If you’ve been running your consulting business for fewer than seven years, you’ll want to pay attention to the story of Meredith Starr.
Meredith,1 who is in her mid-thirties, has been building a reasonably successful practice in northern Virginia, making rain of roughly $300k/year for herself and her full-time assistant. Not exactly the stuff of legends, but better financials than her neighbors working at the White House.2
Last year, though, in her sixth year of business the new-business pipeline was drier than a Latin textbook. Why? Because Meredith had not been following the Rule of Replenishment.
Stand outside your home with a garden hose and turn on the spigot. (This metaphor will work better if the hose is connected, but it’s not required.)
Now, as you watch the water stream out of the hose and splatter your feet, do you know when the water will run out? If you’re on a municipal water system, the flow may never stop. But a municipal supply is like a corporation or a big-name consulting brand and you, my friend, run an independent consultancy. You are on your own and your water will run out.
The problem is, looking at the steady gush from your hose gives you no advance notice. One moment it’s all sprinklers and puddles and the next, just like Meredith, you’re high and dry.
When you start your consultancy, your revenue potential is like a water tower holding all the possible projects you could tap into. What fills that small reservoir? Your “core” relationships. The more strong ties you have to the right decision makers, the more money-making power you have.
A few connections with well-funded executives in need of your offering are all it takes to get your business off the ground. In fact, I have worked with consultants who have built very substantial practices from only one or two clients. For a few years.
Most independent consultants’ water towers run dry roughly 5-7 years after they first hang up their shingle. At that point their Rolodex of friends-who-become-clients is exhausted. Then begins the drought that withers the vast majority of small firms.
Ironically, smart thinking and best practices exacerbate the problem. When it comes to new business, consultants rightly focus on current and past clients. These are the easiest sales and often the most fertile hunting grounds for fresh projects. Unfortunately, this approach carries a downside: most clients will eventually disappear, and unless the water tower is constantly replenished with fresh buyers, the new-business pipeline shrivels.
The Rule of Replenishment is simple: You must add at least 15% new contacts to your core every year. Your core consists of decision makers (i.e., people who can actually hire you) with whom you have a strong relationship. The three “boxes” that comprise your core are shown below.
Before you launched your consultancy you acquired a book of contacts. Terrific. Now, to create a profitable consulting practice for the long term, stop relying on that book and tirelessly build your network. Annually check the waterline: what percent of your network core is new?
Waiting until the tank is empty to start establishing new connections is a recipe for a long, dry spell. Conversely, if you always meet or exceed the Rule of Replenishment, you’ll enjoy a steady stream of business that can grow into a torrent over time.
Out of curiosity, what are you doing to follow the Rule of Replenishment? Post your comments below so other consultants and I can learn from your experience.
P.S. The Rule of Replenishment is particularly important if you are starting your practice in your 50s or later. By that point in your life, most of your contacts fall into two buckets: 1) not successful enough to hire you; 2) retiring.
Text and images are © 2020 David A. Fields, all rights reserved.