AI Strategy for Consulting Firms: From Efficiency to Growth

Joe: Welcome to the Consulting Growth Podcast. I’m Professor Joe O’Mahoney, CEO of Equity Sherpa. We help owners of consultancies quadruple the equity value of their firms over a two to four year period. If you’d like to know how we do this, visit equitysherpa.com. I have the real pleasure of welcoming Shawn Yeager. Shawn has spent years in disruptive technology and now runs Upshift, which does really useful work with AI and professional services. Shawn, thank you for joining us.

Shawn: My pleasure, Joe. Thanks for having me.

Joe: Tell us how you ended up as founder of Upshift. You’ve been in disruptive technology for three decades or so.

Shawn: I have, much as I might wish it were a shorter period. The career arc has been emerging or new technology, beginning in earnest on Microsoft’s first browser team, then e-commerce, SaaS, mobile, streaming, digital payments, specifically Bitcoin, and over the last year plus, AI. The through line is new technology, new products, new markets, new customers, new revenue. How do you take a disruptive mechanism and help companies get across the proverbial chasm? What took me to Upshift was noticing that the first natural stage is adoption, often for efficiency, and the next, more critical stage is commercialization: how do we make money in a way that wasn’t possible before, often by replacing what is no longer possible? Professional services firms broadly, consulting among them, and particularly those that bill by the hour, have a tremendous exposure to what AI does, which is to compress. They also have a tremendous opportunity to sell what has always been the value in the first place, which is judgment.

Joe: Productization has been a theme in professional services for some time, because if you’re building to sell, buyers and investors want a predictable, repeatable engine. Is AI simply an acceleration of that, or does it offer something unique that consultancies should sit up for?

Shawn: There are two things. It would be cliché were it not true to say this is the most pronounced technological change I’ve been through, even with the hype set aside. It is operating at a velocity we have not seen. In simple terms it does two things. It decomposes the billable hour. Billing by the hour will not go away. It will outlive us all. The billable hour itself has been exposed. The work now is to pull that apart and look at what is truly valuable, which is often a judgment, a call, an outcome where the risk of getting it wrong is significant. There are now technologies that connect to your accounting system, your billing system, your time tracking, and draw a line between the true inputs and the revenue. It is a change of business model and pricing model that is being accelerated, and a chance to do more of the productization you talk about.

Joe: Most firms I look at are either doing nothing, or they are using ChatGPT and Copilot to write an email or a PowerPoint. Are you seeing many doing fundamental business model shifts, or are most creating a faster horse rather than building the car?

Shawn: Most are building a faster horse. Hands-on keyboard and chatbot are steps, and they are necessary. They are only part of it. A lot of the work I do is informed by Alexander Osterwalder’s business model transformation. I had a chance to work with him in 2010. Business model transformation usually comes second, and that is what defines the firms that win. I’m much more interested in that latter component because I think that’s what differentiates. As an aside, at a couple of M&A events, PE operators have approached me to say, quite literally, they’re now pricing professional services firms in two buckets: those that are at least working toward AI-native, and those that are stuck.

Joe: I was at a talk organized by BDO a few weeks ago and bumped into investment bankers who said that on two of their deals, the investors had done the AI due diligence before the commercial or financial due diligence. That’s not commonplace yet, but it shows how far it has shot up. Private equity is sitting on a lot of undervalued assets. We’ve both seen firms that don’t have a future anymore.

Shawn: Sadly. I think there will be a lot of roll-ups. In consulting, McKinsey and BCG and others are spending three to four billion collectively this year, and they’re coming down market. Boutiques have the freedom to pivot and experiment. The mid-market is most at risk.

Joe: They were having a hard time anyway. At least the large firms have deep pockets. If they waste half a billion, the partners take a haircut.

Shawn: They’ll be just fine. Although Accenture posted its worst day ever about a month ago.

Joe: Accenture had been overpriced for a long time, so a correction wasn’t a surprise, and then it kept correcting. Similar listed firms haven’t had that collapse, but it’s still not looking good. The market is aware of it. If I came to you with a firm like Equity Sherpa, we maximize the value of consulting firms with a fairly manual process of interviews, data analysis, and recommendations. Lots of strategy firms are based on that model. Is there a future other than using AI to do it faster and billing a bit cheaper?

Shawn: Absolutely there is. One of the first components of the work we do is service landscape mapping: place the lines of business on a map in four quadrants, exposed, compressing, defensible, and emerging. Everybody loves a two-by-two. Compressing is fairly straightforward. We have a free assessment that looks at the density of your services and associated revenue, how much of that is done by non-senior staff, and how much is repetitive. That tracks your exposure to the billable hour: concentration of work that is repetitive and done by junior staff, and therefore can be automated. What you end up with is a posture on this map. The things your competitors can also acquire, Claude and Perplexity, are table stakes. You have to adopt them too, because the firm across town can buy the same tools.

Joe: And the client can as well.

Shawn: Indeed. And that is crucial. They’re beginning to have that conversation. Clients are bringing work half done. Exposed is fully exposed. Compressing is as AI advances, it will encroach on this work. Defensible is tied to judgment that is unique, earned over a significant period, and to the relationships and trust you’ve built. It’s the founder who calls you at 6 p.m. on a Friday and you answer. Emerging is what now. An example of new work: what if it wasn’t one time? What if it isn’t when they call you? What if agents are continually ingesting new data relative to the valuation of your client firm, charting that on a dashboard? They probably don’t need real time. That might be anxiety-inducing. But if they can drop into an application on your website without exchanging an email, and without paying you for another discrete engagement because they’re subscribed, those offerings offset the compression of the billable hours and the discrete projects.

Joe: Professional service firm owners often struggle with tech businesses. They’re used to cash-rich businesses, no debt, fluffy terms of engagement. What’s your advice? Are we looking for new leadership, a new competence, as they make this transition?

Shawn: It depends on whether the owner is riding out the last five years: a window in which they exit, sell, or the children take over. I understand that. For most others, I know there’s fatigue around we need a new chief of this and that. Competency is still crucial. If you use ChatGPT as a better Google search, you have experienced 2% of what’s possible. As a small illustration: my CRM runs itself. I have some cold outbound, which some people find unappealing, that builds ideal customer profiles, a target list, enriches the data, scrapes the website, looks at the service offerings, scores the exposure those firms would have, and drafts tailored outreach with an offer to read some of the content or use a calculator that shows how exposed they are. That’s not “go me.” That’s what’s possible, and for a boutique it matters.

Joe: Did you build that yourself, off the shelf, or a combination?

Shawn: I’m a lifetime nerd, and I build to be credible. I am not saying firm owners need to fire up Claude Code, although I think it’s a great skill set. They need that depth of knowledge, either directly or by bringing someone who has it.

Joe: I’m promoting AI and automation as the new leverage. I’m a board advisor to a firm of very senior people. They’re doing delivery and admin. Their model isn’t to take on juniors. The answer there is, there’s another type of junior now.

Shawn: Yes. There’s a piece to write: there’s another kind of junior now.

Joe: Tell us about a project, if you can, that is particularly illustrative. A lot of CEOs are keen to get stuck in and don’t know whether to start by automating PowerPoint or standing up agents.

Shawn: Anyone who has worked with tech startups knows customer discovery and product-market fit. Before you build, validate the problem: that it is painful enough to be paid for, and that there is money on the table. In software that means serious capex exposure. That pre-work is now also the work of professional services firms as they build new offerings, automations, agents. Capex goes up. One project I’m thinking of, in partnership with implementation firms, went through the workshop and then a 90-day sprint to first dollar of revenue. We rebuilt their pricing model. We re-understood their segmentation: from twenty-odd SKUs, sixteen services, and a dozen buyer personas, to three, three, and three. From a go-to-market team attacking every deal as if it’s the only deal, there is now a posture. Do we understand who we’re selling to? Do we understand what we’re willing to offer them, which is different from we’ll offer them whatever they’re willing to pay for? How do we align sales and marketing? We have clarified pricing, packaging, positioning, and the work now is to build the offers. Within the next 60 to 90 days they go live. In the background we’re having a lot of conversations with clients and prospective clients to tune it. This is not “become a SaaS product.” It is taking the clarity of pricing and packaging that SaaS companies have, and applying it. It’s painful. It’s disruptive. You fan out to the functions, understand the impact, work through it. The net is a transformation of the pricing model. The operations behind it are the same, now much more focused, unified, and dramatically more efficient in delivery.

Joe: I’m so pleased that was a business example, not a tech example. I’ve just written a chapter arguing that people reach for the IT manual, not the business manual. Unless you get the traditional management practices right, which most mid-sized firms don’t, the AI is not going to work.

Shawn: It’ll work short term, or it will be dismissed because you never knew what good looked like anyway. I lose a lot of deals because the tendency is let’s just go build. I’m okay with that, because that well will run dry. Without attachment to a commercial business outcome, as with mobile, as with cloud, you don’t know where you’re going, and any path will take you there.

Joe: Very often a CEO has had an idea in the shower, plowed in some cash, got Claude to build it, and rings you saying we need help taking this to market. My heart sinks, because the pre-work hasn’t been done.

Shawn: Treat those as experiments. Treat them as opportunities to learn. Do not underestimate the mouth you have just committed to feed, which is this product, this technology. Firm owners are often uncomfortable with product. I have background at Accenture, so I appreciate that. It is a necessary step, and it rarely is the magic it feels like in the moment unless you have the scaffolding, the KPIs, the outcomes you’re aiming for. Then the disappointment comes. You had a magic moment. It feels like a superpower. It is not a one-and-done. Only with a revenue target attached to a service line or product line does it get the attention it needs to thrive.

Joe: There’s a whole conversation about how you manage this structurally, with spin-offs and a separate P&L. As far as I can see, it depends.

Shawn: I know that’s a horrible consultancy answer. In the work we do, I’d love to say consulting was at the top of the list. It isn’t, for the reasons you’ve touched on. Legal, accounting, marketing: some of that pain is more pronounced. In consulting there is so often a not-invented-here, we’re different, we’ve got the brand-name managing partner. It feels disruptive. Whether that needs to be on its own P&L, because this is now a subscription rather than time and materials or fixed price, is part of the conversation. Do we put it out on a short leash and let it thrive or die, as has happened in other waves, or does it fundamentally transform the business and we endure the discomfort?

Joe: That latter bit, fundamental transformation, is risky, and it’s bloody hard work.

Shawn: I would never make light of that, which is why I appreciate that it often needs its own container.

Joe: One final phrase: forward-deployed engineers. The big frontier-model companies are moving into consultancy with engineers who work alongside private equity to transform. I’ve seen limited examples of this working. I’m skeptical of the capability of engineers to replace consultants. The skill sets are different. They’re better at implementation, not so great at the fuzzy stuff consultants should be doing.

Shawn: In the mid-market circles I operate in, I’m not seeing an Anthropic FDE drop into a client. I am having conversations with colleagues who are. I read it in two ways. I think back to Microsoft in the 90s and Microsoft Professional Services: technical account manager, many variations of this. That is an extraordinarily cash-flow-positive business funding a very expensive paid sales engagement. The other way I interpret it, for listeners on the technology or adjacent side, is that’s the TAM. These four or five companies have committed to spin-offs, including Microsoft. That now looks like a serviceable, addressable market for a lot of consulting firms that would otherwise go after that business. The least charitable reading is that BlackRock and others have only taken this step because they don’t think the incumbents can do the work. I choose to look at it as a roadmap. Sequoia put out a hit list on professional services: here’s a trillion dollars, the proverbial six dollars in services for every one dollar in software spend, go get the six. That is a blueprint for professional services firms that can deliver that work or work adjacent to it: change management, leadership. Forward-deployed engineer is the new cool-kids version of titles we’ve had before. Ultimately they are paying to entrench their product, and then they turn the tap on. If I get to spend $100,000 to get you to pay me five million over the next five years, I’ll do it every time.

Joe: That’s a very intelligent analysis of where things are going, and a good call for owners to keep their eyes open. Shawn, thank you so much. I will put a link to Upshift in the show notes, and people can find you on LinkedIn, where you publish some really interesting, useful content.

Shawn: I appreciate that, Joe. Thank you. It’s been a pleasure.

Joe: Take care. Cheerio.