Consultant caveat

Happy Friday to everyone!

Today’s post is inspired by sad news that one of my friend’s has lost her job at the recommendation of a consulting firm. You would hope that losing your job was due to poor job performance. Yet in this case she had turned a catalog company from a decade-long loser into a profit making entity within a short 18 month time frame. She did all of this in the midst of the greatest recession since the Great Depression. However, that was not enough as sales and profit targets were not met.

So why did the consultant recommend her firing? The specifics are not known, however the title of today’s post is the heart of the issue. Namely, what consultant has ever come into an organization and said, “you’re doing everything right, it’s just a difficult economy?” The problem with consultants is that they don’t have the option of doing nothing. Almost by definition and by unwritten understanding consultants are brought in to finds ways to change. This happens even if the change is cosmetic and ultimately futile. The caveat then is that consultants are overwhelmingly biased toward change. Bias means that a business owner will never actually get an honest and faithful answer from a consultant even one that has the best of intentions.

Therefore, as investors when we hear that a firm we are interested in or have invested in has hired consultants we can expect change. More specifically, we can expect change that focuses on cost cutting and expense savings. Why? Because these things are measurable by number and therefore quantifiable. Consultants love to quantify.

Harder for a consultant is to improve the revenues of a business. This requires an understanding of markets and customers and relationships are more qualitative than quantitative. Consultants hate to address qualitative issues.

To me these reasons are strong arguments against consultants. As investors be wary of businesses that rely upon consultants to help restructure a business. This usually is an indication of deep failings on the part of senior management – senior management that inevitably stays on board and awards themselves big bonuses for being clever enough to call in consultants to do what wasn’t obvious to management.

I hope that each of you has a wonderful weekend!

Jason