202412301655 Status: #idea Tags: #consulting #entrepreneurship #startups # Converting consulting services into SaaS products > [!tldr] > Consulting services offer a window into how companies within an industry vertical operate, providing ideas that can be turned into SaaS products. > > Most consulting companies fail to accomplish this services -> products pipeline because they actively incentivize against consultants doing anything other than billable client work and do not adequately roll-up learnings across clients within an industry vertical. > > These problems can be solved by documenting learnings across clients within an industry, having dedicated consulting and engineering teams, and providing equity to employees to align incentives with long-term growth. Consulting companies provide a great path to developing B2B software products. The hardest part of developing a successful B2B software product is identifying customer pain points that are: 1. Common to most or all firms in a given space 2. Extremely valuable if solved (i.e. solving the problem either greatly reduces costs or increases revenue) Consulting allows a company to do boots-on-the-ground research inside of a company, identifying problems and developing bespoke solutions to those problems. If you concentrate your consulting in a particular industry, you will start to see commonalities between the problems facing each company (and their corresponding solutions). This leads to ideas for SaaS products to address the common, valuable problems in the industry, yielding much higher margins than consulting services. There are several key reasons most traditional consulting companies (e.g. McKinsey, Bain, BCG, Deloitte) fail to implement this model: 1. Learnings are not aggregated across companies in an industry. Each company account (particularly if it is a big account) are siloed, with knowledge built up inside of that account team. There is no accessible knowledge base that rolls up all of the learnings across all companies in the healthcare sector for example. This limits idea generation, since no single consultant can see across the boundaries of all the companies in a given industry vertical. 2. All consultants are incentivized to perform billable client work. This leaves no time to implement general product solutions that function across multiple clients, since this would take away substantial time from billable work. 3. Only partners receive a share of revenue in the company, so low-level consultants are not incentivized in any way to bring forward ideas that could result in valuable product plays. In addition, partners receive a share of company revenue *proportional to the billable client work they have sold*. Hence, product initiatives are at best a distraction and at worst can ruin sales targets for many risk-averse partners. Palantir addressed and solves these issues by providing all employees equity in the company (aligning incentives) and creating dedicated engineering teams whose main goal was to develop SaaS products based on the learning from the consulting teams (dividing responsibilities between consulting & productization). The two separate groups within Palantir, consultants (aka forward deployed engineers) and product engineers, have differing goals in their work. The goal of consultants is to solve difficult client problems in a given industry vertical and document their learnings. Product engineers take these learnings and create general solutions that are valuable to the entire industry vertical. Palantir also provides equity to employees, aligning the incentives of the consultant and product engineer teams (i.e. if a consultant suggests an idea that a product engineer turns into a hugely successful product, the consultant benefits from the results). --- # References