Creating Data & Analytics businesses from Consultancies
TL;DR - Converting consultancies into Data & Analytics businesses can add value now, in future, and on exit
The past three weeks have been a whirlwind of networking activity for me, as I’ve reengaged with the world after taking a break at the back end of 2023.
I’ve been talking to founders, investors, advisors and consultants, and getting people’s perspectives on business in general and Data & Analytics in particular.
One topic that has come up repeatedly is transitioning consulting firms into Data & Analytics businesses.
Over the years I’ve watched many companies go through this process. So I thought I’d use this post as a thought experiment about how one can go about making this happen.
In this post I’ll use the term “consultants” as a catch-all for specialists in an industry or sector - as we will see, this could as easily refer to bankers, coaches or analysts. Essentially, it’s one or more individuals who have specialist knowledge that they are seeking to monetise.
Likewise, rather than Data & Analytics, they could ultimately transition the business into a workflow SaaS solution. But for the sake of brevity I’ll just focus on the Consultancy → Data & Analytics company journey here. (Besides which, the Analytics component of a D&A business is often a SaaS workflow tool.)
The decision for a company to shift away from consulting to Data & Analytics is often driven by one or more of these reasons:
Realisation that a piece of bespoke consultancy can be resold to other clients, with minimal or no additional work required;
Failed attempt to raise funding or sell the business at an acceptable valuation, and understanding that the business should be changed accordingly;
Investment taken from a professional investor that pushes for the transition in order to achieve a higher multiple on exit;
New CEO with a background in subscription businesses takes over;
The company sees a competitor go through the transition and decides to follow suit;
The company finds itself losing out on revenue to a Data & Analytics business and decides that if you can’t beat ’em, join ’em.
The full transition can take many years if the management team have little experience of running a subscription business. In fact, it can sometimes take many years before they realise that they are running a Data & Analytics company at all.
For example, according to an interview in the Financial Times, the founders of CapitalIQ, now at the heart of the S&P Global Market Intelligence division, and one of the largest providers of Company Data & Analytics, took a long time to realise that they were no longer bankers:
“We just wanted their [bulge bracket banks’] deals and they wanted us to commercialise the platform,” said Mr Turner. “We were like, no, no, no – that’s data software sales. We’re bankers. We’re are not going to sell you what we made. We want to go process deals.”
Examples of companies that have made the transition:
Wood Mackenzie - valued at $3.1bn when Veritas Capital acquired the business from Verisk Analytics in November 2022, Wood Mackenzie started life as a stockbroker in 1923, before pivoting to equity research, and then finally becoming true Data & Analytics business under the stewardship of Stephen Halliday in the 2000s and 2010s.
Kynetec - Kynetec was founded in 2002 as a bespoke market research provider, which was then acquired by GfK in 2009. Inflexion worked hard to convert the business into a subscription Data & Analytics provider after backing an MBO in 2016, including funding multiple Data & Analytics bolt-on acquisitions. It’s now owned by Paine Schwartz, who are continuing that buy-and-build strategy.
Aurora Energy Research - over 10 years, Aurora transitioned from a small thinktank/consultancy into a Data & Analytics firm. In 2020, they took funding from CGE Partners and brought in Stephen Halliday (him again!) as Chairman to continue to drive the transition. Interestingly, 22C Capital were minority investors here - 22C is a Data & Analytics-focused PE firm founded by Randall Winn, one of the original founders of CapitalIQ. The Data & Analytics community is tightly interweaved.
When it happens slowly, the transition process can be painful to watch from the outside, and advisors often find themselves giving the same advice again and again, as founders grind their way forwards.
So what advice is that?
A few newsletters ago I pointed you in the direction of Solomon Partners’ Financial Data, Analytics and Software research. (They have recently published an updated version of this - thank you, Craig, Joe, Max et al.)
On page 17/18 of the document they outline some of the key value drivers for Data & Analytics companies. I hope they won’t mind me reproducing it here for your edification:
A consultancy looking to make the transition to Data & Analytics could consider taking these value drivers and converting them into OKRs. In fact, we have seen many companies do exactly this over the years.
As an example, let’s take just two of the bullets from this list and look at how a consultancy might make the transition using them to drive their strategy.
I’ve selected these two bullets because they are at the core of the Data & Analytics business success story.
Data & Analytics, as well as decision-making tools
This is an essential area to focus on - data is the core asset of the business.
Here is a series of questions you can ask to help you to determine what your Data & Analytics products could be:
What is the core knowledge you are selling?
What problem(s) are your clients trying to solve using this knowledge? What questions are they asking themselves? What business decisions are they trying to make? What does their workflow look like for making these decisions?
Do you sell the same or similar services/reports over and over again? What information/data points are you delivering repeatedly?
If the information/data you are providing is qualitative in nature, how could you make it quantitative?
How could you gather these data points on other businesses/products/commodities on an ongoing basis?
Can you create a benchmark using these data points?
If you are delivering your service in person or in a static report, how could you deliver this via a website?
What online analytics tools could you create that enable your client to answer their questions/make their business decisions?
How can you tailor your product to be most user-friendly at the moment in the client’s workflow where they use your information to make their business decision(s)?
If you are able to embed your product into your clients’ workflow and decision-making, you will find that you have become must-have for them. They will need to keep using you. Congratulations! You have the start of a recurring revenue business.
Which leads us on to the second bullet.
High proportion of recurring revenue
Keeping in mind deriving the majority of your revenues from recurring contracts as a goal will help you to stay focused about how you structure your services and products.
A small percentage of consultancy revenue (particularly high value projects) or events revenue is fine. This acts as a driver of new business, client relationship building and new product development (today’s one-off project is tomorrow’s digital product). But you should be looking to drive towards majority recurring revenues.
Data & Analytics firms usually sell access to their content on a subscription basis. Subscription, or subscription-like revenues:
Reduce the time you have to spend selling to new clients;
Make your revenues more predictable;
Lessen your fear about where next year’s (or quarter, or month!) revenues are coming from;
Provide you with up-front capital to build your business;
Provide you with the opportunity to upsell new products to existing clients;
Test price elasticity…
Look at your current revenues. What percentage are recurring in nature currently?
Let’s say they’re at 20% today. Set yourself a goal to increase that to 30% by next year, and to 50% by the year after that. Then align your product development and sales goals (and sales rep incentivisation…) accordingly. When your business tips through 50% recurring revenues you should find that the momentum takes you even further in this direction.
If you are at the beginning of this journey, what can you do to spark this change?
Talk to your most valued clients - the ones where you have the most recurring-like revenue relationship. You might be surprised to learn that they prefer the predictability of a subscription agreement for their budgeting purposes.
Ask them how you could deliver your service to them in a more helpful way. They may well help you to define your Data & Analytics product. They may get excited. They may offer to be your cornerstone client or user…
This is not an exhaustive list, and could be drilled into in great detail. I may well come back to this in a future post.
I hope you found this useful. Please drop me a line if you’d like to chat about any of the points I raised here, especially if you are looking to make this transition, or found a Data & Analytics business.
Some things I’ve found interesting in the last week:
FT article about the evolution of Private Equity investment strategy (behind a paywall), and exits, with a particular focus on Visma and Hg.
Fascinating thought piece by Mark Beeston, the founder of Illuminate Financial, one of the most influential fintech investors, about what he has learned from 10 years of investing in fintech. (Thanks to
for pointing this one in my direction.)Really interesting Forbes article on how VC and PE firms are using AI to scour data to source deals and generate alpha. Particular focus on EQT’s Motherbrain project.
- (who writes brilliant close analyses of companies and industries) has written a teardown of the newsletter industry, with close attention given to Marketwise. Very insightful on driving subscribers through a value funnel:
- has written a very interesting thought piece on the use of credit card data by investors. (Thanks to again for surfacing this one.) Chimes with some of my thinking about AltData in previous posts:
I sat in complete silence for 10 hours a day for 10 days next to a fantastically talented singer-songwriter, Harry Lloyd, on a Vipassana retreat last month. Harry, also known as Waiting for Smith, has the most incredible positive energy, and he’s written this song about some of what he learned on the course:
I have just started reading Klara and the Sun by Kazuo Ishiguro in a small SF-focused bookclub with a few friends. If you are interested in reading it too then drop me a line. It would be great to discuss it with you. A great companion to The Mountain in the Sea, which also thinks about non-human intelligence and what it is to be human.