Top 10: What you were reading in 2016

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Welcome back to Equiteq Edge. A new year brings new opportunities for a fresh start. So, as you return to work after an indulgent festive break, we thought we’d provide a quick summary of some of the important things we’ve learnt over the course of 2016 – and that you can apply in the year ahead.

Here’s a list of the most read blogs of 2016.

  1. Sales and profit growth (Part 1): We discussed the importance of revenue and profit, how much marketing you should do and whether an earn out is a given.
  1. Sales and profit growth (Part 2): We covered client concentration, minimum revenue levels and new revenue models in the second part of our sales and profit special.
  1. Does your consultancy have a real value proposition?: Your consultancy’s value proposition is an essential part of its success.
  1. Why equity incentivizing your senior team can improve equity value: Awarding shares (or options) to the right people in the right proportions is one of the most powerful tools at the founding shareholders’ disposal.
  1. Nurturing client relationships to support equity value growth: Client relationships are at the heart of a consultancy’s growth, but they are not all created equal.

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How to create marketing IP that generates consulting leads

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By Jason Parks, Director – Strategic Advisory Services, Equiteq.

We spend a lot of time talking about the three types of consulting intellectual property (IP) with our clients:

  • IP to run the business
  • IP to deliver and scale the work
  • IP to market and sell the business (often referred to as ‘content’)

Of the three, marketing IP is the forgotten child.

Consulting is a crowded and vague market. You’ve got to be heard above the noise and differentiate yourself. To do that and sell higher value work, your sales and marketing engine has to have content that opens and closes sales opportunities.

Specifically, marketing IP does this by:

  • Reducing the perceived risk in hiring you
  • Making you more “findable”
  • Demonstrating expertise
  • Enabling your inbound marketing to attract better qualified prospects
  • Making your outbound marketing campaigns more effective

Simply put, marketing IP is an umbrella term used to describe any type of information used in some way to acquire customers. This information can be in the form of blog posts, articles, eBooks, DIY or how-to guides, industry news, question-and-answer articles, case studies, whitepapers, videos, podcasts, slide presentations — the list goes on and on.

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Sales and profit growth (Part 2)

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Lately, we’ve been running a series of free 30-minute webinars to help attendees grow the equity value in their consultancy firms and prepare for a sale of their business. Attendees at each webinar submit questions, and we’re going to be sharing and answering these questions in a series of blog posts. This week we’re looking at the final part of the Q&A session during the webinar on what your company’s sales and profit numbers say about how you run your business. You can read the first part here. 

  1. Which is more valuable to a buyer, a consultancy with (a) a lot of clients with lower revenue per client, or (b) fewer clients with higher revenue per client?

Client concentration is a risk for any organization. Buyers would be worried if your consultancy is earning 70% of its revenue from a handful of clients. This would cast doubt on whether the business would be able to sustain its current revenue levels should any of the clients leave or cut back on their spending.

The quality of your clients is a critical factor for attracting buyers, and it is important to have key clients that demonstrate your ability to service and sustain such relationships. However, spreading client concentration shows buyers that your offerings have the potential to be applied to their clients as well, and that your firm has resilience in its target market.

Tip: Try to diversify your client concentration and offerings as suggested here in our eight essential tips for planning for growth and exit.

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Sales and profit growth (Part 1)

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Lately, we’ve been running a series of free 30-minute webinars to help attendees grow the equity value in their consultancy firms and prepare for a sale of their business. Attendees at each webinar submit questions, and we’re going to be sharing and answering these questions in a series of blog posts. This week we’re looking at the first part of the Q&A session during the webinar on what your company’s sales and profit numbers say about how you run your business.

  1. What is more important in terms of growth – revenue or profit?

The answer is both! Ideally a buyer wants to see that an acquisition target can grow the top line while maintaining the profit margin at a healthy level (around 15% – 20% for most consultancies). Some consultancy buyers may pay closer attention to revenue growth, as this shows scalability of the business and post-acquisition, the profits will change as the target firm is integrated with the buyer’s business. However, profits are important as the key value indicator and if profits are declining, this may cast doubt on the way the firm is managed and whether the acquisition will be value-enhancing for the buyer in the short term.

Buyers are always looking to exploit potential synergy and scope for further growth, and they will ideally look for both revenue and profit growth as indications of market demand and good management respectively.

Ultimately, consultancy buyers are only interested in growing consultancies; one year of negative growth can set the clock back on the optimal time to sell the business.

Click here to find out which of your revenue streams are the most valuable to a buyer.

  1. What percentage of revenue should be allocated to marketing? Is there a cap?

It isn’t necessary to have a cap on marketing; however, every firm must learn to manage the amount of demand it wishes to create in line with its ability to deliver on the projects it wins.

For instance, if your firm is going through a period of high utilization and is working close to capacity, then you might want to hold back or slow down your marketing spend for future campaigns. The key is to do this without risking a dry pipeline once your capacity becomes free. Creating demand for services which you are then unable to deliver can be damaging for the business, so it’s important to balance your sales and marketing spend.

  1. Earn-outs are common when buyers acquire services firms. Can they be avoided?

It is true that earn-outs are very popular with services consultancy buyers. This is because these types of buyers usually aren’t buying transactional assets; they are buying people and their capabilities. The risk is that if all of the money is paid up front, owners and stakeholders can leave or become less motivated to continue to deliver. To alleviate this risk, buyers offer earn-outs.

Sometimes, to make the proposal more competitive, buyers would offer a differently balanced earn-out without increasing the value of the overall offer.

But, while earn-outs seem to be the norm, they are by no means absolute. It is not unusual for non-consulting buyers to acquire a consultancy outright.

The second half of the blog will be published in the coming weeks.

To sign up to listen to a recording of this webinar, please click here. To view other webinars in the series, please click here.

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.

Dealing with your own perception of selling in order to sell your services firm

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This week we have a guest blog from Lars Tewes, MD of SBR Consulting. SBR Consulting is a sales transformation consultancy that works closely with consultancy owners to increase revenue by liberating sales potential within their practices.

Many consultancy owners start out as specialists in their fields, yet when they set up a business their responsibilities change. In order to ensure the growth of the company, they need to be involved in the sales side. Whether it is being the main person responsible for winning business or overseeing the consultants, this is an uncomfortable step as they often do not see themselves or their consultants (billable deliverers) as salespeople. Let’s look at how this may be affecting your business and how to overcome this prohibitor.

When we’re born, we don’t have any perception of sales but then something happens! Many of us experience bad selling tactics: a salesperson attempts to convince you to buy something you don’t want, being pitched when you’re not even the right person to talk to, being lied to about the facts needed to make a decision; talking at you without listening to what you want, etc. Equally, there are impressionable films depicting salespeople in their worst state of money-making greed such as, “Wolf of Wall Street” and “Glengarry Glen Ross”. You turn on the TV and see comedians caricaturing a salesperson as looking in the mirror and saying things like, “I’m a tiger!” We watch programmes like “The Apprentice” which seem to bizarrely endorse forceful selling tactics and unrealistically high-pressure environments.

I’d best stop before it becomes too negative, but think about it, if these are the pictures and impressions you have been indoctrinated with about sales, no wonder you or your team of consultants have bad feelings about having to “sell” or motivating your people to sell. The truth is that tragically most salespeople do not sell well but that does not mean the “selling profession” is all bad. So, whether you are asking your technical specialists to sell or you are selling yourself, you might be experiencing inner resistance because of this negative view of salespeople. It sometimes hides itself in the form of “I do not have time for business development,” which is rational but extremely illogical. You do not say this when asked to complete a technical project, you find a way to make it happen! What is fact however, is that every profession, not only the sales profession, has its unethical individuals. What is also fact is that every profession has its inspirational, trustworthy and caring individuals.

To help you change your view of what selling is, we define professional selling in the consultative arena by using the acronym S.K.I.L.L. ©

Selling is a partnership experience:

  • Partnerships are rarely built overnight. Someone may not be ready to buy from you today but by building the right relationships over time, you may be the ideal partner when the time comes.

Knowledgeable:

  • Keep building your knowledge around your value proposition, service, market trends, competition and most importantly clients. It will differentiate you and ensure your conversations are always valuable for prospects.

Individual relationships

  • Consultancy is a people business. You need to make building new relationships part of your job. Attend industry association events and form the habit and discipline of keeping in touch with your network even if just for coffee. They will appreciate it and want to work with you when the time is right.

Listen and add value

  • Become comfortable asking the right questions. Listen and add value by helping the prospective client understand their situation better. As a consultant you always did it. You’re just now doing it before the sale is made! This applies to existing clients too as there will be many opportunities you are not aware of where you could add value.

Liberate your own sales potential

  • Become proud of selling professionally. Stop linking the whole of the sales profession with the bad practices you have experienced. We can all be really effective at professional selling if we decide it’s about establishing trusted relationships and partnerships where both parties benefit and would be happy to act as a reference.

Try it! Decide to change your personal view of selling by tapping into our definition of selling – SKILL©. You’ll find yourself in healthy business development discussions. You’ll start to pick up the phone and call people you have been meaning to call for the past year for a coffee. As one recent CEO client expressed; “I’m looking forward to my new world of business development as I am knowledgeable about my market sector and all our clients to date have seen real RoI. I just need to get back out there.”

© SBR Consulting 2015. All rights reserved www.sbrconsulting.com

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.

10 essential parts to a sales engine for your consulting firm

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When it comes to selling a consultancy firm, a sales and marketing deficit can expose the firm to three equity value risks:

  1. Any business that does not invest in sales is less likely to scale to a sellable size with enough equity value for owners
  2. Without a demonstrable process, data or evidence to show revenue growth is within your control, buyers are less likely to have confidence in your long-term forecast or place any value on it
  3. The most damaging ‘deal breaker’ event in a sales process is revenue results dropping off during due diligence, and that is the risk you run without a sales engine.

A sales engine keeps your pipeline brimming with new opportunities and booked work. It gives your consultancy the luxury of controlling how fast the business can scale. Then when you sell, it will add significantly to the value a buyer places on your firm.

Here are ten essential components in a sales engine any consulting firm should adhere to:

1. Invest – This is an investment, not a cost, so allocate resources to your sales engine; about 4-8% of revenues as a rule of thumb

2. Automate – You will not be able to operate your sales engine as you scale without automation, or you will soon lose business by being out of control with your contact base. Therefore invest in integrated website, CRM and email systems that talk to each other

3. Messages – Spend some time understanding your audience needs and wants, then tailor your messaging to what they want to hear, making sure it’s something they can relate to

4. Content – Content is King. Developing relevant, engaging content is a non-negotiable element of the sales and marketing process

5. Database – it is important to continue to grow your database either by acquiring them organically or from a third party. You should aim to establish and maintain complete coverage of your target market

6. Campaigns – Now that you have content to share and a robust database, run an intelligent selection of campaigns to reach your target market

7. Measure – If you can’t measure it, don’t do it. Measure the results of all your campaigns to improve efficiency and effectiveness of the sales engine

8. Leads – It is important to manage any lead you develop. Make sure to follow-up all leads even after the initial interaction

9. Pipeline – Once a lead becomes a prospect, manage and build the relationship by maintaining frequent interaction with your key contact

10. Clients – Leverage the relationships you have with clients. To further your sales pipeline, remember to measure client satisfaction and ask for referrals

Once a consultancy firm has executed all of the above and can maintain the sales engine when the time comes to sell, it will be in a stronger position to:

  • Demonstrate a historic track record of revenue growth – assuming you have also been managing gross and net margins as well
  • Buyers might initially be sceptical about your forecast, but with historical data you’ll be able to reassure them of the reliability of your future sales pipeline

All of these combined will give a buyer confidence in the future potential of the business, thereby allowing you to command a premium price for your consultancy on favourable terms.

If you’d like to read more about building a sales engine, 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.

How to build intellectual property to drive more profits and equity value in your consulting firm

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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:

Sales

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.

Delivery

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.

Performance

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.