Consulting and Long-Term Decision-Making.

I am in an unusual position. I have started a consulting company (Mäd) and a technology startup (Blue).

I am fascinated with the human decision-making process. I have found that there is a vast difference in how one makes decisions as a consultant vs how one makes a decision when it’s your own company.

Consulting has a bad rap, and for good reasons too.

Many consulting firms hire MBAs straight out of university and charge inflated fees for these fresh-faced graduates — who have never had the experience of making a decision or recommendation.

Steve Jobs once humorously said about consultants:

You should do something!

Jokes aside, consultants do serve a purpose. It makes no sense for an organization to hire full-time staff for every single thing required to get done.

There are many small projects or sporadic work that is best suited to specialized consultants. And even if you pay a high hourly rate, it is still significantly cheaper than having full-time employees who spend most of their time idling due to lack of work.

But, there is an inherent issue with consulting: the nature of short-term engagement.

This means that consultants often are not around to see their recommendations’ results, which may take years to realize fully.

Because what is ownership, after all, if not long-term responsibility?

Because this aligns your self-interest with good decisions, if you are the one to suffer due to a poor decision, you bet you’ll try your hardest to make a good decision!

And we come to one of the juxtapositions of consulting. If you’re a consultant, you experience both accelerated and slow learning.

Your learning is accelerated because you are likely to work across dozens of different industries in just a few years. So you can spot common patterns, gaps in understanding and cross-pollinate good ideas between industries that normally never meet.

This is a good thing, and this is how you add value.

You spot a particular client management method used by a top-tier law firm and realize that your clients in insurance and banking could benefit. You dive into the customer support process at a telecommunications provider, and you realize that your public sector clients could use the same framework.

But, this could be argued to be superficial. You don’t get to go deep, and you go broad. It’s the equivalent of listening to all the Beethoven Sonatas but never attempting to play one yourself.

On this topic, Steve Jobs elaborates

You might get a very accurate picture, but it is only two dimensional.

So perhaps as a consultant, you also don’t learn as quickly as those that specialize and stick around one organization for significant periods.

That said, perhaps I think this is the difference between a lousy consultant and a good consultant.

A lousy consultant is in and out, they do quick engagements, and then they are onto the next client, the next sale, and the next opportunity. They do only what’s required, and they never experience having to own a specific decision and the second and third-order consequences of their advice.

Good consultants are in it for the long term. They build client relationships measured in years, not weeks or months. They know that they have to get things right because they will be around to see what happens — and take the blame and the impact on the relationships. In other words, they have skin in the game, to paraphrase Nassim Taleb.

The problem is that all consultants, good or bad, know that this is precisely what clients want to hear. So everyone will speak about long-term client relationships and thorough analysis, but not all will do it. I covered a similar issue with vendors in my essay on the issue of fake commercial off-the-shelf software systems.

And what companies often fail to appreciate is that they already have all the brains and resources they need inside already — their existing teams! But, they value the expert from afar more than the loyal employee who is full of ideas but does not get a chance to prove them.

I believe that true ownership of an organization as an equity partner is the best possible induction to long-term decision-making. Not only will you be around to see the positive or negative consequences, but the negative consequences may seriously affect you.

You pay the price for being wrong, which is a forcing function for better ideas.

It is hard to imagine a more stupid or more dangerous way of making decisions than by putting those decisions in the hands of people who pay no price for being wrong.

Tomas Sowell.

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