Is management consulting an option for micro- and small companies?

Eugeniy Ivanov
General Manager, Euroconsultants Bulgaria SA AD

In the general case, management consulting goes to medium- and large companies, which have complex processes, large staff, and many points of sale or manufacturing plants/service centers in multiple locations. In addition to their needs for specific advice on how to improve business performance, optimize processes and improve customer relations, they have sufficient budgets for such types of external expertise. Smaller companies, especially in the micro-segment (with staff up to 9 people), are usually not covered by management consultants simply because they cannot pay for that.

Most of those smaller enterprises have started as family businesses, or represent spin-offs which have separated from their mother companies, or are established by former employees who have decided they want to be their own bosses. Their owners and managers know what they want to do, have some general knowledge about how to do things in a business manner, and have positive expectations about their endeavours. The idols of those people are the guys who the media depicts as successful self-established entrepreneurs who have started from scratch and have how turned into business tycoons with multi-billion empires, such as Richard Branson with Virgin, Jack Ma with Alibaba, Mark Zuckerberg with Facebook, Bobby Murphy and Evan Spiegel with Snapchat, Nathan Blecharczyk with Airbnb, etc. The list is very long. Nobody tells them, however, that behind one successful entrepreneur lies a pile of hundreds of bankrupt micro- and small businesses, which have not pursued the right strategy.

The scenarios for micro- and small companies are usually five:

  1. They run relatively successful business operations, have some permanent staff but barely survive till the next year
  2. At some point in time some of those companies understand that their business model is not well designed or the market preferences have changed and they become companies in distress
  3. Otherwise, another group of companies generates sufficient profits and starts diversification, by opening new businesses. If they are clever enough, they succeed; most likely, however, their additional businesses hamper the development of the key revenue making activities simply because their profits go into hopeless undertakings
  4. Due to external and sometimes not very clear circumstances some companies are very successful – they generate profits, which are usually transformed into material benefits for their owners (not employees), such as expensive cars, large and good looking houses and vacations in luxury destinations
  5. Finally, the last scenario covers companies which rely on organic growth, invest wisely and expand in a moderate manner

Which of the abovementioned 5 types of companies needs management consulting? Obviously, the owners/managers of the fourth group are fine anyhow. They would not take an advice even for free. They make money and don’t care about developing their businesses, unless something happens and they start approaching the state of bankruptcy.

Therefore, management support needs to be provided to those who understand they need it. However, how do you get money for your time and expertise from companies which barely cover salaries and operational costs? The first 2 types of companies cannot finance such an operation even if they want it. If management consultants don’t get paid, they shall end up operations very quickly and will have to join the group of unemployed.

For some reason, management consultants and consultants in general are not seen by smaller businesses as people who have operational costs, which means that they do not need to be paid. In the general case, time and knowledge are not considered an asset. Of course, you have to pay when you go to the convenience store and buy milk, cheese, vegetables and meat. There is no doubt that when you buy materials, consumables, a car, use water and electricity you have to cover their cost. Almost immediately. When it comes to (management) consultants, there is no clear answer in the heads of managers of micro- and small companies why they should be remunerated for their words.

Therefore, the most likely contractors of management consultants are companies in the growth and diversification stage or ones whose managers have reached the limits of their knowledge and in order to sustain the impetus for business development, need external expertise. Those micro- and small enterprises have money and understand the need for consultancy assistance.

On another note, are we sure that management consultancy for certain improves business performance? If ‘Yes’, is it possible that companies that take advantage of the services of consultants for operational and strategy improvements distort the market or breach competition rules according to the EU or national legislations? Most likely ‘Not’. Therefore, how come that such a useful activity which is able to improve performance in the whole sector of micro- and small companies (not only for the two groups of companies mentioned in the paragraph above), which is the most volatile group of businesses, is not legally binding? Why the use of management consultancy services is not obligatory, such as car insurance, banking and accounting (auditing), to mention just a few of the privileged professional services?

The huge number of non-performing loans both in the years of the economic crisis but also now (in some EU countries well above 30%), indicates that obviously companies are not able to deal by themselves with the challenges of the complex business environment. They need ongoing business advice and management support in order to stay alive and to develop further.

Therefore, at the same time as we need to develop the competence of management consultants, we need to:

  • Make our potential clients understand that making a business requires, in addition to a good idea, the ability to choose among different potential strategies and to take the right decisions based on reliable information, which requires management thinking and experience
  • Make it clear to the national and EU law-makers that this profession has to be either legally supported or must be subsidized in order to give the chance to any micro- and small business to have access to it. This is well articulated in the Commission document “Small Business Act” for Europe, which is currently only a set of 10 principles with very little practical applications

By only adhering to the “Consultant for consultant’s sake” principle we shall certainly become better consultants but this shall not result in improved management processes in the micro- and small businesses simply because they will not be able to take advantage of our services.

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