Transcript

Episode 25: Key Elements of Success When Launching a Consulting Practice—With Deri Hughe

Deb Zahn: Hi. I want to welcome you to Episode 25 of the Craft of Consulting podcast. I have a great guest today, Deri Hughes. He is the Managing Director at Honeycomb PS. He used to be a consultant, but what he now does is he has a firm that helps boutique or small consulting firms make good strategic decisions so that they can actually build their business and helps them with the operational support that they need to be able to support that business over time.

He's going to share a lot of great insights with us today in terms of what are key elements of success if you're going to be launching a consultancy, including a small consulting firm, and what are some of those skills and capabilities you need, as well as some of the pitfalls that you should avoid. So a lot of great information on this episode. Let's get started.

I want to welcome my guest today, Deri Hughes. Thank you so much for joining the podcast.

Deri Hughes: Pleasure to be here. Thank you.

Deb Zahn: Thank you. Well, let's start off. Now, you used to be a consultant and now you have a firm that helps consultants. Say a little bit about what you did as a consultant, and then we'll talk about the firm.

Deri Hughes: Sure. So I started at Bain & Company, the leading strategy consultants, so I was straight out of university. I actually had a PhD in organic chemistry, which has long since lapsed. Started at Bain, and spent about six years there, then went independent for a few years and then went into a small consulting firm, about an 80-person firm as the chief finance and operations officer. They're no longer client facing, but spent my time building up and running their operations team so that the partners could really focus their time on client work and building their intellectual property, and helping their teams do better work.

Deb Zahn: Yeah, that's great. And then based on that experience, you started a firm. You want to say a little bit about what that does?

Deri Hughes: Yeah, sure. So I started Honeycomb only about 18 months ago. Based on my experience from running the operations team at the previous firm, I realized that actually an outsource operation model for small consulting firms just works a lot better. They get access to the right talent that they need, the right seniority, the right areas of expertise, the right specialisms. And so working on building that practice up and serving boutique consultant firms and helping their partners get time to focus on clients.

Deb Zahn: Yeah, I have to say I was delighted to see that when I worked at a firm, it was a 60-person firm when I started and when I left it was 300 and it had all of the growing pains that anybody has that grows that large and in whatever period of time. So I understood the value of what it is that your new firm does. So we'll talk a little bit about that. Let's start with this. If I focus on accomplished professionals who are going to become consultants and some of them are going to go independent, some are going to join firms and others are going to start their own. I was talking with someone yesterday who's thinking about starting a small firm with a few other people. What are really the key elements of successfully being able to launch that and launch it well?

Deri Hughes: That's a great question. We end up talking to a lot of people in exactly that situation and often they've got deep expertise in an area and then they think let's go and sell that expertise into other firms that can find value from it. And I think the key things to me are being really crisp and clear on exactly what it is that you do that brings value. One of the pitfalls that I see people fall into is the fact that they can see loads of opportunities, can kind of have this mindset of I'm a small person and I'm surrounded by smart people, we can solve problems. We can solve any problem, we can help any business. That mindset can cause all kinds of problems, and I think that the key is to really focus down on exactly what it is that you're great at and just go hell for leather on that one area and really focus hard on it.

Deb Zahn: That's great. Now have you also seen the opposite? So I've seen the, I can do anything. We can do anything for everyone at any time. And I've seen the opposite of, I know I was successful in my previous endeavors, but I have no idea what I can actually offer folks. Have you seen that as well and have advice for that situation?

Deri Hughes: I haven't seen that so much to be honest, but I think in that situation, I think learning how to be a consultant, I can imagine that comes out of a situation where somebody has a deep, deep knowledge in an area, but they don't really understand how to pass that knowledge onto other people. So I suppose actually I am seeing that right now with my own team, so I'm having to teach them to shift from being functional experts to being advisors to our clients. And it's teaching them really to kind of put themselves in that client's shoes more often and think through exactly what it is that the client will understand about the situation and not assume any level of knowledge.

Deb Zahn: That's great. And that's a whole new set of skills and approach then I'm sure a lot of folks have had to do previously, because I see the same thing as folks joining consulting firms. Is that at their previous job, maybe they said here, let me just do it as opposed to now you're helping other folks do it. If you were telling folks who are thinking of launching a small firm or being a new consultant, what skills would you tell them? Look, you got to figure out how to do this.

Deri Hughes: I think you've got to figure out how to explain your value, why you're valuable to people really cleanly. I think that the critical skills around how you deliver projects and how you communicate, I think the communication is absolutely critical and communication in all of its forms. So the way that you write your emails, the way that you run meetings, the way that you talk to people, the way that you can engage with people and build relationships to get nuggets of information out of them. Because fundamentally as a consultant, what you're trying to do is find the recommendation that it's good enough that people can get behind that, they can trust what you're saying, and they can go full force behind implementing it.

And it doesn't have to be a 100% perfect recommendation, it has to be a recommendation that's good enough that people believe in and that is a very different mindset as to say if someone's coming from an academic background or a very technical background where accuracy can be key, they need to learn those communication skills to win people over to make sure that things are actually happening on the back of your recommendations. And I've seen over the years, so many consulting recommendations go nowhere because people are won over by 200 slides of PowerPoint.

Deb Zahn: As beautiful as that deck may be. Yeah, I've seen that a lot with folks who are leaving governance positions where they were in charge. So either they were part of the C suite or they were part of a government entity where they were just used to saying, "Here's what we're going to do", and now they're talking to those folks. But they're not in a position to say, "Look, just do this." That's not compelling. It doesn't win people over. How do you suggest they get those skills or they or they figure out how to partner with somebody that has them?

Deri Hughes: That's a great question. I think practicing them, it sounds kind of kind of simple, but figuring out what best practice looks like using online resources, practicing them and really trying to think through in every situation, what is this other person going to be thinking about that? What are they going to be concerned about? How can I put myself in their shoes so that they can really think about how to influence the way that they might be thinking?

Deb Zahn: And even practice with folks where there's nothing at stake. I've given that advice to others of you know, grab somebody who will be brutally honest with you and test your pitch of your value proposition, test something with them and then let them give you feedback. Do that before you walk into a client situation.

Deri Hughes: Totally. Yeah.

Deb Zahn: That's great.

Deri Hughes: I have my team do that actually. In terms of their presentation skills, I have them stand up and present in our team meetings and it terrifies them and I give them feedback on the spot, but I'd much rather they were doing it in that scenario than doing it for the first time in front of clients and being terrified.

Deb Zahn: Yeah, absolutely. I got filmed at one point when we had to learn how to do trainings and facilitation and you have no idea how many awkward ticks you have until you see yourself on video and then you realize, I just need to keep my hands down. I don't know what I'm doing now.

Deri Hughes: Totally. I've been there as well.

Deb Zahn: They also need, particularly if they're starting a firm, or even if they're independent, there's certain business basics that they have to get in place in order to be able to function and operate as a business. What are some of those things? So if you were advising new consultants, which I know you do, what do you have to have in place and how do you get those and get smart about them quickly?

Deri Hughes: The critical things really are, and the way I think about this, you're trying to win work or trying to resource and deliver work. You're trying to build your knowledge base and then depending on the type of firm that you have, you either need to be recruiting and managing a team or regardless of the type of firm you have to manage your cash. Cash is an absolutely critical thing and I see too many firms have a somewhat casual approach to how they invoice, the discipline around the invoicing, and the discipline around chasing cash. And for the most part that doesn't cause problems until it causes a problem and then it causes a really big problem. And particularly if you're consulting to very big businesses, you have no control over when you're going to get paid and how you're going to get paid. You have no influence.

Deb Zahn: Regardless of what the contract says.

Deri Hughes: Exactly. You can put in 7 day payment terms in your contract and they'll come back and say, "Well, we pay on 60 days, so deal with it." So the trick there is to get really clear on exactly how their internal processes work. So if you have to get on the preferred supplier list, if you have to get a purchase order, if you have to get approvals from 3 different people in that business to get your invoice paid, get all of that in place before you submit your first invoice, which would normally be at the end of your first month of working with them. Get all that in place, and then when you submit the invoice, get a relationship with their accounts payable department so that it's actually coming through. If you can take care of that cash, then you have a really solid foundation to think about building the business more broadly and you can then think about things like how are we going to generate business?

What's our marketing approach? Can we rely just on referrals or do we have to build a social media presence? How exactly should we talk about ourselves? What tools should we use to research our projects if we're starting to think about building a bigger team? How should we, first of all, explain what we do and then what are our processes to build on that? And then wrapped all around that are just the key tools and technology that you need to use to run your business. So there's basic decisions about what email system are you going to use? Is it Microsoft or is it Gmail? And what other tools do you want to put in place? There's a minefield of technology out there. There's a hundred apps to solve any single situation you might come across and it's really hard to figure your way through all of that. So one of the things that we do is help people work out what the right app for the right situation is that they can use easily, get set up and get going.

Deb Zahn: That's great. Now you had mentioned, I want to jump back to the cash piece of it because I think that's critical, particularly for folks that are used to getting a salary and then you're a consultant and you know, again the payment period might be 60 days, but if it's a large company they might say, "Oh yeah, we said that and it's 80 days, it's 90 days", and you don't have any influence over, but even if you're starting, there's going to be some gap in time between doing the work and actually getting paid for it, which presents sort of an initial cashflow problem, which I think is what scares a lot of folks from becoming consultants or creating a firm. How do you advise them to manage that process, including leading up to actually launching their consulting business?

Deri Hughes: I think it's just, it's really important to build up reserves to the extent that you can. When I was an independent consultant, I always operated on having six months cash reserve in the bank and we would get nervous if we started to chip into that for any particular reason. Particularly if you are going from five day a week contract to five day a week contract, you can often have a gap in between contracts and those reserves have become incredibly important. I think the other thing is to have a long, hard look at your own spending when you're first starting out and often, particularly if you're coming from a salary position where you've been relatively comfortable and then you want to move into an advisory position where it may take some time to build up a reliable stream of work, then taking a long hard look at your own costs in your personal life and trimming those back as much as possible. It's quite an important thing to do as well.

Deb Zahn: And don't buy every shiny app and system that you see because those expenses, you have to pay for those regardless of whether you have revenue coming in.

Deri Hughes: Yeah, absolutely. And there are more than enough free versions of things out there too, that you can run business on with very, very low cost, particularly when you're first starting out.

Deb Zahn: And that might be good enough for now. And then if you need to get fancy later you can get fancy later.

Deri Hughes: Yeah. Indeed.

Deb Zahn: That's great. So if you think about some of the folks that you've seen or that you've worked with, what tends to be the biggest areas of struggle at the beginning aside from anything related to cashflow or getting cash in? What are things they're struggling with and what do you typically advise them to do?

Deri Hughes: I think there are a few tipping points as they grow. So there's the initial getting up and running and actually, if you can find good routes to market and you're basically selling your own time, that should be relatively straightforward and if you've got those good routes to market, whether it's through your own referrals or through agents that can place you, et cetera, then that can take you over for awhile. It's when you start to grow and bring people on. As an initial tipping point, when you take on employees for the first time adds a level of complexity that's certainly in the UK, suddenly then you need, you need different levels of insurance, you need different payroll, you need payroll provision, you sign people up for pensions. It adds a level of complexity and then when you get to a team size of about 20-25, then you start to get issues with resourcing and the admin burden of the business starts to take over to quite an extreme extent. And that's when you really need to think about different models and really professionalizing your internal processes, which you've often just kind of got by a little bit to that point.

Deb Zahn: And usually what I've seen is folks wait just a little past the time when they should actually solve those problems before they become significant problems and they suddenly realize payroll didn't go out, the invoices were wrong, et cetera, et cetera.

Deri Hughes: Yeah. I've actually seen both though. We've got one client at the moment who is very much investing ahead of growth and trying to operate as a bigger business than they are today because they expect to be that bigger business in the next 12 months. And they're running very hard to be able to do that, but it sets it up incredibly well. And I've got other clients who prefer to do just enough today with a view to then develop down the line. So there's an element there of your own kind of personal appetite for a chaos, I guess your personal comfort with chaos in your life. There's different models there, but often people don't realize that these things are going to be an issue until they crop up and start to cause pain and then it can be more difficult to solve them than it would have been to prevent them in the first place.

Deb Zahn: That's right. You've got to stop the bleeding and not avoid it. Now you mentioned growth and growth is definitely one of those areas that I've seen sort of the assumption that all growth is good, that if you're going to start something you obviously want it to be the next big thing, and I admit I am the antithesis of that. Growth is one of many choices you can make. How do you advise folks who are just starting but they have that sort of growth desire over time, in terms of deciding when that makes sense and when that doesn't make sense?

Deri Hughes: I think if it's your own firm, I think those decisions get very personal. I've written an article about this actually that talks about what I think of as my personal bottom line for growing the business. So in traditional bottom line is you make profit, people move through to a triple bottom line about profit, and social impact, environmental impact. Actually, when it's your business, it's a very personal bottom line as to what are you really trying to achieve with the business and at certain points in time those things can be different. If your goal is extreme wealth, then growth is a necessity and you will make different decisions about how you get there. If your goal is impact, or building culture, or influencing society in some other way, then you will make very different decisions about that as well.

What I think is the danger is that nobody ever defines what it is that they're really trying to achieve and then they get disrupted by the need to grow or they see all these stories about entrepreneurs on social media doing amazing things and tech unicorns and they sort of feel like they have to play that game, and I would really encourage people to think about what personally they want, what's going to make them happy, get the balance in their lives, enabled them to do great work and they really enjoyed doing and not run through life feeling stressed out by other people that expectations and other people's goals.

Deb Zahn: Yeah. I often suggest to folks write down what your ideal day is like, like not the big picture, but what's an ideal day for you and include more than work and then that's informative for what actually matters to you and then you can sort of take that next level. I've seen it too, where folks don't think about it and they just go along and they think, that’s shiny, let me chase that. That's shiny. Let me chase that. How have you been able to get people to stop before they start making decisions and think through what really matters to them? What have you seen works?

Deri Hughes: Yeah, I think in many ways the trick there is just to hold up a mirror to them and then, exactly as you say, "What is your ideal day like?" And I think giving people the permission to step off that treadmill and step back from the pressure that they feel day to day and help them just really think about what it is that they want. And there's all kinds of ways you can write that down and think about it, ask them questions about family, et cetera. But until they can have that moment of clarity themselves, it's very difficult to get them to make different decisions. What I then personally do to help them make that a reality is say, "Well, look, if this is what you want to achieve, these are the things that you need to do in your business. These are the capabilities that your business needs to have access to. They don't have to be what your employees can do. They just need to be in your ecosystem somewhere with partners and suppliers. And those capabilities are the things that are going to enable you to achieve what you want to achieve."

So it starts from having a really clear understanding of what you want to achieve, how the business fits into that, and then what does the business need to be able to do, or have access to, to actually achieve those things? And taking people through that process can help them go from a vague sense of stress, overwhelmed stress, because they don't know what to do, to clarity on what they're trying to achieve, to clarity on how they actually are going to achieve it. And it's a relatively simple process to walk yourself through, but you end up with a decent set of specific things that you need to build the capability and to be good at and to achieve the thing that you ultimately want to achieve.

Deb Zahn: That's great. I like the idea of within those capabilities, considering what you build versus what you buy. So I just hired a virtual assistant and back when I was in employment I always had an assistant, which was lovely, and then suddenly, even working at a firm, we weren't structured so that we had that. I was scheduling and even though I have systems that schedule, I was using my time to do things that other people could do and probably do better than me and that means less time to do the things that only I could do. How do you talk to people about when it makes sense to seek it elsewhere versus build it yourself?

Deri Hughes: I think my default on that is to minimize the stuff that you do yourself as much as possible, so you really focus on what are the things that it's truly differentiating that you can do? We had exactly the same situation with the firm I was CFO at where they had one executive assistant supporting a team of six and over time we managed to persuade the partners that actually didn't need to be spending time writing their own diaries and we brought more executive assistants in to give them support and it was transformative for them. But we had to kind of walk quite slowly to get them to release that control. And I think when you're just starting by yourself, it can sort of feel like an indulgence or even an arrogance to have an assistant when it's just you. But actually, if you take the mindset of, "Well, I need to spend my time doing the things that are really going to create value and get me to the things that I want to achieve,” then it becomes quite an easy decision. And I did, per se, either when I, when I started to do this, I did this very early on because I wanted to spend my time developing the firm and managing my RA.

Deb Zahn: Yeah, absolutely. So I'm a health care consultant and I'm hesitant to brag about anything in the US healthcare system to anybody who's in Europe. So I don't think I have a firm leg to stand on, but there's one concept that we use with the way that care is delivered, which is that people should be working at the top of their license. And I've translated that into my consulting business, which is, there are things that only I can do and I should spend the majority, if not all of my time, just doing those things. And then there is other folks who should be working at the top of what they should be doing. And then it goes down the line, so everybody is in their sweet spot and over time, even though it feels indulgent, because I had the same thing. Oh it's, "I'm going to get my own virtual assistant." Over time, it actually saves you money because anything that I'm doing that somebody else is better suited to do is lost revenue. Unless I eat into my personal time, it's lost revenue.

Deri Hughes: Totally. I've got a very similar concept called, operating in your zone of genius. I try to help all of my team spend as much time as possible in those zones of genius where they're just the best at what they can do and they get energy from it and they thrive as a result. My assistant, Gabby, is dramatically better than I am at organizing everything in my life, so why would I not ask her to do that? And I can focus on other things that I'm better at.

Deb Zahn: Yeah. I usually say there are some things I just shouldn't be allowed to do because, not only are they better, but I will muck it up. It's a guarantee, I'll just mess the whole thing up.

Deri Hughes: Exactly. That's the zone of incompetence where you should try and never be.

Deb Zahn: I try and get out of that. So are there any sort of common early mistakes, or pitfalls that you would tell a professional who's looking at consulting or looking at developing firm to just avoid, just don't do those things? You'll be happy if you avoid them.

Deri Hughes: I think, don't get tied into working with clients or in environments that you don't like. Life's too short and I've made that mistake before and spent too long in environments that were sucking the energy out of me. This whole game can be a lot of fun and you can get huge variety and you can work with really interesting, exciting people or you can end up exposed to businesses and cultures that you're just not suited for and there's nothing wrong with admitting I'm not happy here, even as a consultant and you shouldn't feel like you have to give your life up to that client come what may. The other thing is to remember that you can have work life balance. Just because you're charging the day rate doesn't mean that you have to work 14 hours every day.

You're being paid to deliver the value and to solve problems for clients, not to just be there, on the clock, giving them your entire life. I think, if you can solve those two things, then you'll end up working in a way that's sustainable for you. And for some people that is a 14 hour day, for some people that's an eight hour day and you'll be working in environments and cultures that you get energy from and that help you thrive. And if you can do those two things consistently, then you'll build a sustainable consulting practice.

Deb Zahn: That's just lovely. So, the question I always ask all of my guests is how they create life balance, because I do think it is so essential. We don't have every choice available to us, but where we do have choices, we can lean in one direction or another. So how do you bring balance to your life? How do you do that?

Deri Hughes: Well, part of the reason I started Honeycomb was to bring balance to life. I've got four young children, so I've got kids of six, four, and two-year-old twins. So not much down time, difficult to come by. My main kind of hobby outside of that is lifting weights. I'm a power lifter and a strong man. And I find that when I'm training with heavy weights, it stops me thinking about anything else because you've really got to concentrate or you can hurt yourself. And that enables me to clear my mind. And the other thing which is nice about clearing my mind is, I love cooking low and slow on the barbecue. And I really like the fact that it is a long, slow process to create something that everybody is going to get a love eating. I just really enjoy the pace of that because it's so much slower than the day to day hecticness of running a small business.

Deb Zahn: And if you were again talking to a professional who's thinking of being a consultant, how, how would you encourage to, from the get go, so not trying to solve it once they're so busy that they can't even think straight, but from the beginning, think about how to incorporate life balance into their choices?

Deri Hughes: I think the critical thing is to be really honest with yourself about what balance is for you and to put some very clear boundaries in place. So if you need to exercise four times a week, or you need to read, or you need to travel, or whatever it is that you need to do, be really disciplined about finding the time to do that. But be careful not to fall into the trap of just being available 24/7. Make sure that you find that time and you protect that time and you invest in yourself, because if you not doing that, then you're setting yourself up for just being successful in monetary terms, but not being happy.

Deb Zahn: And a bad stereotype for consultants. We've got to break that stereotype. Well, wonderful. Deri, I appreciate so much you being on the podcast and sharing this with us, so thanks for joining us and I will, in the show notes, we'll include a link so people can find you on LinkedIn and they can also find out more information about honeycomb.

Deri Hughes: Fantastic. Thank you for inviting me on. It's been a pleasure.

Deb Zahn: Certainly.

Deb Zahn: Hey folks, thanks so much for listening to Episode 25 of the Craft of Consulting podcast. I have some absolutely fantastic guests that are lined up, so don't miss a thing. Hit subscribe so you can get alerts of when those podcasts go live. And let me know if there's anything else that you want me to talk about or any feedback that you have. You leave a comment, I will always reply and you can also go to my website. As always, there's a lot of really great information on there that can help you build your consulting business and also build the life that you want. So thanks so much. I'll talk with you next time. Bye bye.