By Mark Ligertwood, Dunedin, January 30, 2019 Mark Ligertwood, an experienced investor in the professional services sector, explains how niche consultancies can grow even faster without compromising their specialist quality.
You might call it the rise of the specialists. While the large global consulting firms have become household names, a separate breed of smaller and more focused advisories are growing much more quickly. These firms have been increasing sales at an average rate of 20% a year according to the Management Consultancies Association, five times’ more quickly than their larger counterparts.
Specialist consultants concentrate on a market segment where their founders have deep expertise and experience. Often focusing on very particular areas of consultancy rather than offering a more generic service, they are highly regarded for their client-focused approach. Indeed, clients often followed the firm’s leaders out of a larger consultant when they were setting up the business.
Very often, the leaders of these organisations are evangelical about their specialism, with huge ambition for both their clients and their own businesses. They relish the opportunity to work with people with similar levels of creative energy and work hard to protect what makes them special; but they are also highly motivated to grow their organisations.
Scale-up opportunities and challenges
For investors like us, this is a potentially attractive opportunity. But herein lies a dilemma. How do you scale a business that is performing so strongly precisely because of its specialism and focus? The danger for specialist consultancies is that growth could undermine their unique selling point – by moving them into areas where their expertise is less deep, for example, or by diluting the culture and skill sets of the business through recruitment of staff that don’t fit the mould.
The good news is that these ambitions are not irreconcilable – as the growth rates achieved by specialist consultants generally, and those in which Dunedin has directly invested, go to show.
New markets will be an important element of the growth plan. That might mean working with a broader range of clients in different sectors or identifying adjacent services that appeal to both existing and new customers. International expansion is also a huge opportunity: many of the most successful niche firms with whom we have worked have grown rapidly by taking their business model from one geographic market to the next. Offering the deepest specialty in their respective niches, they are well-placed to win business in each new geography.
Attracting and nurturing additional talent is also critical. One challenge for specialist consultancies is to find people with the right expertise to operate at senior levels of the business. Here too, internationalisation provides a solution: firms that follow existing clients into overseas locations can gain access to new pools of talent while simultaneously growing revenues. Over time, this enables the consultancy to take on more work and bigger projects, particularly since new recruits will come with their own client relationships.
At more junior levels of the businesses, there is an opportunity to develop the skillsets of the next generation. Their leaders are inspiring role models, but there is also a need to create structures that deliver training and development and recognise success – through talent academies, for example. Specialist firms often provide younger consultants with the opportunity to reach senior levels of the business more quickly than they would in a much larger, multi-disciplinary organisation.
Culture is another key piece in the growth jigsaw. The most successful specialists seek to protect their culture at all costs; these are often businesses where the founding partners have rejected the corporatism and politics of the large consultancies in favour of values such as meritocracy, client centricity and passion. As the organisation increases in size, it may be challenging to keep those values front of mind, but their leaders work hard to do so.
Investment and support to accelerate growth
External investors in such businesses can provide crucial funding as consultants seek to accelerate their growth. This does not have to mean abandoning a diverse ownership model, with specialist consultancies often committed to employee share ownership as part of their meritocratic culture. But the broader support an investor can offer may be just as important, spanning needs such as recruitment, operations, IT, finance and governance.
For example, Dunedin’s investment in FRA, a specialist consultancy that helps its clients respond to regulatory investigations, has seen it help the firm hire at a senior level and provide support in building the internal infrastructure that businesses need as they grow. That includes enabling technology in areas such as customer relationship management and financial reporting, as well as advice in areas such as the retention and recruitment of key personnel. FRA has doubled in size over the past two years.
Our other successful investments in this area include Blackrock, widely regarded as the world’s leading practice of independent expert witnesses providing support predominantly to the construction sector but increasingly to related industries such as IT; and Alpha, which provides operational consultancy to asset management firms.
What these firms have in common is a leadership that understands that it is the combination of expertise and character that makes them special. Highly-engaged leaders and partners are motivated by the desire to deliver exceptional customer service – and often relish in the us-and-them mentality as they secure new business ahead of larger competitors.
They show that specialist consultancies have the potential to grow fast and establish international market leadership whilst staying true to what has powered their success so far.
External investment that provides funding and business support, and therefore enables leaders to remain focused on their clients, can ensure they are able to fulfil their potential. With investors’ help, niche consultancies can:
- develop a recruitment and talent management strategy to attract and retain market leading consultancy teams;
- build a business infrastructure that will cope with rapid growth;
- free up leaders’ time so they can focus on business strategy;
- move into new markets, including international expansion;
- access funding for acquisitions and bringing in specialist skills;
- retain the culture of quality, pride and passion on which the firm was built.
Learn more about how we helped FRA to put the right people in place to meet fast-growing demand.
