The Unbundling of McKinsey (and management consulting at large!)
Consumer oriented marketplaces have drawn significant attention and investment from the technology community during the past decade, but I believe there is significant opportunity for digitally enabled marketplaces to orchestrate high value services and consulting for businesses.
There is a surplus of literature on consumer marketplace models and what drives opportunity in that realm. The emergence of Uber and Airbnb catalyzed a wave of vertical marketplace solutions for essentially every major consumer category. This is often seen as the “unbundling of Craigslist.”
These digitally enabled marketplaces led to the rise of a pattern of flexible work on the supply side, created customer demand for immediate gratification, and implemented systems of trust and transparency that did not previously exist. B2B services markets that suffer from inefficiency and lack of transparency are already on the verge of becoming digitized and facilitated through distributed marketplaces.
We’re already seeing this phenomenon come to fruition, in a way. Catalant, a platform for generalist management consulting, has raised about $75M in equity funding from top-tier investment firms. The generalist approach is similar to Craigslist — it cuts a mile wide, but an inch deep. On the consumer side, seemingly small categories such as transportation and delivery have features and characteristics that require a market design tailored towards that specific vertical in order to build an efficient and thriving marketplace. Additionally, each category is a huge industry in and of itself.
That’s why I like to view the B2B space through the framework of the “unbundling of McKinsey.”
McKinsey&Company is arguably the leading global strategy and management consulting firm. I’m using them as an example because they are are a market leader, but this methodology is applicable to high-value services and the consulting economy at large. The image above includes the industries McKinsey provides services in. These segments represent opportunity areas for digital marketplaces.
In 2016, McKinsey pulled in almost $9B alone as a firm. Thus, if you spread out spending across firms, there’s venture-backable opportunity in almost each category listed above. And startups are starting to sniff it. In the pharmaceuticals and life sciences space, Boston-based Clora is building an “intelligent platform that efficiently matches life sciences companies with flexible, on-demand expertise.” They recently raised $3.3M from Spark Capital and other firms.
Clora is just one example of a vertical focus for B2B marketplaces that tailors its design to industry needs and characteristics. There’s plenty more opportunity here, especially in manufacturing/supply chain, capital projects, and energy. I previously wrote about the opportunity in manufacturing/supply chain and am actually working on a project related to it. More to come soon on that.
The Nature of Transactions
One stark difference I see between business-facing and consumer marketplaces is the nature of transactions. In successful B2C markets, transactions happen at a high volume but most likely have a low cost, so the digital service needs a high quantity of transactions to make their margins. The lifetime value of a customer is also hard to nail down.
In B2B marketplaces, one might expect a lower volume of transactions, but high cost given the specialization of the services. Additionally, these marketplaces might like to engage with a customer over a longer lifecycle, offering differentiated services throughout their development. For example, in the manufacturing space, you could connect a company with an expert to help with contract manufacturing, pricing, supply chain optimization, assembling a bill of materials, and so on.
Platform Leakage
A substantive issue one could see arising with these digital B2B platforms is platform leakage — customers will go around the system next time they need a consultant or specialist. Some might claim this problem could occur more on B2B marketplaces because the services are less commodified, and they are not as “on-demand” as consumer services. Here’s how these vertical marketplace platforms can combat platform leakage:
- Service agreements or sales contracts with customers ensuring they stay with the platform
- Partnerships with business organizations or incubators that house many potential customers in order to build brand viability
- Target customers with very specific needs so it’s unlikely they need the same consultant again
What will happen to big management and strategy consulting shops?
Will the “unbundling” phenomenon disrupt the large management consulting firms like McKinsey, Bain, and BCG?
Personally, I think any considerable changes in the market at the top are unlikely in the near future. These shops have such high brand value and trust, especially amongst the Fortune 500. But hopefully, digital marketplaces that orchestrate services within specific verticals will make bigger, generalist players think about their business models. There might even be M&A or consolidation opportunity down the road for forward-looking firms.
In general, as more and more entrepreneurs think about building these type of businesses, I believe there’s value creation opportunities for small and large customers within many verticals, prospective consultants across categories, and technology investors looking to get involved in marketplaces yet again.
