How balanced is your firm? Here are some questions we ask when trying to get a quick overview of the status of a firm:
• What is your revenue per professional?
• What is your attrition rate? Do you have any difficulty retaining staff ?
• How long is your sales cycle?
• Who sells and who delivers the service? Are these the same duties or are they separated? Where is the leverage in the sales cycle?
• What is your annual marketing plan?
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• What is your firm’s value proposition?
• Why should a client hire you?
• How do you hire professionals? Have you had any difficulty bringing in experienced people?
• What is your training program?
• What does your organization chart look like?
• What are the levels in your organization?
• What are the career paths by level?
• How many direct reports do you have?
• What is your leverage model?
• How loyal are your customers?
• Do you have sufficient capital to grow?
• What is your growth rate? What is your sustainable growth rate?
• Are your invoices clear and accurate?
• What do your employees and customers have to say about your back
office?
• How satisfied are your employees?
• Where do employees typically go after they leave your firm?
The answers to these questions are covered in subsequent chapters. However, sitting down and asking yourself these questions should be eye opening and self-revealing. Areas with ambiguous answers may drive you to a particular chapter of this book.
Although our complete prescription for fixing or scaling your professional services firm is covered in this book, we are often asked for the short version of our program. The following checklist of specific steps across the key areas will help you think through a growth plan for your company, scale and improve financial performance, and begin reaping the rewards of a productive company:
1. Make sure the senior management team is following the same plan.
a. If anyone in senior management does not agree to the overall direction of the company, you can’t be successful. You will need to de-
velop a plan that all can agree to.
b. Make sure everyone on the senior team deserves to be there.
c. If there are any weak senior team members, replace them with
stronger candidates.
2. Fix your organization structure to enable the firm to grow.
a. Figure out the division of labor that allows you to spend the most time on things you do best.
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Managing and Governing the Professional Services Firm
b. At most, you probably have three or four levels in your organization.
If you have only one or two, you need to be building and planning
for three or four to allow your firm to gain leverage as it grows by moving more mundane and routine tasks to less experienced, less
expensive resources.
c. A multilayer organization will help you develop career paths for
employees as well, improving employee retention and attracting
new candidates to the firm.
d. Make sure each direct report is strong and that you have good lieu-tenants, which will greatly free up more executive time for impor-
tant activities.
e. Determine appropriate standard bill rates for each level of your organization. This step will help keep you profitable and make you
more disciplined in negotiating with customers when they ask for
pricing or price breaks.
f. Ensure that the variable incentive compensation is set at each level of the organization and that the incentives are aligned to the major goals of the organization.
g. Write down the principles and doctrine that define the firm’s culture and communicate these regularly to employees.
3. Develop simple, straightforward processes for recurring activities.
a. Like any company, you will die the “death of a thousand cuts” if the professional staff is always reacting to the latest business issue.
b. The only way to avoid reacting is to develop standard processes and checklists for your top issues.
c. The typical processes that can be standardized include recruiting, HR, on-boarding employees, training, cash f low management, accounting, quality assurance, customer satisfaction surveys, weekly
progress reports, and so on. Anything that is repetitious and man-
aged by routine is a candidate for standard operating procedures.
d. Take the firm’s top 20 standard activities and make sure there is a repeatable process written down with job responsibilities for
each one.
e. Through this process, the next time the firm encounters the activity, it will be handled with an automatic response from an adminis-
trative employee versus a decision or activity that you or, worse,
multiple professionals in your organization are reacting to.
f. Add rigor and objectivity into hiring plans such as cognitive or
other testing and other non-interview data points.
g. Make sure the organization routinely counsels underperforming em-
ployees and eventually eliminates them from the firm if their per-
formance does not improve.
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h. Set hiring triggers by quarter or annually based on revenue or incoming business. This schedule will help the firm proactively re-
cruit instead of reacting to the next project on an ad-hoc basis.
4. Eliminate any non-core service lines and focus on what you do best.
a. Ask the question: How many service lines do you have? Service lines are services that your firm performs for customers. Service lines generally include a concept, a set of offerings, a methodology, a process, standard pricing, standard work plans, and standard resources.
b. If you have no service lines, you probably view your firm as generalists, and you may have too few differentiators.
c. On the other hand, 10 service lines are likely too many for the
mid-size professional services company. It is difficult to be expert at a wide range of activities with limited resources. A large number of service lines will hurt delivery quality and confuse your
customers to the point where they won’t know what your firm
does well.
d. Determine what you are good at; determine what you can be the best at. Develop that into a service line and focus on it. The marketplace rewards focus, particularly for small and mid-size services firms.
e. The firm must develop intellectual capital, build qualifications, and train employees on how to sell and deliver if they are to provide differentiation in the marketplace.
5. Improve your relationship with customers.
a. Each piece of business you have should be profitable and referenceable. If it is not, then it either needs to be cleaned up or the customer may need to be given up.
b. Make sure you are staying in front of your customers. A quick lit-mus test for ensuring external focus is this question: Have you met
with your top five customers in the past month?
c. Ensure that the firm is engaged in “good business.” Produce a
spreadsheet with each customer listed in the left column and the
profitability of the customer along the y-axis. Any customer that
does not generate the gross margin that is your goal should be
dealt with in one of two ways. First, attempt to set up a meeting to discuss rates. If rate discussions are not successful, try to reduce your cost to serve the customer. As a last resort, stop providing
services to the customer.
d. It is easier to have these discussions with customers when you know them well. Make an effort to visit your clients or take them out for nonbusiness lunches and dinners to solidify the relationship. Remember: Your services help them.
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Managing and Governing the Professional Services Firm
e. Additionally, while with customers, ask for feedback on your ser-
vices. You will be surprised what you hear and the suggestions that
they have for you. Often, important new services will emerge from
direct customer feedback.
6. Ensure that your sales and marketing plan is leveraged.
a. What are the sales steps from finding a prospect to completing a
deal?
b. Outline and define these steps clearly.
c. Determine how much time is involved and by whom in the
organization.
d. Develop standardized proposals, qualifications, and reference sheets.
e. Train professional staff on how to sell your services.
f. Track metrics on each step outlined. You will begin to understand better how your marketing and business development efforts translate into work for the firm.
7. Improve fiscal management /budgeting.
a. Based on your leverage model, there should be an assumed utiliza-
tion rate for all staff. What is the actual utilization rate for your staff ?
b. Crack down on frivolous spending by tightening expense policies
and holding up capital expenditure requests that are not important.
This step will alleviate cash f low pressures and ensure that all employees are carefully monitoring expenditures.
c. Plan major capital expenditures so they are spaced out appropri-
ately and allow adequate preparation time.
d. Watch cash daily. Develop a one-page scorecard that shows incom-
ing and outgoing cash on a daily basis.