Section 1.1: Consulting as a Viable Entrepreneurial Path

My favorite piece on their blog is one of the earliest, where they elaborate on their enthusiasm for investing in tech consultancies. They explore the various options available to entrepreneurs on a risk-reward scale. At one extreme, you have high-risk, high-reward scenarios like developing a SaaS product—an endeavor with a staggering failure rate of 90-99%, yet potentially worth billions in the event of success. Conversely, there are the typical lifestyle businesses, such as local restaurants.

However, Vixul highlights that many entrepreneurs overlook a valuable middle ground: starting a consultancy. They describe this option as having a "medium-risk, medium-reward" profile with a "75% chance of success," potentially yielding outcomes between $5 million and $100 million for founders within a "5-7 year timeframe."

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They conclude with the assertion that the increasing valuations and high demand in this sector make it an appealing choice for both founders and investors.

Section 1.2: Reevaluating Risk and Reward in Consulting

I wholeheartedly agree with their assessment, as I’m investing my own career in this path. In a previous article titled "Stop Building Startups, Start Consulting Instead," I argued that I would elevate their classification of consultancies from medium-risk, medium-reward to lower-risk, higher-reward.

Here's my reasoning: Consulting is less risky than launching a brick-and-mortar business due to lower startup costs and shorter timelines. For instance, a local shop owner I spoke with mentioned that opening their boba shop required $450,000 in initial capital—an immense hurdle that necessitates selling 90,000 $5 drinks just to break even!

In contrast, starting a consultancy demands minimal initial investment and allows for immediate operation, making it a more secure choice than traditional businesses. Additionally, while Vixul claims that consulting offers a "medium reward" with potential exits of $5 million to $100 million, I find it hard to categorize such figures as merely "medium." Achieving an exit in the eight or nine figures allows for financial freedom that most entrepreneurs only dream of.

Section 2.1: Crafting a Growth Strategy

Understanding the motivations behind consultancy acquisitions can significantly shape your growth strategy. As Vixul notes, buyers typically seek new capabilities. Therefore, if a consultancy offers ten different services, a buyer may only be interested in one of those, underscoring the importance of specialization.

Founders should concentrate on the one capability most appealing to potential acquirers rather than attempting to diversify their offerings. Additionally, consulting firms should aim to provide services that align with the early stages of technology adoption, as major acquirers are often slow to adapt and may already cater to the "late majority" and "laggards."

Ali Hussain, a founder, advises that during the early majority phase, firms should either innovate with emerging technologies or plan for an exit to capitalize on lucrative opportunities.

The second video titled "Alan Weiss shares why you need to stop being so afraid and other truthbombs with Leanne Hughes" discusses overcoming fears in the consultancy arena, providing motivational insights for aspiring entrepreneurs.

Section 2.2: Key Metrics for a Thriving Consultancy

Lastly, Vixul's blog outlines essential metrics for assessing the health of a tech consultancy. A thriving consultancy should strive for:

• Gross margins of 45% or higher.
• Year-over-year growth rates exceeding 50%.
• Valuations at 3-6 times revenue.
• Bench utilization rates of 85% (the percentage of billable hours).
• An EBITDA percentage plus growth rate above 40 (the "rule of 40").
• Less than 6% of the fee base allocated to fixed facility costs.

To clarify, the 6% benchmark for facilities costs originates from "The Business of Expertise" by David Baker, not Vixul's blog, but I found it to be a valuable metric.