The Guide to Growing Professional Services

Professional services are an economic colossus, contributing $6 trillion to global GDP; more than $3.5 trillion in the United States alone. These figures paint a picture of vast scale, but they represent millions of professional service businesses. When we look at individual companies in professional services, a starkly different image emerges: one of small scale. In Canada, professional, scientific and technical services dominate small- and medium-sized enterprises (SMEs) as the most common type of business category.

SME professional service businesses have the potential to grow. That’s why ten percent of them with at least a handful of employees grow 20% a year. However, the vast majority remain small indefinitely. Why is that?

Read on to understand the common barriers to growing professional service businesses and how to navigate them. I draw on my experience scaling a professional service business from a few hundred thousand in revenue to 70 people and almost $20 million in revenue. Unlike generic business advice, this guide is tailored to the unique dynamics of professional services today, offering actionable insights for operators and investors.

First, we’ll explore the challenges to growing professional services. We’ll cover issues like the Two-Market Balance, the Advice Incentive Compensation Dilemma (ACID) and the Guild Mindset. I’ll demonstrate how these professional service business challenges stand in the way of enduring and sustainable growth.

Then, we’ll walk through a roadmap to successfully grow professional services. I’ll describe three strategies, nine tactics and dozens of initiatives that operators and investors can use to scale professional services.

This guide is for you if you are an operator or investor in professional services like consulting, actuarial services, law, accounting, architecture, Information Technology (IT), recruiting, investment banking, engineering or health care. Unlike most business writing that treats professional services as an afterthought, this guide dives deep into your unique challenges and opportunities. I’ve packed it with contemporary insights and strategies tailored specifically for the landscape today.

Whether you’re leading a small firm or a practice within a larger entity, we’ll reveal the universal principles of growth in professional services. Join me as we explore the path to transforming challenges into strategic advantages for lasting success.

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Housekeeping Items

Before we delve in, let’s briefly pause to address a few housekeeping items. These foundational points will ensure we’re on the same page before the deep dive ahead.

Clients, Customers or Patients?

Different professions use different terminology when describing those they serve. Some professions use the word “clients,” such as management consultants or lawyers. Healthcare professionals generally use the term “patients.” Some professions use the word customers, and so on.

There’s also different terminology for those who provide the service. Some industries use the word professional, whereas others use the word practitioner or agent. Most industries also have industry-specific terminology, like dietician or therapist.

In this guide, I’ll mostly use the word “client” for the people who receive professional services and either professional or practitioner for the people who provide professional services.

My goal is to keep my writing consistent. Regrettably, some readers for whom this guide would be valuable may not relate to the language I’m using. I haven’t found a way around this, so if anyone has a better approach than the one I’m using, I’d love to hear from you.

Artificial Intelligence (AI) and Professional Services

A second housekeeping note I’d like to touch on is the burgeoning field of artificial intelligence (AI).

I‘m keenly interested in AI and believe it holds the potential to revolutionize the landscape of professional services. However, as things stand in early 2024, it’s still early days to predict the full spectrum of AI’s impact and how it might be woven into the strategies and tactics to grow professional service businesses.

I’ve crafted this guide to remain relevant and adaptable – not only in the current landscape but also in a future where AI’s influence is more pronounced. While AI isn’t explicitly mentioned throughout, the principles laid out here are designed to be resilient and, potentially, to be amplified by AI advancements.

As the role of AI in professional services becomes clearer, I plan to delve deeper into this topic, providing insights and updates to navigate the evolving terrain.

I’d love to hear from you if you’re interested in this topic too.

Great Professional Services

Our final housekeeping item. I’ve previously written about what makes some professional services truly great instead of just mediocre. You can read my thinking on this topic in 3 Qualities Of Great Professional Service.

Since we’ll be covering how to grow professional services without compromising quality, you might want to read that post first. But in case you want to jump right into this one, here’s a brief summary of the main points so we’re aligned on the qualities we’re trying to scale.

• Great professional services have three qualities: personalization, credibility, and effective delivery.
• Personalization involves a deep understanding of the client’s circumstances, objectives, and needs. It gets beneath the surface to root problems. Personalization is why professional services often begin with detailed intake and lots of questions.
• Credibility comes from employing practitioners with expertise, successful track records, and credentials. These elements provide assurance to clients that they are receiving advice from someone capable and committed, who has successfully navigated similar problems in the past.
• Effective delivery of professional services hinges on being actionable, timely, and continuous. Effective delivery transforms “just words” into advice that can put a dent in the universe.

A quick read of these qualities illustrates why few professional service businesses scale successfully. How do you personalize at scale? Isn’t it expensive to hire people who are so credible? How do you make sure technical experts communicate effectively at scale?

The challenges to scaling professional services that I describe in the next section all emanate from these qualities. But not to worry. As I’ll detail in our strategies and tactics, there are lots of things you can do about it.

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Ok, no more housekeeping. On to the reason we’re here – helping you scale professional services. The first step? Detailing the challenges standing in your way, laying the groundwork for the strategy and tactics that follow.

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Part 1: The Challenges of Growing Professional Services

Sam (not her real name) is a successful management consultant who used to work at one of the most prestigious firms in the country. After a few years, the managing partner took Sam out for lunch and told her she was on track to be a partner one day. So everyone was shocked when Sam announced she was leaving her prestigious job to start her own consulting business.

Sam wasn’t just any consultant. She was also an entrepreneur. Her parents had both managed successful companies, and it gave her the business bug early. She dreamed of building a company of enduring value – one that might create not only significant wealth but a legacy beyond herself.

Sam’s first several years on her own were a roaring success. She had enough demand from clients to hire three senior management consultants and fill their time. Before long, she was earning the same amount of money she would have as a partner at her old consulting firm. Plus, she felt fulfilled that she was doing it on her own, capable of delegating most of her client work to the people she’d hired.

But it didn’t take long for Sam to get worried about where her new path was ultimately headed. First, all three senior professionals asked for raises, reflecting their contributions to the business’s success and market rates. Next, clients started complaining to Sam about the fees, voicing concerns about the decline in quality and personal touch. Sam struggled to get her team to think outside the box, stop using consultant jargon and relate to clients on a personal level.

The situation escalated to the point where Sam found herself overwhelmed, not just with client work she now felt compelled to take on but also with the responsibilities of running a business – HR, accounting, payroll, marketing, and sales. The stress reached a peak she had never experienced before, prompting her to consider returning to her former firm and asking for her job back.

While Sam’s story might seem unique, the hurdles she encountered are ubiquitous among professional service businesses. Few achieve the critical mass needed to create a company of lasting value, which was Sam’s goal. To understand why, we need to dive into the obstacles to scaling professional services:

1. The Two-Market Balance
2. The Advice Compensation Incentive Dilemma (ACID)
3. The Guild Mindset

In this section, we’ll describe each of these barriers and how they prevent many business leaders from scaling professional services. By understanding these challenges, you can better determine the right combination of tactics discussed later.

The Two-Market Balance

To understand the first obstacle to scaling professional services, The Two-Market Balance, we first need to differentiate between Value Creation and Value Capture.

Value Creation refers to the total value a business delivers to its customers or clients, both tangible and intangible. Consider a smartphone manufacturer selling 100 million units per year at an average price of $1,000, leading to $100 billion in revenue. Each customer perceives at least $1,000 worth of value from their phone, combining both the physical features and the intangible benefits like brand prestige or user experience. Importantly, value creation encompasses the maximum amount people would have been willing to pay for smartphones, highlighting the subjective nature of value in this context.

Value Capture is about how much of the Value Creation the business retains for itself after considering competitive pricing dynamics, expenses, and opportunity costs. For our smartphone manufacturer, the $100 billion in sales does not translate directly into profit. The company must cover the costs of suppliers, manufacturing, distribution, and more. Value capture is influenced by the company’s strategic decisions to optimize efficiency, innovation, and branding in the face of competitive pressures. The concept of economic moats plays a crucial role here, representing the unique advantages that allow a company to protect and sustain its ability to capture value over time.

An especially important point for professional service businesses: Value Capture is the value that goes to the business itself, not the people who work in the business. Companies with high-value capture can maintain profitability if some employees leave, making them more valuable and less risky.

Both Value Creation and Value Capture are essential for building an enduring business. Without value creation, there’s no demand for your service and, therefore, no revenue. Without value capture, you can’t invest in growth opportunities, sustain operations, attract ambitious employees or raise capital.

Here’s the problem: In professional service businesses, creating value is much easier than capturing it.

Going back to Sam’s growing consulting business from earlier, we see this dynamic play out vividly. Value creation came relatively easily; Sam expanded her team with skilled management consultants and leveraged her expertise to meet and exceed client expectations. However, the challenge of value capture quickly became apparent. As her team demands higher compensation and clients push back on fees, the financial sustainability of her firm comes under threat. A challenge shared by almost all small professional service businesses, margins get squeezed between employees on one side and clients on the other, preventing sustainable growth.

To understand why value capture is so elusive in professional services, we need to visit a concept from David Maister’s classic book, ‘Managing the Professional Service Firm.’ The concept? Two Markets.

Maister describes two markets: the external market and the internal market. The external market serves clients, who receive services in exchange for money. It encompasses the pursuit of new clients, the services provided to them, and the overall market positioning of the firm. The internal market serves practitioners, who receive compensation and non-financial benefits (like fulfilment, social status, and friendships) in exchange for their time, dedication and talent. The internal market encompasses HR, compensation, professional development, and the creation of a supportive work culture.

According to Maister, who spent decades advising professional service firms across the globe:

It is the need to balance the often conflicting demands and constraints imposed by these two markets that creates the special challenges of managing the professional service firm

This constant balancing act is why value capture is so hard for professional service businesses. As the company does well, employees understandably expect a bigger share of the money. The saying “our greatest asset is our people” applies – and, unlike raw materials, software code, or inventory, people might leave your business if they don’t get what they want. This dynamic makes it harder for the company to build value independently from the practitioners within it.

Do all businesses need to balance these two markets? Sure. But this balance is especially critical for professional service businesses. Delivering great professional service – personalized, credible and effectively delivered – requires a combination of customization, human capital and personal relationships that’s atypical in other businesses. Clients often care more about the professional they work with than the business that the person works for. While other types of businesses also require highly skilled individuals, they don’t usually depend on these employees for real-time delivery of their offerings. (I discuss this idea, known as inseparability, in There’s No Such Thing as a Pure Service Business).

In addition to balancing the Two Markets, professional service businesses face another challenge to scaling. As your business grows, incentives become an increasingly important part of making sure that the quality of your advice remains high. But, as I’ll explain next, finding a good compensation model for advice is far from straightforward.

The Advice Compensation Incentive Dilemma (ACID)

Advice is fundamental to professional services. Whether you’re an engineer, architect, physician or accountant, clients rely on your business for expert guidance.

It’s great to be relied upon for advice. But when you’re trying to grow a professional service business, the centrality of advice to your value proposition is a problem. That’s because no one has discovered a compensation model that aligns incentives between those who give advice and those who receive it. Hourly fees? Retainers? Project-Based Fees? Transaction Fees? While each has its advantages, they all can impede the depth and quality of advice.

As a business grows, aligning incentives is increasingly important to maintain quality. In a small business with a handful of people, quality can be maintained by highly personal relationships and informal arrangements. Maybe a practitioner goes above and beyond this time around, knowing that extra compensation or some non-financial benefit will come back to them another way later. Maybe the client will award them a higher-margin engagement in the future, or the partner will pay them an outsized bonus for their extra efforts.

However, informal systems become unsustainable as businesses scale to dozens of people and millions of revenue. Businesses naturally become more institutional, and institutions need good incentives.

This critical tension is captured in what I call the Advice Conflict and Incentive Dilemma (ACID). ACID highlights the inherent tension between the desire to provide quality, unbiased advice and the prevailing compensation structures that compromise the depth, quality, and honesty of the advice provided. As a result, clients often question whether the advice they receive is in their best interests or primarily serving the practitioner’s financial gain. And practitioners struggle to provide unbiased advice while supporting financial success for themselves and the businesses they work in.

ACID in Action - The Case of the Expanding Law Firm: Imagine a mid-sized law firm, "Lexington Partners," specializing in commercial real estate. As they grew from a boutique firm to a mid-sized entity, the partners faced the classic ACID challenge. Initially, Lexington Partners prided themselves on personalized service and deep client relationships. Their compensation was primarily based on hourly billing, which, while standard in the industry, began to reveal its limitations as the firm expanded. One of their longstanding clients, a real estate developer, approached them for advice on a complex acquisition. The deal required nuanced negotiation and a deep understanding of regulatory hurdles. The client valued Lexington's advice because it had historically been both insightful and impartial. However, as the firm grew, the pressure to increase billable hours subtly shifted the nature of the advice provided. The senior partner overseeing the deal found themselves in a conundrum. To thoroughly explore all the client's options would require extensive research and consultation, potentially ballooning the billable hours to a point the client would find uncomfortable. Conversely, providing a streamlined, less time-consuming consultation would reduce the bill but might not serve the client's best interests by fully exploring all options and risks. This scenario exemplifies the ACID problem. Lexington Partners' growth introduced a tension between maintaining the quality and impartiality of advice and the pressure to ensure the firm's financial health. The hourly billing model, once complemented with informal and non-financial understandings among lawyers and clients, began to impede the depth and quality of advice as it incentivized longer hours over efficient, impactful guidance. The firm found itself at a crossroads, needing to reconcile its commitment to client service with the realities of running a larger business.

The following provides a deeper dive into the motivations and dilemmas inherent in the three most prevalent compensation models:

• Transaction-Based Compensation: Focused on outcomes, this model rewards professionals like brokers and agents with a commission tied to the completion of client transactions. It’s designed to motivate quick, effective actions leading to a transaction’s closure. The allure of higher commissions from larger deals might tempt advisors to steer clients towards more lucrative, possibly less suitable options, introducing a conflict between the pursuit of personal gain and the commitment to act in the client’s best interest.
• Time-Based Compensation: Billing for the time spent on a client’s engagement underpins the value of continuous, in-depth advisory work. Legal and consulting professions often adopt hourly rates, valuing the thoroughness and customization of advice. However, the emphasis on billable hours can inadvertently encourage quantity over quality of time spent, potentially leading to worse advice that’s more expensive.
• Flat Fee Compensation: Offering a single, upfront charge for services simplifies client expectations and budgeting. It’s ideal for services with predictable scopes, aiming to eliminate the financial unpredictability associated with time-based billing. Yet, the challenge arises in ensuring the advice remains comprehensive and client-focused, without the incentive to minimize effort once the flat fee is secured, potentially compromising the depth and quality of service.

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So far, we’ve discussed two of the three barriers to scaling professional services: the Two-Market Balance and the Advice Compensation Incentive Dilemma. These challenges demonstrate the trade-offs and compensation issues that often impede the growth of professional service businesses. However, sometimes the most significant obstacles to growth reside within the attitudes and perceptions of the people in the business. This is the focus of our final barrier, the Guild Mindset.

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The Guild Mindset

Have you ever heard the saying, “Professions are a conspiracy against the laity?” Or the joke about what you call a thousand lawyers chained to the bottom of the ocean?

I’ve interacted with countless professionals and can confidently say that I’ve never encountered any conspiring. However, when we engage with professional services, many of us have experienced a sense of disconnect, as if we’re talking with someone who’s speaking an entirely different language. The experience often leaves us more perplexed than before the conversation started, culminating in the unpleasant surprise of a hefty bill.

What accounts for this gap between the well-meaning intentions of practitioners and the negative experiences we sometimes encounter? The answer lies deep in the roots of professional practice, encapsulated by the Guild Mindset.

Long before the first professional service businesses, groups of specialists, known as Guilds, were granted privileges to conduct business as long as they adhered to certain rules and made payments to the authorities. Between the 12th and 16th Centuries, guilds played a critical role in society, regulating trade, controlling production, offering protection and support to members, and influencing local governance. This ancient system unknowingly laid the groundwork for a mindset that, even centuries later, influences how professionals engage with their clients.

Even though guilds declined with the Industrial Revolution, professionals are still organized in the same way – by their specialization. Professional service businesses, like law firms and accounting firms, are defined by the subject matter expertise of the people who work there. In contrast, most non-professional companies are organized by who they serve and the problems they solve. Could you imagine a manufacturing business that makes iPhones, Beanie Babies, medical equipment and lawn furniture, just because it happens to have expertise in making things? As strange as that sounds, it’s how we organize professions.

As a result of how professional service businesses are organized, professionals are susceptible to the Guild Mindset. In the Guild Mindset, practitioners focus too much on their subject matter expertise and too little on their clients. Rather than working backward from the most salient problems facing their clients, practitioners with a Guild Mindset refuse to consider things outside their area of specialization. These practitioners are like the person with only a hammer who sees every problem as a nail.

Understanding the implications of the Guild Mindset is crucial, especially when considering the scalability of professional services. To bring this concept to life, let’s revisit Sam’s situation, which exemplifies the practical challenges and opportunities for growth within this framework.

Sam recruited people with the same subject matter expertise and professional background as she – management consulting. She encouraged them to think creatively, limit jargon, and establish deeper, more personal relationships with clients. But by hiring professionals with similar expertise, she created an environment where these tendencies were likely to happen. As Sam’s firm expands, the homogeneous skill set and viewpoint of her team make it increasingly challenging to maintain the personalized advice and unique insights that characterized her early success.

Sam’s experience illustrates the core issue with the Guild Mindset as an impediment to scaling: it promotes a uniform approach that prioritizes technical expertise over the diverse perspectives and skills needed to engage and solve client problems effectively.

Taking our discussion a step deeper, here are three examples of how The Guild Mindset stands in the way of scaling professional services:

• Ignoring Valuable Service Problems (VSPs). As I explained in 3 Reasons to Combine Project-Based And Recurring Services, service businesses need to address Valuable Service Problems. These problems require a defined market and an authentic grasp of clients’ unmet pain points – both antithetical to the Guild Mindset.
• Compromising Advice Quality. Recall two of the three qualities of Professional Services – personalization and effective delivery. These, too, are incompatible with the Guild Mindset. Most clients could care less about the intricacies of your profession. The Personalization they’re looking for is about their unique circumstances, objectives and needs, not yours. Effective delivery, too, conflicts with the Guild Mindset. You can often tell who has a Guild Mindset because they use the jargon of their profession instead of catering their language to the person listening to them.
• Increasing Risk of Disruption: When guilds prevailed, their biggest asset was their technical knowledge about best practices within their field. But the internet, vocational patterns and software have changed the landscape. Technical knowledge isn’t proprietary to businesses anymore. Therefore, businesses can’t rely on expertise alone to be successful.

Hiring individuals with the same skill sets can maintain high technical proficiency, but growing a professional service business requires more. For a business to sustain itself in the long run, it needs a team where members are not only skilled individually but also possess diverse skills from one another. Switching from a specialist-focused approach to a more well-rounded one allows professional service businesses to serve clients better, maintain quality as they scale and reduce the risk of disruption.

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So far, we’ve covered three barriers to providing great professional service at scale. We’re now ready to describe the strategies and tactics to scale professional services while maintaining quality.

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Part 2: Strategy and Tactics to Grow Professional Services

At the beginning of his book Outlive, Peter Attia tells the story of Muhammad Ali’s historic defeat of George Foreman to illustrate the difference between objectives, strategy and tactics.

• Your objective is what you want to achieve down the road. In our context, the objective is to provide great professional services at scale.
• Your strategy is your overall plan to achieve your objective. Most people want to go straight to the list of things to do – the tactics. But that’s a mistake. It’s like driving somewhere you’ve never been before without using directions or a GPS. A good strategy considers the obstacles that could stand in the way of your objective and outlines how you will maneuver those obstacles. Your strategy flows from your objective, and your tactics flow from your strategy.
• Once you have a clear objective and strategy, you can get to the tactics that will give you the best possible chance of success. If you’ve designed the right strategy, your day-to-day can be more dynamic and fluid because you can emphasize and de-emphasize different tactics depending on the situation with greater confidence.
• As you deploy tactics and results materialize, you can observe and analyze the outcomes. This feedback loop should inform strategic changes, ensuring that the strategy remains robust and adaptable to the shifting landscape so you can achieve your stated objective.

We’re going to apply this framework to our objective of scaling professional services without compromising quality. In this section, I’ll describe a tried and true approach, consisting of three strategic pillars, nine tactics, and dozens of initiatives.

Our strategy to scale professional services is broken down into three pillars. Each addresses one of the challenges to scaling professional service businesses:

1. Equip Professionals: Surround professionals with staff and structure so they can focus on their core competencies. This sustainable growth strategy balances the external market for clients and the internal market for professionals, navigating one of the main barriers to professional service business growth.
2. Bundle Advice: Combine advice with other value propositions into solutions that address salient client problems. Growing this way prevents the Advice Compensation Incentive Dilemma (ACID) from standing in your way of enduring growth.
3. Foster Collaboration: Ensure practitioners collaborate and are aligned with your business’s objective. This approach ensures the Guild Mindset doesn’t prevent you and your team from growing while maintaining your quality.

This three-part strategy has been used by successful professional service businesses for decades. Influenced by David Maister’s seminal books and articles, these ideas reflect my operating experience and research of the most successful professional service businesses in the world.

Using this strategy, you can maintain the quality of your professional services as you grow.

Equip Professionals: Balancing the Two Markets

“We want our people to feel they are Net Better Off for working at Accenture…We want all our people to believe that Accenture is the best place to achieve their aspirations, both personally and professionally.”

Julie Sweet, Chair and Chief Executive Officer, Accenture, 2023

The first strategic pillar we’ll cover is equipping professionals. This pillar is all about surrounding practitioners with the staff and structure allowing them to spend more of their time providing high-value professional work and less time on everything else.

When you look at how professionals spend their time, sure, a good chunk is devoted to client work. But that’s not the whole picture. Small firm lawyers, for example, spend only 60 percent of their time doing client work. Knowledge workers, in general, spend less than one-fifth of their time doing work they deem creative, with most of their time spent on work they don’t think is impactful. A lot of professionals’ time is wrapped up in procedural work – think routine tasks, using templates for standard services, and making sure everything’s compliant. Then there’s the administrative side: answering basic emails, filling out forms, jotting down notes, scheduling meetings, and handling billing and invoicing. And let’s not forget the business side – overseeing junior team members, getting involved in business development, and building those all-important relationships in their network.

Equipping professionals means resourcing them with personnel and processes to remove administrative, procedural and business management work from their schedules. With the right environment, professionals can focus on what they do best.

Think about it this way. If you have a team of five senior practitioners and can increase their client capacity by just 20%, it’s like hiring an additional team member without actually hiring one.

This approach isn’t just a way to get more from professionals. Equipping professionals is the best way to address the Two-Market Balance because you add value in both markets – the internal market for talent and the external market for clients.

Remember Sam’s business? The professionals want raises to align with market rates, while clients complain about fees, quality declines, and lack of personal connection. Dual negotiations with employees and clients indicate Sam’s business was not effectively balancing the two markets, resulting in unsustainably low value capture.

This dilemma is common, but it’s not inevitable. Imagine: How would Sam’s situation be different if she scaled her professional service business by equipping the professionals?

Here’s a simple illustration. Imagine two professional service businesses – one that invests in equipping professionals and one that doesn’t.

In this example, the business spends more on support employees and overhead, hiring four senior professionals instead of five. The investment in personnel and processes (indicated by higher overhead) allows senior professionals to serve more client engagements, generate more total revenue and have more cash flow available for bonus and equity distributions at the end of the year.

Looking at the bottom line for the senior professionals and owner(s), the business that invests in equipping professionals:

• Generates more in annual equity distributions – $760,000 instead of $700,000
• Pays its Senior Professionals better – $390,000 on average instead of $340,000
• Maintains a fair and sustainable 25% profit margin.

This approach creates more value in both of the two markets – as measured by the increased revenue (external market) and higher compensation for senior professionals (internal market). Not only that, it also captures more value, with a $60,000 larger equity distribution.

This strategy isn’t a magic trick. It’s effective because it’s sensible: Invest money into the business while adding value to both sides of the two markets. Unlike growth investments that focus too much on hiring more and more senior professionals, investing in support personnel and process improvement creates value that belongs to the business itself, not the practitioners. It’s like making the pie bigger and keeping a larger slice of the business, all in one go.

When you enhance the environment, not just the headcount, you embed that added value into the very fabric of the business. It becomes part of the system – not just a byproduct of having more hands on deck. The value becomes ingrained in the business’s processes and culture, meaning it stays with the business even as individual practitioners come and go.

Best of all, this strategy is sustainable because it is a win-win-win for everyone: professionals, business owner(s) and clients.

Now that we’ve described the strategy of equipping professionals, it’s time to move on to the tactics. In the following sections, we’ll cover three of them:

• Invest in Great Paraprofessionals
• Enhance Sales, Marketing, and Recruiting Frameworks
• Cultivate Junior Professionals

Tactic #1 Invest in Great Paraprofessionals

Paraprofessionals are experts who work with clients but do not provide advice in some areas. Hiring, training and utilizing paraprofessionals in your business is one of the best tactics to scale professional services. These paraprofessionals can handle advice within specific scope and procedural tasks, freeing up your professionals to focus on the type of work they do best.

I personally experienced the benefits of paraprofessionals several years ago. My dad was diagnosed with Stage 3 diffuse large B-cell lymphoma. The treatment for this disease isn’t just gruelling; it’s also unbelievably complex. It includes multiple rounds of chemotherapy, a stem cell transplant, and all sorts of medications to make it work together. Given this complexity and the severity of the situation, I was surprised to learn that my dad’s appointments were sometimes with a nurse practitioner, not an oncologist.

At first, I was concerned. Why wasn’t the hospital staffing an oncologist at every one of my dad’s appointments? Wasn’t his condition serious enough? However, my concerns disappeared as soon as my dad told me about his conversation with the nurse practitioner. I was amazed at the quality of care he received. This person specialized in oncology and really knew their stuff! The hospital empowered nurse practitioners to guide my dad within certain parameters. If my dad needed guidance outside these parameters, the nurse practitioner would escalate the question to the oncologist, and he’d typically get a quick response.

This approach had benefits beyond just increasing efficiency for the hospital. Before I explain why, allow me to quickly acknowledge that oncologists are incredible, dedicated, and invaluable individuals. Seriously – they are amazing. But, some oncologists may not always have the best bedside manner (I probably wouldn’t either if I just finished performing a 15-hour surgery). Cancer treatment is not just scientifically complex; it also carries emotional complexities. The nurse practitioner was uniquely equipped to address these emotional needs, which some oncologists might struggle with. Therefore, my dad’s care was not only more efficient for the hospital, but it also improved his patient experience and, I believe, his outcome.

Like all paraprofessionals, the nurse practitioner shares the load so everyone can focus on what they do best. Other examples of paraprofessionals are:

• Paralegals: In the legal field, paralegals assist lawyers by conducting legal research, preparing documents, organizing files, and handling other tasks that don’t require a law degree but are integral to legal work.
• Dental Hygienists: In dentistry, dental hygienists work alongside dentists to perform oral cleanings, assist in procedures, and educate patients on oral health, allowing dentists to focus on more complex dental treatments.
• IT Support Technicians: In technology, these technicians handle day-to-day technical issues and user support, allowing IT professionals to focus on higher-level network management and system development tasks.

Paraprofessionals exist across virtually all professions. Investing in their recruitment, training, compensation, and benefits is not just a strategy to optimize business operations; it’s a commitment to enhancing the quality of service. By integrating these vital roles into your workforce, you enable your practitioners to devote their time and expertise to the areas where they are most needed, enabling scale.

Today, my dad is in remission – a testament to his perseverance, good fortune, and the high-quality care he received. Not only that, he and my mom launched a campaign to give back and support ongoing efforts in cancer research and treatment.

If you’re interested in supporting, check it out at Acorns to Great Oaks.

We’re now ready to move on to the next tactic to equip professionals, enhancing sales, marketing and recruiting frameworks.

Tactic #2 Enhance Sales, Marketing, and Recruiting Frameworks

The next tactic to equip professionals is to make sure you’ve invested enough in developing three business functions.

• Sales (AKA “Business Development”) – how well you engage with and convert potential clients into business relationships
• Marketing – deeply understanding why your services resonate and ensuring your company is connecting with as many of the right people as possible
• Recruiting – the processes, systems and people that bring the right team members into your organization

Everyone wants to invest in sales, marketing and recruiting. The challenge is that resources are scarce, particularly in small businesses. The key insight from this section is this: Resist the urge to pile responsibilities on your professionals or hire more of them every time you run out of capacity for more client work. Instead, invest in processes and personnel to support these functions. Make it easier for professionals to concentrate on the areas where they are uniquely valuable to your business.

Why focus on sales, marketing and recruiting? A couple of reasons.

• These functions support growth in the external market for clients (sales and marketing) and the internal market for practitioners (recruiting), which helps you manage the Two Market Balance.
• Many valuable professionals struggle to perform these functions well. How many doctors, architects or engineers do you know who would rather practice their craft than promote themselves? Relying on professionals to deliver sales, marketing and recruiting can alienate the ones who are the best at delighting clients.
• If you rely too much on professionals to take care of client work, sales, marketing and recruitment, then you are left in a precarious situation because these critical functions are tied to the presence of these professionals. If any of the professionals decide to leave, they take these vital business functions with them, leaving a huge void in your business.

Enhancing sales, marketing, and recruiting frameworks doesn’t imply eliminating professionals from your client acquisition and hiring processes. Instead, it’s about ensuring professionals’ efforts in these areas are as effective as possible, considering that for many, even very senior ones, these activities should not dominate their workload.

To bolster these areas effectively, consider several actionable steps:

• Appoint a Dedicated Business Development Professional: Look beyond adding another senior professional to your roster. Instead, invest in someone focused exclusively on business development to attract new clients and grow revenue, having them work with your existing team and clients.
• Elevate Your Marketing Efforts: Invest in marketing experts, either by hiring a dedicated professional or by partnering with an agency specializing in professional services. Their expertise and efforts can significantly increase your reach and impact.
• Implement Referral Programs: Leverage the trust you’ve built with your clients through a referral program that incentivizes them to bring new business your way. Similarly, an employee referral program is a cost-effective recruitment tool, rewarding staff for introducing candidates if you hire them.
• Showcase Client Testimonials: Use client testimonials and case studies on your digital platforms or in marketing materials to build credibility. This not only attracts potential clients but also boosts your team’s morale, helping recruiting.
• Level-up Your Hiring Process: Ensure your hiring process is efficient, transparent, and candidate-friendly. Form partnerships with universities and professional training programs to access a pool of new talent and offer internships or apprenticeships.

As we move ahead to our next tactic to equip professionals, we’ll explore our final one in the area of equipping professionals, which is cultivating junior ones.

Tactic #3 Cultivate Junior Professionals

Cultivating junior professionals isn’t just about hiring. Sure, that’s part of it. But it focuses on other areas too.

The three areas of cultivating junior professionals are recruiting, training and acculturating:

• Recruiting promising individuals from schools or early in their careers
• Training them for increasingly complex and high-value tasks and projects
• Acculturating them to your values, norms and principles, so they can eventually contribute to their improvement

The type of professional service you provide has a big impact on the extent to which you can use this tactic. David Maister introduces the concept of “leverage” to describe the ratio of junior to senior professionals within a professional service firm. According to Maister, the optimal leverage depends on the firm’s mix of service types: Procedural work, Brains work, and Gray Hair work. Each type demands different levels of expertise and thus influences the firm’s strategy on leveraging its workforce.

• Procedural work involves tasks that are routine or standardized, where the processes are well-established. This type of work benefits from high leverage, allowing firms to utilize a larger number of junior staff under the guidance of fewer senior professionals.
• Brains work requires innovative problem-solving or specialized expertise. Such work often demands lower leverage because it relies more heavily on the unique skills and knowledge of highly experienced professionals.
• Gray Hair work is characterized by wisdom and experience, often sought by clients not for innovative solutions but for the reassurance and trust in the professional’s judgment. This type of work might have a moderate leverage ratio, balancing between the need for senior expertise and the use of junior staff for supporting tasks.

Like the previous tactics, cultivating junior professionals is a great way to manage the Two Market Balance and improve your company’s ability to capture a fair share of the value it creates. Recruiting, training, and developing junior professionals allows businesses to support a continuous supply for their “internal market,” so the value is not just created but also captured. As these professionals take on more complex tasks earlier in their careers, they increase the firm’s capacity to deliver high-quality services without proportionally raising costs.

To cultivate junior professionals, consider implementing the following strategic initiatives:

• Initiate Mentorship Programs: Cultivate mentor-mentee connections to speed up the growth curve for emerging talents. These programs not only enhance skill development but also integrate junior professionals into your firm’s culture and values.
• Conduct Internal Training Workshops: Organize regular training sessions dedicated to expanding competencies, whether specific (like technical areas related to your firm’s subject matter expertise) or general (like client management or thought leadership). These workshops serve as a platform for continuous learning and adaptation.
• Clarify Career Pathways: Outline distinct and attainable career trajectories within your organization, offering transparency around the progression to senior roles. You can motivate employees with a clear vision of their potential growth and the milestones needed to achieve it.
• Establish Recognition Programs: Create badges or other ways to acknowledge and celebrate the contributions and achievements of your team members. Encourage professional advancement by recognizing and supporting efforts toward obtaining additional qualifications. A structured recognition program underscores the value placed on each individual’s development and hard work, particularly junior employees.
• Foster a Feedback Culture: Encourage a supportive atmosphere where open and constructive feedback is exchanged freely – again, especially for junior employees. Make sure these exchanges come back to personal and professional development for employees or tangible improvements in the business.
• Offer Accreditation Programs: Depending on your industry, you may be able to provide junior professionals or students the necessary accreditation or matriculation hours towards a certification. These programs not only help their professional growth but also enhance your firm’s appeal to senior professionals who can leverage their efforts in client work.

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To recap, we’ve just explored our first strategic pillar, equipping professionals, and three tactics that support it – investing in great paraprofessionals, enhancing sales, marketing and recruiting frameworks, and cultivating junior professionals.

We now turn our focus to the next strategic pillar: bundle advice. We’ll dive into how you can combine advice with complementary services, productized services and asset-based consulting to design impactful client solutions. I’ll explain how this approach helps you grow your professional services without the Advice Compensation Incentive Dilemma (ACID) standing in your way.

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Bundle Advice: Provide Solutions, Not Services

“There’s only two ways I know of to make money– bundling, and unbundling… We’ve got an airplane to catch.”

Jim Barksdale, former Chief Executive Officer, Netscape, 1995

The next step in our strategy goes beyond equipping professionals. This pillar of our strategy is about bundling advice into client solutions.

Most professional service businesses take pride in the advice they give – and for good reason. Their advice is founded on vast experience and education, often earned through years of sacrifice and hard work. However, advice doesn’t make the biggest impact unless it’s combined with other things. After all, clients are busy, and people sometimes forget what you told them. Advice may not get translated into practice, even if it’s great. As a professional service business, you can make your advice more impactful by combining (or “bundling”) it. In this section, we’ll discuss how to turn “just advice” into solutions using complementary services, productized services and asset-based consulting.

• Complementary Services: These are additional services that enhance, supplement, or support the core advice. For example, an engineering firm might combine advice on building design with complementary services such as construction oversight or monitoring and maintenance services to preserve structural integrity.
• Productized Services: These involve packaging services with defined scopes, deliverables, and pricing, much like products. For example, a marketing agency might combine advice on the long-term strategic direction of a company’s brand with productized services to implement specific campaigns or perform customer research.
• Asset-Based Consulting: In asset-based consulting, professional service businesses develop and utilize proprietary tools or software instead of traditional person-to-person interaction. For example, a law firm might combine advice on a complex M&A transaction with a proprietary diagnostic checklist for their client to assess their preparedness to acquire another business.

When creating client solutions, it’s essential that the bundle is designed to solve a well-defined problem for the client. Each component addresses the pain point from a different angle. Take, for example, a client of a digital agency who needs to increase organic traffic to their website. The advice might provide a strategic plan for improving SEO, the complementary services could involve content creation, the productized services might offer regular performance reports with a pre-set pricing and scope, and asset-based consulting could provide a proprietary tool for keyword analysis. Each part addresses the client’s need for more organic traffic, making the bundle a comprehensive solution to their problem.

Bundling advice doesn’t just make advice more impactful, it also makes it more scalable. Because of the Advice Compensation and Incentive Dilemma (ACID), professional service businesses often struggle to implement a pricing model that scales as the business grows. However, this problem doesn’t apply to solutions.

By selling solutions, professional service businesses can:

• Combine multiple compensation models – flat fee, hourly, or transaction fees – in a single client contract.
• Present a fee based on tangible results instead of just the time spent advising.
• Turn project-based clients into recurring clients, mitigating the impact of short-termism on misaligned incentives.

Bundling advice isn’t a new idea. As I explained in There’s No Such Thing as a Pure Service Business, professional service businesses like Kroll Inc. (formerly Duff and Phelps), Accenture, and CGI Inc. combine advice with productized services and asset-based consulting to make their businesses scalable, efficient and more valuable to clients. Each of these businesses also offers a multitude of complementary services bundled into client solutions.

In professional service businesses, solutions can be bespoke. Inherently flexible and customizable, solutions are designed to meet client needs with different levels of complexity. They often involve a consultative approach to tailor the service mix to the client’s specific challenges. Solutions provide a framework to effectively address common client problems. But the scope, pricing and deliverables can be customized depending on the client. For example, with the digital agency mentioned earlier, two clients might receive a combination of strategic advice, content creation, performance reports and keyword analysis tools but with vastly different scopes, deliverables and pricing.

Bundling advice moves professional service businesses from being service providers to solution providers, engaged in not only the process but also the outcomes. This paradigm shift deepens client engagement and loyalty, as clients see professionals as an extension of their businesses, not just a source of periodic insights. Moreover, bundling advice allows professional service businesses to be more resilient and adaptable. It diversifies revenue and reduces reliance on wage-based costs, supporting long-term viability and growth.

Having described the strategy of bundling advice, we can move on to the tactics. In the following sections, we’ll discuss:

• Combining Complementary Services
• Leveraging Productized Services
• Integrating Digital Assets

Tactic #4 Combine Complementary Services

Combining complementary services is often the first step to bundle advice into client solutions. Most professional service businesses already offer multiple services, so this approach doesn’t necessarily require new capabilities. Moreover, complementary services can easily maintain full customization, a powerful quality for clients with unique needs. Combining complementary services can be done without hiring new people or overhauling your pricing model. Rather, it requires a thoughtful approach to service design – combining your existing capabilities into compelling offerings.

Here are the steps to combine complementary services:

Step 1: Define Your Core

Start by thoroughly understanding your existing business. What is the most compelling value that you provide to clients? Why do clients choose your service over competitors? This foundational understanding is crucial because you need to start from your strengths.

Step 2: Identify Client Needs and Pain Points

Engage in discussions with your clients, conduct surveys, and analyze feedback to uncover their genuine needs and pain points. As you hear problems, ask why to get to the root issues. The goal is to understand not just what they say they need but to infer deeper, unarticulated needs that your services can address.

Step 3: Research Unknown Services

Dive into market research to discover services your clients might not know exist. Explore why certain services are absent – technological limitations, regulatory barriers, or simple oversight. Understanding these gaps can reveal unique opportunities for your services to fill and help you avoid going down the wrong path.

Step 4: Explore Complementary Services

Organize team sessions focused on identifying services that complement your core offering. Use techniques like mind mapping to explore how different services can interlink to address the broader aspects of your clients’ needs.

Step 5: Bundle Services

Write down the services that you plan to combine. Articulate how the combination of services is more valuable than if each one were provided independently. What tangible results can a client expect to receive if they buy them together? Develop a narrative around your bundled services. How do they come together to not just meet but exceed client expectations?

Step 6: Develop a Pricing Model

Will you charge a flat fee, a transaction fee, a time-based fee, or a combination thereof? Do clients pay upfront, in the end, or along the way? Are there cost savings for you and the client when services are bundled together? Consider the value provided to the client instead of the cost-based pricing you might be used to. Pricing and scope will differ for clients depending on their complexity and how much value you can add. However, be prepared for your initial client conversations with information about the pricing model.

Step 7: Co-Create the Bundle

Speak with clients – ideally, the same ones who you interviewed earlier. Would they be interested in working together to broaden your value proposition? Take this opportunity to strengthen your client-centric approach. Feedback should be a two-way street, where clients’ insights directly influence the final offering. Determine the pricing of the bundle based on the client’s complexity and the value you’re providing to them. Internally, you need to assess how much your costs will be, but these analyses shouldn’t drive your client’s buying decision.

Step 8: Provide Complementary Services to a Few Clients

Start small by offering a combination of complementary services to a select group of clients. Tell the clients if you’re offering a service for the first time. Say, “This is a pilot – something we are trying based on your feedback because we’re always stretching to serve you better. We’d appreciate you working with us while we develop it. Are you ok with that?” This pilot phase is critical for gathering real-world feedback on the effectiveness and reception. Monitor the implementation closely, ensuring that the delivery is smooth and the promised value is being delivered.

Step 9: Iterate Your Complementary Services

Use the feedback and data collected from the pilot phase to refine. Look for patterns in the feedback that suggest what’s working well and what could be improved. Be prepared to adjust aspects of your service bundle, whether it’s the mix of services, the delivery method, or the pricing model. The goal is to continuously enhance the value based on client feedback and changing market needs.

Step 10: Gradually Expand to More Clients

Are there other clients who would benefit from the same combination of complementary services? Leverage the success stories and testimonials from your pilot phase to build credibility and attract new business. Remember that marketing and sales conversations now focus more on client pain points and the value you can add, not the individual services you provide. This gradual approach to bundling services allows you to continuously iterate and confidently increase your growth rate over time as you assess operational capacity and ensure that quality isn’t compromised.

While combining complementary services has clear benefits, it also requires careful planning and execution. Ensure bundled services are well-integrated and that your team can deliver the combined offering to the highest standard. It’s also vital to maintain flexibility, allowing clients to customize services to fit their unique needs.

Tactic #5 Mix Advice with Productized Services

Productized services involve packaging services with defined scopes, deliverables, and pricing, much like products. They are powerful on their own, but they’re even more powerful when combined with customized client solutions.

A great example of a well-structured productized service is Codeable, a platform that connects businesses with vetted WordPress freelancers for development and design projects. A traditional agency might require clients to spend weeks to determine the pricing and scope of services. But Codeable puts all of that right on their website.

Using productized services, professionals can achieve greater consistency and scalability by reducing variability and setting clear expectations. They allow for easier marketing, selling, and delivery, eliminating some of the inefficiency that plagues traditional services.

Productized services don’t prevent you from customizing what you do for clients. Sure, they can be stand-alone offerings for clients who are happy with pre-determined scope and pricing. But they’re also great as part of a broader customized offering. Like all tactics in this section, this approach makes your business less susceptible to the Advice Compensation and Incentive Dilemma, one of the primary barriers to professional service business growth.

Here’s an example of how a professional service business can develop its first productized services.

Imagine a boutique environmental consulting business, EcoStrat Consulting. EcoStrat offers fully customized services to twenty clients. The company’s services are on the opposite end of the spectrum from productized services – every engagement has a unique scope and pricing. After reading this guide, however, EcoStrat’s CEO wants to bundle productized services into client solutions.

For EcoStrat Consulting to transition from fully customized services to incorporating productized services into client solutions, the following steps could guide the CEO and their team:

Step 1: Assess Their Current Services

EcoStrat should examine its current offerings to identify which services or aspects of its custom work can be standardized.

• Examine past projects to identify service deliverables that were included multiple times with little variation. Look for patterns in services that require less tailoring to meet client needs.
• Map out the processes involved in each of these deliverables. Ensure the steps do not need to change significantly from client to client.
• Evaluate which services can be delivered with the resources you have or can easily acquire. Services that require highly specialized skills that are scarce in your team may not be the best candidates for standardization.
• Some services may be subject to regulatory constraints that limit the extent to which they can be standardized. Identify any such limitations early in the process.

Step 2: Segment Their Clients

EcoStrat needs to group its clients based on the specific needs and preferences of different segments. Could they categorize their 20 clients into, say, three or four groups based on common industry sectors, similar environmental challenges faced, the scale of operations, or the type of services most frequently utilized?

This is important because the productized services will likely appeal to only some client segments. By understanding the unique characteristics and requirements of each segment, EcoStrat can tailor its productized offerings to better meet these needs, enhancing the value provided and increasing the likelihood of adoption.

Step 3: Design Service Packages

Based on the previous steps, EcoStrat should develop a clear and concise package for a service that addresses specific client needs for one or two client segments. Each package requires a predefined scope, deliverables, and pricing. These offerings must maintain the high-quality standards EcoStrat’s clients expect from their customized services.

• Defining Service Packages: For each selected service, define clear packages that outline:
  • Scope: Specify what each service package will include and the boundaries of the offering.
  • Deliverables: Clearly describe what the client will receive upon completion of the service.
  • Timeline: Provide an estimated timeline for the delivery of the service.
• Setting Pricing Strategy:
  • Determine a fixed price for each package, considering the value it provides to clients and your cost of delivery.
  • Consider offering tiered pricing levels for different sizes or types of clients within each segment.
• Creating Service Descriptions: Develop concise, engaging descriptions of each productized service that highlight:
  • The problems they solve.
  • The benefits and outcomes clients can expect.
  • Why EcoStrat’s approach is unique and valuable.
• Getting Client and Team Feedback: Identify a representative group of clients from targeted segments and members of your organization to provide insights. Use face-to-face conversations and structured feedback mechanisms like surveys. Get detailed input on the scope, deliverables, pricing, and overall appeal of the proposed productized services.
• Training Your Team: Ensure your sales and delivery teams understand the features, benefits, and processes related to your productized services. This includes:
  • Training sessions to familiarize them with the new offerings.
  • Developing FAQs to help address common client questions.
• Refining Productized Services: Take the insights from your team to refine the scope, deliverables, pricing, service descriptions and training materials.

Step 4: Pilot Test

Before launching its productized services, EcoStrat should implement a pilot test. This involves selecting representative clients from the target segments, designing a pilot offer (usually free or discounted pricing), establishing feedback mechanisms, monitoring the pilot, conducting a post-pilot review, and iterating and refining based on feedback and performance data.

After these steps, EcoStrat should have a compelling productized service which they can market and scale to existing and new clients.

Tactic #6 Integrate Digital Assets

Integrating digital assets through Asset-Based Consulting is a significant evolution in the way professional service firms deliver value to their clients. This approach leverages proprietary digital tools and software to address complex client challenges more efficiently and effectively.

Digital assets can be as simple as an online survey. For instance, a law firm might develop a proprietary diagnostic to help clients assess their readiness for a complex merger or acquisition. They can also be complex. Accounting firm PWC, for example, offers a variety of tools that make audits more efficient and effective.

Here are some considerations if you’re interested in launching digital assets in your professional services business:

• Identifying Needs for Digital Tools: Start with a thorough analysis of recurring client issues across various engagements. Identifying these patterns allows you to pinpoint opportunities where digital tools can make a significant impact. For example, common compliance issues or operational bottlenecks that clients face are prime candidates for digital solutions. If you’ve already developed productized services, that’s a great place to start. The standardized scope and deliverables of productized services make them more amenable to digitization.
• Designing Proprietary Tools: If you’re new to developing digital assets, I’d strongly recommend working with an agency. Choose one with expertise in your industry or in servicing professional firms. Such agencies can efficiently translate your expertise into digital solutions, ensuring they are impactful and compliant. Opt for agencies with a strong track record and the ability to align technology with your specific business needs.
• No-Code Software Tools: Leveraging no-code platforms allows you to create digital solutions without extensive software development expertise. Even if you’re using an agency, these tools can speed up the development of digital assets, lowering the barriers to entry and making it easier for professional service businesses to integrate digital solutions into their service offerings. Examples of no-code software tools include Webflow, Bubble, Adalo, Zapier, Airtable, and Notion.
• Customization and Personalization: As mentioned before, the important thing is to integrate digital assets into client solutions. Like productized services, digital assets can be stand-alone offerings, but they’re most powerful for professional service businesses when they’re combined with more broad and customizable offerings.
• Training Teams and Clients: Adequate training for professionals and clients ensures these tools are used to their full potential. Training should cover not just the technical aspects of the tool but also its strategic application within the client’s context.
• Security and Compliance: Prioritize the security and compliance aspects of digital tools, especially when handling sensitive client data. Implement robust data protection measures and ensure your digital assets comply with industry regulations and standards.
• Feedback Mechanisms and Continuous Improvement: Incorporate feedback mechanisms to collect insights from users and clients about the usability and effectiveness of your digital tools. Use this feedback for continuous improvement, ensuring your assets remain relevant and valuable over time.
• Maintenance and Support: Plan for ongoing maintenance and support for your digital assets, ensuring they are regularly updated and remain compatible with evolving technology standards. Provide clients with accessible support to address any issues or questions.

Integrating digital assets into your professional services is an upfront investment that pays off over time. Bundled into client solutions, these digital assets can drive efficiency gains and make your offerings more valuable to clients.

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To sum up, we’ve just explored our second strategic pillar, Bundle Advice, and the three tactics supporting it – combining complementary services, mixing advice with productized services and integrating digital assets.

We’re now ready to focus on our third and final strategic pillar: Fostering Collaboration. We’ll discuss how you can promote this vital quality by establishing multidisciplinary teams, building a knowledge base and setting up strategic partnerships. This approach helps you grow professional services without falling victim to the Guild Mindset discussed earlier.

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Foster Collaboration: Shifting the Paradigm

“We have long believed that the essence of a great Wall Street firm is the culture of partnership and collaboration–nothing more, nothing less.”

Rich Handler and Brian Friedman, Jefferies, 2023

The third and final pillar of our strategy to scale professional services is about cultivating a culture where collaboration is core to your business identity. Professionals should transcend the traditional focus on individual expertise, characteristic of the Guild Mindset. Instead, the business should propel professionals toward a holistic, client-centric service model.

Enduring service businesses address Valuable Service Problems. These problems are often complex, and this complexity is best resolved by a combination of varied perspectives and skills. Strength lies in diversity – not just in terms of our backgrounds but also in the complementary skills each team member brings to the table. Diverse skills enable businesses to approach problems from various angles, ensuring comprehensive and nuanced solutions that address different aspects of a client’s challenge.

This is where our plan to boost teamwork comes into play. Professional service businesses that foster collaboration:

• Employ complementary skills for holistic solutions: Professionals with different specializations work together in both client-facing and “behind the scenes” environments.
• Prioritize teams over individuals: The culture prizes collaboration and values teams that work together seamlessly, pooling their collective expertise to achieve superior outcomes.
• Align individual efforts with collective goals: Every team member understands how their work contributes to our overarching goals, reinforcing the connection between individual contributions and shared success.
• Elevate service through collective insight: The business invests time and energy into knowledge sharing among professionals using a combination of meetings, professional development and systems.

The traditional Guild Mindset, which emphasizes narrow specializations and hierarchies, results in insular thinking and a hesitation to explore unfamiliar territories. Conversely, a business that fosters collaboration is conducive to innovative thinking and a proactive approach to problem-solving.

Collaboration in Action: McKinsey & Company

A great example of a company that successfully follows this approach is McKinsey & Company. In stark contrast to the Guild Mindset, McKinsey relentlessly pursues and models a collaborative approach to problem-solving and client service.

McKinsey is one of the original examples of what David Maister calls a one-firm firm. One-firm firms follow a set of concrete management practices consciously chosen to maximize trust, loyalty and collaboration. Similar to the way the U.S. Marine Corps tries to operate, these businesses are designed to “achieve the highest levels of internal collaboration and mutual commitment in pursuing ambitious goals.” [Source]

• Complementary Skills. McKinsey famously recruits people with diverse backgrounds across technology, finance, government, non-profits, engineering, law, the military, and medicine. A single client engagement is often staffed with people across multiple disciplines, working together to solve a unified problem. McKinsey doesn’t have a specific domain expertise, such as architecture, medicine or design. Instead, it tries to solve common challenges faced by clients across multiple industries.
• Prioritizing Teams over Individuals. Like other one-firm firms, McKinsey tends to reject a “star system” and related individualistic behaviour, at least compared to other professional service firms. There is no CEO – just a Global Managing Partner. My guess: You’ve never heard of him or can’t remember his name.
• Aligning Individual Efforts. Unlike many professional service businesses, McKinsey de-emphasizes an eat-what-you-kill compensation model in favour of one that is more aligned with group performance. The firm purportedly maintains an equal-weighted partnership among its ~2,000 global partners.
• Collective Insight. McKinsey invests a staggering $800 million a year in capability building, knowledge development and learning. They also established an internal think tank, McKinsey Global Institute, in 1990, which continues to operate over 30 years later.

Now that we’ve described the strategy of fostering collaboration, we can detail some of the tactics to realize it. These are just a few of the many ways to execute this strategic pillar:

• Establishing Multidisciplinary Teams
• Building a Knowledge Base
• Setting up Strategic Partnerships

Tactic #7 Establish Multidisciplinary Teams

Multidisciplinary teams are a keystone of growing professional service businesses. Businesses like McKinsey & Company that use this approach maintain a culture of collaboration that prevents the Guild Mindset from stunting their growth trajectory.

Multidisciplinary teams are composed of professionals from diverse fields, each contributing their unique expertise to solve complex problems and create holistic solutions. They are antithetical to the Guild Mindset. For example, a professional service business might form a multidisciplinary team of architects, interior designers, and structural engineers to tackle a complex project involving sustainable design.

Creating a multidisciplinary team requires planning and a commitment to fostering a collaborative culture. If you’ve traditionally focused on a narrow subject matter expertise, expanding into other disciplines can cause confusion and even anxiety among existing team members. A good starting point is to provide solutions, not services. Solutions are more multi-faceted than the services within them. A solution that tackles a complex client problem will often require multiple disciplines to deliver effectively. Developing a solution alongside a client can also provide additional revenue for expanding your team’s subject matter expertise.

Besides developing solutions, here are other important components of establishing multi-disciplinary teams:

• Communicate with Existing Professionals: Discuss with your current team about the need and benefits of a multidisciplinary approach. This ensures everyone is on board and understands the reasoning behind such changes.
• Focus on a Common Problem Faced by Existing Clients: Have a clear goal or problem in mind that the multidisciplinary team will be working towards. This gives the team a shared objective and aligns their efforts.
• Invest in Collaboration Tools: Use project management software and other tools to facilitate efficient communication and collaboration among team members.
• Share Success Stories: Regularly share achievements and success stories with the team and clients. This helps to boost morale and reinforce the value of the multidisciplinary approach.
• Update Marketing Materials and Website: Ensure your public-facing materials reflect the new multidisciplinary approach. This helps to inform clients about the changes and attract potential new team members.
• Cultivate a Culture of Collaboration: Implement team rituals and practices that encourage collaboration and mutual respect among team members. This helps to build a strong, cohesive team.
• Measure and Reward Team Performance: Recognize and reward the achievements of your teams. Consider introducing performance metrics that encourage collaboration and the sharing of expertise.
• Promote Continuous Learning and Development: Value continuous education and professional growth through workshops, seminars, cross-training, or peer-led sessions to keep the team’s knowledge and skills updated.

Creating multidisciplinary teams is not without its challenges. Differences in professional cultures, communication styles, and logistical complexities can create obstacles. However, these challenges can be overcome with strong leadership, clear communication, and a commitment to fostering an integrated team environment.

Multidisciplinary teams promote enhanced problem-solving by allowing for diverse perspectives and expertise to be applied to a problem. They also lead to increased client satisfaction, as clients are provided with comprehensive solutions that address all aspects of their needs. Furthermore, by offering integrated solutions, your firm can differentiate itself in a crowded market.

Tactic #8 Build a Knowledge Base

In the journey of scaling professional services, there’s a secret weapon that’s often underutilized – a robust knowledge base. It’s the backbone of internal collaboration, a treasure trove of accumulated wisdom, and a resource that helps your team deliver superior, consistent service. When effectively managed, it becomes a dynamic tool fueling innovation, efficiency, and client satisfaction.

A knowledge base, in the simplest terms, is a digital library containing important information, instructions, or answers. It can be thought of as a centralized repository where knowledge, in the form of articles, FAQs, white papers, how-to guides, or video tutorials, is stored and categorized for easy access.

A knowledge base serves as a self-service tool for users, be they employees or clients. It’s designed to provide instant, accessible, and accurate information to common queries or problems. The aim is to empower users to find solutions by themselves, without needing to interrupt someone’s work to get an answer.

Knowledge bases do more than improve efficiency. They also democratize knowledge and improve collaboration, neutralizing the Guild Mindset. When all team members have equal access to the organization’s collective wisdom and processes. Team members:

• Work together more effectively without the need for lengthy explanations or updates
• Are less hesitant to share information because it’s already widely available
• Have better knowledge, as your business wisdom and processes get honed through feedback

For instance, consider a marketing agency that has developed a complex suite of services. To ensure that all team members understand and can effectively implement these services, the agency could create an internal knowledge base. This knowledge base could be filled with detailed articles explaining various strategies, step-by-step guides on how to implement these strategies and answers to frequently asked questions. The knowledge base would be searchable, allowing team members to quickly find the information they need. It would also be regularly updated, ensuring that the information remains relevant, accurate, and in line with the latest industry standards and trends.

This last point is critical. A good knowledge base isn’t static. It’s a living, evolving entity that reflects the collective intelligence of your organization. It captures insights from diverse professionals, crystallizes best practices, and provides a platform to share expertise in a structured, accessible manner.

Knowledge base software can be categorized into Document Management Systems, Internal Wikis, FAQ Software, and Customer Support Knowledge Bases. These applications can be used it multiple ways and are not mutually exclusive.

• Document Management Systems (SharePoint or Google Workspace): These systems are like digital filing cabinets where documents are stored, managed, and tracked. They’re useful for organizations looking to digitize paper records and streamline document handling processes.
• Internal Wikis (Confluence or Notion): These systems are like dynamic encyclopedias for corporate knowledge, where employees can create, edit (with controls), comment and find information on company processes, guidelines, and culture.
• FAQ Software (Zendesk Guide or Freshdesk): Designed to centralize and organize frequently asked questions, this software allows companies to provide clear, concise answers to common customer inquiries, facilitating self-service and reducing the need for direct contact with support staff.
• Customer Support Knowledge Bases (Help Scout or Salesforce Service Cloud): These are specialized repositories integrated with customer support systems, containing detailed help articles, guides, and solutions for product or service issues, enabling customers to find answers independently and support teams to resolve queries more effectively.

So, how do you cultivate your own knowledge base? Here’s a roadmap:

1. Identify Key Information:
   • Begin by conducting a comprehensive audit of the information your team needs. This could include client profiles, service protocols, industry news, and technical expertise.
   • Pay special attention to tacit knowledge – the experience-based insights that are often not formally documented but are crucial to service delivery.
   • Beyond just auditing existing information, emphasize gaps in your current knowledge. This involves not only cataloging what you have but also recognizing what you’re missing.
2. Organize Information:
   • Develop a logical structure for information storage and retrieval. This could be categorized based on client type, business function, or any other defining characteristic of your work.
   • The primary concern should be intuitiveness, as this will allow your team to swiftly locate necessary information. Consider using sub-categories or tags for more detailed organization.
   • Remember: Your knowledge base will be searchable. Aim for a satisfactory structure, but don’t obsess over perfection. As your organization grows, restructuring will likely be necessary at various points.
3. Choose a Platform:
   • Select a platform that supports easy access, collaboration, and regular updates.
   • The platform should have features that allow team members to add insights, comment on existing information, and quickly search for relevant content. It must also allow administrators to control who can access which information.
   • See the list of Document Management Systems, Internal Wikis, FAQ Software, and Customer Support Knowledge Bases mentioned above.
   • Emphasize interoperability and integration with existing tools. Adoption will be much easier if the platform seamlessly integrates with the tools your employees already use.
4. Create Content:
   • The process of creating content should be a collaborative team effort.
   • Develop a system that encourages all team members to contribute their unique insights and expertise. This could involve regular team meetings to share knowledge, a reward system for contributions, or designated ‘knowledge champions’ who are responsible for generating and collecting content in their respective areas.
   • Establish clear guidelines and templates for content creation to ensure consistency and quality. Develop standardized formats for documents, articles, and how-to guides, ensuring that all team members contribute content that is easily understandable.
5. Train Your Team:
   • Conduct thorough training sessions to ensure your team is confident in using the knowledge base effectively.
   • Provide instructions on how to search for information, add new content, update existing entries, and use any other relevant features of your chosen platform.
   • Regularly revisit this training as the system evolves and new team members join.
   • Training should also focus on instilling a mindset of knowledge sharing and collaboration. This is an opportunity to foster a culture where knowledge is freely shared.
   • Emphasize that the knowledge base is a living document that evolves over time and will be far from perfect when you first launch it.
6. Maintain and Update Regularly:
   • Assign specific team members the responsibility of maintaining and updating the knowledge base.
   • Consider regular audits to check for outdated information. Set up a review schedule to keep this process on track (and document it, you guess, in the knowledge base).
   • Encourage continuously adding new items to the knowledge base. Develop a pipeline of articles, FAQs and documents. Let employees vote on which ones to prioritize, ensuring the resource remains user-friendly and up-to-date.

The benefits of a knowledge base are manifold. It facilitates knowledge sharing and collaboration, enabling your team to learn from each other’s expertise and experiences. It enhances service consistency, as everyone has access to the same information and best practices. It also enables faster problem-solving, as team members can draw on the collective wisdom of the organization.

Building a knowledge base is not a one-time effort. It requires an ongoing commitment to capture new insights, update existing material, and encourage active usage. It’s a tool that grows in value with consistent use and engagement.

By investing in building a robust knowledge base, you’re not just enhancing efficiency but fostering collaboration and making sure the Guild Mindset doesn’t stand in your way of enduring professional service growth.

Tactic #9 Form Strategic Partnerships

The final tactic for scaling your professional services firm involves establishing strategic partnerships. This approach leverages the strengths and capabilities of other organizations to extend your service offerings, reach new markets, and deliver more comprehensive solutions to your clients.

Strategic partnerships can take various forms, including:

• Alliances with other service providers
• Collaborations with technology firms
• Joint ventures with complementary businesses

Strategic partnerships are especially useful in overcoming the limitations of the Guild Mindset. They incorporate external expertise and resources into your business offerings. These partnerships enhance your business’s ability to meet the changing needs of clients across various domains without the need to hire professionals with other subject matter expertise.

Working together with other businesses can give you new tech, expert know-how, and help you reach more clients. This approach can make what you offer much more appealing. Plus, these collaborations can bring together the best of both partners to solve difficult customer problems in a new, better way, without increasing your overhead.

Imagine a psychology clinic specializing in cognitive behavioural therapy (CBT) forming a strategic partnership with a tech company that develops mental health apps. The clinic recognizes the growing demand for digital mental health solutions among its patients but lacks the technical expertise to develop these tools in-house. By partnering with the tech company, the clinic can:

• Offer its patients access to innovative mental health apps that complement traditional therapy sessions
• Enable patients to practice CBT techniques and monitor their progress outside of the clinic.
• Integrating digital tools into its therapeutic approach, gathering useful data that can help it do more for patience
• Provides patients with a more holistic and accessible mental health solution

Forming strategic partnerships isn’t easy. Thankfully, Dan Rose, who spearheaded strategic partnerships for Amazon and Facebook, laid out his Theory of Partnerships in this episode of Invest Like the Best. Here are some critical insights from Dan:

• Don’t split the orange: Imagine you’re sitting across the table from someone, and you’re negotiating over an orange. The most obvious solution might seem to split it right down the middle. But in many cases, one person is after the juicy inside while the other wants the zest from the rind. Dan’s guiding principle is to uncover how both parties can walk away with not just a slice but the whole of what they truly desire.
• Insightful Dialogue and Deep Understanding: Strategic partnerships require more than surface-level dialogue. The best ones emerge from a genuine, deep-seated effort to understand what drives each party.
• Flexibility in Solutions: Flexibility is paramount when establishing strategic partnerships. Without flexibility, you can’t find mutually beneficial solutions or work with larger companies that have multiple stakeholders.
• Timing and Relevance of Partnerships: The timing of when to enter into a strategic partnership varies from company to company. Dan points out that while early-stage companies might not immediately consider partnerships, certain products or services could greatly benefit from early collaborations. The key is to identify the right moment.
• The Role of Strategic Partnerships in Growth: Strategic partnerships can play a transformative role in a company’s growth, providing access to new markets, technologies, and expertise. Dan’s experiences highlight how alliances with the right partners at the right time can amplify a company’s capabilities and propel it toward achieving its strategic goals.

Strategic partnerships provide various benefits but require diligent oversight to manage regulatory, compliance, and privacy concerns. This includes navigating cultural differences, expectations, and business practices. Effective communication, aligned objectives, and a shared commitment to client satisfaction are crucial. Equally important is the establishment of robust protocols for data protection, regulatory compliance, and client confidentiality. These steps are vital to protect sensitive information, comply with industry-specific regulations, and reinforce trust and integrity within the partnership and with clients.

Conclusion: Navigating Growth in Professional Services

The path to scaling professional services without compromising quality is multifaceted, requiring a deep understanding of the unique challenges and opportunities within this sector. By acknowledging the potential SME professional service businesses have for growth, we can begin to address the common barriers that often stifle their expansion.

Drawing from the insights and strategies outlined in this guide, businesses can navigate these hurdles with greater clarity and confidence. Embracing a holistic approach that encompasses equipping professionals, bundling advice, and fostering collaboration enables businesses to overcome the Two-Market Balance, the Advice Compensation Incentive Dilemma (ACID), and the Guild Mindset. By implementing these strategies, professional service businesses can unlock sustainable growth, ensuring that they not only expand their reach and impact but also maintain the high standards of quality that are the hallmark of their success.

As we look to the future, it’s clear that the landscape of professional services will continue to evolve, driven by technological advancements and changing client expectations. However, by staying true to the principles and adapting them to meet the demands of the future, professional service businesses can thrive, creating enduring value for their clients, their employees, and their shareholders.

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