In this article Mark discusses the flip side to success. With growth comes new challenges and responsibilities. If they are not carefully managed, you may discover that your success is short-lived. Ensure your revenue can keep up with your growing payroll and robust processes are put in place to maintain harmony amongst your teams. Read on to learn some great practices for making this happen.

With rapid growth comes a new kind of struggle

At the end of 2019, we completed our 10th consecutive quarter of growth. For 2.5 years our revenue continued to rise, essentially doubling from where it was during our 2017 low point. Sounds like a dream right? In many ways it was after all our initial struggles, but it was also difficult to adjust to this rapid growth.

By early 2020 we had unlocked a whole series of new challenges. They were the “nice to have” kind, but they were challenges nevertheless. I like to call them growing pains. In this article I’ll discuss the most acute pains we experienced over this time, and ways to navigate the aches if your business is fortunate enough to encounter them.

Four common challenges when your business grows rapidly

Four common challenges when your business grows rapidly

1. Running a more complex practice - Part of how we drove our growth was by transforming from an engineering practice (building someone else’s designs) to a product-oriented business helping with research, strategy, design, and buildout. This resulted in us having multiple practice areas, each needing diverse levels of expertise to make a complete team.

We had always run our firm with a small bench - a 5% of revenue target for paying people between projects. Now that we had more practice areas, we needed to maintain a bench of every different skillset so that we could start new client projects quickly. Previously, we would’ve needed some back-end and front-end developers ready to go on a new project. Now we also needed product managers and UX specialists. We were covering more technology stacks on the engineering side too, so we needed a lot more available engineers to be able to move as soon as they were needed. This meant that we had to rethink our figures, allowing for a greater share of revenue to cover the costs of carrying our minimum bench - we set a target of 6%.

2. Dedicated Leadership - Up to this point, we had managed by having our Practice Leaders at least partially billable. We were now asking them to lead groups that could be over 100 people strong. Even our smaller practices required a lot of dedicated leadership focus. They were less mature and needed someone to look after building up their methodology, recruiting new team members, and staffing all the new client projects.

So we really needed our leaders to spend all their time running their practice areas and not staffing themselves onto billable work. While this wasn’t time on the bench, financially it was effectively the same. This meant targeting another 1% of our revenue to cover the cost of leaders focusing entirely on running their practices.

3. The consulting balance - The name of this blog is The Consulting Balance because it’s the hardest problem to manage through every stage of a consulting firm’s growth. Looking at what we were asking our People Team to do in late 2019 and early 2020 brings this problem to life.

In October 2019, we hired 55 new people - a crazy 25% of our entire payroll from our lowest point in 2017. With the holidays approaching, our clients intimated that things might slow down in November and December, so we asked our People Team to slow-roll our hiring. This always caused them to waste some of the work they’d already done as they had candidates ready to hire that would now have to wait until we were ready to go again. However, just as the year was ending, we secured some new client projects. In January 2020 we suddenly had to hire 190 new people.

This story illustrates the consulting balance beautifully. From 55 one month, to zero for the next two, to almost 200 the month after that. On one side of the scales we were managing our bench so that it didn’t run over our 7% target (things started to get worrying when our bench costs got to 8% or 9% of revenue). On the other side of the scales we needed to have enough people on the bench to build a core team for each new client engagement and prevent having a client who was unhappy we couldn’t deliver what we sold.

4. Processes - As we grew, we started to have really top people throughout the business. We had strong, entrepreneurial General Managers in the field close to our clients who were very creative with solutions. We also had world-class leaders in our engineering, product management, and UX practices. A new tension arose where the Practice Leaders wanted to get a chance to review proposals before they went out. The General Managers wanted to move fast and not wait for a lot of reviews.

We spent loads of time negotiating the minimum number of meetings required to give the Practice Leads a chance to review, while giving the General Managers the ability to move quickly in the field. We landed on a place where everyone was only a little bit unhappy with the result - ironically the best we could do.

Recommendations for navigating growing pains

I found a number of insights and approaches that helped us navigate these challenging issues. I’ve listed a few here:

• In professional services, revenue growth helps to cure these pains. Never stop aggressively growing your firm. When you are growing, you have many new opportunities opening up for your team to step into. Keep hiring entry level people to retain healthy margins and refresh talent in the firm. Let people move from one project to another to keep their careers progressing and stay interested. Growing pains are difficult, but the alternative is worse.
• Find ways to raise pricing where possible. You need to somehow pay for the areas that cut into a percentage of revenue (bench, leadership). The easiest way to make this work is to raise your prices. We were constantly looking to find ways to add more value for clients to tackle this challenge. We roughly doubled our hourly rate from when we started as a pure engineering firm to when we were mostly doing product-centric work.
• Find a way to cut non COGS costs - ideally from G&A. It’s not as fun and can only work for a while, but you do need to focus on your non-cost of goods sold (COGS) costs. For us, this was sales, marketing, admin, and general costs. Hopefully you’ll then be able to amortize fixed administration costs across more revenue (lowering their percentage). We were able to do this with our Finance function. While our general and admin (G&A) costs had been 10% of revenue historically, as we scaled, we were able to get them closer to 8%. This 2% paid directly for the 2% we needed for bench and leadership.
• Invest in your People Team. Hiring really strong leaders for your overall People Team and your Talent Acquisition is critical. The example above illustrated the crazy back and forth they’ll experience as you try to grow the firm. Don’t forget the operational part of the team either. It’s great to say you’ve hired 55 people in one month, but onboarding, technology provisioning, and everything else that needs to happen for them to productively join the team will be a nightmare without a strong team behind you, especially if you’ve never hired at that pace before.

• Involve your People Team in the planning cycle. I was fortunate to have strong leaders from the People Team who were part of our leadership group. The Revenue Team and even the Practice Leads would get excited looking at all the likely projects and figuring out how many people we’d need. The People Team leadership would then help us understand the reality of how much work it would be and how much lead time they would need to be able to hire the right people.
• Play schedule chicken with clients. Our Chief Delivery Officer was great at looking at both the pipeline and the hiring requests and cutting to the core of the issue. He would look at specific projects and clients and based on their prior behaviors, he could tell us which ones wouldn’t really start the project when they said they would. We started referring to this as “schedule chicken.” The idea was to tell them we were ready to start, even though we didn’t have the team. We knew that they weren’t really ready to start and we’d have another two to six weeks to actually build the team (at least that was the bet we’d make). This approach was the only way we could work our way through the 190 openings we had in January. The reality was that we’d probably hire the 190 people, but it would happen between January and April, not all at once.
• Buy team flexibility any way you can. Wherever possible, you want to build relationships with people who want to work with your firm on a freelance basis. This can be a good way to balance the need for fast starts and the interest in not carrying a huge bench. If your network of freelancers is large enough, you’ll likely have some that can start when the client project is ready to go. The general practice for these people is that you only pay them for the hours worked. Typically you pay them more per hour, so it's a bit of a trade-off, but it's a critical ingredient to the overall mix.
• Build partial teams. Another trick we’d use when faced with an unrealistic hiring ramp was to offer to start the core three or four people on a team. This would usually be the leadership, allowing them to get some basics in place before bringing on the whole team. It mostly worked out pretty well for the client and bought us another four to six weeks to hire the rest of the team.

The joy and pain of growing your business

It may sound like false modesty to say your success is causing you issues, but there are things to be aware of to ensure your growth is long-lived.

1. Revenue growth is exciting for any business but with it comes growing pains. Ensuring you have the optimal number of staff to cover all skills required for new projects - while not cutting into your revenue when your increased payroll is not billing - is a delicate balancing act. Think of ways you can say yes to all new work without exhausting your staffing requirements straight away. Learn to read what your clients say versus what usually happens. Figure out how to comfortably service your client while you grow your team around them.
2. More work means more staff which means more dedicated leadership required. Stronger and increased leadership needs careful handling with more robust processes put into place. Ensure you have a really strong People Team covering all areas from talent acquisition, to remuneration, to operational processes. If your team is growing quickly you’ll need a top People Team taking care of it.
3. Keep looking at your numbers. Growing revenue, raising your prices and cutting your admin costs will ensure your services costs don’t run away on you.