ZDNet blogger Brian Sommer wrote a couple of weeks ago about how the recession affects consultancies. His analysis led me to the following ruminations.

Firms that merely broker services are in big trouble.

Many clients are looking to save money by doing the legwork for themselves. If your business model is only about helping clients find the right person or firm for the job (like the startup that Brian mentions), you’re likely to be considered an unnecessary expense even if you could actually save the client money in the long run. As Brian says, “We found that buyers had to be more self-sufficient/self-reliant as they had less operational, discretionary budget to spend on services like ours.”

The same principle applies to big consultancies vs. small ones. Bigger firms add a significant overhead for managing the relationship between their consultants and their clients. Smaller firms, especially independents, can trim those costs as well as many other expenses. You can talk about economies of scale all you want, but the truth is that smaller is often leaner.
Smaller projects have a better chance of approval in a down economy.

Brian asserts that large-scale projects that are already underway are more likely to be finished than shelved, delaying the effects of the recession for consultants who work on them. I’m not entirely certain on that point, but I do agree that it will take longer for new large-scale projects to get started once the economy recovers. Clients can often justify smaller projects more quickly, based on their more immediate benefits and reduced risks.

Note: By smaller projects, I mean smaller in scope — not necessarily in duration. Keep that in mind in discussions with prospects, and look for ways to help them reduce the scope of their plans.
Smart companies may want to use consultants for small projects more during a recession than ever before.

Companies are already cutting staff down to where they can barely get their usual jobs done. If they add another task to an employee’s list of duties, it will be interrupted frequently. Existing employees might need to be educated on the technology required. So the choices could come down to (1) spend the time and money to train an employee who doesn’t really have the time; (2) hire someone new and deal with the expense and commitment of new head count; or (3) bring in a consultant who ostensibly knows what he is doing and who can be dismissed without a fuss when the project is complete. Many companies choose option number three, because they know that getting the job done quickly and correctly will save money. And sometimes it’s just the stupid policy of “we can’t increase head count, but we can use a consultant.”

Brian correctly notes that “not all consultancies are affected equally by a recession.” He mentions the type of consulting you do as a factor — but you should also consider the type and health of the business in which your client is engaged. Some of my clients continue to pull in strong revenues, precisely because they provide their customers the software equivalent of a security blanket. So they’ve continued to fund new projects and use the gravity of the slow economy to slingshot themselves past their competitors.
Although I advocate smaller, leaner projects above, perhaps the single greatest factor in keeping your consulting boat afloat is to nurture long-term relationships (which you should have been doing for years). When a client knows the value that you’ve consistently provided, it’s much easier for them to see you as a revenue generator and/or cost saver rather than as an expense. You want to be the one they think of asking to help them create the solutions that will enable them to weather the recession and come out profitable on the other side.

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