would I go about doing an audit of my people's strategy? And, to be honest, I probably haven't got one. I think we've all met firms that have a hundred plus people, don't have an HR officer or HR director.
Speaker 2:No, absolutely.
Speaker 2:And the first thing I would say is that, following on from what Simon was saying, I think a key thing you need to think about is making sure that the business is not overly reliant on one or a very small number of key individuals.
Speaker 2:So actually, when you get to the point of purchase, you can demonstrate that actually that business generation is coming from a number of people.
Speaker 2:The highest risk is a founder who is doing all of the sales, who then suddenly will leave as part of the exit and actually there's nothing sustainable below them. So, in terms of that people strategy and thinking about where do you start, obviously the whole wealth of things, but essentially I would be thinking about how do we ensure that actually we have a number of people across different sectors or capabilities or whatever our area of focus might be within this business that are driving business development and that we can see those people are then supporting that in the kind of leverage model below them? So not only have we got kind of, potentially, say, partners who are driving that, but actually a track record of directors making it through to partner directors who are delivering a certain managed revenue target, who are managing key accounts and the reason that obvious flow through it, because essentially, what you're looking for is something that demonstrates the level of sustainability in the model, that it's not overly reliant on that one person.
Speaker 1:So if this is the aim by the time we get to sale, then presumably this is something that we need to start preparing for at least two or three years prior to sale.
Speaker 2:Yeah, undoubtedly, undoubtedly, and it's likely to be a mix of obviously bringing people in externally, but also really having those processes internally to ensure that you are developing talent through the business, so that you can, of course, there will be some level of attrition, and so that you can start to build some sort of track of people coming through the organization and start to think, well, where will these people be in two or three years time?
Speaker 2:And then, essentially, what does that mean in terms of the gaps we need to fill? So, if, in three years time, we need to be at a certain level of revenue, we're anticipating we're going to be working in these spaces, and whether that's about going deeper in what we do now or actually broadening out the sectors that we operate in, or adding new consulting capabilities into the sectors we're already servicing. Well, let's look back in terms of our. If we start to do some succession planning, where will our senior managers and our directors be in two or three years time? How do we make sure that we're putting in place a sustainable support system for them to be on track and get to that point? And what does that mean in terms of gaps? And then those gaps are then what we're going to need to fill through external hiring most likely. That's a fairly simplistic view, but that's where I'm with.
Speaker 1:Well, I mean you say it's simplistic. At least in my experience, it's something that many firms haven't got to, even to that stage. I'm interested on the. I mean, obviously we want to be doing this internally. If we can, creating great people with great competencies and managing our succession planning and all the rest of it, what are the obstacles that get in the way of that happening from your?
Speaker 3:experience In terms of the internal capability building.
Speaker 3:Yeah, it's an interesting thing because, particularly when you think about looking ahead to an equity event to maximize your valuation at that equity event and actually I like thinking about equity value because it doesn't really matter whether you're going to sell the business or not if you build equity value, which is essentially predictability of cash flows, then that's pretty good as a business owner, whether you're selling or not.
Speaker 3:So if you think about that predictability, you've got that, the internal track of developing people that you want to make as predictable as possible, and then you've got the external track of bringing people in. I think in the current environment, that internal track is actually quite challenging because people are moving firms at a faster and faster rate. So there's a number of different things in terms of obstacles. To demonstrate that internal pipeline, you need to show that you can keep hold of people for as long as possible and develop them. But you also need to show that you've got that talent acquisition engine that can find the right people and make them useful as fast as possible. So if you are able to acquire people their value accretive within six weeks rather than six months, it makes a huge difference to the story you're able to tell when it comes to exit.
Speaker 4:I think that's right One of the bits we see a lot of the time. So I work across financial services, professional services and tech and every business is a people business. But this is obviously particularly in the consultancies. That's absolutely it One of the key questions. We always sit there going okay, you've got a business to your point earlier, joe, you've got a business that's doing 20 people and you want to get to 120 people in three years time. Okay, great, you need to go and find 100 people net and that's net of all the churn you're going to get and the people who don't work out.
Speaker 4:Okay, so let's say, picking numbers here, you need to go and find 150 people over the next three years. I mean, that's a completely different business by the end of it. And how many people have you got doing recruitment at the moment? What's your actual acquisitions kind of process? And then the next bit is aware of the sources and how many people are there in those sources. So we did a piece of work last year where we actually managed to get quite comfortable with our investor on a particular sub-sector. In the UK we reckon there might be about 5000 people broadly at a senior level in either in consultancies or in this particular industry, who you might be able to attract and convert into these consultants? Now, we don't normally get that many people, but that's to a certain extent that's an informed guess, but it's trying to quantify that kind of problem. So, yeah, I completely agree. That's just absolutely a critical commercial question to answer.
Speaker 3:I think the other side of that is that, well, another obstacle that people run into is when you're trying to hire at that rate, how do you do that without diluting quality and diluting culture? And that comes back to again. Starting with the end in mind, what are you trying to achieve? What do you want the business to look like at X years in the future? What, therefore, is your strategy to achieve that? And what, therefore, capabilities do you need to be able to achieve that strategy?
Speaker 3:And if you get really crisp and clear on all of that and for each of those capability areas, what does the progression look like? What does mastery at that look like versus the basic level and what everything in between? You can then use that to drive your recruitment process and your skill development process as a way to maintain quality when you're hiring at scale, even if you're experiencing churn. And if you're experiencing churn I mean it's not ideal, obviously, but if it's people churn within a predictable range so that you can explain why it happens like that, then that will give a potential invest to some confidence that you know what you're doing, which a lot of this boils down to that.
Speaker 1:How would I, as the owner of a mid-sized boutique who perhaps nobody's heard of other than my employees, a few clients, my mum go about attracting high quality people that could perhaps be choose to go and work at Boston Consulting Group or one of the others, or set up by themselves and earn a vast amount of money? How can I maximize my chances of creating that recruitment machine that investors are looking for?
Speaker 4:Right If I go first, then Derry and Caroline can tell me where we're going wrong, like free advice therapy. So there's a few things there. I think it's also really interesting that points around the big firms and the big four in particular. As a small firm, we're a small firm reasonably well known. Reasonably well known in the very small market. Right, when I say small market, there might be two or three thousand people in the UK private equity mid-market and probably half of those who are armstrong. But where we try to get to is at senior level. There are a few filters you can apply.
Speaker 4:One of the challenges we have is a key shape or reason that find a mind to grind is really helpful in this kind of context. What we find is that we expect our engagement and we expect a lot of our engagement managers and our senior consultants a lot more than we find the bigger firms do. So we're not expecting people to sell, but we see business development, client handling. That's just a key part of the job end to end running projects and within that we actually struggle to hire a lot of people from the bigger firms because they've either been a finder and they haven't done something end to end, they haven't spent quite much. Or then you get moved up to this mind role and quite often they've actually said this to me in a job interview we're interviewing an expert on candidates who went to one of the big firms a couple of years ago.
Speaker 4:We send up with people who are babysitting the whole time and that's kind of their use. You can't sell and you can't do the work. So we've sort of done some employee Fairfax, then gone. Actually, to come in at the senior level pretty exceptional probably means coming from one of our competitors, which is hard anyway, because why do you need to come to armstrong? All the alternative is within just committing to. I start that we're gonna be bringing in kind of crowds and people the bottom levels can't grow from there, so I don't speak to other people in the space is similar kind of. It's a similar kind of challenge, whether you're in our specialist area or something more broadly.
Speaker 2:Yeah, I mean we do this a lot because we only work with big firms, so they all have the same sort of challenge that you described and most of the funds we work with and not really really well known, and a big part of that is thinking about what that employee value proposition is and how you differentiate yourself so genuinely. Why would someone come, want to come and do this? What are the? And that will narrow it down to a relatively small group of people who are lying with that particular candidate. So so a huge number of people from the big four will not want to go and work for a smaller firm. There's no good reason why they're chosen to work for the big four and they want to be a partner and so on. But equally, we speak to quite a lot of people, look at the big four partnership and think I don't want to be part of that. I'm looking for something different. So it's really important to understand what are the differentiating factors in your business, and there are a whole range of things that come into that. There's going to be a piece around remuneration. That's part of your employee value proposition. There's a piece about culture and genuinely what it's like to work with you, and that is an area where smaller firms can often differentiate, because it does feel different and there is it's often very attractive to join a smaller firm if you are interested in building a business because they will have a senior you get within Deloitte.
Speaker 2:The chances are that your voice is still quite small and you're not going to change the future direction of the business.
Speaker 2:And let's be realistic, and then I think the bit of people really overlooking that when you're trying to hire senior people, essentially what you're hoping that it will come and do is quite a lot of business development, client relationship management, people developments, all of those sorts of things.
Speaker 2:And so they've got to be able to look at your firm and say there's something here that is more interesting than what I'm doing at the moment. And, specifically, you know, if I have a network of contacts, if this business going to be able to enable me to take something to my clients that I can't do at the moment, so that I can go to my clients and say I've made my move to X, consulting some genuinely excited about the capability we have in X, the specialism we have in Y, the way we do our work, which is better, more interesting, better for you, mr and Mrs, mr and Mrs Pryor, than Deloitte and therefore and that's the bit that hooks people in and of course, if they believe that, then they can take that exciting thing as a proposition to clients. They can financially benefit from that personally as well. So that's the bit where I think people forget to think about how they sell to the candidate and how they articulate that.
Speaker 3:I would just agree with all of that. I say that, like the two or three situations I've seen, worse boutique firms are able to hire out of or hire alumni of the bigger firms one sector specialism. So, for example, when we were at Crader we had a pretty decent healthcare NHS practice. We were able to hire Bain managers who really wanted to do health care that weren't doing that at Bain because they didn't really have that, that sex, to come in and really give us a boost in that area. The other side is flexibility and lifestyle. You're just never going to get good flexibility and lifestyle in a big firm and some boutiques are able to offer that.
Speaker 3:One of my clients is a mid 20s head count firm at the moment has just hired one of my ex Bain colleagues as a director there, largely because it's interesting work. He's able to be still be the primary care for his kids, so he has the flexibility to get home, do school run, take the summer off with them etc. Which again very difficult to set up. And then I think the third angle, which is a bit is hard to put down a story, but is about the sense of ownership and progression, as Caroline referenced. That can be a draw for some people, although I don't see a lot of people leaving firms just for that. You've got one of the other things in place as well, in my experience. I'm sorry there is a set.
Speaker 4:Sorry, but there's a completely agree with that. I think that bit about progression and we try and I think it's helpful in a way. Actually three of actually the kind of the five senior people are strong enough to have a strategy consultancy background. So we don't know what you know, we don't know what other strategy consultancy do other than what we're told. But I think we see it very much as the partners sell do a lot of the heavy lifting, but our job is actually to give support to the rest of the team right to help them progress.
Speaker 4:And I think having that kind of mindset shift is difficult to prove to people and interviews. It's difficult to move the needle in the more senior roles. It does definitely make a difference at the junior level, but it's also kind of how you then get people, how you retain people and get them through to the more senior positions, because you kind of have to show that commitment somehow, that we are committed to their development, and it's really difficult to say all the things you want to say. You actually have to show us. That showing is what we try to do.
Speaker 1:I have another hypothetical for you, but, as you'll realize, it's not an uncommon hypothetical, and this is when I have started a firm with two or three mates. We've all put money in, we've spent 10 years building it up and we get to the point where perhaps I in a sale in a few years time. But there's Colin, who's one of the partners, who actually has taken his foot off the gas for the last few years. We've appointed a CEO who perhaps has come up through the firm and we haven't trained him or her well enough, and perhaps there we've got doubts about them. And then there's Claire, who's doing incredibly well but has told us that she's going to be leaving in six months time so it is a fairly standard leadership politics and challenges amongst very senior people.
Speaker 1:How do I assuming I have the cash how do I go about getting a team in place where I think these guys can manage the next stage? So I'm going to recruit a set of partners or a set of directors, even who will have the confidence, who will generate confidence and from buyers or investors. So let's assume that getting you know the employee, the value proposition, is fine. How do I go about I don't know the political side of things really having those conversations with the leadership team, moving people out of roles that perhaps they're less suited to and replacing, perhaps, some people with more professional, more experienced people that are set up for growth.
Speaker 3:I mean.
Speaker 3:My perspective on that is this stuff is too important to hide behind the politics and the fear of upsetting each other.
Speaker 3:You've got to find a way to have really honest conversations about what's necessary to get to where you want to get to, and if that means external facilitation that will almost verge on group therapy then you've got to do it.
Speaker 3:I've heard really good things actually about people implementing EOS entrepreneurial operating system and using an EOS facilitator to drive those kinds of conversations. I haven't been through that experience myself that external facilitation and the honest look at what is it going to take to get this business where it needs to be and forcing people to face into whether they are really prepared to commit to what they need to do. I think you've just got to cut through the politics and make people be as honest with themselves as possible, and in some cases that will be people who are not being honest about how capable they are and people are overly self-effacing about their own capabilities. And you'll get other cases where people are not facing into gaps that they've got and they could be soft-skilled gaps around empathetically building a team and leading in a conscious way, just as much as they could be hard-skilled gaps like getting the revenue in the door.
Speaker 4:And just answer. Sorry, jay, I'm one of the investors and surrupters, if you haven't realised already, so feel free to read it out entirely. I completely agree, Derry. I think the way I'd be positioning this is think about what an investor is going to be looking at in your company. It doesn't need to be perfect, it doesn't need to be finished. Just be honest in that. In terms of the senior team, be honest around how long people want to be around for. Is it two years? Is it three years? Is it 10 years?
Speaker 4:If somebody's investing into you or if you're selling to a bigger firm, they're quite different situations. Everybody has to be honest. And then you have to look at the sort of where Caroline's film will come in. Then you have to look at the layers behind that CKWL versus the next role profile these people be stepping up into. Where are they relative to that? Have flat profiles, biking profiles? Where are they on that training journey? So for me it's very much. It's the story. Now the story needs to be backed up by evidence, it needs to be true, but it's the story you're telling to a potential investor.
Speaker 4:As a potential investor, in many cases it's going to be actually great to know what we specialise in. So we have a client we do a lot of work for where they have a. I'd name you no names, but they would be one of my number one picks to recommend consulting businesses to go and speak to you because they absolutely specialise in that kind of talent acquisition, talent development piece. They can really, really help there. So if you go to them and say, hey, we've got three partners, we're missing a layer of management, they'll sit there, help you, think about it. They might say to come back in two years time when you fix those things. But it's not a no, and I think a lot of people get very scared about that. We haven't got a COO, we haven't got a CFO, we haven't got a set. What are we doing? No, no, no. That's don't need to be perfect before you come to sell.
Speaker 2:I think the thing I would add is the scenario that you described, joan. We see this quite a lot. You're absolutely right. It's often something that's sort of been left to fester over time. The more you try and ignore it, the worse it gets. So my advice to anybody listening who sees this as an imminent or even a problem next to you or the year after would be to try and address it sooner rather than later through that kind of open dialogue that Derry's describing.
Speaker 2:We're going into so many scenarios where we end up having this sort of download of historical sort of toing and froing where we try to address it but we sort of swept it under the carpet for a bit longer.
Speaker 2:So face into it and have that conversation. And the second thing I would say the more you can do right from the outset to align people in terms of the direction of travel for the business, so that we are all trying to get to the end point and we're kind of open about how we get there, in the fact that we're trying to get there. We may not always be the right people and we're all open about the best. You know, I was with the firm last week and one of the directors said to me of course we're going to sell, but we haven't told the other directors. They're not actually equity partners, so we're not telling them. And of course then they're all off in some other direction over here because they haven't a clue that that's where we're trying to get to. So it's no wonder the behavior is then a lot of lines, because they can no idea where they're going.
Speaker 1:Yeah, I think the point all of you have made about honesty and ripping the plaster off early is so crucial. I've seen several firms and I'm thinking of firms at different sizes where it's almost like you get a splinter early on and you're likely to get an infection down the line, and infection requires a much greater degree of intervention than a splinter. And I'm thinking specifically now one very successful firm that paid virtually no attention to it. You guys might know who I'm talking about, but I don't want to mention them by name. But they did very well on the sales side of it. They've got a very strong leadership team, very bullish, very aggressive, but paid very little attention to the people side of things further down the organization and now, if you look them up on Glassdoor or something like that, they've got a three out of five, which pretty much kiboshes any chance you've got at recruiting decent graduates, which is what they're trying to do now.
Speaker 3:The other point I'd add on that, joe, your point about infection is if you've got cultural clashes and lack of honesty at the senior reaches of the firm and you let that sit for a long time, that can only cascade down in terms of the culture in the rest of the business and then it's nowhere near as simple then as a honest conversation between three people or even one of them leaving. It takes a major reset to change the whole culture of the business like that, because you've ended up recruiting people into that culture and over time. So it's not just a splinter to an infection, it's like an exponential rate of infection.
Speaker 1:And it's COVID. I wanted to talk specifically about roles, some roles within the firm that commonly will be recruited by boutique, as it goes from 30 to 150 people. These are the CFO, the chief people officer, the COO sometimes won't talk about the CEO. I mean, that's obviously a role that you want to promote to or recruit for outside of the founders, but what order do you see that? I've got my idea in my own head, but what order do you see there? I guess starting with Caroline is perhaps you've got more experience here but order do you see those coming in in terms of your average boutique, bringing on different specialist roles?
Speaker 2:That's a good question and there's sort of not avoiding a question. But it's not quite as difficult as that and the reason is it slightly depends on your original kind of founder leading team. So we do sometimes work with teams where perhaps the business has been founded by three or four people and one of those people either trained accounts and has taken on finance and operations and manages to do that quite successfully for quite some time, Whereas if you don't have anybody with that capability in the business, then to have somebody who can look after back office operations and perhaps oversee some level of finance, maybe oversee some external suppliers, would be the thing that you would need soonest. I do think we're recruiting a chief people officer for a firm at the moment there are 120 people and they haven't had that before, but they've had sort of more junior HR people. I think they're probably a bit late to the party in some regards, given how quickly they've grown and how much a junior HR person can do.
Speaker 2:So that is a critical role because I think Simon said earlier, these are people businesses. Of course people are important in every business, but in this type of business if you haven't got the people processes working well, then you haven't got anything to sell because all you've got is people's time really at your disposal. So that's really important too. The other one in terms of non consulting roles is marketing, obviously, and I would advocate going for somebody relatively capable, internal, relatively quickly on that side as well. I'm not sure that entirely answers your question.
Speaker 1:No, it's just kind of well, we'll fill out any gaps with Derrion and Simon. What's your experience guys?
Speaker 3:I think for me, I mean I largely agree with what Caroline said in that it does depend a little bit on the skill mix and the proclivity within the founding team. So if none of your founders are particularly empathetic, people oriented folks, then you're going to need that capability in the business a lot earlier. I think there's a huge difference for people joining a firm that is 100 plus versus joining a firm that's like 20 to 30 people, because once you get to 100 plus it's still a small business but it no longer quite feels like a family. But you join with an expectation of a certain amount of HR process, that you're going to get reviews and a certain structure. You're going to know what you need to do to get promoted, your bonus and salary choices are clear, there's policy in place, et cetera. So I generally see firms that do this well. They're getting a reasonably senior HR person in place when they're 50, 60 plus people. I would I'd agree with you, caroline 120 feels a bit late to me. The risk with that is that if you just hire that one HR person without any of the supporting stuff in place underneath them, they are going to be absolutely swamped, which was the scenario we had at Crader. We hired a really good head of talent but we had this expectation I had this expectation, constrained by the budget that I had that she would essentially do everything and she was absolutely run ragged and she did the best she could. But it was a false economy to not have some more junior administrative support working with her.
Speaker 3:I think on the finance side it does depend a little bit on how complex your finances are and whether you've got a grip on project profitability and things like that. I think if you've got a decent accounting firm and you've got a bookkeeper and you've got finance minded senior folks, then you can cope without an FD for quite a while. But I would still have someone in place when you're at 40 or 50 people and I was essentially the first CFO credo and books were in a total mess and it took a long time to sort them out because we hadn't had anybody with and I wasn't a professional CFO either right, I wasn't an accountant we had not anyone with a professional eye look over them for quite a while. And again, business coped fine and we sold it. But it could have been better.
Speaker 3:And then I would just back up Caroline on the marketing point as well. I think, particularly in the current climate, marketing for professional services is shifting at such a rate of knots and what is necessary things like building personal reputation and personal expertise out on LinkedIn and producing content and all of that stuff that's top of funnel to get a foot in the door and demonstrate your expertise. You need somebody who's managing all of that, whether it's an internal hire or you're outsourcing to a specialist, but that has to come in pretty early on, I think.
Speaker 1:I mean my feeling on the marketing side of it I see this obviously quite a bit is that having that balance, having somebody internally who knows the firm, who knows the services, who can write the content, is on the phone with the CEO or the partners every day is a crucial linchpin to having an external team. I've seen external teams work very, very well, but I haven't seen them work well in content creation generally, but I don't know if that's your experience as well. But on the CFO, I agree, I tend to see almost a junior bookkeeping version and, as you grow, perhaps a fractional CFO moving to. You get to 100 people, a full-time CFO and then, when moving to sale, getting on board, perhaps as a board member, someone that's been through the exit process a few times doing the finances, because it's obviously a different game when you get into mergers and acquisitions. I mean, simon, you know more about this than any of us, I guess.
Speaker 4:Yeah, I think it's difficult. I think there's something here where at each stage of the business development so this is really hard. So I'm not saying what you need to do is this is really hard. You kind of need to be doing just enough. So just enough structure, just enough clarity, just enough support. So what does that mean? It means actually a lot of businesses are pretty complicated but actually quite often the professional services businesses, the consultancies, they're delivering a very complicated product but the kind of the underpinning of businesses runs, to be simple, and I think people, for example just enough people think they can get away with Excel spreadsheets for invoicing for a lot longer than they really should do. And actually if you move to, you know there's plenty of PSA, professional services, automation systems out. So without giving any free plugs to people that there's enough out there, actually it's a mindset shift. Rather than having Excel spreadsheet for time sheets, another one for utilization, another one to stick it all in there, and that actually almost pushes out the time that you need to have a kind of more professional full time CFO, because actually you get the systems doing a lot of it for you. So to your point, joe, you can actually get away with support from your accounting firm and then maybe a fractional CFO really for quite a long time.
Speaker 4:I think. And I think even if you're thinking about an Excel, obviously, depending how complex your business is, you probably really need significant time from a CFO. When you're actually thinking about getting external investment, whatever it looks like, you need somebody to go and build a financial model. You need to be getting somebody who really understands the details of that model, how it ties back to KPIs, what does that mean? And, crucially, by that stage you're then into kind of the false economy thing. You don't want to have one of the partners who should be off doing sales, doing a CFO or doing a CFO job, because then you're into kind of a cost versus value conversation. You're trying to save 30 grand on a 50 grand whatever number is on a fractional CFO. Actually, you should be spending that to your sales partner who go off and do delivery.
Speaker 4:So I see it very much as it's really difficult to gauge this, but I see it as very much as a just try and do, just enough. Have a look every three, six months where you are, because things can change rapidly and if it's time to change grades and if you think you can keep on going, that's fine as well. There's very much trying to figure out what's breaking the business. I think on the finance side I'd look at automation and support from your accounting firm with a mind test right where you get really to go to fractional CFO in one day and week. But I think on the people side I think it's really short. Caroline Derryce, I agree. I think the earlier you have a clear talent acquisition strategy of figuring out who's doing it, the better.
Speaker 1:Yeah, great, one role we haven't mentioned. I realise we're coming up to time here, but one role we haven't mentioned is the COO, and I have seen some firms appoint this and others ignore it completely. You know even 250 people. Have you had experience of appointing COOs and if so, why would you do it rather than not do it? Caroline, I guess you've probably got the most experience here.
Speaker 2:Yeah, I'm quite interested in Derry's view because I think you're very close to this role in particular, aren't you, Derry?
Speaker 3:I was a COO so I'm probably not entirely objective about it either, but I think it's a critical role for freeing up the leadership. To Simon's point of there is a Most of the partners, most of the senior people in the firm, should be primarily focused on clients in some way, whether that is sales or delivery or ideally both, and building the team and the IP that underpins the business. And there's a lot of operational stuff that I think needs to get done and can get done incredibly efficiently if you've got the right person putting those processes in place. Particularly these days when automation tools so easy to use, like you don't need somebody who can code, you just need someone who can understand how to hook various systems together through no code tools and have an eye on process efficiency. There I see it. So I personally I think the operations lead whether it's a full blown COO or somebody else is a really necessary role. To the extent that I have that role within Honeycomb, even though we're a very small business we're only a team of five people I've got an automation lead and she spends all of her time automating our processes for us.
Speaker 3:That said, I think that I have seen this fall down more often than I've seen it be successful, primarily because people don't understand how to scope out that role properly and they don't understand how to hire for it, and there's a tendency amongst some consultancy owners to think this is all the easy stuff, this is just putting some processes in place and etc. It's not hard stuff like delivering value for clients, it's easy stuff. They under hire for the role, they scope it poorly, it's way too broad. It's take all the boring stuff off my plate for me, please, and I don't want to spend a lot of money, so I'm only going to hire someone relatively junior to do it and I've seen that fail multiple, multiple times. The only time I'm successful is when they've committed to it as an important role and they've paid appropriately and hired somebody really good to do it.
Speaker 2:Yeah, I know I would agree and I think my sort of my head, you, my bets at the beginning now is because I've seen so many firms and not set CROs up for success that I have mixed news about it. So the role itself, when done properly, I think, can be super helpful, but if you don't know what you're getting into and don't enable that person to be successful, then it's not worth thinking about. I mean the other role that we're seeing more now and I haven't really seen this so much until quite recently more firms that we work with hiring also a chief of staff, which isn't the same thing, but it's interesting in terms of the kind of support that that lends also to the senior team, enabling them to be more successful, when typically many of your senior team are also very client facing, as you say.
Speaker 1:Just sort of note of clarity Tell me how a chief of staff differs from a CPO or COO.
Speaker 2:Thank you, yeah, I mean you can have all a mix, and it's slightly different in every firm. For sure, certainly, where we see Chief of Staff being very effective is in terms of taking, I guess, those sort of internal projects that are typically the responsibility of the most, you know, the senior leadership team and making those things happen. So those are the bits that are less about run the firm and more about change the firm. How do we kind of prepare for the next step? And it's such a big part of your leadership role is about how we're helping the firm evolve. What does that mean in terms of the things that we need to do differently? And it's often very hard to find the time to do that and I think it can also work well as a very once you get to a certain side, I guess almost as a sort of internal facilitator of those projects, in a way that the leadership team wants to be but can't always be.
Speaker 4:Yeah, I was going to say on that. Actually, kara, you probably said what I was going to say. I'd probably phrase it that our kind of way of looking at it is, when we're doing C2D or thinking about our businesses, there's a how do you want to call it COO, head of operations role, and their job is essentially to take away stress and time from the teams doing sales and delivery. So those people have got the time and the headspace to go and do more sales and delivery. Essentially. Now, that doesn't necessarily mean that the consultancy team isn't doing any of any of that admin. It's more to the extent we can either automate, still give it away, than that. That's what we're trying to do. That I think that's the bit we would try and see. Sometimes that's automation, some of us more junior staff, but it's very much focused on what's causing us pain. I think that focus has allowed us there's still enough pain, because there always is it's actually allowed us to identify the highest value areas, to take out the other role just briefly, on the revenue side that we see, and it's not necessarily head of sales, as in you're running the sales team, but it's a head of business development, head of CRM, something like that we think is interestingly a key role In the small consultancies.
Speaker 4:You've got 20 people, 40,000 hours a year, after holidays and things, maybe you're doing 70, 75% utilized chargeable work. What does that mean for BD? We might have 8 to 10,000 hours BD time on a team that size, which sounds like a lot depending on which sets you're in. We're even going to spend that time in the head of CRM job as essentially not trying to referee. Maybe sometimes doing is trying to referee. But actually okay, we've got a sales strategy Are we all sticking to. Are we focusing on it now? You can't be too prescriptive on something like that because you never quite know where things are going to go. We've seen that in a few recent deals as well.
Speaker 1:Interesting. I run a boutique leaders forum and we had a conversation recently about hiring sort of chief business development officers. But I guess there's two roles there. One is more process driven what's the sales strategy? How do we map it out? How do we stick to it? How do we hold it accountable? Then there's the big rainmaker, who you would hire in on vast amounts of cash or at least revenue share. Who can go out? You know? Typically someone coming up to retirement with a big black book, and everyone had stories of that role going wrong, apart from one founder who said it completely transformed his firm and he was flying off the back of this black book. But the risks obviously are that the sales process becomes dependent on that person and it ends up with the tail wagging the dog rather than the other way around.
Speaker 2:I would support the former hire and not the latter. I have to say where people come to us and ask for that sort of rainmaker. I'll be honest, I'm highly skeptical because I've seen so many times where it doesn't really work very well and people expect that that's suddenly going to transform the fortune.
Speaker 1:And if so many people cost, as you will know, then they don't cut cheap either.
Speaker 2:No, no. But actually there are a whole number of reasons why that can be difficult. One is unless actually you've come through the route of delivering the kind of service that you're now going out to sell, it can still be quite difficult to introduce it effectively to your black book to a point where it really turns into sales. I think the black book is a bit of a myth. To be honest, I wholly support people being good at networks, building their professional brand, maintaining contact with people, and I think that's something that you should do as a proper kind of process that you build into your ways of working. But the idea that you hire somebody and you're buying their black book honestly can't think of many examples where that's really come to fruition.
Speaker 3:Yeah, I'd agree with that. I've seen countless examples of people, particularly people coming out of larger firms, who even just at the partner level not specifically with a business development hat on, but they expect they felt like their clients loved them when they were in their previous firm, that they're all going to come with them and it turns out that actually they didn't love them quite as much as they thought. And all of those black book relationships aren't quite as ready to open their wallets as they might have imagined. So I'd be very nervous about that kind of hire, particularly on anything other than a heavy success fee model.
Speaker 1:Brilliant, okay, well, listen, I'm aware of time and I can only say thank you so much for your insights. It's quite rare to get three such brains together on something like this, and so hopefully there's some real value there for some of the listeners. So, thank you. I'll put how people can contact you in the show notes, so do please look there if you're listening to this now, and I need to say thank you, simon, derry and Caroline. Thank you so much, thank you.
Speaker 3:Thank you all. Pleasure. Yeah, thank you.
Speaker 1:As ever, thank you for listening to the Consultancy Growth podcast. This is Professor Joe O'Marney at JoeO'Marneycom.
