Starting a Professional Services Firm: Defining Geographies

One of the key decisions that must be made when starting and growing a professional services firm is defining the geographic markets in which the organization will operate.

Resist the temptation to define geographic markets too broadly. New professional services firms should just say no to any client opportunity outside of your home country.

In my thirty-year career as a management consultant, I have been a part of the globalization of the industry and the expansion of firms into dozens of countries on six continents. The rationale for this growth was that our clients were globalizing therefore we needed to expand our reach to serve them well.

While this may be true for the large, integrated consulting and technical services firms, it is not true for a startup or even for a midsized professional firm. Keep your business close to home.

Understanding Mature Services Markets

While the large firms globalized out of what they considered to be a strategic necessity, the financial case for doing so was always questionable.

Outside of the United States, I have served clients in Germany, France, Korea, Mexico, and Australia. These were all incredible experiences that contributed to my professional development. However, the opportunity costs of my forays abroad are significant if impossible to quantify.

International travel is fun and rewarding, but it will cost you when starting a firm.

The biggest reason that international expansion is a fool’s game is that there are very few developed markets for professional services. Outside of the US, I count the UK, Germany, France, the Nordics, and Japan as attractive markets. The rest of the world often does not support the economics required for generating sufficient returns on the investment of capital and management time and attention. The economy of Australia is about the size of Florida’s (and one hell of an airplane ride away.)

The Cost of International Opportunities

I once pursued an opportunity with a large winery in Chile just because I thought it would be fun. We had everything scoped out and planned but when the conversation turned to budget the whole thing fell apart. They just ghosted me. I think that they were embarrassed by their lack of understanding of rates we command for our services. I might have accepted wine for payment, but we never got that far.

The United States is the world’s largest economy and the most advanced market for professional services. If you are based here, why would you look beyond the country for opportunity?

I am not opposed to serving the international operations of US-based clients, but I would resist the urge to develop and employ resources in those countries. Even Canada is problematic when it comes to work permits, taxes, and getting paid without withholdings. The US is plenty big enough to scale a firm without seeking growth beyond its borders.

Globalization in a WFH Economy

In the pandemic, we learned to provide services virtually. You may think that makes the world a potential market. There are certainly some services that can be provided in this fashion, but the professions are a highly personalized industry, and we cannot develop deep client relationships that last a career over Zoom. Ultimately, we have to invest in face-to-face interactions to build a successful business.

I fully understand the siren song of international expansion. It is hard to say no to revenue, but for new professional services firms, my advice is to leave the global markets to the big guys that can afford to lose money in one market to solidify their position in another. We have plenty of work to do right here at home.