Weathering the storm: best practices for consultants during an economic downturn

written by
Ellen Darbyshire
Nov 1, 2023
minutes read

Scaling a boutique consulting firm in today’s fast-paced market can seem like an overwhelming task—on both sides of the Atlantic.  

Fortunately, we sat down with Prof. Joe O’Mahoney, Professor of Consulting for Cardiff University and Michael Zipursky, Co-Founder of Consulting Success, to hear their thoughts on how current market conditions are affecting the consulting industry in the US and the UK. Watch the full webinar here.

Challenging times—for most sectors

Joe, based in Cardiff, UK, provides consulting services to boutique firms on either side of the Atlantic. He’s noticed consultants taking large blows to their revenue in recent months, with projects being postponed and cancelled—yet still no official ‘diagnosis’ of a recession.

While Joe has observed his US clients taking these hits harder, he believes it’s only a matter of time before the UK begins to suffer, too.

“When the US sneezes, the UK catches a cold,” he explains. “These two markets, in terms of structure, are probably more similar than any other two in the world—so the US is serving as a canary in the coal mine.”

However, things aren’t that cut-and-dried. Some sectors are countercyclical, performing much more immune to a downturn than others. Take someone who currently has an AI consulting business, for example.

“They won’t even know there are any political downsides—private equity is pouring money into AI and people are buying up the tiniest firms right now,” Joe says.

The same goes for consultants specializing in data visualization and analytics. Big data consulting is expected to lead in the coming years, with a projected compound annual growth rate of 32.3%, so it’s hard to imagine firms within this sector feeling the pressure.

Regardless of your service lines, there’s things you can do to remain resilient throughout a recession. 

“Once your firm gets big enough, say 30+ people, it’s a good idea to start thinking about your main consulting services,” Joe advises. “Do your services grow during periods of economic growth? If they do, will they get hit by a downturn?”

You then need to consider whether you can develop services that will actually grow during periods of economic downturn, giving you the slow, balanced growth that investors and buyers are looking for.

For Michael, on the other hand, it’s not all doom and gloom—he’s also seeing some clients having record-breaking revenues this year in the US.

“It’s important to keep your eye on the market and prepare, but you don’t need to always look at things through a negative lens just because the media is pointing you in that direction,” he explains. 

However, he’s also noticed a shift in buying behaviour in recent months. While most companies still have the budget to pay for services, they’re choosing to be much more cautious in how they deploy that budget.

As a result, many companies are seeing their sales cycles slow, which is causing them to manage their cash flow differently. They need to be more thoughtful about their staffing and hiring practices, making shifts in both their offerings and how they take those offerings to market.

“Certainly, some industries are hot, so you won’t notice anything slowing there,” Michael adds. “But it’s important to note that organizations are adjusting how they think about buying, and they’re also now looking for certain things.”

In particular, businesses are more cautious. They’re no longer rushing into large investments—they’re taking their time. They want a precise, lengthy decision-making process and, in many cases, won’t move forward with a deal unless they can see a very clear business case.

“That’s why all consulting firms should be closely considering their offerings,” Michael says. “They need to provide ways for organizations to invest at a smaller scale to begin with.”

Lessons learned from the 2008 recession 

“Firms laid people off very quickly during the 2008 recession—and then the markets picked back up again just as quickly,” Joe explains. “They got punished as they couldn’t recruit people fast enough.”

Learning from this experience, many larger firms didn’t make the redundancies the markets were expecting during the COVID-19 pandemic. These firms took many hits during this period, putting people on internal projects as they waited for the regrowth of the economy—which still hasn’t come.

As a result, many of these firms have kept people on the bench for a long time.

“I often hear people asking if they should be worried they’ve been kept on the bench for six months or more,” Joe says. “And as firms realize they can’t do this indefinitely, they’re starting to make redundancies.”

While many firms believe AI is to blame, Joe thinks this is a red herring: “It’s simply because they’re overstaffed and the economy hasn’t picked up as fast as they thought it would.”

If and when things do pick back up, Joe thinks there’s a real opportunity for smaller firms to take advantage of some of the exceptional talent available. Many of these consultants have grown weary of the culture of larger firms, being more open to working for a boutique.

But while many of Joe’s midsized clients have been hoovering up this talent, it still doesn’t come cheap.

“That’s another big difference across the Atlantic: you could be paying double for an experienced consultant,” Joe adds.

Michael himself has seen an increase in the number of people getting into the world of consulting from his side of the pond, with more people interested in starting their own consulting business. 

He’s also observed a breadth of opportunities for talent—beyond borders.

“You can tap into global talent now, not just local,” he explains. “You can find amazing people all over the world.”

With this comes a compelling opportunity for boutique firms. Many consultants are now open to more flexible working arrangements, and can initially be brought in as associates rather than full-time employees.

This gives the firm time to decide if the talent is a good match for the business in terms of the value they add and their alignment to the company culture, before extending any offers to join the firm full-time.

“This allows smaller firms to test the waters before making a massive commitment, and that’s something we’re seeing a lot of businesses take advantage of,” Michael says.

Best practices for remaining resilient 

So, what advice do Joe and Michael have for consulting firms during this period of economic downturn?

“Do the stuff you would be doing in good times,” answers Joe. 

This means keeping your clients close and continuing to build those relationships. Of course, smaller consulting firms without capacity for countercyclical services need to be understanding—clients won’t be rushing to throw money at their value-adding services. But these services can also be reframed—which is something smaller firms will have an easier time of.

For example, one of Joe’s cloud consulting clients has distanced themselves from performance development services, focusing instead on cost cutting. As this has been a primary focus for clients at the moment, it’s been a big seller for the firm.

Another point Joe makes is that when it comes to negotiation, there’ll always be some negotiation around price.

He says, “I’m not a big fan of discounting simply because someone asked for it, but perhaps you can be a bit more generous. If someone turns down a big project, you can offer something more tangible instead.”

Clients are currently looking for services that offer tangible value with key metrics. Some of your fee should, ideally, be tied into achieving those metrics, with an extra bonus for exceeding cost cutting measures.

Joe reiterates that this doesn’t mean discounting your services in order to get business—it means being more understanding about the client’s needs rather than what you’re selling.

For Michael, there are five key pieces of advice that he’s been sharing with his clients:

“You need to truly understand the ROI that your ideal clients care about right now,” he says. “By focusing on demonstrating that value and ROI, it becomes much more compelling.”

As Michael pointed out early, clients are hesitant to deploy budgets on things that are simply ‘nice to have’—they want to make investments into things that are necessary. You need to align your service offerings to these requirements, potentially zeroing in on only one or two of your services, in order to demonstrate the most value.

“You need to show your client how they can accomplish more with less,” Michael concludes.

Flexibility around pricing is also important. Again, this doesn’t necessarily translate to discounts or changes to your pricing strategy, but you should have some room to change the scope of the project to fit a certain budget.

Another recommendation from Michael is starting an engagement with an easier discovery offer. Very few organizations are currently willing to agree to a large-scale engagement off the bat, avoiding making any commitments as they see it as a larger risk—so you should do what you can to mitigate this risk.

“It’s a case of getting your foot in the door, and providing value to demonstrate a very clear outcome,” Michael expands. 

Another ideal opportunity to demonstrate value is by leaning into your intellectual property. Your content is a great way to stay top of mind with people who may not yet be ready to buy from you, so that when things do pick back up, you’ll be their first choice. 

Key takeaways

  • Take advantage of access to global talent markets and the flexibility that often comes with it
  • Reframe your value-adding service offerings to appeal better to clients who are more cautious with their budget
  • Be more understanding about your clients’ needs, offering solutions that add tangible value and demonstrating a clear ROI
  • Lean into IP creation to stay front of mind for your ideal clients 

Discover some of the KPIs that Joe & Michael identified as crucial to growing consulting firms here.

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