When A Quick Comment Is Worth $100 Million
Sometimes as a consultant you'll give advice that doubles the worth of a company. Be sure you are billing enough for your time.
What is the difference between a consulting Fractional CTO who charges $200 an hour versus one who charges $2,000 an hour? Simply a factor of 10. But what is the additional value generated from the advice of the most thoughtful and creative consultants? Easily a factor of 1,000.
I’ll share with you a true story.
In 2018 there was a software company (I’ll call them Andromeda) in New York City that sold security-oriented software to other large firms. They had $50 million in annual sales. Andromeda wanted to go public, but they had calculated that the only way they could get the share price their investors wanted (for the IPO) was to first grow to $150 million in annual sales while maintaining strong gross margins. The CEO could not think of how to do this, so he went looking for advice.
The CEO invited 20 of the smartest consultants in New York City to come to lunch at a very expensive Brazilian steakhouse, one of those swanky business places where lunch can easily cost $200 per head. Among the invited were two people I’d previously worked for: Jon Williams and Mark Herschberg. Herschberg was unable to attend, so he suggested that I go in his place. I went, and I got to witness the moment when Jon Williams stole the whole show with a short speech so brilliant that I’m still jealous about it.
We all arrived, milled about, and chatted for a while. There were perhaps 10 people from Andromeda. Finally we ordered our lunch, and then listened while the CEO got up, went through his slides, added some comments, then threw the conversation to us.
The situation he described: His customers kept asking for his help with software implementations, so he knew he could grow total revenue if he was willing to become a service agency that did a lot of unique, one-off customization work. But he also knew that would murder his margins. He had revenue of $550,000 per employee but he estimated that if he started doing a lot of software development consulting then that number would fall to about $275,000, which would damage his ability to have an IPO on the stock market.
We kicked the topic around. Everyone had a few suggestions. Someone said IBM made some good money from certain projects, and Andromeda should try to imitate that. Others warned that software development agency work can become a quagmire, and pointed to the lawsuit where Oracle had to pay $100 million to Oregon (Oregon had hired Oracle to build a healthcare website, and Oracle billed $130 million for the job, but the website did not work correctly.)
Considering this crowd was supposed to be the smartest of the smart, much of the conversation was disappointing.
But then Jon Williams started talking.
“Just write a white paper,” he proposed. You could almost see him shrug when he said it.
“What?” asked the CEO.
“Just write a white paper,” repeated Jon. A murmur went through the crowd as people thought about this idea.
Jon Williams continued his thoughts. “Large scale consultancies do it all the time. ThoughtWorks and PricewaterhouseCoopers both produce quite a number of books and white papers. It’s how they attract new business.”
“No, no, no,” said the CEO. He worried that Jon had misunderstood something crucial. “I need easy, recurring revenue.”
“This is easy, recurring revenue,” said Jon.
“A white paper?” The CEO was confused. “I don’t think you understand what I’ve been saying. I don’t want to sell a book or implement an idea. I need easy, recurring revenue that can bring in at least $550,000 per employee, hopefully more.”
“Exactly,” said Jon. “So write a white paper. Give it away for free. Give away all of your ideas for free.”
“How can I possibly make money that way?” asked the CEO, who was completely baffled.
Then Jon explained it in detail:
⬥ Write a white paper. Claim you have a secret process that leads to security, lowered costs, and better productivity. Claim it has a certain number of steps. You can make up any number that you like. It can be a 5-step process, or an 8-step process, or a 23-step process. Claim that every company that implements your secret process ends up in a better place. Even if you’re only repeating basic security advice, most of your customers don’t know what you know, so you might be the first source that’s ever given them whatever basic advice you decide to share. Give it a unique twist if you actually can think of something unique to say, but even simple, basic advice is good enough, so long as it is accurate.
⬥ Publish the white paper and promote it. Make sure all of your existing customers see it.
⬥ After a while, companies will be asking for help implementing your secret process. Don’t help them with the actual implementation work: that is tedious grunt work and there is no profit in it. But promise to check their work once a month, to see if they are implementing the idea correctly. You can charge an insane amount of money to check in once a month and make sure they are doing things correctly.
⬥ Thus, you reap recurring revenue with very strong margins. And you never get stuck in the quagmire of actual implementation, instead, you float above all that, up where the sun is always bright and the future is an infinitely vast vista of prosperity.
It was one of those moments where everyone in the room immediately knew that the speaker was right. Indeed, after he pitched the idea, it seemed so obvious that I was kicking myself for not having thought of it myself. It is, after all, how big consultancies drum up a significant part of their business: write a white paper, claim to have a secret process, then observe the implementation.
All credit to Jon for realizing that this strategy would work for Andromeda.
That was in 2018. The last I heard, Andromeda was doing well with the strategy Jon had suggested.
As a consultant, you are certainly worth the $2,000 an hour if you can give advice this creative and smart.
Always remember, if you want to be a good consultant — and an ethical consultant — it is crucial that you go into every situation knowing you will offer some key advice and then walk away. Do good, then leave. Ending a contract cleanly is as important as any other activity you engage in. Always think about your reputation, as people will remember your successes, even as I am here remembering one of Jon Williams’ great moments.
In short, you can create prosperity for yourself while creating great wealth for someone else, but as always, when so much money is on the line, there are ethical concerns, and you need to have the emotional maturity, and even spiritual maturity, to keep yourself on the ethical path. All of my best clients have been recommended to me by people I’ve worked with in the past, so doing good work, being ethical, and maintaining a good reputation is essential to one’s long-term success.
In my next essay I’ll write about specific situations that sometimes raise difficult ethical questions for consultants.