The Consulting Venture Model: enabling exponential growth

Consulting is one of the easier businesses to start but a hard business to grow. A one person band can be a consulting company. Afterwards hiring number two becomes more tricky because now the lead consultant needs to find work for two and by doing so is not all the time busy on billable projects. The big problem comes when you really have scale. Trying to double revenues means hiring more than double the amount of people because of overhead costs. Efficiencies need to be optimally managed. When an economical crisis hits, you have too many people and need to fire. When there is prosperity, you cannot hire fast enough and leave money on the table. So growth at most is linear because you cannot exponentially hire new people.

Another part of consulting is the type of work that is done. Defining a strategy and go-to-market for a new innovation. Creating a new product based on a technology the customer never used. Bringing an army of people to do a large transformation job and moving on when the job is done. Maintaining a system that has been outsourced and bringing efficiencies. That and many more consulting tasks.

What you are not seeing that much is consulting companies building a product one time and selling it to many customers. The reason is that consulting wants every hour to be paid for and cannot go and develop for one year a product before selling any billable hours. Many consulting companies are open to the idea of one customer paying the development and them retaining the intellectual property rights so they can sell the same to customer two and five hundred. Unfortunately nobody wants to be customer one in this case and pay the full product development.

The product business model however is enormously scalable. Once you have the solution, you can sell it again at almost zero cost. If the solution requires lots of connectors or custom business logic then it is a gold mine for consulting companies.

Let's take the product business model to the extreme and let's make the core platform open source. Anybody will be able to download the core platform and play with it. All of a sudden the cost of sales drops because customers can try something without you having to sell it to them. Many successful open source businesses exist, E.g. RedHat was bought for $34B, MongoDB is made $874M in 2022, Hashicorp $320M,...

The open source model is combined with a service fee for installation, operation and maintenance. Either custom-development of connectors, plugins, apps,... is charged. The better model however is making resellable connectors and apps to get an ongoing revenue source. Even if competitors can be hired by customers to make connectors, not paying for maintenance is a major risk. The competitor cannot guarantee that code fixes they create get "upstreamed" into the base product in a timely manner, neither that the roadmap is taking the customer's needs into account.

So how to fix the starting point and avoid the nobody wants to be the first customer problem? This is where the consulting venture model comes in. By focusing on a common problem multiple customers have, you can get them to jointly invest in building the core platform in exchange for getting a minority share and an unfair advantage at the time of rolling out the product. If the venture is successful, that "customer held equity" can be bought back at a multiple of the initial investment, converting their project from a cost into a profit. Alternatively doing an IPO would be another exit strategy for customers.

In any case, consulting companies are great at selling a customised solution to many customers so they can have long term engagements with them. This model starts as a very common base platform and then follows exactly this model. Even if two customers have the same platform, they can have custom business logic, different apps, connectors, plugins,... All completely personalised.

If you are a customer or a consultancy that sees merits in the consulting venture model, why don't we talk…