Commando Consulting: January 2008 - Offering Paid Initial Consulting

by Tom "Bald Dog" Varjan, Organisational Provocateur

Summary: Over the many years of consulting it's become a common practice for firms to offer free initial consulting before engagements to let prospects "taste" what they have to offer. It's also become an expectation and many prospects expect a bit too much for nothing. What can be done? I think the answer is to adapt the "start small and build on it" mantra. That is, starting with a small but paid engagement, and then clients can decide whether or not they want to go to the next phase at a higher investment option. Audio Version (MP3): 56 minutes

Many business development folks in consulting firms take it for granted that every engagement should start with extensive free consultation, information gathering and endless presentations. And many prospects do expect all this work as pre-engagement goodwill volunteer work.

I've also found over the years that the kind of clients that expect this kind of free work, in most cases have no intention to hire the consulting firm and merely gather information as bargaining chips against other firms, and pressure them to drop their prices. Then they start price-shopping.

And at this moment, due to poor marketing, hence poor deal flow, many consulting firms actually drop the price to win the deal. And then in many cases they have a client from hell, that demand more and more, while arguing against every penny on the firm's invoice.

And of course, if firms stand still and refuse to offer price discounts, buyers get upset.

So, Where Is This Price Sensitivity Coming From?

I believe it comes from the fact that many consulting firms, when seeing opportunities, want to maximise their financial gains, and offer gigantic solutions.

"Look, we know that all you have is a broken window and a small crack on the ceiling, and here is the solution we recommend: We bulldoze your house, plough up the land, kill all the livestock, burn down the surrounding forest and kill all the wildlife. Then we start with a clean slate and build you the home of your dreams and beyond. It will take about 10 years and $10 million of your money. Ready to start?"

But why is this happening. Well, public firms are under the ruthless scrutiny of Wall Street, and they must produce instant and substantial results. And private firms just want to produce maximum billable hours often even at the detriment of their clients. Again, we see the horrible negative impact the billable hour pricing model causes.

So, buyers know that when they sit down with the firm's representatives, they will do their damned best to dig their claws into clients' backs and never to release them for a very very long time. Many firms really operate like leaches, and often it requires a pretty drastic step for clients to get rid of their consultants. Actually with leaches, all you have to do is either to put salt on them or piss on them. And they get lost. But not the super-aggressive consulting firms.

And of course, buyers have learnt this form of manipulation over the years, and have become careful. They know there is always room for improvement, but they are very careful about letting consultants discover this "room", knowing that consultants are pretty good at finding rooms for improvement until their clients' bank account run dry.

Here is a pretty good example from Tom Lambert's book, "High Value Consulting: Managing and Maximizing External and Internal Consultants for Massive Added Value"...

"In 1989 Figgie International was a conglomerate with sales of $1.3 billion and profits of $63 million. It had 17,000 employees spread across its 87 companies and divisions. It was doing well, but in the eyes of its founder Harry Figgie, Jr it could and should be doing better. Mr Figgie ought to know - he had been a consultant before building a business empire."

"By 1994 Figgie had spent an estimated $75 million on consultancy fees. Sales had fallen to $319 million and losses for the year totalled $166 million. The corporation had downsized to 6000 employees and had sold seven divisions to raise money to pay off its debts. So how could spending $75 million on advice take a relatively healthy company to the brink of bankruptcy?'

This is only one example, but James O'Shea and Charles Madigan's book, "Dangerous Company: The Consulting Powerhouses and the Businesses They Save and Ruin" has some very interesting horror stories on consulting engagements.

Anyway, we don't want to vilify consulting firms, because it's not firms but certain people who have done these dirty acts. Nevertheless, we can see how buyers have learnt over the years to be very careful with consultants.

So, they've become very cautious when they are considering letting consultants come close to their campfires. Yes, some consultants could be helpful and actually improve the quality of the fire, but some may just grab a bunch of firewood and run away to feed the fire at home. And some would come back the next day trying to sell the firewood they've just stolen to the same folks they've just stolen it from. And of course, they would expect to receive full payment for this fiendish act.

So, the scepticism for consultants is an all time high. Many companies have carved in stone in their policies that they would never, under any circumstances use the help of consultants. They just figure it out for themselves.

Here Comes Complimentary Consulting Session

So, to deal with the high level of buyer scepticism, firms started offering complimentary consulting sessions. But in most cases, these complimentary sessions were nothing more than covert sales pitches.

Now imagine the following client acquisition sequence...

The Courageous Coffin Carving Consulting Corp. sends out a brochure to 10,000 companies in its target market. The brochure explains the firm's capabilities, history and several other items of self-aggrandisement nobody but the firm itself cares about. The brochures are typical image marketing pieces with no specific call for action but only a vague statement.

"Call us for a complimentary consultation on how we can help you to save millions in your business operations."

Call me an idiot if you will, but to me this statement screams a sales pitch. If I, as a solo operator, read this message, I know I have room for improvement in my business, including savings in operating costs, but the savings are not in the "millions" range. While potentially I could be a candidate for this firm, I simply ignore the message.

And there are other potential clients whose operations are pretty optimised but need a bit of tweaking. So, there are no millions of dollars of improvement opportunity.

And what gives the firm the right to assume that it can save millions of dollars to any client who reads this message? I dare to say this stance is rather arrogant.

Now we know that it's expensive to market consulting services and we want to get the best return on our investment. When marketing consulting services, it takes quite a bit of time to educate buyers about the real cause of their problems (for in most cases they mistake symptoms for causes) and the value of the benefits the consulting firm can bring into their lives. But this process costs money too.

And while soaps and condoms can be sold through free sampling, complex consulting services are drastically different. And unlike soaps and condoms, consulting services are not impulse purchases. They are considered purchases. Buying decisions take several meetings and involve several people.

And the other consideration is that most problems that warrant consulting help have developed over an extended period of time, and cannot be solved in one sitting during a free session.

Just think about weightloss. Weight gain is not an instant process...

"Doctor, last night I went to sleep as a lean and healthy person and this morning I woke up as a fat slob. Help me!"

Losing weight in a healthy way takes time because it took time to gain it.

Yes, 10 years of weight gain can be addressed with a 10-minute liposuction procedure, but the weight comes back. Why? Because the weight gain is a symptom and not the problem.

Similarly, the problems most clients present are symptoms not the root causes.

A client may say she needs help to hire a new salesperson. But the problem is that if you plop a good salesperson into a bad sales process or in a poor culture, that salesperson can't perform up to par let alone excelling in the position.

And the condition that causes this new salesperson to underperform has developed over several years. So, the real problem is not a sales problem but a culture problem, and changing the way people think, so they can change the culture and the environment, takes quite a bit of time and effort.

The biggest real cause I've seen among my own clients are not in associates but in management. And this cause is failing to demand and expect 100% commitment, accountability and discipline and not reinforcing the firm's core values. And any lacklustre environment, created by managerial cowardice, that fails to demand, challenge, expect, encourage help and support people to do their best work at all times, leads to loss of passion, enthusiasm, excitement and fulfilment. And at that moment an exciting career becomes a mere job. A bloody rut in the rat race. A daily routine of marking time Monday to Friday, and desperately waiting for weekends.

But these are deep issues, thus need some serious deep tissue consulting massage not merely treating the surface with some ice in the form of a free session. So we have to change our operation...

From Free Consulting To A Paid Entry Package

And now the consulting dynamics changes. Now clients know that this session is a paid session, a small service package with specific objectives.

And now your marketing changes a tad...

Step 1: Send out a 1-2-page letter, not a brochure, and in that letter "sell" your free white paper (give it a good problem-based very specific title). If you get it right, you can expect 50% plus response rate.

And while this high response rate is exciting, at this point we have to slow down. The problem is that as the responses come in, many firms try to go for the appointment right away, hoping that during the phoney "free consulting session" they can uncover some opportunities and sell something.

But what we want to accomplish is to have high level of trust by the time we met the prospect the very first time. It may be just my style, but I prefer to build rapport before the first in-person meeting, so when we meet, we are already somewhat familiar with each other and can proceed straight to the point.

Step 2: Having responded to your white paper, prospects get into your automated "keep in touch" system. It doesn't mean we start emailing sales pitches. But we can put them on our monthly newsletter list. This way they hear from us every month.

Step 3: Receive newsletter, additional reports, articles, invitations for free teleconferences, webinars, etc.

Step 5: Receive newsletter, additional reports, articles, invitations for free teleconferences, webinars, etc.

Step whatever: Keep receiving valuable bits and bobs.

Step whatever + 1: When prospects are ready to meet, and they can fulfil the initial criteria for a meeting, then we meet.

But now it's no longer a free consulting session but a very specific paid diagnostic session. Or you can split your diagnosis into tow parts.

Part 1: GP-level basic diagnosis, including the check of the proverbial heart rate, blood pressure, bodyweight, eyesight, patient's anecdotal description of symptom, etc. This is something but still pretty superficial.

If at this point the prospect wants to go ahead you proceed to...

Part 2: Specialist-level diagnosis, including the proverbial blood work, tissue sample, DNA analysis, MRI scan, 12-lead ECG, body fat check, etc.

As you can see, while Part 1 can be performed in one sitting, Part 2 requires an extended hospital stay of a couple of day.

And when the objective is to establish whether or not to perform a triple heart by-pass on a 70-year old person, who may die from the trauma caused by the otherwise successful surgery, then the diagnosis had better be as detailed and informative as possible.

I've never met a cardiac surgeon who's operated on a patient because that's what the patient's GP recommended. Surgeries are simply not done based solely on GPs' diagnoses and recommendations.

So, when consulting clients need help, it's usually either to capture a nice meaty opportunity or to eliminate a painfully costly problem. And the investment in either of these initiatives cannot be justified based on a simple diagnosis conducted in a free one-hour session.

So, you conduct a paid diagnosis. And relative to your project fees, this entry-level programme can be fairly low-cost, but not free. It can be low cost, because diagnoses are not customised. The diagnosis is a standard to which the client's situation is compared. The diagnosis creates a gap between the current situation and the desired situation. What that means is that this gap is quantifiable in financial terms.

And it's this quantification that opens clients' purses differently. Some are willing to pay premium fees to solve the problem, and some want only a quick fix.

And this is where the consulting crowd splits. Some people say, give clients what they want and they happily pay you for it. And some other say take time and make an effort to discover what clients really need, and then together work out a solution. I personally belong to the latter camp.

What I've found over the years that clients' "wants" are pretty whimsical and change almost as often as they change their underwear. But a need is a need is a need.

Why?

Because a need is based on specific problems that clients experience every day. A "want" is really just a desire. So, a client may say...

"We want to install a new CRM system, so our salespeople can better communicate with each other."

This is a want. But it is really driven by a problem that there is no communication among salespeople. Of course, this is normal, since most companies have commission-based sales forces, which is based on personal performance not on teamwork. So, why would salespeople communicate with each other?

The need here is to develop a team-based sales culture and eliminate the retarded commission structure. It has nothing to do with a CRM system.

When we change first we need to change our mindset, second the skill set and third the toolset.

Now, if you give me a fine drill, I don't appreciate it because my mindset is that if I need a hole, I use a few sticks of dynamite.

So, first you need to help me to develop a new mindset that using a drill is a better way of making a small hole than using dynamite. Then you need to teach me the skills of using a drill. And only then you can give me a drill an expect me to drill nice holes.

If you start by giving me the drill, without changing my paradigm, and tell me to use the drill to make a hole, I will grin at you, put down the drill where I need the hole and next to the drill I put the dynamite. And I create a hole exactly the same way as I did before.

And very often this happens to consulting gigs too. While the consultant is engaged, everything is just hanky dory. But when the consultant leaves, the "improvement" falls apart.

I've also seen this problem with personal training clients. Some have come to me and say, "Teach me some great exercises and I'll do them." The problem is not the exercise. It's the mindset. There is no change of paradigm. So, whatever they learn, they won't use it.

Now we have two options for the first diagnostic meeting.

1. Have prospects pay for it in advance. If you offer a good guarantee, this shouldn't be a problem. And when you meet, make sure no time is wasted on rapport-building but you go into the diagnosis.


2. You offer this session for free, but you require that the prospect comes to the meeting with a $1-5,000 cheque, filled in to your name and signed and all the relevant business documents. Then the prospect puts the cheque and the documents on the desk, and at the end of the session you jointly decide whether or not to go ahead and formalise the engagement. If, no everyone goes home. If yes, you take the cheque and the documents. The cheque becomes a part of the downpayment on your engagement. And you need the documents to get up to speed on the client's business.

If you use option 1, then you can credit the client with the fee of the initial gig for the main engagement. This is just nice because the client took a bold step and paid for the first meeting. And you take the risk by offering a guarantee.

In the second case, your risk is high. You make a big investment in the first meeting, while the client invests nothing. Even with the right disqualification process in place, you still can get tyre-kickers at the first meeting. So, make sure you meet only the right people. And be careful with people who suffer from "Warren Harding Syndrome" (Malcolm Gladwell refers to this in his book, "Blink". Harding became US president based on his charm and charisma but realistically he was a hopeless, helpless and hapless idiot as president.

I like calling it the Hyacinth Bucket Syndrome. Or as some others call it the Big Hat No Cattle Syndrome". These people will do everything to tell you how amazingly successful they are, but when they see your fees they scream bloody murder.

These folks try to drag you around by your nose and manipulate you into meeting after meeting. They ask you to write various documents but they have no intention to hire you. They just hope to get some free advice from you even at the expense of wasting your time. Since there is no specific hunting season declared on these people, the best bet is to avoid them. Their scumbaggy practices are driven by their own heavily dented or missing self-esteem and self-worth.

Before meetings, I usually ask people I to write up a 1,500-2,000 word abstract on their businesses and the issue they want to resolve with my help and support. Then they email this stuff to me, so I can familiarise myself with the business before we meet, and this way I can make valuable contribution to their businesses. I must say most "prospects" are either too lazy to write up this summary or just plain stupid to comprehend why I want to understand their businesses before we meet.

And the bigger shit the company is in, the more likely buyers brush me off with retarded comments like...

"I'm an executive vice president not a bloody secretary. My job is not writing."

"I'm a visual person and writing is meaningless to me."

"I'm far too busy to waste my time on stupid writing. Do some web search on us."

I've also found that while some people do this "dragging around" intentionally, many just don't have the self-esteem to give an honest "no" to end the process.

Sometime in 2007 I got a request from WGFG Venture Capital, Inc. from Texas for some help on lead generation. Maybe I should have been more careful because of the high number of scumbags in the financial industry, but I like giving people the benefit of a doubt. And I did. We emailed back and forth, and then had a telephone discussion. After our phone conversation, Gerry, one of the partners asked me to send over a written summary of what I thought could be done. So, I sent over a short summary. And with that WGFG Venture Capital, Inc. vanished from my life. Gerry didn't even have the basic professional courtesy to email me back and tell me that his firm decided not to go ahead with the planned initiative. He just didn't respond.

The other guy was a local professional speaker. We clarified that he was the decision-maker, and since everything seemed to be fine, we met. After the meeting he told me he had to discuss such a "serious investment" ($1,200 a month) with his partner. The mysterious "partner" just jumped out of thin air, and he had to approve the initiative too. And that was it. Then later the guy emailed me that his partner didn't trust consultants and vetoed the initiative. I'm a pretty gullible guy, but I have a big ugly conk that can smell bullshit from many miles. And although he was a "big hat no cattle" type of guy, somehow he's collected enough bullshit to throw at unsuspecting folks like me.

What amazes me is that these poor bastards call themselves successful and accomplished, yet they lack the basic moral fibre and self-esteem to express themselves in an honest manner. And this is why hyper-qualification is important before meetings.

But instead of blaming these spineless "business slugs", we'd better let them crawl around in peace and take some time to tweak our disqualification processes to make sure we don't slip up on their slimy trails and fall for their deceptions.

Well, as the old saying goes, good priests keep learning until they die. I suppose we have to do the same.

Oh, one more question to address is ...

1. Even balance of investment. In free sessions, both you and prospects invest time. But you also invest years of accumulated expertise, which you've paid for, that will help your prospects to make money and lead a higher quality life. So, you really invest both your time and money in the form of your hundreds of thousands of dollars worth of expertise. And this is where the balance goes out of kilter. The giver has a significant investment in the success of the process, while the recipient has invested only some time.

2. People put more value on stuff they invest in. About three weeks ago, I handed out a door prize at a networking event. The door prize was a complimentary fee audit and fee structure makeover. The guy who's won it hasn't contacted me yet, and the chance is pretty high that he will never do. I know he may be sceptical and think that this is just a sales pitch ploy. But then he could email me and clarify his concern. And I believe this too is the by-product of socialism in Canada: If you ask for help, you admit your weakness. My take is that if you ask for help, you admit your smartness. Or as the motivational speaker Les Brown says...

"You don't ask for help because you're weak. You ask for help because you want to stay strong."

3. Subconsciously we feel valued. When we feel valued for what we offer, we subconsciously want to maximise the value the client is receiving. There is something demeaning in offering free help to someone who will use your help to make more money. When that happens, resentment for the person can set in pretty quickly, and from then on the whole gig goes south.

4. Investment creates participation. When people invest in something, they seriously start participating in the process and make a commitment to getting something valuable out of it. They subconsciously do their best to maximise the value they're receiving.

5. Investment keeps us on track. Many free programmes are poorly camouflaged sales pitches and both parties know that. Consultants want to use the opportunity to sell real services, and prospects go to these meetings with their guards fully up and their bullshit sensors in overdrive. When there is an investment in the programme, we know we have to deliver value otherwise we can start an avalanche of bad word of mouth.

6. Deepening brand recognition. in some cases the initial sessions lead to no more work with the same client. At least no more work right away.

7. Positioning your firm for value. This initial session sets the expectation of the value your firm can deliver. Your clients can now put your firm's name into their address books for future reference and can talk to their friends and associates about the unique value your firm can offer.

8. Small investments precede larger investments. When we ask people to make big investments, it's a hard sell. When the process starts with a small investment, the decision is easy. The other investment is time. Provided your buyer understands value and you properly quantify the expected value and achievable results, a $5,000 gig that takes one day to deliver is easier to sell than a $7,000 gig that takes a full week. Of course, smart buyers understand that there is no correlation between received value and the time the service takes.

9. You can support your marketing budget. Marketing is an investment. That is, the more we invest in smart marketing, the higher return we can expect. So, it only makes sense to maximise the marketing budget. For instance, if you use Yellow Pages advertising, do you use a small listing or a half-page ad? The half-page ad costs eight-times more than the small listing, but the potential response rate is 585 times higher. That's a pretty good investment.

Summary

In the product world, samples are pretty small and more often than not don't deliver the value the real products are supposed to deliver. And the market is used to them that way. Especially the consumer market.

But professional services, like consulting, are different. It's not only that clients expect to receive real value, as opposed to a sales pitch, it's in our best interest to deliver it.

And we all know that it doesn't take long to deliver significant value in the knowledge economy. Andrew Carnegie attributed a big chunk of his success to a piece of advice he received from Charles M. Schwab (There is no relation to the brokerage house founder Charles R. Schwab) sometime around the 1870s. Charles recommended Andrew to write down six things he would want to accomplish the next day before going to sleep, so overnight his subconscious mind could work out the details of how to accomplish them, and next morning it would drop it off to his conscious mind. The Carnegie paid Schwab $1 million for the advice and hired him for an annual salary of $1 million.

Now we can see the correlation between the value of advice and the time it takes to dispense it. That is, no correlation.

This initial small engagement can "train" your client's mind that value is value and time is time. And the two have nothing to do with each other.

If you're hired to improve the conversion rate of a website's landing page that is doing $1 million annual sales and is expected to do $1,5 million after the improvements, then you deserve the, let's say, $25,000 fee, and don't have to put up with the pro rated proportion of a competitive hourly rate.

I'm only fairly good with this web stuff, and a lifetime student, but in 15-30 minutes even I can conjure up 15-35% improvement on most consulting firms' home pages. Just because I look at them from a new perspective. Those mere 15-30 minutes can mean millions of dollars in lifetime revenue for the client, and a competitive hourly rate just wouldn't cut it. I've invested over 15 years to learn the knowledge and experience which I put into those 15 minutes.

Also you can pace yourself and dispense value proportionally with the investment. Obviously, if your client wants you to help him to hire an operations manager for his 10,000-employee manufacturing plant to take the current annual production level of $150 million to a target level of $200,000, then this is more than a $5,000 quick fix session. You're addressing an $50 million issue. The value you deliver is expected to produce an annual improvement of $50 million. That must be worth something. However, you can use the session to offer a GP-level diagnosis on the situation. And if you get hired for more, you can do the detailed diagnosis and build on that diagnosis and develop the cure.

I truly believe that clients' investments create their commitments which lead to the improvement they're seeking. And consultants should "train" their markets to accept this truism.

"Dynamic Duo" Mentor Programme... ...has 3 openings for January and 5 for February 2010. Click here to continue to the fiendish details.

Recommended Reading

Consulting Mastery: How the Best Make the Biggest Difference

by Keith Merron

Unlike many other books on consulting that focus on how to make a pile of dough as a consultant, Keith's book looks at consulting from a very odd perspective: How to make a lasting positive difference in client's lives.

The interesting thing is that even today, at the dawn of the 21st century, and heavily in the information age, many consulting firms operate as contract labourers. They perform pre-determined (by clients) chains of tasks, charge for the amount of labour they performed - usually using hourly rates - with little or no regard for real improvement in their clients' condition.

Consulting Mastery nicely outlines how to bring our authenticity, Keith calls it "inner stance" and match it to the client's objectives, so both we enjoy our work and the client receives huge value from the intervention.

Place your order with Amazon.com for Consulting Mastery. You'll be glad you did.