Consulting firms implement “happy hour revenue model” to maximize resource utilization on demand
Varun Malik observed that bars manage demand with happy hours, maximizing utilization of their resources. His on-demand consulting model lets boutique firms share resources, manage demand and maximize revenue. Is this the consulting model of the future?
I’m sorry to offend you, but you are not a rational person.
To be fair, neither am I. We like to think that we go through our lives making rational, intelligent decisions, but the fact of the matter is that we don’t. We are risk-averse creatures. Studies have shown that when given a choice between receiving $5 for sure, or a coin flip where you could win $10 or $0, we will choose to receive the sure $5 even though the expected value of both situations is the same. We prefer to be certain about the future rather than uncertain.
The need for predictability
This makes sense. Being uncertain about the future is a great cause of anxiety in many people’s lives. Many people live in fear, wondering where their next meal will come from, or if they will have enough money to pay rent this month. Many people give up on their dreams of being writers, artists, or actors in favor of a more stable job that “pays the bills” and offers a fairly comfortable standard of living.
Predictability in business
Predictability is also highly valued in the business world. When businesses that produce products or provide services are facing demand in excess of the amount of throughput they are able to supply due to their operational constraints, they are losing a lot of potential revenue. Per contra, when the business is faced with a dearth of demand and an excess of supply, it is bleeding money in the form of underutilized resources. This problem is literally why Happy Hour exists.
Humans tend to engage in certain activities at more or less the same time as others, almost unconsciously. When everyone decides to go out for drinks at the same time, bars are faced with overwhelming demand that they cannot meet due to space constraints. Once the bar is full, they literally cannot accommodate more people until space clears out. On the other hand, during non-peak hours, almost no one will be at the bar and the bar is wasting money on overhead, salaries, etc., to maintain an empty shop. In order to make the demand for their services more predictable, bars invented Happy Hour, a period of time where drinks are sold at discounted prices in order to incentivize more price sensitive customers to patronize the bar at a non-peak demand time. This allows the bar to capture a greater number of customers by distributing the total demand for their services over a larger period of time, without surpassing their operational limits.
Unpredictability of demand in the consulting world
Consulting firms face a similar problem in managing their consultants’ utilization. Demand for projects is not always steady, sometimes coming in flurries, and other times not coming at all. This problem is especially acute for boutique consulting firms. At larger consulting firms, when there is excess demand, there are usually at least a few other teams that are sitting idle which can cover for the team that is overutilized. Boutique consulting firms, by virtue of their small
size, do not have this luxury. When a boutique consulting firm faces an excess of demand, they usually have no choice but to turn down the project, resulting in massive losses of potential revenue. There is usually no way to “Happy Hour” a consulting project and take it on at a different time when resources have opened up. Businesses come to consulting firms when they are in trouble and need immediate help.
At other times, due to the nature of demand, boutique firms also have teams of consultants that are “on the beach” sitting idle and basically bleeding money out of the firm. There are no other divisions of the firm that the company can loan its consulting teams out to like at a bigger firm.
The Power of Together
In the face of this problem of uneven demand, what is a boutique consulting firm to do? Up until now, there was very little that these companies could do. However, the technology now exists to effectively solve these problems. Imagine a massive ecosystem of boutique consulting firms that allows these firms to maintain the advantages that boutique firms hold over major consulting firms, such as industry expertise and specialization, while also giving them access to the economies of scale that major consulting firms enjoy.
Imagine an “uberization” of consulting teams that, when a firm is facing excess demand, gives the firm the opportunity to borrow the best consultants from other firms within the ecosystem to be able to match the supply and demand and earn revenue that it would have otherwise missed out on. On the other hand, when that firm has underutilized teams, it can loan out its consultants to another firm that is short-handed and earn a fee. This would effectively smooth out the demand curve for boutique consulting firms, allowing them to operate with much greater clarity and freedom while earning much more revenue.
My work at Konsälidön involves creating an ecosystem of boutique consulting firms to allow them to enjoy the economies of scale that larger firms enjoy, giving them the freedom to operate more flexibly and more profitably than ever before. Through what we call “Könnected Talent,” boutique firms can lend or borrow consultants, to and from other firms, whenever needed to maximize their consultants’ utilization rates and take advantages of the natural peaks and troughs in every firm’s demand curve.
Varun Malik is the Founder and CEO of Konsälidön. Konsälidön is a new-age consulting firm that connects organizations with consulting teams more effectively than traditional consulting partnerships. Previously, Varun has set up and managed businesses for large, mid-sized and small consulting firms. At PricewaterhouseCoopers (PwC), he established and headed an Operations Consulting team and lead operational improvement projects for clients in the MENA region. He has set up and managed a consulting team at Protiviti, a global risk management and internal audit firm and managed operations consulting projects at Encreate Consulting, a start-up consulting firm in Dubai.
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