Signs your consulting firm will fail

One of the greatest fears anyone can have in their career is an impending layoff. It usually starts as a rumor.

“Hey did you hear they’re planning layoffs?” There is always that person who seems to always have the inside track. Sometimes the rumor comes to fruition. Sometimes it ends up being just that – a rumor.

Everybody needs to try to be aware of how things are going with the financial health of the organization they work for. It’s even more important in the consulting industry.

Every industry has its own indicators that things may not be going well. It is the employee’s responsibility to follow those trends and to decide whether to stick with the organization and ride out the storm, or to find a firm that is in more stable condition.

In consulting, there are three critical signs that the firm is facing its impending doom.

Cost cutting

When consulting firms are doing well, there are great perks. Teams are taken out to nice lunches to thank them for their hard work. Lavish holiday parties are thrown with elaborate dinners and expensive rewards. Travel expenses are under very little scrutiny.

But when times get tough and cash flow becomes an issue, the luxuries are – rightfully so – the first things to go. You may get an email announcing a new policy requiring certain expenses to be approved in advance.

For more information  see Managing your Consulting Career

The company party this year may be held at a smaller place. The food is a little cheaper and the liquor selection is not as good.

You may even find that there is no longer free coffee and snacks in the break room. And by the way, you now need to contribute a little more to your health insurance.

An ever expanding bench

No consulting firm can keep everyone assigned to billable projects all the time. There will always be people waiting in the wings for the next winning proposal to result in a client assignment. These consultants are said to be “on the bench.” Well-run firms know this and maintain some staff on the bench so that they have people ready when that next proposal wins.

Very few firms publicize the ultimate number of people for the bench. But the consultants usually have a good feel for when the bench is thin, when it’s just right, and when there are just too many people unassigned. These people draw their salary, but aren’t bringing any direct revenue to the firm.

Too many people on the bench will cut too deeply into a firm’s bottom line. If consultants on the bench are a challenge to assign to a billable project based on their skills or attitude, the firm may opt to let them go.

If the firm is unable to acquire projects to assign people to, it leads to the next sign…

A small pipeline

Consulting firms need to have a steady pipeline of incoming new business in order to grow. It is a delicate balancing act of creating a new business to grow, and hiring the right number of staff with the right skills to do the work that is sold.

Firms struggle to sell new work for a number of reasons. Sometimes the sales staff lacks the right knowledge or focus to sell services effectively. Selling services is about developing relationships. Sales reps who just want to rush to the sale will usually struggle.

If a delivery team fails to deliver quality work on a consistent basis, the best sales teams will have trouble selling. Once a firm develops a bad reputation for quality, word gets out within the industry and project sbegin to dry up.

Sometimes firms lose their strategic direction. They focus on technologies and business approaches in which clients are no longer interested. If it takes the firm too long to recognize changes in trends, it may be to late to adjust.

When the sales pipeline begins to ebb, the firm begins laying people off. This may be to cut the cost of a bench that’s too large, or an effort to remove employees that have obsolete skills.

All firms have ups and downs

Every firm may have a bad quarter where they begin watching their expenses more closely. There may even be a round of layoffs as a surgical strike to make a staffing correction.

Sales are not always on a constant upward trajectory. There are going to be strong sales pipelines where everyone fears how they will staff the projects if they all sell at once. Then there will be times when the pipeline thins to a trickle.

A consultant needs to monitor for signs that a consulting firm is going down the tubes. There will down times for which they will make corrections. And it is not always a bad sign. But when multiple signs occur at the same time, a consultant needs to determine whether to move on or but the last one to turn out the lights.

Have you seen signs that your consulting firm will fail?

As always, I welcome your comments and criticisms.

If you would like to learn more about working in consulting, get Lew’s book Consulting 101: 101 Tips for Success in Consulting at Amazon.com

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