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I'm not sure how much reading that book would help in terms of creating a sustainable business model that does not require significant daily work from the found

by rcconf 8y ago

I'm not sure how much reading that book would help in terms of creating a sustainable business model that does not require significant daily work from the founder and also allows you to scale in a reasonably way. It does help with the operations side of running a business and does give you insight on how some other CEOs might run certain parts of the company (such as marketing, hiring and finding product market fit.) I've been looking at similar business models outside of software development (such as law firms.) to get a better idea on how this business model could scale. Long term tho, I do not plan to scale the consulting side of the business, but hope to phase it out since I believe products are probably a better way to scale a business. I don't think consulting is entirely a bad thing for us tho, I still strongly believe it gives you insights into other companies and allows you to see other companies mistakes every day and that's super useful. Good luck to you.

abalashov 8y ago
You raise an interesting point with your mention of law firms. As I implied in the article, I've not wanted to scale out consulting far beyond myself; it's a means to an end. But if I did, I think the way I would do it is to try to build a partnership with other consultants like myself in my specific area. Professional associations such as law firms have all kinds of partnership mechanisms, but a common one is something like: there are four partners, every one of them has a monthly quota of hours to deliver to the firm. For every one of those hours, (let's say) 50% goes to the company and 50% goes to the partner. For every hour beyond the quota, the partner gets to keep, say, 80% and the firm gets 20%. Then the firm's annual profit is distributed among the partners at the end of the year, month, whatever. And although partners are presumed to be able to generate their own business, common resources such as marketing, administration, etc. are pooled and paid from the firm's common funds. The key issue with a partnership is that it really has to create (ugh, I cringe at a non-ironic use of the term) synergies. Every partner's earnings have to be greater enough in the partnership than they would be on their own to warrant the bother. Otherwise, you end up with the all-too-common best-case scenario of two partners who together double the revenue, but each take half the profits, which makes it a bit of a wash, notwithstanding some small gains in economies of scale through expense sharing.
- rcconf 8y ago
  Send me an email if you want to share some ideas. ari@stacksoft.io
- jake_morrison 8y ago
  Great article, it resonated a lot with my experience. This book is quite good on the standard parts of managing professional firms e.g. accounting and law: https://www.amazon.com/Managing-Professional-Service-David-Maister-ebook/dp/B00120955I/ https://www.amazon.com/Managing-Professional-Service-David-M... Technical consulting has significant differences, however. There is a big separation between the sales and requirements side of the business and the solution/execution side. One of the things that most resonated with me from the book is three kinds of consulting companies: expertise, experience and execution. Expertise consultancies solve complex problems that require non-standard solutions, e.g. a big merger/acquisition or designing a complex software solution. The boss typically has decades of experience, and the "juniors" have a decade. Experience consultancies solve semi-custom problems, things that are amenable to process and knowing the answer to common issues in a domain. An example might be setting up a new legal entity for a startup, or building a custom website to handle e-commerce. Execution companies handle well understood problems at lower cost than it would take to do in house, e.g. monthly book keeping, building WordPress websites for small businesses. In the book, he talks about a number of standard ways of splitting up profits in a partnership. A lot depends on the goals of the firm based on its stage. So the partners might value individual billable hours, managing staff that are billable, bringing in business, or being the "managing partner" who makes sure that the rent gets paid and the copy machine works. It's possible that you have a mix of Expertise, Experience and Execution in one firm, but one basic rule is that in order to be a partner, you should not be relying on another partner to make your team work, e.g. bring in sales. This is one reason that technical consulting firms are different, because being great at technical execution does not mean that you are good at sales and relationship management. In fact, it's negatively correlated, and essentially impossible to hire for. Anyone who can do the job well can run their own consulting company.
  - abalashov 8y ago
    Thanks for the book recommendation! It looks interesting. That said, there seems to be a bottomless opportunity in business writing in offering taxonomies of things. I'm not saying the taxonomy is a bad one in this case, just that there are perils in boxing things into the mental categories someone else has set up for you to sell a book, as a very general principle. That said, it seems like a reasonable way to break down consulting firms...

by rcconf 8y ago

abalashov 8y ago

You raise an interesting point with your mention of law firms. As I implied in the article, I've not wanted to scale out consulting far beyond myself; it's a means to an end. But if I did, I think the way I would do it is to try to build a partnership with other consultants like myself in my specific area. Professional associations such as law firms have all kinds of partnership mechanisms, but a common one is something like: there are four partners, every one of them has a monthly quota of hours to deliver to the firm. For every one of those hours, (let's say) 50% goes to the company and 50% goes to the partner. For every hour beyond the quota, the partner gets to keep, say, 80% and the firm gets 20%. Then the firm's annual profit is distributed among the partners at the end of the year, month, whatever. And although partners are presumed to be able to generate their own business, common resources such as marketing, administration, etc. are pooled and paid from the firm's common funds. The key issue with a partnership is that it really has to create (ugh, I cringe at a non-ironic use of the term) synergies. Every partner's earnings have to be greater enough in the partnership than they would be on their own to warrant the bother. Otherwise, you end up with the all-too-common best-case scenario of two partners who together double the revenue, but each take half the profits, which makes it a bit of a wash, notwithstanding some small gains in economies of scale through expense sharing.

rcconf 8y ago
Send me an email if you want to share some ideas. ari@stacksoft.io
jake_morrison 8y ago
Great article, it resonated a lot with my experience. This book is quite good on the standard parts of managing professional firms e.g. accounting and law: https://www.amazon.com/Managing-Professional-Service-David-Maister-ebook/dp/B00120955I/ https://www.amazon.com/Managing-Professional-Service-David-M... Technical consulting has significant differences, however. There is a big separation between the sales and requirements side of the business and the solution/execution side. One of the things that most resonated with me from the book is three kinds of consulting companies: expertise, experience and execution. Expertise consultancies solve complex problems that require non-standard solutions, e.g. a big merger/acquisition or designing a complex software solution. The boss typically has decades of experience, and the "juniors" have a decade. Experience consultancies solve semi-custom problems, things that are amenable to process and knowing the answer to common issues in a domain. An example might be setting up a new legal entity for a startup, or building a custom website to handle e-commerce. Execution companies handle well understood problems at lower cost than it would take to do in house, e.g. monthly book keeping, building WordPress websites for small businesses. In the book, he talks about a number of standard ways of splitting up profits in a partnership. A lot depends on the goals of the firm based on its stage. So the partners might value individual billable hours, managing staff that are billable, bringing in business, or being the "managing partner" who makes sure that the rent gets paid and the copy machine works. It's possible that you have a mix of Expertise, Experience and Execution in one firm, but one basic rule is that in order to be a partner, you should not be relying on another partner to make your team work, e.g. bring in sales. This is one reason that technical consulting firms are different, because being great at technical execution does not mean that you are good at sales and relationship management. In fact, it's negatively correlated, and essentially impossible to hire for. Anyone who can do the job well can run their own consulting company.
- abalashov 8y ago
  Thanks for the book recommendation! It looks interesting. That said, there seems to be a bottomless opportunity in business writing in offering taxonomies of things. I'm not saying the taxonomy is a bad one in this case, just that there are perils in boxing things into the mental categories someone else has set up for you to sell a book, as a very general principle. That said, it seems like a reasonable way to break down consulting firms...