How to choose a consulting firm for a small or mid-sized business

A consulting engagement is a purchase of expertise for a defined problem. The decision has four parts: what kind of consultant you need, how to write the brief, how to compare proposals and fees, and how to measure whether it worked. Most engagements that disappoint went wrong in the first two.

Types of consultants

Strategy consultants answer questions about where the business should go: markets, pricing, positioning, whether to sell. Operations consultants fix how work gets done: processes, supply chain, quality, cost. Functional specialists cover one discipline, such as finance, marketing, sales, HR or IT. Interim executives step into a role for a period. Growth or revenue consultants sit between strategy and marketing and often work on a retainer.

Three sizes exist. Large firms bring teams, methods and brand, at prices that assume a large budget. Boutiques of five to fifty people specialize in an industry or a discipline and usually put a partner on your project. Independent consultants sell their own time; the best of them are former operators or former partners of larger firms.

For a small or mid-sized business, the relevant question is who will actually do the work. In a large firm, senior people sell and junior people deliver. In a boutique or with an independent, the person you meet is usually the person you get.

When to hire a consultant

Hire one when you need an answer or a deliverable that your team cannot produce in reasonable time: a market entry decision, a pricing model, a finance function that works, a system implementation. Do not hire one to make a decision you have already made, to settle an internal argument, or to do the ongoing work of a role you should fill.

How fees work

Four models are common. Time and materials: a day rate times the days used, flexible and hard to cap. Fixed price: one number for a defined scope, the cleanest model when the scope is clear. Retainer: a monthly fee for ongoing access, common for growth and advisory work. Value or success based: a fee tied to a result, rare in small engagements and worth scrutiny in the definition of the result.

Day rates vary by discipline, seniority and country, and a day rate says little on its own. A consultant at a higher rate who scopes a four-week diagnostic can cost less than one at a lower rate who needs twelve. Ask for the total cost to the deliverable, and ask for a fixed price for the diagnostic phase. Firms that will not fix the price of the first phase have not scoped it.

Credentials that carry information

Management consulting is unregulated. The Certified Management Consultant (CMC) designation, awarded by national institutes under the ICMCI umbrella, requires experience, client references and an ethics commitment; it is the one credential specific to the profession. Beyond that, the signals are operating experience in your kind of business, a track record you can call, and published work that shows how the consultant thinks.

Writing the brief

The brief is where engagements are won or lost. A good one fits on two pages and answers six questions. What is the problem, in the words of the person who owns it? What decision or deliverable do we need, by when? What have we already tried? What data and people will the consultant have access to? What does success look like, as a number or a decision? What is the budget range?

Send the same brief to every candidate. If a candidate rewrites the problem in their proposal, read that carefully; sometimes they are right, and sometimes they are selling what they have.

Comparing proposals

Compare on five points: whether the proposal addresses your problem or their standard offering, who exactly will do the work and how many days each, the price for the diagnostic phase, what you will have in hand at the end, and references from engagements that ended more than a year ago. Ask each reference what the firm got wrong.

Measuring the result

Write the result into the contract as a number, a decision or a delivered system with a date. Review at the end against that, and again six months later. Slides are not a result.

Questions to ask

1. Who will do the work, day by day?
2. What is the fixed price for the diagnostic phase, and what will it produce?
3. Which three engagements like ours have you done, and what happened afterwards?
4. What would you need from us to succeed, and what usually goes wrong on the client side?
5. What is not included?
6. How do you handle a change of scope?
7. Two references from engagements that ended more than a year ago?