The Role Of Demand On Business Success

Demand - or the lack of it - can make or break your consultancy.

In the last post, I wrote about the difference between creating and capturing demand and got a couple of messages asking to go deeper into the theme. So let's take a pragmatic look at the role it plays in your business from a high-level perspective.

But first, here's a short note on business success.

Your business goals will mostly reflect how you personally look at work, and what your personal objectives are. A founder who sees his work as a vehicle to create a positive impact the society might act very differently from one that looks at his business as a means to support his preferred lifestyle. Needless to say, there's no right or wrong.

With that said, I believe 99% of the partners I know would agree with the following affirmation: You have a successful consultancy firm when it is financially profitable and creates positive value for your clients and stakeholders, both in the short and long term.

When we look at it from a demand perspective, success can be broken down into a function of:

  • How much demand there is (or you can create) for your offerings;
  • How much of that demand you can capture, serve, and satisfy;
  • How much it costs for you to capture and serve that demand.

Looking For Demand

The fastest way to understand how much existing demand there is for your offering is to look at the existing competition, and the size and maturity of your niche. You can ask the following questions:

  • How have you seen proof of demand?
  • How many companies are hiring a similar offering?
  • If they’re not currently hiring, is there a strong incentive for them to do it now?

Alternatively, you can also look for demand signs using the most effective tactic of all - by directly asking potential prospects.

There are many recommended methodologies to do so (JTBD will be covered in a future series), but if you want to do it during short and informal chats you won't have the chance to interview people. If you only have the chance to ask one question, here's the one I'd go with (based on a recommendation from David A. Fields):

What problems have you found so pressing and important that you've actually spent money bringing in outside help to solve them over the past years?

Don't make the mistake of asking prospects if they are interested in your offering, or if they would spend money to solve a problem. The key is asking where they have already invested in the past. This is proof of demand.

How Much Demand You Can Capture

To determine how much demand you can capture, you need to shift perspective and look internally. This means reviewing your experience and capabilities, your current network of contacts in the niche, and your capacity.

Here are some questions worth asking:

  • What are the advantages you have in this niche?
  • Who are the people and companies you know that could help?
  • How are you different from other establish consultancies in the market?
  • What is your capacity? How many simultaneous engagements can you deliver?
  • How many companies in this niche are not being served? How many have already hired consultancies to satisfy their demand?

If you are operating in an existing niche, chances are there are more than enough opportunities for everyone and you can easily make your competition irrelevant through smart positioning. Most of the issues come from trying to promote the wrong offering, without pre-existing demand for it.

The Cost Of Capturing And Serving That Demand

It makes no sense to identifying and capture demand if you can't do this profitably. Charging more than what your costs are might be common sense and simple advice, but challenging to put into practice.

Here are some things worth looking at:

  • Pricing: If you haven't already, adopt value-based pricing. This allows you to charge a fraction of the results you deliver, which is justifiable as long as you generate a high ROI for your clients. To charge more, look for ways to (1) deliver more value, and/or (2) better communicate the value you are creating.
  • Sales: Continually document, measure, and improve your sales process. Commit to a marketing budget. And know your numbers, including: How many SQOs you need and get every month, how long is your sales cycle, what is your client acquisition cost.
  • Operations: On the operational side, keep track of how much the delivery of the project will cost you. You can reduce labor and increase your pay through automation, delegation, and outsourcing. Hire subcontractors to deliver implementation whenever you can.

Once you look at all of those elements, come back to your personal and business goals and ask yourself: Is there enough existing demand that I can currently serve and satisfy in a profitable way for me to justify this new offering or strategic shift?

You are in a much better position to answer it backed by facts, instead of only intuition.

Thanks for reading. You can get more specialized and actionable growth insights for micro consultancies in our newsletter. Every Tuesday, you get one idea from Danilo, one quote from other experts, one number you need to hear, and one question for you to level up your consulting practice.

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