Why Learn About It?
This handbook helps you explore and clarify what kind of consulting business you want to build. This is valuable for three reasons:
1 Healthier mindset
Starting and growing a consulting practice is not a walk in the park. Just like any other business, it requires a lot of time and energy. If you're not sure what exactly you want to take from this journey, it will be difficult to find the mental and emotional energy to keep going when things get tough.
Having a clear vision of why you do what you do, as well as what you want your business to provide you in the future, is incredibly helpful. It's a consensus among psychologists: visualizing where you want to go actually helps you get there. It enhances planning and reduces anxiety, which tends to better performance at skill-based activities1.
2 Anticipate challenges and risks
This boutique consulting journey also helps you know what challenges to expect.
Every founder or consultancy partner thinks that their problems are unique. That's true to some extent. No two people are the same, and context matters.
But when we look at data, talk to hundreds of partners, and work with dozens of consultancies, you quickly find out the journey is way more predictable than you think. 99% of your problems were experienced (and solved) by others.
There are certain problems that come along at a very predictable time. And there are ways to prevent those if you know the journey that's ahead of you. You can look at this as a useful growth framework.
3 More effective communication
A clearer vision for the future of your consultancy is also key to making your communication more effective. Both externally and internally.
Whenever you interact with other people - be it to market your services, deliver work to existing clients, or even create new partnerships - it's your job to craft a message they understand. This is greatly improved when you can communicate what kind of business your consultancy is aiming to become. The clearer the message, the more effective it will be to enroll and influence other people.
If you ever build a team of people, you will also be responsible to lead them. You need to attract and motivate them, ensuring they work together well. To do that, it helps to create a compelling vision of the future - one that they want to contribute to.
What You Will Learn
Across 5 mini-chapters, you will zoom out of your current situation, understand how consultancies change as they grow in size, and make your business vision clearer:
- Presenting the Journey: Learn what the typical map look like
- Defining Success: Avoid the most common mindset trap
- The Three Concepts: Identify your next destination
- Adding Context: Understand the limits of this mental model
- Taking Action: Putting these ideas into use
You can find navigation links at the top or left of your screen.
I'll provide a recap and an exercise on the last page of this handbook, but I highly recommend taking personal notes. Doing this helps you better absorb ideas and come up with insights for your own consulting practice.
Who Should Read This?
This handbook is for
- Current consultancy partners who want a clearer and more compelling vision for their firms. You will take a look at the bigger picture, learn more about typical growth challenges, and rethink your aspirations.
- Freelance and solo consultants who are not sure about their future. This handbook may help you evaluate alternatives and increase your confidence in where you can take your consulting practice.
- Aspiring consultancy founders who consider starting their own independent business. You will have a much better understanding of what your options look like, and whether you want to take part in this journey.
The estimated reading time for this handbook is of 50 to 60 minutes. It is concise and packed with value, so if you're among one of these groups reading this is certainly an excellent time investment.
Who's Danilo Kreimer
I'm a consultancy founder myself, and the founder of the Boutique Consulting Club. For the past years. I've advised +30 boutique consulting firms in Europe and the UK, Canada, and Brazil-partners often try to work more hours to grow their practice, while all they really need is to work on the right things. The work is mostly about providing clarity and growth support, which I believe qualifies me for writing about this topic.
If you're interested, you can learn more about me here. Now let's jump into the handbook.
Presenting the Journey
Is this map relevant for every consultant?
We are not going to get into the deep discussion on what consulting consists of, how its definition and traditional business model has been changing in the last decades, and so on. If you're interested in it, you can read more about it in this handbook[link].
This journey applies to all self-identified consulting businesses in the market, with one exception:
If you are an online entrepreneur that only sells digital products - and that doesn't provide any kind of service - this journey is not relevant to you.
For this to be a useful mental model for you, you must provide some kind of professional service2.
Entering The Journey
You enter the boutique consulting journey the moment you start your independent practice. Prior to that, every story is unique. But looking at numbers, we see that most consultancy founders come from two different paths, each with their pros and cons:
- Paycheck world: The vast majority of independent consultants, before starting their own practices, had spent a reasonable time of their careers working as paycheck employees3. On the positive side, you cultivated some skills and expertise in your space, and are more likely to have financial savings. On the negative side - besides eventually picking up bad work habits from your employer - you are not used to making decisions and taking risks.
- Gig economy: Another way to start this journey is completely skipping the employment market, and coming directly to the gig economy. This is becoming more and more frequent among younger people4. In the last few years, we've seen a wave of brilliant, tech-savvy freelancers who never held a formal job position join the consulting market5.
Before you start the journey, all you have is an idea. Every consulting business starts as a concept in someone’s mind. You feel both excited and nervous. You created a vision, expect to earn well, have more flexibility, and do more interesting work. But there's nothing concrete happening in real life yet.
This changes when, by choice or by necessity, you make the leap to self-employment.
Attention: Throughout this section you will come across income or revenue numbers for each phase of the journey. They are in USD (American Dollars), so you might need to make an adjustment for your local market realities to benchmark your practice. If most of your clients are in the US, it doesn’t matter where you are located. But if you’re outside the US and have more local clients, you need to adjust these numbers downward. We recommend:
- Western Europe: 25-35% downward;
- Canada or the UK: 15-25% downward;
- Developing countries: 30-50% downward.
The first phase in the journey is freelancing.
A freelance consultant has:
- No support team.
- Typically sells less than $160k/year.
The practice is composed of only one person - yourself. You might hire tools and systems. But freelancers have no employees or contractors.
Revenue for most freelance consultants is somewhere between 50-85k/year6. Is this a ceiling? Absolutely not, this group is quite heterogeneous so we see a great variance in earnings7.
The source of all common challenges here is the fact that freelancers work alone.
You're by yourself, trying to survive. If you did a decent preparation to "leap" you might have started with financial reserves or projects lined up. But they don't last forever.
This means you need to learn and do strategy definition, business development, client work, and administrative tasks - with no one to help you. This is taxing for founders, who are left with little spare time, money, or flexibility. But it's especially difficult for freelance consultants, due to the nature of what your clients are buying.
Generally speaking, consulting is a people-based, high-touch service that relies heavily on human interaction and expertise8.
- Outsourcing sales is not an option. A generic salesperson could never help clients explore risks and opportunities, challenge their ideas, identify root problems, and propose bespoke solutions. You need expertise, which is why every boutique consultancy starts with founder-led sales. It’s a feature of every expert service: Clients need to trust you implicitly before hiring your services9.
- Automating delivery is problematic. When you buy a product, you take it away with you. But services are intangible and can't be separated from the provider. You usually need at least one person to deliver your services10.
If you decide to grow in size by hiring other people, some parts of business development and delivery can be delegated. But as a freelancer, you will need to do both. And this is something most consultants struggle with at this phase, especially in their first years of practice.
The “feast-and-famine cycle” is why we have the circle road sign on our map. When your plate is full, you turn to delivery mode. When projects are over, you find your pipeline empty and get into panic mode. Many end up relying on third parties (on-demand consulting platforms or selling their time to other firms) to pay the bills11.
An unpredictable pipeline is the result of inconsistent or ineffective marketing.
Inconsistent marketing, in the case of most freelancers, is a consequence of their lack of resources. You have little to no budget for marketing, and your time must be split among dozens of responsibilities. It's difficult to keep your marketing engine running all the time. You need to turn it on and off, on and off12.
If you dedicate enough time and resources to marketing and still can’t manage to break the feast-and-famine cycle, the problem is lack of effectiveness13.
To move to the next phase, the main goal of every freelancer is to hire support and free up the founder's time. Doing this typically requires three things:
- Bringing in more money. You need to earn enough to afford to hire support. How much more will depend on your specific context. Most of our members felt comfortable hiring support once their practice has passed $100k/year in revenue14.
- Doing so without selling more of your time. The goal is to free up the founder's time. If the only way you can bring in more money is by working longer hours, your revenue growth is not sustainable. You want your “virtual” hourly rate to come up15.
- Having a delegation plan. What kind of support do you need, and how exactly will it free up your time? You better know this before hiring help.
This is simple but not easy. Around 3 out of 4 consultancies do not reach a point where they can employ anyone16. Most independent consultants are, willingly or unwillingly, parked in the freelance phase.
The next phase is the micro consultancy.
They typically have:
- A team of 1 to 4 FTEs.
- Fee billings/FTE under $160k/year ($150,000-$600,000 revenue/year)
- Flat organizational structure.
FTE means full-time employee equivalents. Example: If you have 1 full-time employee and 4 part-time assistants that help you for 20 hours/week each, that counts as 3 FTEs. It's important to count associates or part-time assistants because, even if they don't have a formal employment agreement, your business still needs to pay them.
The main difference between micro consultancies and freelancing is the level of support and structure that is provided to the founder. As a freelancer, you are essentially on your own. In a micro consultancy, you can afford to hire help for some tasks and responsibilities.
A small team begins to form and you might have some focused roles. The business can pay basic wages but it’s not very profitable. Whenever they need the support of more experienced and expensive consultants, most founders end up bringing them in as associates - who are hired and paid by the project17.
More than the actual team size, it is through your total compensation that we can identify whether your consultancy is in this phase or not. Founders or partners of micro consultancies would, almost always, earn more by taking a corporate job.
How do you get this number up? Your total compensation as a consultancy partner might be composed of different things, such as a fixed salary, bonuses, and your share of profit. To simplify the explanation, let's assume your compensation equals your net profit.
An easy way to visualize the main levers at play is by looking at how we calculate profitability, and invert it. If profit margin = profit / revenue, then profit = profit margin x revenue. So, pragmatically speaking:
To improve partners' compensation your consultancy can focus on increasing revenue, increasing your operating margins, or both.
It's not the goal of this handbook to discuss the different strategies you can pursue to do that. Anyone who sits for a few minutes to think about this problem will recognize it is not as simple as it initially seems. Bringing in more clients increases your top line, but also forces you to spend more on service delivery, administration, and client support. This is not a theoretical example. I've personally met dozens of consultancy founders who invested a huge energy in acquiring more clients and increasing capacity, only to see that their financial compensation was similar to the one they had with half as many clients.
Just like escaping every freelancer's feast-and-famine cycle, increasing partners' compensation in a sustainable way requires strategy work. The ones who pull it off move into the next phase of our journey, what we call the lifestyle boutique consultancy.
Lifestyle Boutique Consultancy
What are lifestyle boutique consultancies?
Here are some typical characteristics:
- An internal team of 5 to 13 FTEs.
- Fee billings/FTE in a range of $160-220k/year ($500,000-$2 million revenue/year)
- Flat organizational structure.
There are two main differences between those firms and micro consultancies.
First, the financial performance and security. Partners here are earning more (or at least in line) with what they could get at a corporate job. Usually, although not always, they have a strong personal brand and reputation in their space.
Second, there's added flexibility. The team is big enough for you to delegate a good amount of operational tasks. You can stay some time away from the business without it breaking - which is not the case for most micro consultancies.
This team allows partners to focus on strategy and business development. If you got to this point, you have developed decent rainmaking skills - you can bring in money, opportunities, and visibility to feed the rest of the team. We estimate 10-20% of boutique firms are lifestyle consultancies18.
At this point, consultancy founders come to a critical moment in the boutique's journey path: you are forced to make a decision. Your options are:
- Work on growing the firm as a lifestyle boutique; or
- Continue to grow the firm in size, which might allow you to try to sell the business in the future.
Later in this handbook, I will get into details on what exactly you should consider when making this decision. Realistically speaking, at least for today, there's no buying interest for lifestyle boutique firms with this typical size19.
So if you choose to continue growing, you will at some point hit a wall. For most consulting firms, this happens when your team gets to 12 or 13 people. And the reason for this, interestingly enough, is not related to "productivity".
It's an organizational problem - when you get to this number of people, communication and your existing management systems start to break down. That's the main challenge scale-up consultancies need to overcome.
Let's talk about scale-up boutique consultancies.
Scale-up boutiques typically have:
- An internal team of 15 to 50 FTEs.
- Fee billings/FTE in a range of $100-160k/year ($1.5-8 million revenue/year)
- Hierarchical structure.
When the consultancy hits 12 or 13 people it gets to a dangerous gap. The firm is too big to be small and too small to be big. The best way to explain this is through the classic idea of lines of communication.
As your team grows it becomes geometrically more complex to manage it20. There are:
- More tasks to delegate and responsibilities to oversee;
- More interests to consider when making decisions;
- More communication issues to navigate.
As a founder, you're caught in the middle of this. The management systems that you had in place are not suited for this. How do you reduce those lines of communication to a reasonable size?
Most scale-up consultancies do that by adding a middle management level, formalizing teams and departments, and bringing in professional systems21. And that leads to the two main challenges in this transition: Cash flow management and culture change.
First, notice how the fee billings per FTE come drastically down when compared to lifestyle boutique consultancies. This is a direct consequence of the management structure. The overhead increases with more staff.
You need managers. You need a specific full-time person for hiring. Another one to review and make sure IT systems work. One for X. Another one for Y. And none of those people sell (only partners do).
This illustrates the scaling bet: You hire the people you know you need to grow, and that cost has to be absorbed by the rest of the firm. But you are well aware that the consultancy needs to grow. The firm can't afford all these roles if it doesn't grow. That's the cash flow problem.
The second challenge in this phase is culture. As more people join, internal dynamics get complicated. But what some founders miss is that this transition also changes the story you tell your team members.
The first 10 or 12 people you hired heard one story: "We're a small, fun, and creative team", "we're a fast-paced entrepreneurial firm", or even "we're almost like family."
The people you are hiring now hear another: "We're process-driven", "Structure and clear metrics are key to our business", and so on.
This creates tension. Culture gets pulled in two different directions - the flat structure of a lifestyle boutique versus the hierarchical culture of a larger firm.
When you add to this picture a larger number of equity partners - which impacts your strategy and decision-making, and forces you to bring in more junior people who care more about money than ownership - you understand there's a lot of turbulence in this phase.
So crossing this gap is definitely a trial for most partners. You need to either grow fast or shrink fast to avoid cash flow problems. All of this while dealing with internal people challenges.
There are consultancies that start to cross the scaling gap and actually decide to turn back, reverting to a smaller size22. The "no return" sign is here as a reminder since there seems to be a point of no return here. When you get to 30-35 FTEs, you have made too many changes to come back to a lifestyle boutique.
Performance Boutique Consultancy
The last growth phase of the boutique journey is illustrated by the performance boutique.
Here are some typical characteristics:
- An internal team of 50 to 250 FTEs.
- Fee billings/FTE in a range of $160-250k/year (Over $8 million revenue/year)
- Hierarchical structure.
Only 1-2% of the consultancies get here23. When you hear big firms talking about boutique consultancies, they are mostly referring to those ones. All of the others are too small to be spotted on their radar.
Here everything gets measured, everyone has a role and responsibilities, and people need to stick to it. It's the required structure for the firm to function. There are professional management systems in place.
It's worth highlighting how the life of consultancy partners changes when compared to the previous phases. You invest in activities you have never dreamed of when you were a lifestyle consultancy.
Large boutiques spend more on accounting. Consultants and advisors. Human resources. Training.
They do so because they need it more. But also because the firm is now able to absorb those costs. You have a bigger budget to invest, and that needs to be managed wisely.
The goal for the few partners who get to this phase is, almost always, to sell the firm. There are different ways to do that, depending on who you're selling to. You can sell to strategic buyers, who are typically even larger firms. You can sell to private equity buyers, who care mostly about financial performance. This handbook is not about selling professional service firms, so if you own a firm at this phase I highly recommend you connect with a M&A specialist to learn more about it24.
As you reflect on this journey and how it informs your personal vision, it's important to be realistic about the number of firms that get sold. 98.5% of all performance boutiques fail to find a good exit25. These consultancy partners have two main options left.
The first is a family business succession. Founders keep working at the firm for as long as they can while planning the transition. In addition to common challenges26, the presence of several other equity partners in performance firms typically makes family succession even less appealing.
The second option, which is pursued more often, is to perform what's called a MBO - a management buy-out. In an MBO, the founders and partners sell the firm to a group of employees, which typically include junior partners and senior managers. It's an alternative exit for founders that couldn't sell but want to retire.
Next: Defining Success
We briefly talked about the typical path of growth for boutique consultancies, with some benchmarks to help you identify where you are.
Now, let's discuss what success means, and the most common mindset trap consultancy founders fall into.
Once founders understand what the typical growth path looks like for a consulting business, the next question that naturally comes to their mind is: Where, in that path, do I want to get to?
This is important. The goals we pick will inform our actions and decisions. What we need to focus on, what we need to learn, what we need to say no to.
But I believe this is not the right question to ask at first. Because this assumes the path is a linear ascending line, perfectly correlated with personal happiness and fulfillment. The further you go, the better.
Here's a better question: What are the positive and negative aspects of each of those growth stages for you, and which one fits better into the vision of the business you want to build?
To answer that, we need to talk about defining success.
Breaking Free From Societal Standards Of Success
How you choose to define professional success determines what and how you deliver value, build and grow your consulting practice, and make the decisions that matter the most. To do that, however, you often need to get rid of assumptions most people believe as true.
When you live in the paycheck world and work as an employee, for example, a career path is a familiar idea:
- You start as an individual contributor - junior consultant, analyst, or whatever it is that you do. You produce something that is used for others in the company.
- Then you move to a management position, where you need to ensure work gets done well, on time, and under budget. You have some kind of leverage now since a good manager can raise the productivity of everyone under them.
- Then you might move into a senior management position, or even into an executive position - where you have the authority to take strategic decisions that might impact the whole company.
This is a familiar idea, whether you have worked as an employee or not. And it is a useful concept for the majority27 of the population.
We naturally use this idea to measure success. How well we're doing at work. The higher on the ladder, the better.
Your ranking in this traditional career path is based on things like:
- The job title your employer gives to you.
- How long you've been in the company.
- The number of people reporting to you, or the budget you control.
But there’s one problem: Using any of these to measure your progress as a founder makes no sense whatsoever. You can be a one-man consultancy and give yourself the title of CEO. Would that be perceived as success for you?
It's a mistake to try to fit this career ladder with the boutique's journey we just talked about. The easiest way to illustrate this is by showing different ways that path can look.
Plotting And Drawing Your Map
Below you can see the boutique consultancy path we just talked about. But now, with a labeled axis. I used the "number of full-time employees" as a proxy.
If you measure success as the ability to employ, manage, or lead people, this is what the map looks like for you. The performance boutique is where you want to get to. It represents your ultimate goal in this growth path.
Now look at the same path, but displayed based on revenue per full-time employee. Do you see how it changes?
If you measure success based on how much value your average team member creates, delivers, and captures, this is what we get.
It shows how many consultants and advisors can create much more client value than larger boutiques, even if they're solo. This makes complete sense since we are not factory line workers, but knowledge workers. There are many situations in which one expert advisor can be more effective than a 100-people team28.
Here's another way to plot it - flexibility, measured by discretionary time.
A considerable number of freelance consultants29 suffer from work-related burnout. But if you are well-positioned, have built decent business development and delivery capabilities, and have a solid savings strategy in place, you can take months off of work.
Examples are easier to find than you might think. Among the members of BCC, several solo advisors work 2 or 3 days a week. They moved their clients to retainers and designed their lifestyle for time flexibility. There's a good chance you will find at least one of them in our event.
Lifestyle boutique founders also have quite a bit of flexibility, if you put good management systems in place. We will talk about the pros and cons in a bit.
These are only three examples to illustrate a bigger point: We can plot those differences in a thousand different ways.
Many founders are tempted to borrow the idea of a career path and believe if the business is not bigger in size we're stuck. Don't fall into this trap. It's not all about the size.
Rejecting A Blind Walk
The first time I presented this idea to partners, a micro consultancy founder approached me and said: "A career path doesn't apply to me, and as you said there's not a single way to measure progress as a founder, it's all arbitrary. That's why I'll rather just navigate this as I go".
It's not helpful to throw the baby out with the bathwater. The career path is not suited for us, but rejecting those mental models doesn't help us either.
Every one of us does have personal preferences. We value some things over others. And if we're going to invest years and a lot of energy in our consulting business, we all need to feel like we are growing.
We want to have meaningful goals, and celebrate achieving those goals. But it's up to you - and your co-founders and partners, in case you have them - to take those benchmarks as inspiration and decide how you want to define and measure success for your consultancy:
- It might be wealth and equity value.
- It might be net profit after taxes in your pocket.
- It might be employing and developing other people.
- It might be maximizing impact in your industry.
- It might be balancing a desired lifestyle with location independence.
- It might be creating a healthy and inclusive workplace culture.
Most of the time, it's a combination of those.
And those are the elements that you will use to create your own, personal career path. Something you can use to measure progress and feel proud of your achievements. Something that will guide your business decisions.
With that said, the goal of this handbook is to make the choice a bit easier for you. To do that I'll share the results of a small experiment with our members.
Next: The Three Concepts
We illustrated why it's a mistake to look at the boutique journey as a "new" career ladder, and the role your personal preferences play in shaping it.
Now, let's talk about the 3 high-level structures most consultancy founders gravitate toward in the long term.
The Three Vision Concepts
Before this handbook was first published, we presented the boutique's journey in several online workshops for founders and partners. I showed the different phases. Explained the danger of looking at it as a new career path.
And then, in the middle of the workshop, I ran an experiment. Here's exactly what I said to the participants:
"I don't know how many of you practiced some kind of sport in school - in my case it was football because I was born and raised in Brazil. Before we played all the kids gathered around, and the two self-designated "captains" started to pick who they wanted in their team.
They had to alternate their picks, so the best players got chosen first and the worst ones needed to wait. The nightmare for every child was being the last one standing there. That meant no one wanted you on the team, and you were considered the absolute worst.
Now, imagine we're doing the same here. Out of these 5 growth stages, there are 2 that are never chosen. Consulting founders might need to go through them, but only out of necessity.
Who can guess the fastest what those 2 phases are?"
Almost 100 founders were asked this. Unsurprisingly, every single answer was the same: The least desirable phases in the path are micro and scale-up consultancies.
Let's briefly clarify what exactly consultancy founders disliked about micro and scale-up consultancies.
Micro consultancies typically have a team of 1 to 4 FTEs and fee billings per employee under $160k/year. This amounts to $150,000-$600,000 in revenue per year, which makes some freelancers confused about the rejection. Why exactly is this a bad spot to be in?
- It's financially frustrating. Revenue does not equal profit. When you compare the fee billings per employee and the cost of hiring assistance, it becomes clear most micro consultancies can pay basic wages but that's it. Partners would almost always earn more by taking a corporate job.
- It provides little flexibility. The consultancy is still very dependent on the founder - when you have 3 employees and one gets sick, you lose 33% of your team. But as opposed to freelancers, you can't just close the shop and get some rest. You have salaries to pay and a team to support.
So you don't earn well enough, and have added risk and responsibilities when compared to what you had working alone. Not a good place to be in.
What about scale-ups? To understand what this phase looks like, it's enough to ask any partner who has tried to cross that scale-up gap:
- Finances get scary, as your overhead increases faster than your revenue.
- Working hours shot up, since you need to be present to lead the transformation of the business and make a number of key decisions.
- You need to hire well, but are also forced to let go of trusted people who can't help you anymore under the new organizational structure.
It's a stressful time during which partners make considerable personal sacrifices.
This is why, while we can find thousands of micro and scale-up boutiques in the market, very few founders would actually use them as a picture of success.
They might represent your consultancy at a certain moment in time, but not how most founders envision success - however you choose to define it.
They're financially shaky. Stressful. And also forces you to deal with the most difficult problems that exist, which are people's problems.
The best way to look at them is as "passage points" in your journey.
Solo, Lifestyle, Or Performance
This means there are three safe spots in this journey. These are places you can add to your GPS, places you might aim to get to and, once you're there, choose to place your flag.
Are there nuances here? Yes, and we will bring them up in the next chapter.
For many of you, I imagine it's already quite obvious what option attracts you the most for your consulting business - between a solo practice, a lifestyle boutique consultancy, and a performance firm. But many founders find it helpful to learn more about how each option impacts their personal lives (and vice-versa).
Let's focus on the three areas that most partners care about: money or finances, people and relationships, and personal challenges.
If you're a freelancer you're traveling light - the bulk of costs in a consultancy are people, and you have no overhead. This means your margins are great, often above 90%. But that also means you can't count on anyone to deliver engagements. When you get sick or take holidays, your income might go to zero.
There are ways to overcome this and grow one-man consultancies to even 7-figure levels (which I'll talk about in a bit), but, at least in the first years of your practice, you will need to have a very solid savings strategy in place. And to save aggressively as a freelancer, you need to be open to redesigning your lifestyle. Freelancers are often the first to be hit when external conditions get messy, so you need to have a stomach for the ups and downs in your bank account.
For lifestyle boutique partners, the financial path is similar to one of most employees who earn a paycheck. You have a payroll to make but margins are good, which means you can afford to invest in the business and pay yourself well. Here, when you add up salary and profit, you are either earning a bit more or a similar compensation as you would working for someone else. But of course, with total control and autonomy.
It's important to be realistic here - partners of lifestyle boutiques don't get to earn a one-off, big chunk of money that guarantees their retirement. You need to save and invest. Since consulting is a cash-rich activity most partners just do the simple: every month they allocate part of their earnings to income-generating assets, which provide them with some personal financial security.
Finally, if your firm employs 50, 100, or 200 people you probably don't need to worry much about short-term financial security. You have built a machine that can work without you and, if you did it well, you have virtually no debt. The question here is how you can prepare the firm for a successful exit without breaking it in the process. And doing that while also having a plan B or C, in case you can't sell.
If you are among the 1-2% of founders who get to this point, you already have enough personal capital accumulated to retire with a middle-class lifestyle. What these founders are after is a big pay to either retire with a more comfortable or luxurious lifestyle, or fund a future next business or project.
If you are a highly introverted person this may not be relevant. But for most consultants, the lack of a team and colleagues can feel lonely. It's true you can always recharge with family and friends, but they're not really interested in talking about your work all the time.
This means you will need to find time (which is your scarcest resource) to get involved in online communities, trade associations, or even hire a personal coach to help you grow professionally and keep your head in place.
Human connection in lifestyle boutiques fits most founders that enjoy a more casual work environment. It’s a flat organizational structure and teams are typically composed of 6 to 10 people, which brings up some advantages in terms of human connection.
It's relatively easier to create a good workplace culture. You can select people with similar values as yours. You know everyone by name, and everybody knows each other. Even if, for some reason, you want to have a 1:1 conversation with everyone on your team, you’d be able to do that in a single morning. Over time, lifestyle boutique founders really feel like there are real, personal connections happening among their teams.
What about performance firms? If you are among the few founders who get to this point you will be mostly interacting with other partners, your senior management, and maybe some advisors. They will be your peers.
While there might be some kind of values that are promoted inside the firm, it is a much more formal setting when compared to lifestyle boutiques. Very few founders find time to interact with interns or new hires. And once you pass 100 people in your consultancy, it's hard enough to remember everyone's names.
From a personal growth perspective, we can summarize the freelance mindset in one word: self-management.
When you think about it, it's really simple. Part of running any business includes doing some activities we enjoy, and others we don't. Some we know how to do, and others we don't even know where to start. Now, a lot of things are optional or can be automated. But many can't.
If you're the only one working, you need to do it all. You need to market yourself. You need to sell. You need to deliver engagements. You need to create new offerings. You need to do strategy work. You need to do admin.
So one-man consultancies need systems and structure. You need to manage your time well. You need to manage your tasks well. And you need to learn things fast.
Everything changes when you become a lifestyle boutique consultancy. You and your partners have people to feed so most of your focus is on bringing more money and visibility to the firm. This means raising the profile of the firm, nurturing key relationships, publishing new IP, developing new service offerings - everything that will support a premium pricing and healthy pipeline.
The mindset here needs to be one of a router - you need to attract opportunities and let your team do the rest. When you ask those founders why they get stressed at work, it's often because they haven't built a system. They have too many tasks that they can’t route to someone else to take care of. That's the opposite of what you need to do if you lead a lifestyle boutique consultancy. Your goal is to hire yourself out of every job, and go after opportunities.
That's why the image of a router is a helpful one. Lifestyle boutique partners are always asking themselves: "What's the least valuable thing I'm doing?" They either stop those activities or find someone to perform them and free up their time for growth.
If you are attracted by the idea of running a lifestyle boutique but struggle to market yourself and build client relationships, you have two options: Learn how to do it, or bring in other partners to the business. At least one partner needs to focus on and know how to sell30.
When you get your consultancy to a performance boutique’s size, personal growth relies on the ability to play the business game at the highest level. Small things can cost you a lot. So the challenge is effectiveness.
This means directing your people and resources to the right initiatives, at the right time. You have other junior partners who promote the firm and sell engagements for you. You become responsible for the only two functions that can’t be delegated - leadership and strategy31.
Next: Adding Context
These considerations are helpful for most consultancy founders, by allowing you to pick one of the three consultancy concepts - solo, lifestyle, or performance boutique - as a first sketch of your vision.
Before we proceed and put those ideas into practice, however, we need to understand the limits of this framework.
The more experienced a consultant is, the more often he or she will reply "it depends" to a direct question. As you get exposed to nuances and specifics from different client engagements, the more you recognize there is never a golden recipe on how to do things. Reality is messy and complex.
The boutique consulting journey is a mental map. What we did so far was to simplify this trek, looking at different growth phases of boutique consultancies and identifying the safe spots founders can aim to achieve. Now is the time to remember George Box’s famous quote: "All models are wrong, but some are useful."
Understanding the journey and these different concepts is useful. But so it is to recognize the limits of simplification. Here are some of the things that were not even mentioned in this handbook so far:
- Your critical problem: Some consultancies solve complex and unique problems. Others solve common and frequent ones. Some are more pervasive and urgent than others. Every consultancy is, in a sense, a reflection of the problems it solves. They will directly affect who you work with, how clients buy your services, and how the consultancy can operate.
- Your targeting and positioning: You might be specialized in a specific service, in serving a specific industry or vertical, or a combination of both. You can target any SMEs, FT500 giants, or any organization in between. The business you choose to be in matters.
- Your business model: There are consultancies that only do strategy. Others also support the implementation of solutions. You may provide bespoke consultancy and advisory, training, coaching, digital products.
All of these things can’t be ignored when planning for growth. The benchmarks and indicators shared at the start of this handbook are helpful to provide some context, helping you better visualize the typical journey of a boutique consultancy. But the different choices founders make on each of the points above explain why:
- The top-performing solo advisors routinely earn close to seven figures a year;
- Many innovative lifestyle boutique consultancies achieve high margins and flexibility with teams of only 3 or 4 people;
- There are boutique founders who have sold their firms with a staff of less than 30 people.
That is why every discussion you have with your partners or growth advisor (in case you have one) shouldn’t be entirely focused on your goals and aspirations. It should also include periodic reviews and discussions about your positioning and business model, at the very least.
We often cover those topics, among others, in hands-on online workshops for consultancy founders. You can check out our upcoming events here.
This is the last page of this handbook.
Here are some of the takeaways recapped:
- Clarifying what kind of consulting business you want to build is valuable since (1) it provides mental and emotional energy when things get tough, (2) helps you know what to expect and prevent predictable challenges, and (3) makes your internal and external communication more compelling.
- The boutique consulting journey is a helpful mental model for every consultancy founder who provides some kind of service.
- Typical benchmarks for each growth phase (yearly revenue numbers in USD, which might need adjustment for your local market):
- Solo: No support team, revenue under $160k.
- Micro: 1-4 FTEs, FB/FTE under $160k, $150k-600k revenue.
- Lifestyle: 5-12 FTEs, $160-220k FB/FTE, $500k-2 mi revenue.
- Scale-Up: 15-50 FTEs, $100-160k FB/FTE, $1.5-8 mi revenue.
- Performance: 50-250 FTEs, $160-250k FB/FTE, over $8 million revenue.
- The distribution of firms is left-lumped. Around 75% of consultancies do not reach a point where they can employ anyone. We estimate 10 to 20% are lifestyle consultancies. And only 1-2% of boutique consultancies get to the performance phase, where partners can try to sell the firm.
- It's a mistake to frame the boutique's journey as an entrepreneurial career path - “the higher on the ladder, the better”. Each of those consultancy images has its pros and cons. It’s up to you to decide how you want to define and measure success.
- Founders typically reject micro and scale-up consultancies as a picture of success:
- Micro consultancies are financially frustrating and provide little flexibility. Partners would almost always earn more by taking a corporate job. And the small team typically makes these practices highly dependent on the founder.
- Scale-up consultancies require founders to deal with two common challenges: Cash flow management and culture change. Finances get scary, working hours shot up, and internal tension grows to a peak. It's a stressful time during which partners make considerable personal sacrifices.
- That is why most consultancy founders gravitate toward one of the three remaining business concepts: Solo consultancies, lifestyle boutique consultancies, or performance boutique consultancies. Some of the differences highlighted include:
- Financial: Solo consultants need stomach to get through the natural pipeline roller coaster, and often redesign their lifestyle to adopt a solid savings strategy. Lifestyle boutique partners follow a traditional capital accumulation path. Performance boutique founders are after a big pay to retire with a luxury lifestyle or fund a future project.
- Human connection: Freelancers often need to make a proactive effort to connect with peers and keep their heads in place. The flat structure and small team of a lifestyle boutique fit most founders that enjoy a more personal and intimate team environment. Founders who get to grow performance firms mostly interact with other partners, senior management, and maybe advisors.
- Personal growth: One-man consultancies need to self-manage themselves with the support of systems and structure. Lifestyle consultancy partners’ must adopt the mindset of a router, hire themselves out of every job, to bring more opportunities and visibility to the firm. Performance boutique founders focus on what can’t be delegated - leadership and strategy.
- The boutique consulting journey is a useful simplification. Strategic decisions such as the core problems you solve, your targeting and positioning, and your business model matter, and can make those benchmarks irrelevant. This is why we can find million-dollar solo advisors and highly profitable lifestyle consultancies with teams of only 3 or 4 people.
You can download a PDF with those takeaways here.
In this last section, I want to provide you with some guidance on how you can take these learnings to clarify your vision and inform your growth strategy.
Disclaimer: Every handbook and resource you can find here in the Boutique Consulting Club is researched and designed for micro consultancies - we are not in the business of giving generic advice. That is why this last section is not relevant for the following consultants:
- New freelancers: If you've started freelancing recently, never had any consulting clients, or are doing it part-time, the process of clarifying your vision is likely to be more rooted in experimentation. There are other websites and communities that may provide more value to you. We are happy to chat and share resources (make sure to check our online events) but, at least for now, we don't have an offering that’s tailored for you.
- Scale up or performance boutique partners: On the other end, if you lead a consultancy with 10-15 FTEs and want to scale beyond this the following exercise will not be effective. Feel free to connect and drop us a line here, and we can put you in touch with a specialized advisor. There are other professionals who are much more experienced in crossing the scale-up gap and advising professional firms on M&A.
80% of the members and readers of the Boutique Consulting Club sell $150k-$750k a year, have teams of 1-8 FTEs, and have at least 10 years of work experience. They are either solo advisors, or micro and lifestyle consultancies. That's our specialty.
Your “Zoomed-Out Vision”
As the saying goes, "If you don’t know where you’re going, any road will take you there." It's impossible to create a growth strategy without first defining what growth means to you and clarifying exactly what you want to achieve.
Actually, the right word is not impossible but useless. What is your plan of action supposed to achieve, and why? If you can't answer that, there's really no point in strategizing anything.
This leads us to the point of this whole handbook: Documenting your vision.
Based on our previous experiences, many branding and strategy consultants rush this process. To be clear: It's not a matter of time invested in the process. Some firms manage to convince clients they need months-long workshops to clarify a vision. While that might be true for Fortune 500 corporations, it makes no sense whatsoever for solo or micro consultancies. You can (and probably should) craft your vision in a single day.
When I say many consultants rush the process, what I mean is they put the cart before the horse. They get too specific, too soon. And this creates mental boundaries of what the consultancy can or can't do in the future - a direct reflection of the limiting beliefs of the founders and partners.
That's why I recommend you divide the work into two:
- First, you create a "zoomed-out" vision for your business.
- Then - only after you explore, rethink, and review your critical problem, positioning, and business model - you document a detailed, "zoomed-in", official vision statement.
Your "zoomed-out" vision is a high-level description of where you want to take your consultancy. It should include:
- Personal drivers: The values, motivations, and aspirations of the founder(s).
- High-level goals: The long-term vision and broad goals for your consultancy.
- Team and roles: The people, and behavior you want to see in your consultancy.
Avoid narrowing your thinking. Instead of providing absolute numbers or measures, use ranges. Instead of describing every minute of your perfect routine, divide it into 3 or 4 blocks of time and assume you can only get a couple of meaningful things done.
The goal here is not to paint a portrait with so many details it looks real. It is to create a first sketch that allows you to add other elements and different colors later.
Articulating Through Writing, And Next Steps
This exercise cannot happen in your head. You need to put your thoughts into paper - we gain clarity through articulation. The most helpful thing you can do to clarify this “zoomed-out” vision is journaling.
The BCC team has put together a resource that can help you do that. It’s a PDF with 10 questions or journaling prompts you can use as a starting point. Feel free to make a copy and fill it out online, or simply print it for brainstorming.
Download the Zoomed-Out Vision Prompts Here.
Understanding what the typical journey looks like and clarifying what kind of consultancy you want to build in the future will provide you with some context to start thinking about growth. What is the very first thing that deserves the attention of consultancy founders? The problem you solve for clients.
You can find this handbook here.