A new GM-structured model gave us the scale we sought
In his 21st article for The Consulting Balance, Mark teams up once more with Allen Debes to discuss how they succeeded in punching through a revenue wall that many CEOs find impenetrable.
Here’s a nugget for those looking to scale their business: Most services firms hit a wall at somewhere between $25m and $40m in revenue.
I was blissfully unaware of this fact when I took the role of CEO at Nexient. And at that time it had grown to almost $40m. I’ve since talked to a lot of CEOs who have seen their firm bounce up against that level only to fall back to a lower revenue level. Some described having this happen multiple times.
Having now lived this myself, I’m well aware of the root cause. Early stage consulting firms are often driven by a stellar founder or set of founders. They are amazing, but the trap is that everything runs through them, with new business development especially bottlenecked.
I had a unique seat to witness this. Our stellar founder, Neeraj Gupta, was in the middle of everything when I took over from him. Neeraj looked at all the proposals and strategized pitches with each team. It’s why the company grew to $39m in revenue so quickly. But when I joined, I soon realized I couldn’t drive the firm in the same way if we were going to scale it.
We iterated a number of times with different models, but we ultimately found a great model in our “General Manager” structure. Essentially, we would break the firm into five sub-firms that could each approach the $25m to $40m wall on their own. We surmised that this would get us to $125m to $200m before we hit another wall.
In 2019 Allen Debes came in as one of our first GMs and really helped us hone the model over time. He has kindly agreed to return and explain how the model worked and why it was so successful.
Allen shares how to run a successful GM-structured model
In our previous article, I discussed how in our three-phase approach to scaling we ultimately needed to experiment a bit. To find the right scalable, pragmatic sales model for Nexient, we had to move quickly to avoid the next plateau or worse still, revenue contraction. We learned several critical things that rapidly shaped our approach:
Everyone has a revenue and margin growth number - For us, this was promoted or hired regional General Managers with a revenue goal of $50M each and an expectation of 25% YOY minimum toward that overall $50M goal. This provided direct accountability and a clear path to our objective of $250M across the five regional GMs.
Recognizing hunter and farmer qualities in existing and future team members is important - As we moved away from founders and exec leadership team members driving sales exclusively, we came to understand that it is almost impossible finding one person who is a hunter and farmer with strong depth in technology and consulting delivery. These rare and precious people do exist, but they are so unique that relying on them to achieve your objective limits scalability. So we eventually settled on one Account Executive per region, along with the GM, to drive existing business growth and new client acquisition. This filled the top of the funnel effectively.
To drive the right behavior, compensation matters. A lot. - Client Partners were paid full commissions when 25% quarter over quarter account growth was reached, along with account gross margin above 30%. Anything less than either of those two factors significantly reduced commission payments. The uncapped commission structure on the upside of this model was VERY motivating. Additionally, we required GMs to stay close to the work by incentivizing them to retain some of the accounts themselves while shedding others to the Client Partners they promoted or hired. The compensation model inside the GM and CP ranks were split, further incentivizing all the right behaviors.
Quality delivery is ultimately the only currency - A client relies on “one hand to shake” (or as it is often put “one throat to choke”) so our hunting and/or farming Client Partner absolutely needed to have consulting delivery experience. Nothing else worked to establish and sustain credibility with prospects, clients or our own delivery teams. The only role in the field that did not require a delivery background was the pure hunter, which was limited to one per region. We all became fond of reusing Mark’s often used compliment for us, “world-class drivers.”
Pragmatic, rapid leverage in the model is critical - We added three possible levels of Client Partner from junior to senior. GMs and Client Partners needed the ability to promote or hire individuals within this range to allow for sustainable growth at existing or new accounts when revenue reached ~$15M. Self-funding inside the commission structure ensured motivation to only add personnel as needed and not over-build too soon.
Understanding the addressable market helps to stay focused - The custom software services market at the time was $40B+. This told us to stay focused and remain agnostic across any tech and cloud, and build deep vertical expertise from Product Management on the front-end through to DevOps on the backend. It’s very easy to get distracted by client demands, and yet many clients were spending plenty on what we were already doing. It became important to find great work through doing great work - ensuring it was referenceable, with the build capacity to deliver as quickly as possible. Mark wisely led myself and the rest of the executive leadership team through an exercise to verify our offerings and revisit our strategy. This eventually led to the use of the “3 arc model” which is a topic for another article.
The rule of threes - Our final and possibly biggest learning was the inseparability of three key roles: Client Partner, Client Delivery Lead and Technical Leader. This was critical for both sales and delivery motions. Even though a Client Partner had a delivery background, a client or prospect was more compelled to buy our services if they met (and collaborated with) the Technical Leader(s). Clients would also often ask to meet with the Delivery Lead, which could come from one of several practices depending on the type of engagement and client fit. Though the Client Partner was the “hand to shake” with the client, we were only at our best with all three roles filled, and filled well.
Mark’s retrospective on a winning approach
When we were going through all of the iterations to solve the problem of hitting the wall and bouncing off of it, I was so focused on the detail that I forgot to understand the big picture of what we were doing. In hindsight, it was one of the keys to us growing the firm out of the $30m range and getting it past $130m in the long run.
If I were to boil my learnings down to some key points they would look like this:
Hiring senior leaders and letting them truly own a part of the business was critical;
Aligning the compensation plan to the results we wanted, drove those results;
Having senior leaders who came up in their careers as practitioners helped them sell to technologists and guaranteed we made and met our commitments to clients.
