How IP can make your profits fly

By Adam Blatchford, Associate, Equiteq.

Smart Scaling is all about growing revenues and profits while also building your equity value, as opposed to doing one at the expense of the other. Intellectual Property is central to that, it is a ‘win-win’ because buyers want it and it drives profitable growth in your firm.

Whether your firm generates revenues of $20m or $100m, IP differentiates you. It ensures clients buy your services, means you can deliver profitably, and makes investors love you. This blog will focus on how to achieve that in your firm.

What is IP?

In simple terms, intellectual property is any knowledge recorded and maintained as a usable business asset. In most consulting firms, this means ‘trade secrets’, such as process maps, methodologies, training systems and software tools, rather than just copyrights and trademarks.

There are three main types of IP:

  • IP to market the business
  • IP to deliver business
  • IP to run the business

All three are important, but in the context of Smart Scaling we will focus on delivery IP. See here for a deeper discussion of the three types.

Why buyers like IP, and why you should like it too

There are four key reasons why IP is important to buyers of consulting firms and why it is important for continued profit growth: Differentiation, Leverage, Scalability, and Risk Mitigation.

  • Differentiation – IP that makes you stand out from the crowd, delivering value for higher fees
    • Your people can deliver more value.
    • You can outcompete your competitors.
    • You can command higher prices.
    • IP protects your position in the market.
    • It makes you a more attractive acquisition target.
  • Leverage – using more junior resources to deliver higher quality work at lower cost
    • IP allows you to realize leverage because junior resources can deliver a better product supported by the whole firm’s knowledge.
    • That leverage protects profitability.
  • Scalability
    • Replicating a person is difficult, but repeating a process is easy; a firm based on IP is therefore far more scalable.
    • Codifying training and delivery IP allows teams to deliver high quality work, to train up new consultants faster, and to deliver your services to clients, without an expensive talent pool or subcontractors.
    • Buyers can use your IP to scale your offer across their organization.
  • Risk Mitigation
    • IP mitigates the risk to you and the buyer of key staff leaving.
    • IP also makes your consultants want to stay with the firm, by providing tools to make their job easier and knowledge to learn and grow.
    • IP allows you to maintain a high quality of delivery, irrespective of who delivers it.

How do I reap the benefits of IP?

  • Create Board-level Accountability
    • IP needs to be driven by someone at board level, ensuring it aligns to business strategy and market demand.
  • Involve People
    • Use your consultants to create IP
      i. Your consultants are creating IP every day, provide guidance and structure to ensure it delivers maximum value.
      ii. They are involved in day-to-day delivery, they know what works and what your clients need.
    • Use the IP creation process as a motivator allowing your teams to demonstrate and share their knowledge.
    • Set aside utilization time for developing IP.
  • Embed Processes – make IP creation ‘business as usual’
    • A knowledge management process is required throughout the firm to ensure it delivers valuable IP.
    • Plan, Create, Store, Communicate, Deliver, Review
      i. Have a process to capture IP that is created as part of client engagements.
      ii. You need an inventory of IP, and it must be easy to use, otherwise consultants will waste time recreating IP or ignore it completely.
      iii. Sharing knowledge across the firm, as part of events or through technology, will develop staff and make them more valuable in client delivery.
      iv. Review IP to make sure it provides value.

Key takeaways

  • IP is valuable to you and to buyers for the same reason – it supports profitable growth while mitigating risk
  • IP lets you use more junior resources to deliver higher quality work at lower cost
  • Actions to do today:
    • Give accountability to a senior team member.
    • Start the IP conversation – your teams are probably already creating and using IP that you don’t know about so don’t let that value disappear!

This blog is a condensed version of a more in-depth article. Click here for more information on scaling with IP.

If you are preparing to sell your consulting firm and would like to discuss your plans, please get in touch.

Are you a member of Equiteq Edge? It’s full of content to help consulting firm owners prepare for sale and sell their business. Register here to gain full access.

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