Quality intellectual property (IP) enables any consultant in your company to deliver superior results to clients, compared to what they could deliver by working for a competitor. So the question to ask yourself is this:
How much more valuable to a client is one of my expensive consultants, compared to an independent contractor who has no overheads to worry about?
My consultant – independent consultant = ∆ added client value
What’s the delta difference in your firm? If it’s zero you are selling bodies with no IP added value and no differentiation. And this is a dangerous position for a company to be in, especially one that is interested in driving more profits and equity value.
When we talk about IP we are not talking about patents, copyrights, or trademarks, although they may feature. In a consulting firm, value is created by reducing risk, increasing differentiation and showing sustainable growth performance. IP is about having a professional process for codifying, organizing, storing, securing and centrally leveraging the assets that enable your company to perform well and make it stand out in the crowd, independently of any individual in your firm.
There are three main areas of IP:
These are assets that enable you to sell more at lower cost and shorter sales cycle times; material such as marketing campaign models, case studies, thought leadership content, sales and marketing collateral, pitches and proposal templates.
This IP area is fundamental to scalability and value. It’s where profitability hits the road through leverage, because we can sell services at premium fees using less expensive resources. Here we have our training systems and content, client facing tools and templates, assessment models, benchmarks, datasets, technology enablement of delivery and more.
These are the tools that keep the boat going in the right direction with continuously improving performance. It includes your CRM system, KPI tracking system, resource planning, pipeline management, finances, client contracts and pricing models, human capital training and management etc.
There is a symbiotic relationship between all three areas and a well-run IP building program yields faster and better results as it progresses.
A firm will have these assets across the board but how much is at risk and not being centrally leveraged as it’s in consultant’s head and on their laptops? Without an IP building program all of your assets are portable, you are unlikely to grow and your firm will not be an attractive proposition in the consulting M&A market.
When in serious discussions to acquire a firm, buyers of consultancies are principally concerned with three things, all of which are improved with a strong IP program:
- Is this business financially stable?: A track record of growth will mean a higher value for your company as the buyer will see little risk in your continued growth. The track record of growth to date will speak for itself and belief in the future will come out of the performance systems IP you’ve built for the running of your business. It will provide demonstrable evidence to support your continued growth story.
- Is there fast leverage in the synergy factors?: Your potential acquirer may see compelling synergies, but can they be monetized, how hard will it be to integrate them and how long will it take before benefit realization begins? If you’ve built great service delivery IP that has de-risked your business and provided you with leverage, then it should be transferable to your buyer. What you are doing with 50 consultants in 20 clients, they can do in six months by porting that IP over the ether to their 500 consultants in 200 clients.
- What’s left if the owners leave the day after the transaction has closed?: Your eventual buyer will be paranoid about this last point! They know that the moment their millions are in your pockets, no matter what the earn-out terms (assuming you get money up front in the transaction), your motivation and drive may change, or you may just decide to leave. From their point of view, everyone in your firm is vulnerable. However the more solid your IP, the better you will be de-risking the deal for your buyer.
IP is an essential tool in growing the value of a consulting firm. By having a strong IP program in place and working together, value and equity will grow more quickly. If you’d like to read more about building IP, please read the full article here.
Are you a member of Equiteq Edge? It’s full of content to help consulting firm owners grow and realize equity value in their business. Register here to gain full access.