From Business School to Consulting EmpireAnne VanderMey
By a lot of measures, this is the worst of times for the scores of companies struggling to survive the downturn. Many ailing businesses can't afford to bring in any outside help when they most need it, and certainly can't hire an MBA. As a result, consulting firms are feeling the pinch. Even at the best graduate business programs, recent grads and would-be consultants for Bain, McKinsey, and other top firms are now rethinking their career choices.
But for Daniel Callaghan, a freshly minted MBA with a new consulting firm, it's also the best of times. An entrepreneur by birth—his father and grandfather each launched businesses of their own—Callaghan saw opportunity in the plight of needy students and needy businesses. In March he founded MBA & Co., a freelance consulting firm, after graduating with an MBA from Spain's IESE (IESE Full-Time MBA Profile). The business plan, he says, is to take advantage of the surplus of top-tier MBA talent who haven't yet found their dream job or who have had their start dates deferred—an increasingly common problem—by using a Web site to match up the grads with the growing number of companies that need consulting but can't afford the big-name brands. "It's a very good time for the business model," says Callaghan, who believes he's found a niche in the current economic climate. He quips: "And it seems like the market is starting to think so, as well."
Indeed, just three months after MBA & Co. began serving clients, nearly 2,000 MBA graduates and MBA students on five continents have created online profiles offering their freelance consulting services to the more than 100 businesses registered on Callaghan's site. Though it has a full-time staff of just three people, it has offices in both San Francisco and London, and has plans for further expansion. Callaghan predicts that by the end of its first year, the company will have seen more than $4.2 million in transactions, raking in $420,000 for the company with its 10% commission.
Student consulting has obvious benefits. In many cases, the only difference between an MBA student or graduate looking for freelance work and a starting McKinsey associate is a corporate business card and a six-figure paycheck. And companies seem to be taking note. At business schools across the country, experiential learning programs where students complete projects at real companies, usually for class credit, are seeing increased demand. "[Student consulting] is much more widespread now," says John Fernandes, president and CEO of the Association to Advance Collegiate Schools of Business. It is good for the businesses that get inexpensive, skilled labor, and good for the students, who get real-world experience. At the University of Pennsylvania's Wharton School (Wharton Full-Time MBA Profile), requests for students' services are at record levels, and the school's Small Business Development Center has doubled its capacity over the past two years because of high demand for consulting services, says Therese Flaherty, the program's director.
By applying a for-profit business model to what was essentially nonprofit consulting, Callaghan has created something unique. With cheaper labor and very little overhead, MBA & Co. is an extremely efficient system. However, that efficiency may also prove to be a liability. At MBA programs that offer student consulting through the school, students report directly back to professors who aggressively monitor their progress and offer guidance. The same goes for established consulting firms such as McKinsey, where consultants are backed up by a large firm of experts and specialists. "It's a tall pyramid with a lot of resources behind it and that's what makes those [consulting firms] so powerful," Flaherty says. The MBA student's ability is most effective, she says, when focused by professional guidance. "That level is critical," she says. Callaghan's challenge, and it's not insignificant, will be to bring a similar degree of professionalism to the one conferred through a support staff of experienced consultants, using nothing more than a virtual network, a savvy Web site, and a couple of small offices.
No Contest To ensure that MBA & Co. is up to the task, Callaghan has built in the option for MBAs to consult not only individually but also with a team, with professional consultants, or with business school professors at an additional fee. He hopes the added resources will help the company to grow into a full-fledged firm with thousands of diverse projects a month, he says. One key to growth is to ensure quality. To do that, the Web site has a ratings feature that allows companies and MBAs to give feedback on the experience, with the goal of getting a good indication of which consultants are the best. So far, the average rating of the roughly 50 companies that have used the service is 4.3 out of five, with 3.9 being the lowest.
Although Callaghan is in talks with six major multinational corporations, his ambition has its limits. The MBA brand has taken something of a beating since the financial crisis, and not everyone will jump at the chance to work with a business called MBA & Co. He sees his main competitors as online freelance consulting sites such as Guru.com or Elance.com, and stops short of suggesting he'll take on the industry heavyweights. Despite touting his "extremely scalable model," applicable to companies both large and small, Callaghan estimates that most of the work of MBA & Co. will be at small or midsize firms.
This concession represents one of the cornerstones of the fledgling company's philosophy. In addition to supplementing career services at schools that don't typically focus on smaller companies, Callaghan also sees the potential for public service. "If we are to get through this recession it will be the smaller companies that really drive us through," he says. It's not hard to find students who want to help small companies "grow faster, stronger, and better, and come out the other side," he says.
That's also where the demand is. According to the company's research, 35% of firms with more than 1,000 employees would be interested in freelance MBA consulting. That number jumps to 80% for firms with fewer than 50 employees.
One of those was the British charity New Deal of the Mind. The organization is modeled on the U.S. New Deal in the 1930s and its goal is to boost both the economy and culture by providing aid to artists and writers, especially those with entrepreneurial aspirations.
Despite being a high-profile project with the support of more than one Cabinet minister, the charity has extremely limited funds. When it was scouting out real estate, its founder, British political journalist Martin Bright, was temporarily stumped when a developer asked the charity to hand over a business plan in only a few days. The small staff originally thought it would have to turn down the request. And then, Bright says, by an "incredible piece of chance," he came across MBA & Co. Within a few days, an American MBA from the London Business School was on the case and drew up a business plan. Though their bid for that particular space wasn't accepted, the charity is still using the plan. Without her, Bright says, "we just wouldn't have been able to afford it."
"When you're working on quite ambitious projects but with so few resources, sometimes you just have to make a punt," he says of the last-minute endeavor. The experience was so positive that Bright went out and recruited an MBA from Harvard (Harvard Full-Time MBA Profile) full-time. And the price at MBA & Co. was right—about the same cost as hiring a plumber, he says.
What You Pay For At MBA & Co., salaries run anywhere from $14 to $400 an hour, with an average of about $56. For some of its consultants, that's a pay cut. Myriam Boniface, a native of France going into her second year at Wharton, worked through MBA & Co. at a British advertising firm looking to break into the French market. Boniface had worked for a boutique consulting company previously and estimates she took a 30% pay cut for the short job, though she welcomed the new experience. "My nature is curious," she says. "I like to go into different things, and I'd like to help other companies in the development stage." But as for the money, "they were getting a bargain," she says.
Like Boniface, "there's always a percentage of MBA students who don't want to go down the traditional career route," Callaghan says. "They don't want to work for a large consultancy firm or a large investment bank." He anticipates that MBA & Co. will be as useful for those students as it will be for the ones biding their time before taking a job with a larger firm. The hope is that many placements will end up as full-time offers, and others will serve as introductions into different industries. Already, he says, the company has placed some students in interim and full-time positions in addition to its core business of coordinating project-based work.
But if Callaghan's business functions the way he hopes it will, it's the companies that will benefit the most. Small firms with access to top-tier talent will prove more competitive in the face of economic hardship. In Pennsylvania, Wharton's Flaherty says, independent studies showed that companies which received the kind of low-budget consulting that MBA & Co. specializes in almost doubled their five-year survival rates.
That's an encouraging statistic when so much of the health of the economy seems to rest on small businesses' ability to replace the large and failing companies. And it implies that budget-friendly student consulting isn't going anywhere any time soon. Says Flaherty: "This stuff does work."