How Do You Grow and Sell a Successful Consulting Firm?

This past month, Raj Aseervatham, published an important resource for consultants titled You're the Boss: Growing and Selling a Successful Consulting Firm. The book is segmented into nine distinct lessons charting the journey of a successful consulting firm—from inception to sale.

I just recently spoke to Raj about the book and asked him: “What are the most common mistakes business owners make when they try to grow and sell a consulting firm?” Here is his complete answer:

Most people are familiar with this statistic -- eight out of ten businesses fail. Paradoxically, most entrepreneurs firmly believe they will be in the 20% that succeed. Do they really know why they believe that? Let’s look at the knowledge that consulting entrepreneurs who actually made the 20% reflect on:

1. Failed consultancies often lack a clear strategy. Having a concept is not the same as having a strategy. Being very specific about your business – what it does, how it’s structured, what maturity looks like, what your sale looks like – help fill in strategy. As the head of your company, no detail is too small for you to contemplate.

2. Failed consultancies often have poor planning discipline. Having a plan is the same as preparing to execute a strategy. Abraham Lincoln Abraham Lincoln once commented that if he had six hours to cut down a tree, he would spend the first four hours sharpening the axe. Invest your time in detailed six-monthly or annual plans, test your assumptions, iterate the plan frequently. Don’t treat it as an administrative chore. Your planning is your preparation and dress rehearsal.

3. Failed consultancies often die of cash starvation. Watch your cash. This is not the same as saying "get your accountant to watch your cash." You are intimately familiar with your strategy and your plan, not your accountant. Cash flow is like the blood flow in your business; you need it to carry out your plan and execute your strategy. You need to know how much you need and when, and you need to know that your business operation will deliver it. So be intimately familiar with your cash flow.

4. Failed consultancies are often inconsistent with their quality. If you promise something, deliver it to the standards expected. Do not compromise the quality your clients pay for. As you hire more consultants into your business, your quality standards might be prone to variation, and to dilution. If this happens, your brand erodes while you grow.

5. Failed consultancies often forget what made them contenders. Don’t let your principles erode with time. The consulting entrepreneur may start with strong ideals – from client service through to cash management, through to the ethical decision making, to how employees are treated. Often, small companies are formed around a core of pride and value, built on principles.  As they grow, that core can become less distinct and the culture can change. Be firm on how you retain and strengthen the principles that allowed you to first break successfully into a market.

6. Failed consultancies forget that their people make up nearly 100% of their tangible assets. Hire slowly and deliberately. Treat every hiring decision like it is your first excruciatingly important one, and you are more likely to build a consulting firm of people who can create lasting value.

7. Failed consultancies do not have a consistent focus on business development. Practice business development even when your business is booming; and especially when your business is booming. The worst time to dust off your business development skills and deploy them into the market is when business is bad. The best time to grow your business is when business is good, so get out there and market in the best of times like it’s the worst of times. In fact, practice business development all the time if you really want to grow.

8. Failed consultancies allow their overheads to get away from them. This is not the same as running your enterprise like Scrooge; you may find that no-one will want to work for you! No, this is about knowing what a manageable overhead structure looks like at every stage of your growth, and ensuring you run your business according to that structure. It’s about considered discipline.

For the consultants reading this post: What do you think of Raj’s points? Does one of these points stand out from the rest? Did he miss any important areas?


Can the "Science" of Lean be Applied to the "Art" of Selling?

A couple of months ago, Productivity Press published a groundbreaking book -- Lean for Sales: Bringing the Science of Lean to the Art of Selling -- that describes the Lean journey as it extends to a business area that has been virtually untouched by the Lean transformation. I decided to ask the authors -- Sean Gillespie, Michael Testani, and Sreekanth Ramakrishnan -- a few questions about why this topic is so important. I ended up having an enlightening conversation with Michael Testani, so I've decided to present my questions and his answers here:

What is value from a client perspective, and how can we be sure we are delivering it to clients?

We have rarely seen a sales function define what value is in the context of a Sales organization or a customer.  That is, until now. Using the principles of Lean selling, you will recognize that there are two types of value -- intrinsic and extrinsic. 

"Intrinsic Value" is the inherent worth of a product or service. The value is based on capability that the product or service delivers “in and of itself.” Typically, these are commodity-based products or services available through multiple suppliers—where the value of the item is closely equivalent to the purchase price of that item. For example, anyone can purchase a power cord for recharging their cell phone at around $10.  

"Extrinsic Value" is the portion of a product’s or service’s net worth to a customer that is agreed and assigned to it by external factors. These factors are typically external to the product and service itself — they typically relate to the customer and their particular business. Selling extrinsic value may involve the customer making radical changes to their own organization to recognize the business value that a product or service can provide. The automotive industry provides an excellent example of extrinsic value in that customers often buy high-end vehicles at prices that are tens of thousands of dollars higher than less prestigious vehicles.  Here the automotive industry sets their price based on the extrinsic value of the vehicle from the customer perspective.

The Lean selling methodology provides proven principles and practices for identifying and delivering extrinsic value to a customer.

Why is Lean so important in the field of sales?
Lean has a long and successful history of improving businesses by simplifying processes to gain operating efficiencies, thereby providing a competitive advantage. Almost everyone is aware of Lean’s deep roots in the manufacturing domain, originating with the Toyota Motor Company where the Toyota Production System has become the premier operating model for manufacturing companies across the globe. Everyone in business should also be equally aware of Lean’s successes outside of the manufacturing domain. Lean thinking has proven to be quite successful at dramatically improving processes in the financial and healthcare industries; as well as many other business sectors and organizations across the globe.

Lean for Sales describes how the proven “Science of Lean” can be successfully merged with the “art and know-how” of the sales professional to provide a client with unparalleled sales service and support. Lean Selling is the term coined here to describe a unique methodology that combines Lean methods with the more traditional approaches to sales. When these powerful selling techniques are applied collaboratively with a client, the sales cycle becomes much more efficient and the client experience is dramatically improved. Lean for Sales describes these Lean Selling techniques and provides a framework for the reader to apply these techniques within their own business and across their client base.

How can Lean for Sales help a sales organization to deliver unparalleled value to their clients?

In our book, Lean for Sales: Bringing the Science of Lean to the Art of Selling, we are stating that in today’s highly competitive business environment the traditional selling techniques do not focus enough, if at all, on how to develop a sales engagement based on gaining a deep understanding of the customer’s real business problems and how these problems impact their business.  The goal of this book is to enable the sales professional to use a scientific and repeatable approach for leveraging actual client data that relates to an actual business problem and an agreed upon outcome.  We call this approach the “science of selling,” and the Lean for Sales methodology offers a proven, repeatable approach for combining the art and science of selling to deliver unparalleled client value. 

For the reader: Do you think think Lean principles can be applied to the sales function of your organization? If you have applied these principles, were there measurable improvements? Where were the problem areas?


Using Measurement and Metrics in the Hoshin Planning Process

Much has been written on the effectiveness of Hoshin Kanri (also known as Hoshin Planning or policy deployment), which is a method for ensuring that the strategic goals of a company drive progress and action at every level within that company, and the power of a shared strategic vision. This past March, Lisa Boisvert published an interesting new book -- Reflections on Hoshin Planning: Guidance for Leaders and Practitioners -- that examines Hoshin Planning through the ever-shifting and imperfect lens of daily life in organizations. I recently asked her: "How do C-suite and executive leaders currently use measurement and metrics in the Hoshin Planning process?" Here is her complete answer:

In Hoshin Planning, the purposes of measurement and metrics in executive discussions on the strategic plan are at least threefold. We measure to agree on an objective definition of a desired end state; build understanding around an area that is new to the organization—a breakthrough; and ensure that our strategic choices and related activities are meeting the organization’s business objectives. Including metrics as part of the dialogue in these three areas is essential to getting high quality consensus among the organization’s leaders, a consensus that gets results when the plan is implemented across the rest of the organization.

  • Building a shared, objective definition of a desired end state. The evidence of a consensus decision is that once it is made, everyone who participated in making the decision begins to behave consistent with the spirit of that decision. The results of a Hoshin plan are influenced by whether consensus is achieved along the course of its selection and implementation. One means for arriving at consensus is the dialogue that takes place to create an objective (measurable) definition of success.
  • Leaning out, learning how to measure what the organization hasn’t done before. If the Hoshin is a bona fide breakthrough, it’s likely to involve the application of designs and processes that are unprecedented for the organization. As a result, the organization’s ability to measure performance may be limited at first. Leadership focus, and openness to learning what monitoring metrics give the best indicator of business success as the Hoshin work advances, helps keep plans real and improves results.
  • Integrating Hoshin metrics with business fundamentals. Hoshin Planning aficionados sometimes take some teasing for being overly fond of fancy matrices, but some way of showing how all the measurable goals and activities of the organization are related is essential. Senior leaders need to create a visual that shows how their business, Hoshin, and operational goals impact and support each other.
Has Hoshin planning been successful in your organization? Has flexibility been a problem?


What is Operational Excellence in the Office?

Kevin Duggan, with Tim Healey, recently published an important new book that expands on, and transcends, the topic of value stream mapping titled Operational Excellence in Your Office: A Guide to Achieving Autonomous Value Stream Flow with Lean Techniques. I asked Kevin to specifically tell me: “What separates this book from all the others on value stream mapping?” Here is his complete answer:

Operational Excellence in Your Office is much different than previous value stream mapping books. The subject matter of this book is achieving true Operational Excellence in the office, and not ways to merely eliminate waste in the office. True Operational Excellence is defined as “when each and every employee can see the flow of value to the customer, and fix that flow when it breaks down.” This means we establish “self-healing value streams” that run autonomously day in and day out without management intervention.

The book provides a detailed overview of exactly what Operational Excellence is and how it applies in the office. The book does not teach how to create value stream maps, but it uses value stream maps to show how to design self-healing flow in the office. 

The word design here is key. In many value stream mapping techniques, we have been taught to make a current state map, look for waste, and think of an ideal state, or use brainstorming tools to try and develop a future state. However, in Operational Excellence, it’s different. In Operational Excellence, we create a current state; however, we then put it on the wall and just leave it there. The next step is to learn the nine guidelines of office flow. These guideline teach us how to handle high variation in customer demand (as the concept of traditional takt time just won’t work in the office), how to sequence work, where we can possibly do a one-piece processing cell, how to move work through the office using workflow cycles, how to move large amounts of information from one area of the company to another, where we can initialize work and at what points can we re-sequence work, how to tell if the office flows are on time, and what to do when the customer changes their demand or new demand comes in that exceeds what the value stream was designed to do. 

The key to these guidelines is that they provide a method to design what we will then consider to be normal flow. And by establishing normal flow, we have then established what abnormal flow is. 

Understanding and reacting to abnormal flow is a state that very few companies achieve. However, this is exactly the goal of Operational Excellence: seeing, understanding, and correcting abnormal flow without the need for any management intervention. Without the need for management to direct and control information flow in the office with status meetings, update meetings, or meetings to fix abnormal conditions, management can now spend their time on activities that grow the business, or offense activities. 

What separates this book from other value stream mapping books is that we are not teaching value stream mapping in this book; we are teaching how to design value streams that achieve Operational Excellence in your office. Value streams designed using the guidelines in the book can then become self-healing, and deliver the service day in and day out autonomously, without the need for management intervention, freeing up time for management to spend on growing the business. 

Are there any readers familiar with "self-healing value streams"? If so, what have been your experiences?


The Toyota Production System and Job Shops

For this blog post, I’m turning the reigns over to Dr. Shahrukh Irani to explore how Lean initiatives can be successful in high-mix/low-volume environments and job shops. As an associate professor in the department of Integrated Systems Engineering at Ohio State University, his research at OSU produced JobshopLean.

Lean is Necessary for Every Manufacturer
The goal of any manufacturer is to reduce the total time that customers must wait from the time that they place their order to the time that they receive their order free of defects. The Seven Types of Waste are activities that add:
1. Delays to the time that customers must wait to receive their order.
2. Costs to the price that customers must pay to receive their order.

A High-Mix Low-Volume Manufacturer is not like Toyota 
Without question, the revolutionary Toyota Production System is the gold standard for how any business can pursue cost reduction through waste elimination without headcount reduction. But does a high-mix low-volume manufacturer implement Lean the same way as a low-mix high-volume manufacturer such as Toyota? No -- no Toyota facility makes refrigerators and bicycles on any of their automobile assembly lines. An assembly line that uses a conveyor to move a product (or product family) through a fixed sequence of work stations is inflexible. It could not make other products whose manufacturing routings, bills of materials, and processes used to make the final product are different from those used to make automobiles. Finally, every Toyota assembly line must be just flexible enough only to build a limited variety of automobiles whose annual demand provides sufficient return on investment to justify continued operation of that line.

How a Job Shop Differs from an Assembly Line 
An assembly line and a job shop are radically different manufacturing systems. An assembly line is a low-mix high-volume manufacturing system. A job shop is a high-mix low-volume manufacturing system. Some of the characteristics of a typical job shop that make its production system radically different from the Toyota Production System are:

  • It fulfills orders for a diverse mix of hundreds (sometimes thousands) of different products.
  • Manufacturing routings differ significantly in their equipment requirements, setup times, cycle times, and lot sizes.
  • The facility has a functional layout (i.e. the facility is organized into departments --“process villages”) such that each department carries equipment with identical/similar process capabilities.
  • Demand variability is high.
  • Production schedules are driven by due dates.
  • Due dates are subject to change.
  • Production bottlenecks can shift over time.
  • Finite capacity constraints limit how many orders can be completed on any given machine on any day. 
  • Order quantities can range from low to high.
  • Lead times quoted to customers must be adjusted based on knowledge of the production schedule.
  • The diverse mix of equipment from different manufacturers makes operator training and maintenance more challenging than for an assembly line.
  • It is a challenge to identify the part families in the product mix.
  • Customer loyalty is not guaranteed.
  • It is necessary to be able to serve different markets. In fact, a job shop must deal with the tendency for their product mix to alter as their customer base changes or they hire new sales and marketing staff who bring with them their past business contacts from new sectors of industry.
  • It could be a challenge to recruit and retain talented employees with a strong work ethic, a desire to learn on the job and get cross-trained to operate different machines.
  • There are limited resources for workforce training.
  • It is hard to control the delivery schedule and quality of suppliers.
  • It is hard to negotiate the due dates set by customers.
  • Production control and scheduling is more complex.
What Do You Think?
If you are a high-mix low-volume manufacturer and have customized the implementation of Lean in your facility or you would like to know how, please send us your questions and comments.  Let’s get a conversation going! 

Thank you,  
Dr. Shahrukh Irani


Traditional Accounting Systems -- They Don't Properly Value Time

Lean advocates have long been critical of the fact that traditional accounting systems motivate over-production and promote building inventory. In her book, The Monetary Value of Time: Why Traditional Accounting Systems Make Customers Wait, the author, Joyce Warnacut, discusses the fact that traditional accounting systems don’t properly value time. I asked her directly: "How is this different from the Lean perspective?" and here is her complete response:

Lean objections are based on the fact that absorption costing requires overhead allocation. The cost per unit is driven down by making more and spreading the cost over a larger number of units. H. Thomas Johnson (Professor of Business Administration, Portland State University) wrote the following in his article Work Lean to Control Costs: “Producing more and more output to reduce average unit costs is a time-honored pathway to excess, delay, and abnormal variation – prime drivers of higher total cost.”

These concerns are valid, and yet the total impact of traditional accounting goes far beyond overhead allocation. The matching principle, one of the foundations of traditional accounting, requires matching of production cost to revenue. This means that if you spend $1,000 making a product this month, but don’t sell it until next month (or next year), the matching principle requires you to stash $1,000 away in inventory. This puts the $1,000 on your balance sheet as an asset and keeps $1,000 in production costs off your profit and loss. The $1,000 will be recorded as a cost of sales at the time the product sells (i.e., the cost will be “matched” to the revenue).

Note that the $1,000 cost – and the resulting profit from the transaction – is exactly the same whether the product sells today or several months from today. Is this true? Inventory costs (storage, handling, carrying costs, planning, expediting, moving, counting, potential obsolescence, etc.) are allocated in some fashion over production. The allocation may be as simple as units or hours (volume-based allocations are by far the most common) or a more complex allocation formula.

But no matter what formula is used, the cost recorded for that particular product is the same whether the product is sold immediately or held in inventory for months. Intuitively, most people would think that product sold directly off the production line contributes more to the bottom line than product that is carried on the books for a month or more. From an accounting perspective, however, this is generally not the case.

Resources that are invested in inventory are valued no differently than resources invested in product that can be converted to cash immediately. What if our accounting methods put a value on time? What if product cost increased for every day the product was held in inventory? What if our shop floor operations were evaluated based on how quickly they turn orders into cash? What different motivations might this create? What changes would be made in how we allocate resources?

Although accountants recognize the time value of money when comparing investment alternatives, the same principles are not applied in how we value inventory, how we allocate resources, nor in how we evaluate the profitability of our products. 

What do you think of Joyce Warnacut's perspective here? Does your organization function under a traditional accounting system? Have this system undercut the true value of your Lean initiative?


The Second Edition of “The Complete Lean Enterprise: Value Stream Mapping for Office and Services” -- Why Is It Needed?

It has been 10 years since the publication of the award-winning, best-selling book called The Complete Lean Enterprise: Value Stream Mapping for Office and Services. This book brought value stream mapping and Lean thinking out of the factory and into office and service environments in all industries. The authors, Beau Keyte and Drew Locher, have just published a second edition of this book, and I recently asked them: “Why is a second edition of this book needed?” Here is Drew Locher's complete response:

During this time, my co-author, Beau Keyte, and I have continued to deeply learn about the application of this powerful methodology in our work with a wide variety of organizations and industries, including financial institutions, healthcare, hospitality, the “back office” in manufacturers, and engineering firms. Beyond the “mechanics” of the use of the tool, we have come to better appreciate the “social” benefits of the approach to any organization. The second edition represents our collective experiences over during those 10 years and captures many key lessons.

The collaboration that the methodology ignites between departments and functions (that have traditionally not worked effectively together) is nothing short of stunning in most cases. Through the process, they learn from each other, develop a common vision going forward, and form a true team that is critical to the successful implementation of the "future state" that provides breakthrough results for their organization. In addition, we learned many other success factors. For example, it is not solely the objective to implement the tools and techniques envisioned in the future state that fundamentally change the way work is processed and flows -- a new way to manage the value stream is needed. Only then will sustainable change occur and continuous improvement be practiced beyond the first future state – the true objective of Lean Thinking.

The new content includes an entire chapter dedicated to the “management process,” and “learning your way to the future state.” In addition, during the past 10 years, we have observed many individuals and organizations practice their own use of the methodology, often with mixed results. Most commonly, we have seen current state maps without proper future state designs. Value stream mapping should result in radical improvement resulting in significant improvement in key metrics; greater than 50% reduction in lead time, up to 90% improvement in information or service quality, and the like. Very often, however, the projected results are modest and represent incremental improvement. Other times the future state is nothing more than the current state with up to 100 ideas for improvement noted. Long “to-do” lists are created and responsibilities and dates assigned. This represents a “waste war" or a ”drive-by kaizen” approach rather than the thoughtful redesign of the value stream based on the key principles of Lean that will achieve the aforementioned breakthrough results.

We have honed our messaging and teaching with regard to future state design in the second edition. The future state questions have been revised and applied to a new case study so the reader will find them easier to put into actual practice.

We feel that even seasoned practitioners will benefit from the second edition if they are open to honing their skills in the powerful value stream mapping methodology. And for those who are new to the subject, here is the opportunity to learn the current thinking from the original leaders on the application of value stream mapping and Lean to office and services. 

What do readers of this book think? Do you feel the second edition of this book is a welcome addition to the Lean literature currently available?