Rainmaking Problem #24: Why are Small Firms Doing Better than Large Ones?
Several friends have noted that many small consulting firms have come through this recession much better than large ones. I have seen quite a number of small ones prosper and grow, even though they are selling similar services to similar markets that the large ones are. Why should this be?
November 11th, 2009 at 9:28 am
Lower overhead, either perceived or real. Also, a lot of the non-principal talent at the larger firms was laid off. Those folks started their own businesses. Rational clients follow relationships, not the corporate brand, so larger firms suffered.
November 11th, 2009 at 11:14 am
Lee:
These are both good points and undoubtedly true. There are more factors a play. Many of the small firms have been around for a while and are not composed of people recently laid off. Some of them are pretty pricey, too.
Ford Harding
November 11th, 2009 at 7:36 pm
I think there are a variety of reasons. If you look at different successful small firms, some are winning on price, some on flexibility, some on niche expertise, etc. There’s not one single reason.
Behind it all, what I think we’re seeing is that the recession (and our buying habits generally) has triggered buyers to reassess their service providers. They haven’t always gone with a cheaper provider (although many have) - but they’ve definitely shaken up their relationships and have been willing to go outside their incumbents.
In particular, for reasons I’m not too certain of but perhaps are a reflection of a maturation of the professional services market, small firms are not viewed as being such a risky proposition any more. Perhaps buyers feel more confident in their ability to pick the right firm rather than “buying IBM” for safety.
Ian
November 12th, 2009 at 9:09 am
Ian:
Interesting thoughts. Perhaps all those buyers are facing the notion that they may want to or have to set up a small practice of their own one day, and so view small firms differently from the way they were viewed a generation ago, when people expected to be with a big company for life.
Ford Harding
November 12th, 2009 at 3:11 pm
I hadn’t thought about that Ford.
It does seem to me though that recessions cause clients to reassess things. Sometimes they don’t come up with the obvious (cost reduction) answers - but the recession & reassessment triggers something.
The last small downturn (the dot com crash) seemed to cause consulting clients to reassess whether they needed to do the very large reengineering/transformation projects which had become common in the 90s. And they either decided they didn’t need to do them at all, or that they could do a lot more of them internally. When the economy recovered, they didn’t go back to the old buying habits.
Ian
November 14th, 2009 at 10:10 am
Ian:
Some of that evolution is a result of the natural life cycles of products and the services wrapped around them. By 2000, many companies had installed ERP systems, because they knew they would have to sooner or later and it was one way to fix the Y2k bug, allowing them to get two for one. Some didn’t go back to old buying habits, because they didn’t have to, having installed the ERP systems and done some reengineering in the process. I do know of some larger firms that are doing pretty well right now selling what looks very much like reengineering under a different name. That tends to be in some specific industry sectors and geographies.
Among the less obvious solutions that you allude to may be an increased interest in identifying new products and markets. I know several firms which are doing well in that area. And a few others are leaping onto the bandwagon.
Ford Harding