Stop Hiring Senior Data Consultants: Leverage Expertise Instead

Do you want to scale your data consulting business? Think again! Scale is nothing without leverage. What you really want is to increase the profits returned to you (and other partners of your business.)

But don’t take my word for it; take a look at Sara’s story instead.

Sara has been running Sara Data Services LLC for 3 years now. Her business is good, and for a year, she’s been trying to scale her business successfully.

There’s only one problem: While Sara doubled her client base from 15 running projects to 30 and grew the headcount of her business from 5 to 10, she ended the year without making more money!

How’s that possible? This article will tell you Sara’s story and her one key mistake: Looking for scale where she should’ve been looking for leverage.

We’re not saying scale isn’t important in growing your data consulting business, but we’re saying it’s only one ingredient; without leverage, scale usually leads to the same money returned to the founders, or sometimes even less.

Sara Needs To Hire Top Talent

Sara runs a data consulting business. She sets up mostly marketing-related dashboards inside Tableau for clients. She uses her years of experience in the industry to design great dashboards focusing on ad spend per channel, Customer Lifetime Value, and more.

To make this work, at the beginning of her scaling efforts, she had a team of 5 people:

• Sara (herself), as an industry specialist, is responsible for selling and managing high-end customizations of the dashboards
• 2 business analysts are responsible for the usual setup of the dashboards, organizing folders, and creating reports & analyses based on those dashboards for the first 3–5 months of the project
• 2 analytics engineers use dbt to create the data behind those dashboards.

But when she took on more projects, she realized she had become the bottleneck. She needed to hire top talent, in her case, two more very experienced generalists with 10 years of expertise in marketing and data. On top of 2 more business analysts and another analytics engineer, she now has a team of:

• Sara (herself) as industry specialist.
• 2 experienced marketing & data managers
• 4 business analysts.
• 3 analytics engineers.

First of all, Sara did spent a lot of time hiring suitable talent, and with such an experience as herself, these two new managers are expensive. It is so expensive that it seems like all her revenues are eaten up.

Note on Upskilling: While upskilling will be an essential tool to you when you increase leverage, and Sara certainly upskills her team to get more leverage, it simply is not possible to upskill a business analyst to meet the requirements of managing a data consulting project in its entirety. This requires 10+ years of industry experience in multiple companies, expertise only Sara brings to the table, and thus, she needs to hire in.

Scale Vs. Leverage

Let’s take a look at Sara’s balance sheet to understand how this happens and what the key drivers are.

Sara made a cool million last year and could roughly double that this year to $2 million.

But her cost also exploded; let’s look into the details:

Huh? Sara is suddenly left with less money! Even though she only needed to add one more analytics engineer, she had to add two experienced marketing people to cover all this new business.

And those people are expensive, too expensive, on average. That’s what leverage is all about.

What is Leverage

As David Maister, master (no pun intended) of professional service management, explains, “A professional services firm’s leverage is […] central to its economics.” Maister goes on to explain that the return of profits to the founders of a data consultancy comes only in part based on their own expertise, of which Sara certainly has a lot. It is the ability of the firm to use the project team structure to leverage the professional skills of senior people with more junior people.

It is a simple idea: You charge your clients for the expertise of your top talent. For Sara, it is her own and that of her two managers. Then, they use the support staff to offload as much work from them as possible without compromising the quality of the work!

If you simplify the concept of leverage, it basically comes down to the ratio of junior hours vs. senior hours, and you can bill a client at the same price.

Here’s an example of increasing this ratio:

If you bill a client $150 an hour, and that hour consists of:

• 30 minutes of work by a senior manager
• 30 minutes of work by a junior consultant (e.g., a business analyst)

That’s a 1:1 ratio of junior to senior time. But if, after creating good manuals and templates, you’re able to bill a client $150 an hour for:

• 50 minutes of work by a junior consultant
• 10 minutes of work by a senior manager

you’ve gone to 5:1 and thus grew your leverage 5 fold!

How Sara Can Use Leverage

For Sara, the revelation is clear: Her project structure doesn’t work. So, let’s look at two different models she could use:

This model assumes that Sara hires only one manager but leverages her own and his new projects by hiring more than average business analysts and standardizing her projects more.

By paying less on average per project on salaries, she’s able to increase leverage and thus return more profits for herself.

But even in the situation she’s in right now, she can increase her leverage. Unfortunately, that probably means scaling projects even more and hiring more lower-cost juniors, which can be stressful. But if she follows a similar project structure, she will end up with this model:

Ending with a cool profit of 600,000.

Leverage Drives Scale

There’s a second effect data consultants usually dismiss: Once you get good at using leverage, your cost per project will fall for the same benefit delivered to the client.

That means there is usually a healthy margin for **reducing prices, thereby attracting more clients and scaling further.

Looking to Grow Your Data Consulting Business? Then Hire Juniors!

The simplest advice we can give when you want to grow your business is to hire more juniors. We know it’s hard to think about leverage; it seems counterintuitive, and it is if you’re just looking to grow and scale, but the reality is that, usually, no one is looking only to scale. Usually, you’re looking to scale and increase the profits returned to your business’s founders and top management, and that will only work if you increase the leverage in parallel.