52: AI Strategy for Consulting Firms: From Efficiency to Growth with Shawn Yeager

Welcome to the Consulting Growth Podcast. I'm Professor Joe O'Marley, CEO of Equity Sherpa. We help owners of consultancies quadruple the equity value of their firms over a two to four year period. If you'd like to know how we do this, visit equitysherpa.

com. Welcome back to the Consultancy Podcast. I have real pleasure in welcoming Sean Yeager to the podcast, and we're going to have a really interesting conversation, I think. So Sean's done a lot of stuff over the years, but most recently has been involved with all types of technology, disruptive technology.

But most recently has been the founder of Upshift that does really great work with AI and professional services. And as I know this is probably top of mind for most professional service firms, I'm really looking forward to this episode. So, Sean, thank you so much for joining us. My pleasure, Joe.

Thanks for having me. And and do tell us a little bit about how you ended up as founder of Upshift. What took you there? I mentioned briefly your trajectory in disruptive technologies, but you've you've been involved with that for three decades or so.

I have, in fact. Uh, as much as I might wish to say, it was it was a shorter period of time. And so the the career arc um that I have enjoyed has been, as you note, generally emerging or new technology. And that began in earnest for me on Microsoft's first browser team, which was tremendous.

And taking that through the e-commerce era into SaaS, into mobile, into things like streaming, most recently, digital payments, specifically Bitcoin, and over the last year plus AI. And so the through line for me has been new technology, new products, new markets, new customers, new revenue. So, how do you go from this, this, as you say, just disruptive um mechanism and uh help companies and individuals get across the proverbial chasm? And so, in all of that, what took me to Start UpShift has been to observe these disruptive technologies, which I know you have as well, and to note that generally the first natural stage is adoption of that technology, often for efficiency.

The next, most critical, I think, is the commercialization of it. How do we make money in a way that wasn't possible before, uh, often in replacing what is no longer possible? And so that really is the focus now. And the assessment that I have made, and I think it is uh largely uh apparent, and certainly to your audience, is that professional services firms broadly, consulting among them, and particularly those that bill by the hour, uh, have a tremendous exposure to what AI does, which is to compress, uh, but also a tremendous opportunity to focus on what has always been to sell what has always been the value in the first place, which is judgment.

Yep, brilliant. Great. And and the focus on commercialization and productization has been a theme in professional services for you know some time, because you know, if you're building to sell, buyers and investors want to see an engine that is predictable and repeatable, and you have a niche and a method and all the rest of it. Is AI simply an acceleration of the types of commercialization that has been going on for a while, or does it offer something unique and different that consultancies and other professional service firms should sit up and pay attention to?

I think in, and I I have had this conversation, which is an important one many, many times. And generally where it turns is I think there are two things. One, it would be cliche were it not true, to say that I think this is uh the most pronounced, the most profound technological change that certainly I've been through in my lifetime, even with all the hype set aside. And so, on the one hand, um, it is operating at a velocity I think that we've not yet seen.

But in simple terms, I think it does two things. It decomposes the billable hour. And so, not to presume that all of your listeners, and I know that much, much of your work is about moving away from that, but I think so many still do, right? And so billing by the hour, as I say, will not go away.

It'll outlive us all, uh, for good or for bad. But the billable hour itself has been exposed. And so I think uh there is now a work to be done to pull that apart and to look at what is truly valuable, uh, which often is delivering on a judgment, a call, an outcome that the risk of getting it wrong is significant, and that's the real value uh from the work that underpins it. And so, in more material terms, specifically, without getting too deep, there are now technologies, and perhaps you've seen these, Joe, uh, that will connect to your accounting system, your billing system, uh, your time tracking system, and so forth, and now allows you to actually draw a line between the true inputs and the revenue.

And so we, you know, we can get into that more or not, but I think in short, it is a change of business model and pricing model that is being accelerated, but I think also a tremendous opportunity to do more of the productization and other work that you talk about. Yeah, great. Thank you. And and in just building on that, are you seeing any examples?

So you're you're you're spot on because you know, most 50% of firms I've looked at are either doing nothing, same old story, or they are using chat box, they're using Copilot to you know write an email or do do a PowerPoint. So my take is most firms aren't using a tenth of what AI and automation and integration can can offer them. But with with the other firms, are you seeing a many doing sort of fundamental business model shifts, or are you more are you more focused on and interested in I guess let me put it a different way.

Are you are are most firms you're seeing creating a faster horse, or are they building the car? So are you seeing any fundamental changes that are really exciting you? Yeah, that's a uh it's a question that's dear to me. And quite candidly, as I discuss with my with my partners, you know, uh, are we early?

Is the work that we're doing early? And I say that because most are building a faster horse. Yeah. Um, and again, I think that's important, and I think it is necessary.

And and to your point, hands-on keyboard and hands-on chatbot, and all these things are our steps, but they are only part of it. And so that the the work that we do uh is very clearly on the second half, which is the bit in, and I much of the work that I do is informed by Alexander Osterwalder's business model transformation. I enjoyed an opportunity in 2010 to, you know, to work with him, study with him, and that has uh certainly left an impression on me. And I think it's an important tool.

It is a tool, but it's an important tool. And so that is all to say that the business model transformation usually comes second, but it is what defines the firms that win. And so the short answer is I'm I'm much more interested in that latter component because I think that's what differentiates. And I will say, as an aside, uh, at a couple of uh MA events that I uh one spoke at and second attended, various PE operators have approached me to say um it can come off as glib, but to say quite literally that they're now pricing professional services firms in two buckets, those that are at least working toward AI native and those that are stuck.

Yep. Yeah, I I was at a uh a talk organized by BDO uh just a few weeks ago and bumped into uh a couple of investment banks who had said that they two of their deals, the investors had come in and done the AI due diligence before doing the commercial due diligence or the financial due diligence. So that now that's not commonplace, but it does show you how it shot up in the priority rankings. Right.

And I I think part of the challenge here is that number one, private equity is sitting on a lot of undervalued assets, so they're worth less than they paid for them. But number two, I'm sure you and I have seen several firms who don't have a future anymore. Sadly. I think there'll be a lot of roll-ups.

Um and and you know, as um I I think in the in the consulting sphere, which of course is broad and and multifaceted, you know, and I'm sure most of your audience know the data from McKinsey and Boston Consulting Group and others as to you know their their three to four billion dollar spend collectively this year. And so they're coming down market. Boutiques, in my view, have that um uh freedom to pivot, uh, freedom to experiment and to move rapid rather rapidly. The mid-market, I think, is what is most at risk, to your point.

Yeah. Yes, and they were having a hard time anyway. Indeed. Indeed.

And and yeah, and it hasn't got any easier. At least the large firms have deep pockets. So if they waste you know, half a billion here or there, the partners might take a haircut, but it's not the end of the world. It'll be just fine.

Yeah. Although, as you saw, and I'm sorry to interrupt, uh, Accenture posted its worst day ever about a month ago. Oh, yeah, yes. Yeah, yeah, and interestingly, my my take on this was that Accenture's been overpriced for a long time, and so I wasn't surprised there was a correction, but then it corrected and corrected and corrected.

Yes. And then if you look at similar firms that are floated, they haven't had the collapse that Accenture have had, but it's still not looking good. No. Um so the market's the market's aware of it, investors are aware of it.

Um, what how do you approach uh a standard client? So if I came to you and said, look, you know, like equity shelter, uh, we maximise the value of of uh I'm trying to get free consultancy here. Um we maximize the value of consulting firms, we do the traditional, quite manually heavy process of interviews, data analysis, and all the rest of it, and then come up with a set of set of recommendations. Lots of strategy firms are based on that model, collect data, analyze it, come up with recommendations.

Um is there a future for firms like that other than using AI to do it faster and billing a bit cheaper for it? I appreciate the setup to that question. And I think absolutely there is. And I and I would say to your question, uh, I don't want to turn this into a commercial, but in essence, one of the first key components of the work that we do is service landscape mapping, which you know is to place the lines of business or the service lines on a map in four quadrants, um, exposed, compressing, defensible, and emerging.

I like that. That's really nice. Everybody loves a two by two, right? Uh and so you almost can't not do it.

But but in but in sincerity, um, those which are probably fairly straightforward, uh compressing, and and and there is um uh an assessment, uh, free assessment that we offer, which of course also is is is common, but we we think this is a great one, um, which looks at the uh sort of density of your services and and associated revenue, how much of that is done by uh non-senior staff, and how much of that is repetitive, which, you know, as you sort of track that just even verbally, of course, it is going to um your exposure to the billable hour, the concentration of work done, which is repetitive and done by junior staff and therefore can be automated.

And ultimately, what you end up with um is a posture and and a presence on this map, which is uh the things that your competitors can also acquire clawed code and perplexity, sure. Yeah, and the other tools to do, um, it is table stakes for you to adopt them too, right? Because your your your neighbor or the firm across town can acquire the same tools. Yeah, and the client, the client can as well, of course.

Indeed. And that is really crucial. And they're beginning to have that conversation. Clients, as I'm sure you and your and your audience uh uh perhaps are already experiencing, is they're bringing work half done.

And so um exposed is fully exposed. Compressing is as AI advances, it will encroach on this work. Defensible is largely tied to, and this to me is the real um uh silver lining, it is tied to judgment that you have, which is unique, uh earned over a significant period of time and experience, and the relationships that you've built, the trust that you have. The, and it is cliche, but you know, Joe, it's it's that founder who's going to call you at 6 p.

m. on a Friday and you're going to answer and and you're going to, you know, talk them down off the proverbial ledge. And then the emerging is what now? And so to get back to your original question, an example of of the of the uh new work that you could do is what if it wasn't one time?

What if it's not when I call you? What if it is agents running that are continually ingesting new data relative to the valuation of your client firm that are charting this on a dashboard? You know, now do they need real time? Probably not.

That might be anxiety-inducing, in fact. Um, but you know, if I can uh drop into an application, drop into your website, and not have had to exchange an email or call you, conversely, not have had to necessarily pay you for another discrete engagement because I'm subscribed. Yep. Right.

And so, not to go too far in the weeds, but you know, those are the sorts of offerings that become possible. And they offset the compression of those billable hours or those discrete projects. Great, great, really, really, uh, really, really nice insights there. One of the um one of the challenges that you, I'm sure you will have come across is that professional service firm owners often struggle with tech businesses.

They're used to, you know, cash-rich businesses, uh, no debt, you know, fluffy terms of engagement where the client is loosely happy, then you know, you get paid at the end of it. Right. Our hourly billing, all the rest of it. How much of a challenge is it do you've end up you know, things that SAS isn't as expensive as it was?

And I'm not saying you're promoting SAS because you've got no, and it is changing, by the way, because it's getting more expensive because it's being being built by the token. Yeah, sure. Yes. I I wrote a piece yesterday uh that the token is the new billable hour, but please continue.

I saw that. I really like that. Yes. Appreciate that.

Yeah, um, and so so what's what's your advice for firms in that position? Do you know? Are we looking for new leadership here? Is there a new competence that you know firms should be looking for as they make this transition to the AI what?

That's another great one. And I think, you know, as as I have noted a few times and and you know deeply, it will largely depend on whether the owner is, and I say this with respect, riding out the last five years, you know, is is this is there a window in which I am going to exit, sell, um, my my my children are going to take over, whatever, you know, whatever the um the sort of plan is, and I can I can hang in, you know, I can do that. And I understand that and I appreciate that.

I think for most others, and I and I know that there's a fatigue associated with we need a new chief of this and chief of that and head of this. I'm sensitive to that. But I think the short answer is competency is crucial, right? And and it is unlike most things we've seen in that, and you you nailed this in the in the beginning, which is if you use chat GPT as a better Google search, you have experienced 2% of what's possible.

Yeah, right. Um, and I'll and I'll perhaps illustrate, right, as a as a small firm. So my CRM runs itself. Um I have uh some cold outbound.

Some people will find this, you know, unappealing, distasteful, but it is generally the the way of the world these days, um, which builds my ideal customer profiles, uh, a target list of contacts, enriches the data, scrapes their website, looks at their service offerings, scores in a rubric the exposure that they would presumably have to billable hour or other compressing or exposed service lines, and uh drafts a tailored outreach with uh an offer to them to sort of read some of the content that that that we produced uh or use some of the assets like a calculator that sort of shows you know how exposed you are to particular business models.

So, you know, that's not that's not go me, that's what's possible, right? And for and for a boutique, right? And so just quickly to interrupt there, did you build this yourself with this an off-the-shelf tool? Or is it a combination of off-the-shelf tools?

And so I I am a lifetime nerd and uh and I do, although we're focused squarely on commercial, uh, I'm very deep in the technology and uh and I build to be credible. I build to to have that um uh knowledge, in fact, to tie it back to your to your very point. I am not saying that firm owners and leaders uh need to go fire up clawed code and build, although I think it's a great skill set. Um, but I think they they will need, they do need to acquire that depth of knowledge in either a direct fashion or they need to bring someone who does.

Yeah. Yeah, good, good. Okay, sorry, I I interrupted. Um about the possibilities um of of doing things, doing things in a more automated and AI informed way.

Yeah, small illustration. And I think you know, another another necessity that that I'll speak for myself. I I I I I hearken back and wish for the old days, but search engine optimization and now agentic, you know, engine optimization. There's always a new three-letter acronym.

So there are tools now that for any of the owners who who you know have people on their team, I'm sure, that do this, um, it will run itself, right? And it will, it will uh go and look at your indexing, your results on Google search and others, and tune a keyword here and there, measure itself, go back a week later. And so basically you have SEO AEO that manages itself. And and you know, is that for a 50-person firm a game changer?

Probably not, because they have a marketing department that's working on that. For a boutique firm, it could be important. Um, and even for a larger firm, quite candidly, the odds are they're not doing it in the optimal way. And so a senior marketing leader in this particular example knows what they're trying to drive in terms of outcomes.

They may not be in the tools in the weeds. And so their judgment, their taste, as as many talk about, their experience can inform the use of these tools in a way that gives them five hours back a week to turn their attention to client relationships. Yep. Yep, agreed.

Yes, and I'm I'm I'm certainly promoting AI and automation as the new leverage. You know, I I know you you've mentioned you mentioned that in some of your writing that um, you know, there's a firm I'm board advisor with, very senior, experienced people, but they're you know, they're doing delivery, they're doing admin and all the rest of it. And their model isn't to take on juniors, um, and they're just not set up to do that. And the answer there is, well, there's another type of junior now.

Yes, yes. That's a and boy, there's a piece to write. There's another kind of junior now. Yeah.

Sean, tell me about um, tell me about a project, if you're allowed, you know, if you can, that you are particularly uh proud of or is particularly illustrative to give listeners a flavor of you know what's possible and what might work. Um it it because I find that a lot of a lot of CEOs are keen to get stuck in, but they don't know where to start. They don't know whether you know it should be automating PowerPoint production or having agents, you know. So give give us an example of this in practice.

Sure, sure. Um to think about to think of a couple of particular point examples, and so what What we uh deliver, not a pitch again, is um so so I'll I'll step back and say for for yourself, Joe, or for anyone who has worked in or with tech startups, you you one would be familiar with terms like customer discovery, product market fit, um, sort of this lean startup approach. And again, not to overlay that uh directly on your audience, but the principle, which has been borne out now over 15 plus years, is before you build, validate the problem, that it is poignant and that it is painful enough to be paid for.

There is money on the table to pay for a solution to the problem. And then the product that you presume to build. And so, um, again, not to run too far afield here, but in in the world of tech and software, that means serious capex exposure. Yeah.

Right. And so it is directly uh um proportional to that risk of of burning all that capex that you want to do this pre-work, if you want to call it that. Um that is now also the work of professional services firms, right? As they build new offerings, and these offerings are automations and agents of these things.

And so CapEx goes up, right? And so um that is a way to set the stage for uh a couple of the projects that that I'm thinking of in partnership with implementation firms, are going through uh initially the workshop and then a 90-day sort of sprint to first dollar of revenue, where uh this firm, we have rebuilt their pricing model uh fundamentally. Um we have done all of the work to sort of reunderstand their segmentation, right? It's it's and again, I'm I'm gonna try to keep it tight here.

So from 20 some odd SKUs, 16 revenue lines, and a dozen uh buyer personas to three, three, and three. And so, and and what does that mean? That means that from a go-to-market team, a sales and marketing team that are all in a scrum and that are attacking every deal as if it's the only deal, um, there is now a posture and a position. This is not specific to AI, this particular project is, but I'll say this is this is work that is important regardless.

Is do we understand who we're selling to? Do we understand what we're willing to offer them, which is different than we'll offer them whatever they're willing to pay for? Uh, and therefore, how do we align sales and marketing resources? So we we have built now um uh greatly clarified and simplified pricing, packaging, positioning, and now the work is on to build these offers.

And and the idea is that within the next 60 to 90 days, they go live. And so in the background, what we're doing is having a lot of conversations with clients and prospective clients to tune it, to assure that this does again meet their problems. It solves, you know, uh addresses their needs. So, so the quick recap this project is is bigger and broader, you know, than a workshop for sure, but it is uh taking what AI is putting upon uh this client and using it as an opportunity not to become a SaaS product, but to take advantage of the clarity of pricing and packaging and promotion that that these SaaS companies do.

So uh the message is not, and and this is working with the head of sales marketing, uh, with co-founder, and um uh it's going it's going very nicely. Now, it's painful, uh, it's it's disruptive. You know, part of that work is fanning out to all the functions in the departments, understanding what the uh impact will be and and working through all of that. But uh the net net is this is a transformation of the pricing model.

The business, uh, the operations behind it are the same. It's now much more focused and um much more uh um sort of unified in approach and dramatically more efficient in delivery. So I don't know if that was useful, but that's one that's that's one that's top of mind. I'm I I'm so pleased it was a business example, not a tech example.

I mean, obviously there's tech behind it, yes, but I've just written a chapter for this book I was telling you about, actually, that that is arguing that people tend to reach for the IT manual, not the business manual. Right. And unless my my take at least is unless you get the traditional management and good business practices right, which most mid-sized firms don't, you the AI is not gonna work. Um it's gonna work and it'll work short term, or you know, absolutely, or it will be dismissed because you never knew what good looked like anyway.

Yes, right. And I and I will say, you know, um I I I lose a lot of deals because the tendency is let's just go build. Yeah, no, yeah. Right.

And I'm okay with that because I know that eventually, you know, to your point, yeah, uh, that well will run dry. And and it is not to say it's not important, right? But I think and it it really is, you you you hit the nail on the head, which is without attachment to a to a commercial business outcome, as with any technology, as with mobile phones, as with cloud, as with anything, right? Um, and you don't know where you're going, any path will take you there.

Yeah, brilliant, brilliant. And and and I'm sure you have seen what I have seen, which is that um very often you will be contacted by a CEO who has had an idea in the shower or the bath and has plowed in some cash, they've got clawed to build it, they've got something ready to go, and they give you a ring and say, we need help, you know, taking this to market. And my heart sinks, and I'm sure yours does too, because at least in my experience, and this might be limitations, that doesn't tend to work because all of that good pre-work that you're talking about hasn't been done.

Truly. And I think well, I think there's two things, and if I may be so bold, I would offer um, I'm hesitant to do so, but I'll offer a bit of advice, unsolicited advice, you know, to your audience, which um treat those as experiments, treat them as opportunities to learn. You know, do not underestimate the mouth that you have just now committed to feed, right? Which is this product, this technology.

And so, you know, you noted earlier that often, not always, but often firm owners, uh, senior leaders are uncomfortable with the idea of tech. And I presume that means largely, you know, product. And I've got I've got background at Accenture myself and otherwise. Um, so I appreciate that.

Um, but where I'm going is it is a necessary step, um, but it rarely is the magic that it may feel like in the moment, unless you've got the scaffolding, unless you have uh the KPIs and the and then you know the outcomes that you're really aiming for. It just be and then and then the disappointment comes, right? And so so to your point, that's the that's the you know, the the crestfallen part of it is you had a magic moment, and that is that is truly what it is. It feels like a superpower, um, but it it is not a one and done.

Um, and so only with a revenue target, I think attached to a service line slash product line, does it then get the attention and the focus that needs to thrive? Yeah, yeah. And there's I you know, maybe we need to do this one, this one again, because there's a whole conversation about how you manage this structurally, you know, with spin-offs and separate PL and all the rest of that. Absolutely.

As far as I can see, it depends. And I know that's a horrible consultancy answer, but I don't know if you if if you've got any more I think it's a great, and I think so often, um, you know, candidly, Joe, in the in the work that we do, I'd I'd love to say, because it's near and dear to me, that consulting was at the top of the of the list, but it it's it's not for the reasons that you've touched on. I mean, I think, you know, and again, not to go uh far afield here, but legal accounting, marketing, I think some of that pain is perhaps more pronounced.

Um in consulting, I think there is so often, all consulting is not tech consulting, and I don't mean to imply that, but there is a not invented here uh sort of syndrome. There is a, you know, we're different, we've got sort of, you know, the brand name, uh managing partner, et cetera. Um, and ultimately it feels disruptive. And so to your point, you know, whether that needs to be on its own PL, uh, because this is now effectively a subscription service, as opposed to a time of materials or fixed, fixed price, I think is definitely an operative part of that conversation.

You know, does it need to be set free in a way, uh, or at least put on a short, you know, rope or leash in order to, as has happened in other waves, of course, in professional services and consulting specifically, you know, do we need to sort of put it out there on a separate PL and let it, you know, sort of let it thrive or die on its own? Uh, or does it, you know, does it fundamentally transform the business and we're going to endure the discomfort and and let it transform what we do fundamentally?

Yeah. Yeah. And it's not easy. That latter bit, fundamental transformation, is it's risky, but it's also bloody hard work.

Yes. And no, I would never make make sort of light of that, um, which is why I appreciate that often it needs in its own container. Yeah. Sean, I had one final phrase I wanted to throw at you and get your reaction to it, and that's um that's forward-deployed engineers.

So we're hearing about all the big LLM um frontier models moving into consultancy with these engineers who are going to, you know, uh work work alongside private equity to transform. I I I've seen limited examples of this actually uh working in practice. Um, and I'm quite skeptical. You can probably tell where this question is is going.

I'm slightly skeptical of the capability of engineers to replace consultants per se, in terms of the skill sets are very different. Uh, they've got a different focus, they're better at implementation. They're not so great at the fuzzy stuff that consultants should be doing. I don't know if you if you'd align with that.

Well, I so I will say that I uh in the in the circles and the spheres that I operate, which is mid-market, I'm I'm not you know seeing sort of an anthropic FDE drop in into a client. Um, but I am having conversations with with colleagues and others who who are, and I think I read it in in two ways. And I think back to my time at Microsoft in the 90s and Microsoft Professional Services, and what do we call them? A technical account manager, uh, you know, many, many variant uh variations of this.

And and so at that time, throughout time, and I think now, that is an extraordinarily cash flow positive business funding uh a very expensive paid sales engagement. So, so, you know, great. Um, now the other way I interpret this for for your audience that are on the technology or adjacent side is that's the TAM, right? So what these uh four or five companies have now committed to these um spin-offs, uh most of them, if I recall correctly, have spun out or will spin out, including Microsoft separate firms.

Um that now looks like uh a well, a serviceable, addressable market uh for a whole lot of consulting firms that would otherwise go after that business. Now, one could interpret uh, I suppose it a different way, which is BlackRock and others have only taken this step because they don't think the incumbents can do the work. You know, that's that's probably the let the least charitable interpretation. Uh, but I choose to look at it as this is a roadmap.

And so much as, and and guessing, you know, you've read this as many of your audience will, Sequoia, the storied venture capital, Silicon Valley venture capital firm, um, you know, sort of put out a hit list on professional services and said, here's a trillion dollars, you know, the the proverbial six dollars in service for every services and every for every one dollar in software spend, go get the six. That's what they said. Yeah. Right.

So in that vein, um, that is a blueprint to me uh to professional services firms that can deliver on that work or work adjacent to it, be it change management, leadership, all of these elements. So I think it is something to be paid attention to. I think for forward deployed engineer is, I don't want to make light of it, but it is, you know, sort of the the the new cool kids version of of all these other titles in the past. Yeah.

But ultimately what they're doing is they're they're paying to entrench their product, which they then get to turn the tap on and it just flows, right? So if I get to spend uh if I have the opportunity to spend $100,000 to get you to pay me five million over the next five years, I'll do it every time. Yep. Yeah, I think that's a very intelligent analysis of where things are going.

And also a good call for owners of firms to, you know, keep their eyes open because you can't take anything for granted. Certainly. Um, Sean, listen, thank you so much for your insight and intelligence. I will put a link to Upshift uh in the in the show notes, and people can also find you on uh LinkedIn where you publish some really interesting, useful content.

I appreciate that, Joe. Thank you. It's been a pleasure. Take care.

Cheerio. Bye bye.