How to Think Like a Consultant - part 1

I hope to make this a theme rather than a singular blog post, especially since many of my friends and readers are not in consulting and seem curious about what it is and what we do.

There are a several types or flavors of consulting and clients hire consultants for a host of reasons, but in general they have a core question and want an outside firm to give them an answer or recommendation.  Consulting has been defined as "renting brains" whereby a client hires a consulting team to think through a challenge or question.


Strategy consulting firms, like my health care-focused company, address questions like this:

• Should we buy this company?
• We have x dollars and have two products we could build.  We cannot build both now; which should we prioritize?
• How much will x market or y field grow in the next 10 years?
• To move into a new market or industry, should we develop tools and products internally, or acquire a company that already plays in that space?

Our tasks are to (a) understand what our client wants to know – it’s not always clear, then (b) go away and do a bunch of research and think really hard, and (c)  provide the client with an answer to their question.

Here's an odd-ball example to illustrate how a consultant approaches a question.

Question:  How much money does the San Francisco Bay Municipal Ferry make per year?

Here are some of the questions you'd consider:

• How many ferry routes are there in the Bay? -- This defines the universe of research.
• How many scheduled departures are there per route per day? -- The number of trips.
• How many passengers ride an average ferry?
• How many ferry boat companies exist? – What we call the 'competitive landscape'.
• Of all passengers riding ferries in the Bay Area, what percentage of passengers ride on a SF Bay Municipal Ferry?
• How much does a ferry boat ride cost?  In reality, its $5 for locals and $9.50 for tourists, so knowing the split between local vs. tourist riders is relevant.

To arrive at the answer, we might do a calculation like this:

Step 1: Number of ferry boat passengers per day =  (# ferry routes) x (# trips per route per day) x (# passengers per trip)

Step 2:  Number of passengers per day on our ferry boats.  There are multiple companies that provide ferry service; we’re only interested in one of them. = (Number of ferry boat passengers) x (% of ferry passengers riding SF Bay Municipal Ferry)

Step 3:  Daily revenue = (Number of passengers per day on our ferry boats) x (% passengers who are tourist) x (tourist price) + (Number of passengers per day on our ferry boats) x (% passengers who are locals) x (local price)

From here, we could easily extrapolate from daily earnings to annual annual revenue.  To be more detailed, you could figure out how the # of passengers varies throughout the year and how the distribution of tourist-vs.-local changes over the course of the year and many other layers.  Some of this data could be found in secondary research (published statistics or market research reports) and some could be obtained through surveys or interviews or first-hand experience.