Consulting Myths: revenue grows with headcount, and 6 more silly statements

We all have a few go to phrases that seek to describe business realities yet so many of them miss the mark completely. Many are so ingrained in our culture that it's blasphemy to even question them. Oops - I'm doing it anyways!

 

7 False Statements for Consulting Firms

  1. To grow revenue, we must hire more people

    This business axiom fails to take into account concepts such as intellectual property and recurring revenue that can produce revenue that outpaces the number of employees.

    The underlying premise for looking at headcount as a component of revenue stems from the fallacy of "selling time". I've written about why timesheets and hourly billing are more harmful than helpful.

  2. The customer is always right

    We've all grown up hearing this one yet, if we were to take this to its logical conclusion, we would be left with a business that makes no one happy. The difficult truth here is that there are customers who don't make sense for your business.

    Ron Baker of the Verasage Institute, says in his book, Implementing Value Pricing: A Radical Business Model for Professional Firms (Amazon), that "bad customers drive out good customers". He is speaking of opportunity cost. When we prioritize the needs of customers that don't fit our business, we're sacrificing the needs of those customers that would be perfect for our businesses. Or said another way, we only have so many seats on our bus, when we fill them with the wrong customers, the ideal customers cannot ride.

  3. We'll make it up on volume

    The concept of "volume" has no place in the context of consulting. It implies that there are some economies of scale at play - that your business resembles a factory. Yet, we are in the business of building relationships and transformational outcomes.

    I've heard this phrase used many times and almost always immediately following a rate reduction conversation. In my experience, this stems from a lack of confidence in pricing and a failure to keep price and value (scope) in lockstep. We can do better here.

  4. Price is based on cost

    Cost as a component of price is rooted in industrial age thinking. Cost-based pricing inherently has no correlation to value. It leaves money on the table and, in the case of consulting, it creates an artificial income ceiling. Why should something that makes your client an extra $1 million in profit cost the client less if it took you 2 weeks versus 2 months?

  5. Business is a zero-sum game (aka business is war)

    Ugh! Are we in junior high again? This one stems from lack of confidence and lack of strategy. That's probably painful to hear, but it's true.

    When you want to be "everything to everyone" it does feel like any potential competitor is out for blood. It's just not true; at least not completely. There are always people, and by extension, businesses, that recklessly seek and destroy. That's the beauty of capitalism though; they will eventually implode when customers become jaded.

    However, when you find your niche, that competitor often becomes a business from your industry that has strengths where you do not. They become someone you can refer clients to that are not a fit for your firm. If that competitor is not asleep at the wheel, they'll wise up to and return the favor. I’m a huge proponent of win-win scenarios.

  6. If you build it, they will come

    I know, I know. I like Kevin Costner too, but this isn't the Field of Dreams. To me, this correlates to the Marxist Theory of Labor that has failed massively every time socialism has been tried throughout history. Just because you put in effort to create something, doesn't mean people will find value in it. At least not necessarily enough to sustain your business. There is even a term that essentially implies the opposite, "product market fit".

  7. More market share means more profit

    For consulting firms, I could argue this is closely related to myths #1 (to grow, we must hire more people) and #3 (we'll make it up on volume). Just because you gain market share does not mean you'll increase revenue, let alone profit. There is no explicit correlation between them.

 

What are some of yours? Please share in the comments below.