What Makes a Consulting Business Model Successful?

Chances are you've heard that before: "Their success can be directly attributed to their strong business model". "Our business model is at risk." "That's a weak business model!"

Now try this. The next time you hear something similar, ask the speaker: What do you mean? Why is the business model strong/weak? You'll find out that, more often than not, consultants and advisors abuse jargon to sound smart but never really thought about it. They lack objective criteria, and the evaluation is mostly a reflection of their feelings or opinions about a certain business model - which means the advice cannot be taken seriously.

So to answer the reader's question: What are those objective criteria? What makes a consulting business model successful?

To assess a given model's "strength", we look at two things:

• Whether it makes the consultancy profitable.
• Whether it is sustainable.

Let me briefly explain that.

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Profitability

An unprofitable company can find and use external funding to continue to operate. This is the game VC-backed startups, for example, play. But the company can only do so as long as it convinces those investors of its ability to sustain profitability in the future.

Airbnb, founded in August 2008, reached profitability in the second half of 2016. It took approximately 8 years to become profitable. The only reason it managed to survive was its exponential growth, which convinced investors to pour money through multiple rounds of financing.

Does this mean you can do the same? The answer is no, for a simple reason: Consulting services are not that easily scalable.

Yes, there are exceptions. But if you're selling expertise and advice, you'll likely need to develop deep and close relationships with clients. You're going to design bespoke or tailored solutions to fit their unique situation. A professional service firm will never scale as fast as a product-driven one.

If getting external funding to drive initial growth is not an option for most consultancies, you will need to be profitable from day 1 if you want the business to have any future. That's why profitability is an objective criterion you can use to evaluate the strength of a business model. Usually, we measure this by looking at your profit margins.

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Sustainability

The same happens to companies that turn a profit by using unsustainable processes or resources.

A common example is the typical, recently-founded consultancy that's powered by the founder's grit. The opportunities and projects all come from the founder's existing network. The expertise to deliver work is all on the founder's head. The growth of the business is usually coupled with 60 or 70-hour weeks and a complete dependency on the person who's leading it.

This is clearly not sustainable, although it's often less worrying than leading an unprofitable practice.

As long as you're aware of the need to make changes in how your consultancy operates, you can adopt a provisional or temporary business model to start its activities or make a transition. A founder can use a "hustle" mindset to accelerate initial growth. You can burn resources or do things that don't scale to enter new markets or launch new offerings, for example.

But not forever.

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Profitability and sustainability are what make a consulting business model successful. Ideally, every company would be sustainably profitable. Being sustainably profitable equals to having a "strong" business model.