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An Illustration of the Consulting Spectrum: Giving Simple Opinions Versus Practicing Consulting “Science”

Here are some examples of how one might provide consulting support for a portion of a client project . The examples are based on real-world (but disguised) tactics taken by consultants who are posed with the problem of characterizing the threat of competitive entry by another company.

Person 1’s characterization:

  • The threat of competitive entry is moderate

OK. If one reads between the lines here, one might presume that the person is saying that competition will neither be heavy (potentially indicating price wars) nor light (where sales might go relatively unchallenged). Based on microeconomics-type conventions, the former case could mean that there are between 2 and 3 competitors and the latter case 1 competitor or close substitute. But the characterization leaves a lot to be desired.

A better characterization might be:

  • Competitive entry may occur within 2-5 years by one known competitor already operating in another region

This characterization gives a lot more specific details and timeframes (provided there are details to back up the claims).

Here’s some thoughts on an assessment which is also backed by facts ("science") to support the claim. When a consultant uses hard, quantifiable facts, the arguments and characterization become much less subject to potential challenges by others that results are biased by any personal opinions of the consultant.

Person 2’s characterization:

  • Competitive entry may be expected by one competitor, likely 2-3+ years out
  • Current market structure is mostly a duopoly, indicating moderate price pressure potential
  • The perspective on longer timeframe for competitor entry is based on regulatory requirements concerning X, Y, and Z ; of these the first two are relevant to client
  • The perspective on timeframe for competitive entry is based on public capital and operating expenditures filed in public financial documents and benchmarking of these current expenditures against comparables
  • Subjectively, the business structure that the competitor is using has a high failure rate
  • Historical entry of competitor is X, Y, and Z, and if history repeats itself where competitive entry does occur earlier than forseen, competitive entry will likely look like XYZ from marketing and sales perspective, ABC from a technical perspective, DEF from a financial resources perspective, etc.
  • Entry scenarios are further substantiated by number of retail points, form factor of product, etc. used by competitor and comparables in other markets.

Tea leaf reading aspects of consulting engagements can be hard. But sometimes tea leaf reading needs to be done, especially when stakes are high. All said, there are a spectrum of methods that consultants can use to support their clients through using business "science" or forensic-like methods as opposed to dispensing simple advice (which I dare call "consulting").

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Venture Capital Test Suggests Some Weaknesses About MBAs and Consultants

Paul Brown tipped me on Guy Kawasaki’s post on the Venture Capital Aptitude Test. (Disclosure: Paul’s kind words come from years of he and I working together in a startup where he and the other developers did all the hard work) . Thanks, Paul.

In Guy’s post, Guy gives two positive nods two areas I’ve had lead roles with (engineering & sales) and disses two other areas I’ve been also been involved with (MBA and management consulting) in terms of how it affects one’s ability to be a venture capitalist.

Guy writes about management consultants:

The three worst backgrounds for a venture capitalist are management consulting, investment banking, and accounting. Management consulting is bad because it leads you to believe that implementation is easy and insights are hard when the opposite is true in startups.

Guy writes about MBAs:

Finally, there is the issue of the pertinence of an MBA to venture capital. The upside is that such a degree can provide additional tools and knowledge (such as calculating that 25% of $1.6 billion is $400 million) to help you make investment decisions and to assist entrepreneurs. The downside is that earning this degree (and I have one) causes most people to develop the hollow arrogance of someone who’s never been tested. All told, the downside of an MBA outweighs the upside.

While I won’t address Guy’s claim about the whether these areas are good or bad for venture capitalists (as I can’t claim to be an expert about picking good venture capitalists), what I will address is Guy’s claim that "Management consulting is bad because it leads you to believe that implementation is easy and insights are hard when the opposite is true in startups" and "The downside is that earning this degree (and I have one) causes most people to develop the hollow arrogance of someone who’s never been tested. All told, the downside of an MBA outweighs the upside."

On the point about management consulting I simply disagree (with no disrespect) with Guy. Guy’s statement is an overgeneralization. There are different types of consulting firms out there, and Guy’s perspective may be more influenced by pre-2000 practices. Consulting firms pre-2000 that were focused on strategy might have more of a tendency to be focused solely on stategy, but these firms got burned by making recommendations without focusing on ease of execution. On the other hand, there were firms that grew of of an implementation background (and potentially interim management background) and moved upstream into more strategy consulting. Although markets started to overlap a bit, structurally I think consulting firms and client were better off by having this type of cross breeding.

All said, if one has not spent any time managing or working in a business role prior to management consulting, I think this can be a weak point that one needs to work on careerwise. But there are strong benefits to management consulting that should not be underestimated either – by working in management consulting, one can get exposed to the internal operations of a lot more firms than one could by working for one firm straight for five to ten years. In five to ten years as a consultant, one may have seen the detailed operations of twenty to forty firms versus two to five as an operating person.

On Guy’s point, "The downside is that earning this degree (and I have one) causes most people to develop the hollow arrogance of someone who’s never been tested."

To this, all I can say is that my hypothesis would be that MBAs may tend to attract arrogant people [who overstep their bounds in terms of what they think they’ve accomplised over non-MBA entrepreneurs]. I don’t think the MBA naturally breeds this type of person.

Overall, I think Guy is onto something when he says people should value the difficulty of implementation and value and proximity of market insight. I also think he’s onto something when he talks about arrogancy affecting the ability of VCs to do the job effectively. But Guy’s characterization overly discriminates against consultants and MBAs. What about the negatives to engineers who only think about technical beauty and miss the market need? What about the salespeople who only sold what the customer already bought and never hunted for a deal?

Updates (12/4/06): Guy here. Charlie here.

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Musings on Doing Versus Managing

When I was a practicing engineer early in my professional career, I remember alumni giving me a glimpse of the future of a typical engineer where the engineer would after a number of years move into a management role managing other engineers. Although I didn’t give it much thought at the time, what I didn’t think about was that moving into an engineering management role might make my engineering skills obsolete. Over the years, I did take a path that led me from detailed design engineering to systems engineering to project/product management types roles. Although I stayed on the cutting edge in terms of industry knowledge, along the way I became more interested in business, and I found that my specific engineering trade skills became anemic and obsoleted.

In business, similar things can happen too. For example, many successful sales executives started in an area such as marketing. Maybe down the road they became field sales people and then grew into roles of sales manager, area director, regional VP, or executive VP down the road. With each advancement, they may have become further removed from trench-level sales work. Or they may have helped the organizations become more specialized in productizing the sales process (e.g., for a large company with thousands of existing customers). In these cases, such executives may have set up separate people doing inside sales, other people doing proposals, other people pulling together the technology pieces of a proposal, etc. The executives end up maintaining relationships with customers at the executive level and having the final say in how deals are crafted and how things shape up. In these cases, the executive plays a tremendous role in the larger organization – the situation may be loosely akin to a general in the battlefield. The general becomes far removed from the front line but clearly has tremendous influence and can command respect without having to "do" anymore.

Down the line, management executives (like some military generals) may have more difficulty in moving from large scale environments to entrepreneurial or startup environments. They become accustom to having many resources and telling people what to do. While such executives may have invaluable knowledge and experience about the rise from nothing to sales monster, they may have forgotten what it is like to actually be in the trenches and/or have to do work. Or they may have forgotten what the rise actually entails (which would be a shame if that is the case). I know of many entrepreneurs who lament about venture capitalists or other investors insisting that executive sales VP of brand name Fortune 50 company should become head of sales for seed stage or Series A stage company only to find nine months and millions of dollars more poor that the entrepreneurs were better at selling an early market product with no brand name than the experience sales lifetimer.

This is not to say that managing only is bad. But managing only will create a specialization (which may be rewarded in its own right), and pursuit of that specialization should be a conscious decision. Some managers balance things out by ensuring that they perform a certain amount of work from time to time or visiting the field often. For example, sales managers may not only have regular, internal sales review meetings with field sales people but also travel with field sales people to visit client prospects. Multiple purposes are satisfied with the manager keeping skills fresh, monitoring performance of field sales, and smoking out end-to-end sales and marketing process problems that may be affecting the larger organization.

There are also tradeoffs with just "doing" too. People that get so focused on execution may find that they cannot scale the model. If managers focus on doing as opposed to managing, they may end up micro-managing, failing to utilize others, or failing to develop their managerial skills.

So what’s the answer here? Personally, I think the optimal choices depend somewhat on the nature of the game one is playing. In some industries (e.g., auto manufacturing), the sales and delivery process tends to require specialization to get scale. "Managing only" may be more acceptable. In other industries (e.g., consulting), scale may be harder to achieve and tend to require sales and delivery processes to be closer together. Managing and doing may need to be closer together.

So all said, one needs to recognize that there are different games that can be played. There are also tradeoffs in the types of players that can fill the roles too, much like a guard plays a different role than a center does in basketball. The key is to both match fit with appetite and skill with the game at hand and also to make sure that the process of renewal (e.g., maintenance, training, retraining) is in tune with long-run needs.

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On the CEO Salesman

Ralph Muse, a fellow Texan, ex-Booz Allen management consultant, extremely experienced interim manager, extremely respectable father, and honored serviceman (among many other impressive things) recently started up a blog, and one of my favorite posts by him is entitled, "Super Salesman CEOs". The post is written in the context of trying to place a CEO in a startup, but I feel the post also reflects the situation in numerous client engagements I have seen, for example in cases where more mature companies are looking to enter new businesses or develop new product platforms. In Ralph’s post, he writes (bracketed text mine):

[An executive search firm] needed help finding the perfect person for a CEO search. The position description called for someone who had spent their whole career in Sales …

I have heard this request before. It seams to be a trend. While I think every good CEO is a salesman, not every sales VP can be a good CEO. If fact for most startups after the salesperson “makes the sale” the CEO will have to close the deal by convincing the customer that the company has a sound business strategy that will succeed.

One take that I have on this situation is that visionary and "salesy" (for lack of a better word) CEOs need to find someone or someway to complement their strengths if the CEO lacks execution skills, strong lieutenants, and/or the time and bandwidth to employ structured methods for tackling problems. I have seen a number of efforts fail or get stalled because they overlook some of the soft stuff to get businesses to work, like team building (as Ralph mentions). See Ralph’s post for more.

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Fascinating Article On The Evolution of Parental Workload

Excellent NY Times article which sheds light on how families and single parents are continuing to spend time with kids in spite of women working more and individual parental workload increasing (see chart along the left side). Although not all families have two parents, it would have been interesting to see total parental workload depicted. By adding the breakdowns for mother and father together, it appears as if (from 1965 to 2000) total parental workload has increased, total housekeeping has gone down, and total time spent with kids has gone up. It is interesting to note that average father’s housework time has increased. It also interesting to note that average paid work time for fathers has gone down (Note: this latter item is not one that I would have suspected).

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It’s Not Easy Being Green

"It’s Not Easy Being Green" are famous words often attributed to Kermit the Frog. I think these words apply to not only famous frog puppets but also "green" management consultants (i.e., those fresh to the field).

Consulting can be a high pressure profession, and clients (as well as senior colleagues) often closely scrutinize new consultants, especially newly-minted MBAs during the first period when they land on a project. For what it’s worth here are some of the things that helped me get through my first few months when I entered the profession:

  • Check out the dress code for the first client you hit – Consultants need to dress well (perhaps well enough) so that they don’t inadvertently give the impression that their skills are average or mediocre. While seemingly shallow advice, underwhelming clients is not something that is easy to overcome. All said about dress, it may not be desirable to overdress for the client either. Unless you carry your wardrobe like a model, overdressing can make you stick out like a sore thumb.
  • Don’t immediately tell clients that you just started with the firm and just got your MBA – It can be tempting to say this because you think people will be easier on you if they know you are new. Not the case in consulting. It is much better to say something to the effect of "I am in my first year with the Firm". If you tip that you literally just started in the profession (too early before developing a relationship), you may be working yourself out of a hole with the client before you even get a chance to prove yourself. By all means, do not lie about who you are, but engage people the way they need to be engaged.
  • Get your first win in the eyes of the client early on – I’ll be honest. I don’t think I did this the first time I hit the client site. I was more concerned with following my perception of firm procedure & methodology to the letter. I focused on activities to the exclusion of results and what was actually going to help the client in a tangible way. Fortunately, one of the engagement managers on the project was able to steer me in the right direction. He told me something the effect of "Forget about XYZ methodology. The essence of what we need to do is meet goal ABC." Compare my shortfall compared to an analyst on the project that on day 2 of the project, without any fancy "MBA-based" methodology, found uncollected revenue by the client of X hundred thousand dollars (I’m just pulling out some numbers here) by reviewing some customer contracts. The results exceeded the professional fees of the analyst by many, many times compared to the two days of work.
  • Watch, learn, and work on developing "presence" – One of the unspoken areas about interviewing prospective consultants for employment is that consultants need to project and communicate with a strong level of confidence that carries right on to the client site. Being able to get through case interviews, being smart, being personable, and being a logical thinker is not enough when interviewing for a consulting firm. Consultants need to be able to facilitate situations, re-frame things, test hypotheses, and communicate in such a way as to drive things to closure. Projecting presence doesn’t stop after the interview process for employment.
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For My Google YouTube Diary

My short roundup of articles and posts covering the Google acquisition of YouTube:

  • CNN reports Google buying YouTube for $1.65 billion. YouTube founded in February 2005. Steve’s note to self on another billion(s) dollar acquisition with a short total life as an independent company: Skype acquired for $2.6 billion. Some of my older notes here. I am neither following Skype nor YouTube that closely, but I expect that Skype had both more revenue and more of its revenue model "proven out" relative to YouTube.
  • Why Mark Cuban thinks Google is crazy (and here). Too much hidden liability. Steve’s note to self: The $1.65 billion "in theory" has liability priced into the deal. Additional note to self: the Kazaa damages were on the order of $100 million (? – here). Could potentially calibrate size of liability from this and other data.
  • Excellent post by Susan Mernit which outlines what Google didn’t buy in such a way that provides much deeper insight on Google’s strategy and the leverage of the web.
  • Fred Wilson’s great summary of what YouTube did right – really right. Provide some micro-level insight about what can be tapped into using the web, viral mechanics, and great user interfaces (while keeping it simple).

Update (10/18/06): Also make sure to check out David Dalka’s post here. Thanks, David!

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