#2: The Uber-ization of Consulting

Evidently posting on LinkedIn is like getting a tattoo. Once you have ink – you want more.

I keep reading about “Uber-ization” - is that even a word?

It used to be called dis-intermediation –replacement of the middleman with technology – with the internet – Amazon eliminates Borders, Netflix eliminates Blockbuster.

Now comes the sharing economy

Uber replaces taxicab infrastructure. Airbnb does the same for hotels as Uber does for taxis. Kickstarter and GoFundMe crowd-source funding previously done by banks, private equity, venture capital and “Aunt Martha”.

In the Taxi Industry of Before someone owned the cars, hired the drivers, set up the sales front-end – a phone number and a radio dispatcher, took all the risk and made all the profit.

The government got into the act – cities started regulating – selling medallions (license to operate) limiting the number of players – escalating the medallion price till it became a tremendous source of revenue and a big barrier to entry – like liquor licenses.

Full disclosure – I drove a cab for a while in Boston in 1969 – in those days, medallions cost $150 and drivers were employees. The owner owned the cars, took care of all maintenance and insurance, bought all gas, paid the drivers a $1/hour and 40% of the waybill (usually $3-5 per ride.) Airport rides ($15-20) were a big deal and tips (usually 10%) were nice but not critical. (I once received a hermit cookie as a tip from an elderly lady and it made my day.) Payments were in cash with the meter and a log as a check against almost non-existent driver fraud. Feedback was difficult – you had to call the dispatcher who told the owner and maybe it got passed on to the driver.

Today the city gets hundreds of thousands of dollars for a medallion, drivers are independent contractors who time-lease the cars from the owners, are responsible for gas and a share of maintenance and get to keep what is left after all expenses including a protected “royalty” for the medallion. Airport rides are still a big deal ($40-$150) and tips (20-30%) are the only way a driver takes home enough to feed a family. For feedback you have to remember the cab number, hackney license number of the driver, call the dispatcher, and wonder if it ever got through.

Uber uses technology – Smart phones, GPS and the Internet to replace the dispatcher and phone at the front end. It uses private contractors as drivers who own the cars, and are responsible for “shared ride” insurance, gas and maintenance. Payments are electronic (PayPal) and two-way feedback (both yours to the driver and hers to you) is instantaneous.

My Uber experience has been positive – cars are clean and well maintained, drivers are courteous, service speedy and inexpensive (maybe even too cheap – I often still give a tip on top – don’t tell Uber).

The government gets cut out – and both Uber and Airbnb have had incidents that demonstrate that regulation might actually have a purpose. (I haven’t heard that the SEC or Federal Reserve Board are investigating Kickstarter or GoFundMe, but who knows.)

Now to the Uber-ization of consulting

Old world: Consulting firms get work through a variety of contacts – Very senior people use the contacts of 10+ years in the field to sell work, they staff projects with a manager, a couple of specialists and an army of juniors (MBAs and people with 3-5 years in industry) This was called the “professional services pyramid” by David Maister who delineated how professional services firms make money – by the multiplier (the 4x mark-up on juniors, 3x on managers and 1 1/2 x on the very rare time a partner actually spends on a project)

There are variants: Some firms use telemarketing and business development executives to find the work and then an analysis and design team that does a short low cost project to identify and sell a much larger project to deliver the projected results. This model creates much larger projects, but is marred by hand-off problems. Clients sometimes feel a bit “bait-and-switched” and the final project is still staffed with the pyramid multiplier model – lots of relatively cheap labor swarming over the entire organization.

Some firms are better at training juniors than others, some have smaller pyramids than others, some have more genuine intellectual property than others (products = money without the necessity of showing up – i.e. not time based.) But consulting firms virtually all make the bulk of their income by the pyramid multiplier. Have the work done by the cheapest labor.

This pays for Big Fancy Offices, expensive infrastructure and constant hiring because the only way to make any money in consulting is to be promoted to the next level and ultimately to sell projects. So there is an institutionalized revolving door, (affectionately called “Up or Out.”) Some firms have managed this hire/fire cycle to their advantage by placing “them that goes Out” in potential client organizations so they can hire “them that goes Up,” based upon intense relationships forged by staying up all night making PowerPoint presentation slides and writing thick reports.

The government hasn’t gotten involved in the licensing game – there are no expensive medallions, but those who can afford to build big brands through advertising. (You’ve seen the big billboards in airports and full pages in business magazines.) Big firms use brand-awareness with the general public and the resulting cache with their junior consultant suppliers - universities and business schools as a barrier to entry or a barrier to growth between tiers of firms. The business schools do “feed the beast,” providing fresh recruits to go “Up or Out.”

Enter Uber-ization:

Replace the army of juniors with senior people – those who like the work of solving client problems and the variety of working on different problems, but don’t gravitate toward the partner/salesperson role. Many work as independents or small firms so they can do the work and keep the multiplier themselves – sometimes they band together to do larger projects

These senior “independents" partner with the client to teach – rather than just do.

No Big Fancy Offices

Technology makes it easier to have infrastructure – e.g. Dropbox, Googledocs and email ubiquity for sharing docs.

Intellectual property comes from linked hard drives – requests to alumni networks Slide Share, Flevy – Google.

Can these “independents” use social media – LinkedIn for example - to replace or more likely augment the front-end, relationship driven sales process?

I founded such a network – Results-Alliance www.results-alliance.com - we have done a few projects. Will it work long term? Who knows but the work is still fun, clients seem happy and it is nice to be making a difference for clients and working with colleagues I enjoy.