A client I worked with ran a successful service business serving Ultra High Net Worth Individuals. Established for 20 years, he was commanding high hourly rates. And the business was profitable.
However, 45% of billable hours were his.
He engaged me to reduce the founder dependence. The goal was to work with him and his team to reduce his involvement in operations, but also, specifically, the dependence of the company on his billing time.
We started analyzing what he spent his time on. There was the usual admin and management work, operations stuff, process improvements, but then also lots of client engagements.
Delegating operations and admin side was easy because there was a capable team in place and the questions weren’t difficult.
Next, we looked at service delivery, meaning the billable hours. We designed processes, roles, and RACI matrices to come up with a transition plan that would ensure gradual handover of hours as well as maintaining a high quality.
When building systems is not enough
However, it turned out that none of these business systems were good enough.
For some reason, mapping out what a less founder dependent model looked like didn’t lead to any meaningful change in the way he and the business operated.
Then he found another very senior person that did the same work that he did and that would join the company.
He slowly handed over individual client accounts to him and observed what this new provider was doing.
As he saw that he could trust the service delivery of that new player, he gradually pulled out of his client accounts and handed them over fully.
Just like that, without any process and operations work, the transition worked.
What happened there?
Why founder dependence for billable hours is problematic
When the CEO is the one building most of the hours, there’s a couple of problems with that:
- You’re capped in growth. If nobody else can drive meaningful billable hours, then the business can’t grow beyond the owner’s time.
- You as the CEO don’t have entrepreneurial leverage.
- You’ll never grow enterprise value for your service business if revenue generation and delivery depend on you. So you won’t be able to sell or exit the business well.
Intelligence vs. Judgement
Now, why was building systems here unsuccessful? And why did the organic handover to another season specialist work? What we observed here was something I only understood a bit later.
There are two different categories of knowledge work:
First, Intelligence. Intelligence means that you operate in a complex environment yet your work and decision follow rules. You can write down these rules, train someone on them, and then build an operating model around it.
The second type of knowledge work is judgment. Decisions are being made based on intuition and experience. Very hard to codify, very hard to standardize.
Consequently, it is very hard to delegate as part of an operating model. Because whoever you delegate to needs to apply that judgement, so they need intuition and experience.
Delegate intelligence-based work through systems
These two types of knowledge work require different ways of handing them over if you want to reduce your billable hours. First, it’s important to understand what type of knowledge work it is that you’re doing.
If you’re involved in intelligence-based work, you have a vast understanding of a large set of rules and are able to execute them really well. This can be documented and standardized. The approach to getting out of billing for you would be to write down:
- what it is that you’re doing
- what rules you’re following
- what criteria you’re observing
- what decision-making logic you’re using
And then train somebody on that framework.
Delegate judgment-based work to experienced contributors
If your work is mostly judgment-based, you look at a specific case and apply past experience to make a decision or give a recommendation. There’s often not binary logic to decisions. More a “I think this will work”.
Writing SOPs, and then training someone on executing them won’t work here: Your decisions can’t be codified.
If that’s you, the most efficient way of getting out of billing is really a transition-focused hand-off to another senior service provider.
You have to find someone who is able to make good decisions based on existing experience because you’re in an experience-based judgment-based field of work.
You jointly deliver on client accounts for a limited period of time (say, 2, 3, or 4 weeks), and you observe what that new person is doing on the client accounts.
Once you gain trust, you let go of these client accounts.
The only thing from an operational perspective that you are providing is infrastructure. Things like operating model, communication structures or templates.
Now, this, for me, was a really revealing way to look at why sometimes the transition out of delivery is so hard. Intelligence-based work can be easily delegated:
Define a set of rules. Train somebody on it.
Judgment-based work, and this is really any senior-level, experience-based consulting-heavy work can only be handed over to people who bring this experience.
And while this is harder, it’s a big competitive edge. Both over other service providers as well as AI. Judgement is hard to beat.
