Do small firms need consulting to grow?

Small businesses are often lacking in certain business functions that can be outsourced to consultants – provided the pride of small business leaders can be overcome.

This is a question I have been wrestling with internally for a while. Over the past 20 years, I have worked primarily with small/solo professional service firms. As anyone who has worked for a small business can attest, everyone usually wears a lot of different hats at a small firm. That means, quite often, that certain key business functions necessary for sustainable growth are somewhat lacking.

Examples:

  • A firm may have strong accounting, but lacks in marketing competency
  • Another firm has strong sales/marketing skills, but lacks anyone with IT skills
  • Yet another firm has strong operations, but lacks strategic planning

Some firms are lacking in multiple areas.

This is where consultants can really save the day. Instead of taking on tasks that internal staff are not capable of readily and competently handling, hire a qualified consultant. Seems like good advice, right?

“Pride only hurts. It never helps.”

Marsellus Wallace in Pulp Fiction

Many small businesses don’t ask for help when they need it. Pride gets in the way. The small business owner has inevitably conquered incalculable hardships to reach any level of success. I get it. But just because “GoDaddy Tonight” makes it really easy to create your own website, doesn’t mean you should. Hire a professional!

Testing the efficacy of consultants in small firms

Economist Dean Karlan participated in a recent study that will explore this issue in more detail:

Two recent randomized trials by Innovations for Poverty Action in Ghana  (coauthored by Dean Karlan, Ryan Knight, and Chris Udry) and in Mexico (coauthored by Miriam Bruhn, Dean Karlan, and Antoinette Schoar) tested whether consulting services can help enterprises grow. In other words, with nothing more than advice, can small firms or microenterprises increase their profits? Or are they already optimizing, given their resources?

The answer is likely, “It depends.” But depends on what?

In the study in Ghana, businesses will receive a one-time cash grant equivalent to 80% of the firm’s monthly revenue. One group will also receive approximately 10 hours of consulting time over a year from Ernst & Young management consultants. The study in Mexico will place local consultants with micro, small and medium businesses offering around 200 hours of consulting time over 11 months, with no financial support. The results should be available this summer.

Image courtesy ShashiBellamkonda