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Swallowing the Fish

  • 2 days ago
  • 5 min read

The Commitment That Has to Happen Before Any of the Plumbing Works

 


Professional services firms know their pricing model has to change. Last week I wrote about the plumbing most haven't built. This week's about the conversation that has to happen before any of it does.


Earlier this week I wrote about the Journal's piece on consulting's billing crisis, and the operating-model plumbing most firms haven't built to actually fix it: revenue recognition against a milestone instead of a timesheet, a risk corridor instead of an all-or-nothing bet, a financing bridge for the gap between delivery and payoff, incentives that match the model you sold instead of the one you left behind.


All four of those are real, and all four are missing at most firms. But I left out the piece that comes before them, and it's the piece that actually decides whether a firm ever builds the plumbing at all.


The Swallow Isn't on the Chart

There's a phrase from enterprise software for what a business goes through when it changes how it makes money: "swallowing the fish." Chart revenue and cost as a company shifts from a one-time sale to a subscription, and you get a dip, a trough, a slow recovery to something bigger than where you started. Drawn out, it looks like a fish. The belly is the hard part.


It's a good visual, and it's tempting to stop there. But the chart is the receipt. It's not the moment.


The moment happens earlier, in a room, before any of it shows up on a P&L. It's the point where the partners of a firm have to agree — out loud, to each other — that this year's distribution, and maybe next year's, will either be smaller, or somehow financed, so that three or four years from now, everyone's is bigger. That's the actual swallow. Everything the chart shows afterward is just what the decision looks like once it's been made.


Most firms never get there. They get as far as naming the problem — which is what the Wall Street Journal's sources did, capably — and then they stall, because naming a problem and committing to absorb its cost are two very different acts, and only one of them requires anyone to give something up.


Why the Room Is Harder Than the Math

The math of the trade is usually not that complicated. Take less now, for materially more later. Most partners, looking at the numbers on a whiteboard, will nod.


That's not the only thing standing between a firm and the swallow, and it's worth being plain that this isn't only a story about partners protecting their own exit. Plenty of firms stall for a simpler reason first: outcome-based pricing is a muscle most partnerships have never had to build, and that unfamiliarity alone is enough to stop a project before governance ever enters the picture. But assume the muscle gets built. There's still a harder problem waiting underneath it, and it's not a skills problem.


The room is harder than the math because the partners in it aren't identical, and the trade isn't identical for all of them. A partner twenty years from retirement is looking at a multi-year investment with a payoff they'll be around to collect several times over. A partner five years out is being asked to fund a transition whose biggest returns land after they've likely stepped back. Same firm, same pitch, completely different personal arithmetic — and the firms that skip past this, treating the commitment as a single collective "yes," are usually the ones where the commitment quietly erodes the first time a bad quarter tests it.


This is the part a trade article can't get into, because it's not a market dynamic, it's a governance one. It has to be solved inside the room, not around it, through how the sacrifice is structured and shared, not just whether everyone agreed to it in principle.


What Makes the Commitment Survivable

Firms that get through this cleanly tend to do one thing differently: they don't ask for the swallow all at once. They prove the trade on something small and contained first, like one target, one practice area, one milestone-based deal, before asking the full partnership to commit to the whole transition. It's the same logic behind a commencement-fee-then-retainer-then-gain-share structure: nobody has to trust the destination on faith, because the first small step pays for itself and shows its work before the next, bigger step is asked for.


There are two ways to actually pay for the swallow, and they're not the same commitment.


One is everything above: partners agree to take less from the business they already own, in exchange for a bigger share of it later. The other is bringing in capital that funds the trough directly, in exchange for a piece of the equity instead of a smaller distribution. Same fish, different currency: time and patience in the first case, ownership in the second.


Both are legitimate. Neither is free. And a fair number of firms end up on the second path not because they chose it, but because they never had the first conversation early enough. The cash ran out mid-transition, and equity was the only currency left to trade, on worse terms than if they'd picked it deliberately. That trade-off is worth its own treatment, and I'll get into it next. For now, the point holds either way: nobody builds the plumbing until someone — a partner vote or an outside investor — has actually agreed to eat the cost of the transition.


The Question Before the Pricing Question

If your firm is talking about outcome-based pricing, risk corridors, or new incentive plans, and hasn't yet had the conversation where partners agree, specifically and out loud, to take less this year for more later — the plumbing conversation is premature. It will get built, and it will sit unused, because nobody's actually agreed to turn it on.

The firms that make this transition well aren't the ones with the best pricing model. They're the ones who had the harder conversation first, structured the sacrifice so it didn't fall unevenly on whoever's closest to the door, and only then built the systems to make the new model real.


Naming the problem earned the Wall Street Journal's business pages. Swallowing the fish is what actually fixes it.

This is the second piece in a series on what's actually required to move professional services off the billable hour. The first, "The WSJ Named the Problem. It Missed the Fix.," is available on ChiefPricingOfficer.com.


Further Reading

This isn't a new argument — just a new hook on one I've been making since the start of last year:

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