Why do small businesses miss out on consultancy?
The 5.4m small and micro businesses in the UK typically spend an average of £3,000 annually on business advice, as Government research shows, and all too often they are not happy with the service they receive. After decades as a government small business specialist, Runagood founder Duncan Collins knows why – and what can be done about it
When Duncan Collins left corporate life in 1988, he was appointed by the then-Thatcher government to lead their work on small businesses. Thatcher was keen to discover why it was that the international competitiveness of small businesses in the UK ranked 21st, when compared with the UK economy as a whole, which ranked fifth.
Extensive research revealed that most small businesses were founded by people with operational skills such as making devices or providing a technical service, but who struggled when it came to broader business skills, such as managing finance or marketing.
They did not know where to turn for help, as consultants were perceived to be unaffordable or untrustworthy and accountants as too specialised.
Enter Business Links and Training and Enterprise Councils, two government-run networks set up under Duncan’s watch. They received large-scale investment, and helped businesses with planning, profit improvement, business and technical skills. Over the course of 22 years, UK small business competitiveness shot up from 21st to 7th place.
Fast forward to 2010 however, and these services were eliminated as the government went on an economy drive. With generous government grants and subsidised training and advice a thing of the past, the future started to look very different when compared to those boom years.
“The very big businesses, generating half our GDP and employing 40% of the workforce, take advice from the top 50 consulting firms, every day. It's continuous, they spend a fortune on it. And it's what keeps them big, because they get a constant flow of high-grade advice and information,” Duncan said.
Medium-sized firms also buy continuous advice and pay well enough to be fought over by individual specialist consultants
Small and micro-businesses struggle to afford the typical fee of £500+ per day of any consultant and only then in response to problems they experience.
This problem is compounded when considering that the average spend of £3,000 a year will only pay for six days of advice.
“Given that it takes a consultant at least a day to understand the problem, another day to devise a solution, and another to review and follow up, there are only three days left to deliver the service,” Duncan said. “And 22 years’ experience in the previously government-funded programmes with one million businesses showed quite clearly that 30 days spread over 12 months are necessary to bring about permanent improvement and self-sufficiency in any business, enabling it to operate professionally thereafter.”
Another issue, he said, is that small and micro-businesses will often only turn to a consultant for help when they are facing a crisis, a situation which is all too easily exploited by unscrupulous or incompetent consultants, desperate for income.
“This is one of the big reasons consultants have such a poor reputation,” he said. Daily Telegraph research recently showed that the majority of small business owners thought their business was in a worse state after using a consultant’s services than it had been before. In many cases, the experience would put them off consultancy altogether, leaving them to struggle through business challenges alone.
As the UK economy faces uncertain times and there is arguably more need to raise competitiveness than ever before, does this mean we are destined to plummet down the rankings yet again? Informal research suggests we have already sunk to 10th position.
Harnessing the power of automation
Duncan began to look at ways this gap could be closed. He started by isolating what it was that a consultant does in a typical, effective, business improvement project, from beginning to end.
S/he will start by working out the state of the business now, and its potential future state for the client to approve as a goal for the project. Then devise a list of actions to close that gap, a research and planning phase taking 8 to 12 days.
And to provide implementation support to the business owner in order to ensure that tangible results are achieved usually takes another 18-30 days over 9-12 months.
It reaches a total budget of £13,000-£21,000, which is usually way beyond the reach of any small micro business.
Duncan was keen to understand how much of that was process-driven. His own earlier experiences at Mazda Cars of automating the national parts distribution processes had resulted in massive reductions in cost and increases in speed. Could the same be done here?
“Unpicking it all and committing the components to spreadsheets, my conclusions were both sobering and hopeful,” he said. “Ninety percent of consultancy work was clearly repetitious, doing the same things in the same ways again and again. The brain bit was just 10%, i.e. three-four days of the 26-42 total.
“The other 23-39 days were being wasted for want of automation.”
It was possible, in other words, to produce a full scale, game-changing improvement programme for the price of the six days which small businesses are already paying, and for the consultant to still receive their fee of £500 per day.
How Runagood was built to close the gap
A benchmarking model was built using the small business performance statistics which Duncan had amassed over 22 years from one million businesses. That was combined with the equally extensive Business Link database, before that was permanently archived in 2012.
Any business’s input could then be compared with this model, updating the database each time it was used.
He devised spreadsheets for all the consultancy stages and tried them out on 25 businesses, until he could reliably get the key inputs from them inside a one-hour meeting. That included feedback on their business potential and an automated plan to close the gaps identified.
“They loved it and willingly paid £100 each, which is when I knew I was onto something big,” he said.
The next step was to develop an algorithm that would calculate the gaps in each of the five key performance metrics (marketing, operations, systems, people and finance) and from these work out the market value of the business and its potential value, to use as a continuous benchmark of development progress. The aim was to produce all this in just a few minutes to show a business owner where they are versus where they should be and then develop a business plan to close the gap. Finally, individual action plans were drawn up, to be implemented at the rate of one per month. These took several years to write from scratch and amount to 17 groups of 250 Methods containing 3,000-5,000 detailed action plans.
It might have cost Duncan the sale of all his personal assets and taken years to perfect, but the outcome is instant business advice that is now available to business owners, anywhere in the world at £5-£10 per day. To reach them all, accountant practices are being appointed as local Runagood® Business Centres supported by AI Business Advisor®s, offering free analysis and planning to local businesses. These are only charged when they elect to open an online business account and take direct coaching support to help implement their action plans. Clients are protected by three-way contracts giving an unheard-of level of governance and advisor supervision.
“There is the saying that you can't get good, fast and cheap – that you can have any two, but you can't have all three. Well, we say yes, you can. Runagood uniquely does good, fast and cheap,” Duncan said.
“At the moment, small businesses do not budget for professional advice, it's something that hits them out of the blue. So, through this low cost, high tech, affordable approach, we are moving them towards planning for it, like the big businesses do. Since they are going to spend it anyway, how much better to do so to prevent the damage rather than after it occurs?”
This revelation may be just what those five and a half million small business owners in the UK were waiting for.
For more information, contact Vini Bance on vini@runagood.com