There was an interesting article in the New York Times about First Quality Music, which is owned by the Sullivan family and manufactures banjos, guitars, parts and accessories in Louisville, Kentucky. The company was having financial problems that had been intensified by the recent recession. One of the family members had read “Profits Aren’t Everything, They’re The Only Thing” by George Cloutier. Mr. Cloutier is the founder of American Management Services, a consulting firm that specializes in business turnarounds. After reading the book, the Sullivans decided to pay American Management Services $500 to give them a preliminary assessment.
The assessment found many areas of improvement but the consultant’s fee for continuing the work was $170,000. The Sullivans could either pay this fee and hire the consultant or they could use the preliminary assessment as a starting point and do the work themselves. The Sullivans decided to scrape together the money to hire the consultant. The consultant worked with them for 5 months during which he would visit them on site a few times a week. By the end of 2010, they were breaking even with a plan to reach profitability. This was in contrast to the large loss that had been projected at the start of 2010.
Matthew Stewart, a former consultant, was quoted in the article:
“If the long-term problem is that the family has exceeded its managerial capabilities, then getting a list of solutions from a management consultant — however accurate or perfect a list it is — won’t solve the problem. When the consultant leaves, they’ll still be faced with the task of getting the job done.”
I think Mr. Stewart makes a very good point that reflects on whether a business owner who hires a consultant to fix a problem like this gets his or her money’s worth. I’m not familiar with American Management Services and I haven’t read Mr. Cloutier’s book but from the information put forward in the article, it appears that the Sullivans got more that a quick fix. They received an education that improved their management abilities. The consultant spent significant time working with them and there was a transfer of knowledge.
This is how the the best consulting relationships should work. The company hiring the consultant should have a better level of knowledge regarding the problem at the end of the project than when it started. This requires a consultant who is willing to teach as things move along but it also requires a business owner who is willing to learn. A surprisingly large number of consulting engagements fail because either the client doesn’t take the advice or the client hasn’t learned enough to keep the momentum going on his or her own.
So, is a consultant worth $170,000? It depends. By the account given in the article, the Sullivans likely got a very good deal. In a different situation where the consultant carefully guards his expertise or a business owner can’t be bothered to learn, the price is much too high. The good news is that the business owner has a lot of control over the success of the project. Hire the right consultant and learn as much as you can and the dividends will repay the investment in the consultant’s fee many times over.