DIY or partner up?

April 2, 2010 8:27 AM

Consultancy & partnership: when to open partnership tracks?

Suppose you have a consultancy business (PR, law, project management, business consultants, any business that is primarily about selling "billable time").

What is the most lucrative moment to open partnership tracks? Should you look for partners from the beginning, or should you only do it when you have built something of a brand and there is no more organic growth possible?

How do you value the brand - ie how would you structure the partnership? Is there any literature about this sort of thing?

posted by NekulturnY to work & money (4 answers total)

FWIW, partnership tracks in major law firms are right around 8 years. I assume they've crunched the numbers on that.
posted by craven_morhead at 8:34 AM on April 2, 2010

Basically, you promote partners when it would prevent your employees from defecting with your business connections. If an employee controls your firm's relationships with one or more clients, that person is a threat to your bottom line unless they own a piece of it.

As long as your employees are just doing the work, there is no reason to make them partners -- pay them salaries, give them raises if you need to. Start to make them partners when you need them managing client relationships.
posted by grobstein at 9:01 AM on April 2, 2010

For a relatively thorough overview of the business logic behind partnership decisions in professional firms, check out David Maister's Managing The Professional Service Firm.

Maister also has a number of free articles on his website including this one, discussing the partnership structure in a consulting firm.
posted by ewiar at 9:41 AM on April 2, 2010 [1 favorite]

Here is a wsj article about the economics of law firm structure, but I think it very much applies to the issue of partnerships in consultancies.

The reason you give out partnership positions is once someone has been given access to client relationships that they might be able to take with them if they left. Partnership allows you to divert enough of the excess profits of the firm to that partner to remove their incentive to take some of your clients and leave.

The more you can manage all of the client relationships yourself, the less you really need to give out partnerships to anyone else.
posted by vegetableagony at 6:40 AM on April 5, 2010