Most boutique founders chase more deals when they should be chasing bigger ones. In this episode, Greg sits down with Stephen Straus and Christian Barnard of KUNGFU.AI to break down how their AI consulting firm quadrupled its average deal size. They walk through the strategic decisions, the positioning shifts, and the operational changes that made larger engagements possible without adding headcount at the same rate.
What you’ll get from this session:
- The specific moves one firm made to 4X average deal size
- How to reposition an AI services firm to attract larger, more strategic engagements
- What changes inside the firm when deal size scales faster than headcount
Why it matters:
- Most boutiques grow revenue by adding clients, not by increasing the value of each engagement
- Larger deals change everything: sales cycles, delivery models, margin structure, and buyer expectations
- The firms that figure out deal size expansion scale faster with fewer resources
TRANSCRIPT
Greg Alexander: Hey everybody, this is Greg Alexander. You’re listening to the Pro Serv Podcast, brought to you by Collective 54. If you’re new to this show, we are dedicated to founders of boutique professional services firms. So, if you’re in the business of expertise, you market, sell, and deliver expertise for a living, this is for you. We aim to do three things in this show. Help you make more money, make scaling easier, and make exit… make an exit achievable. And this week, we’re gonna talk about the Boomerang founder. What is the Boomerang founder? This is a founder. Who has sold his firm. And after some time, Returns to the firm. For a variety of different reasons. This is not a topic we have covered before. But in my preparation for my interview of this week’s guest. I have learned that this is happening more than we realize. So I wanted to unpack it with a real example.
Greg Alexander: And my goal in doing that is to share with others who have sold their firm, or are thinking about selling their firm. How this might happen to them, and if it does happen to them. how to turn it into a positive and not a negative. So that’s what I’m gonna try to do today. And joining me on this call, I have two long-term members from Kung Fu AI, Steven Strauss and Christian Barnard, and they have successfully implemented this strategy, and they’re gonna share with you how they did it. But for those that have, that don’t know, the two of you, would you please introduce yourself to the audience? And Steven, I’ll start with you.
Stephen Straus: Sure, Greg, thank you so much for having us. I’m Steven Strauss, I’m co-founder and CEO of Kung Fu AI.
Christian Barnard: And good morning, Greg, good to see you, thanks for having me. I’m Christian Bernard, our Chief Operating Officer at Kung Fu AI.
Greg Alexander: Okay, sounds good. So guys, as I set this up. I’m gonna give a little example, just to bring some math together. Let’s imagine you’re a consulting firm, and you’re doing $10 million a year in revenue, and you’ve got 100 clients. That’s an average of $100,000 per client. Now, the traditional way to grow would be to go from 100 clients to 200 clients if I wanted to go from 10 million to 20 million. But if you think about what that requires, that requires you to double your sales effort. double your client management complexity, and probably double your headcount. And there’s an alternative way to do that, because doubling all of those things is a nightmare, as we all know. you could get to the $20 million goal, the same thing. Same number of engagements, same logos, deeper engagements, if you take your average deal size from $100K to $200K. It’s just a lot easier to scale by increasing your average deal size.
Greg Alexander: So that’s what we’re going to talk about today. So why don’t I just start off, and Christian, maybe I’ll throw this to you, because I know that this has been Your strategic imperative inside the firm, and you have the most intimate details. At what point did you realize that you needed to do this?
Christian Barnard: Alright guys, 4 years ago, we had 50 projects, and with a very small team, a very, very small boutique consulting firm, 50 projects was a lot to put through the system, and we had really high growth aspirations, so I knew that we had to… increase our average deal size and reduce the number of deals, because, as you know, if, you know, onboarding a new client at $50,000 is the same as onboarding a client for a $500,000 project. The effort and the tax that we pay internally is exactly the same, regardless of size, so we put Basically, a strategic plan in place that we’ve been executing over the past 4 years to increase our average deal size, and actually reduce the number of deals that we’re putting through the system on an annual basis.
Greg Alexander: Okay, so about 4 years ago, and it was driven by… you had a strategic plan that had lofty goals associated with it. And you probably did some math and realized that you couldn’t get there if you kept running around and doing small deals. I’m putting words in your mouth, but is that an accurate statement?
Christian Barnard: 100% accurate, yes.
Greg Alexander: Okay, so if you just share some numbers with me, what was the average deal size 4 years ago, and what is it today?
Christian Barnard: Four years ago, it was about 180,000 average deal size, and again, we did about 50 deals, and that was fiscal year 2022. And this year, the fiscal year that’s ending here pretty soon is around $800K, and we’ve done 21 deals.
Greg Alexander: Wow. So a four-fold increase in the average deal size, which begs the question, how did you do it?
Christian Barnard: Yeah, it’s a great question. So, we did not just raise our rates, our prices, we fundamentally took a step back and restructured who we sell to, what we sell. And how we sell it. And as we… as we went into thinking about that plan, there were 5 key levers that I can talk about to drive the increase in average deal size.
Greg Alexander: Okay, so let’s dive into it. Let’s talk about the 5 key levers.
Christian Barnard: Okay, I’ll start with who we sell to. So, we defined a ICP, an ICP squared. Which we deliberately moved upmarket to organizations between $100 million and $10 billion in revenue. And for us, at the time, you know, 5 years ago, we were taking any work that we could get. So getting really crystal clear about who we’re selling to, and who we’re… how we’re going to qualify inbound deals was really helpful. We also understood that we had to target C-levels, because the type of work that we do touches everything, so we had to get C-level, particularly, specifically, CEO-level sponsorship on these projects. And they actually hold the budget to make some of the decisions to invest in the type of projects that we want to do. And then we also did something that I think was unique for us at Kung Fu, is we put a minimum deal size in place. So instead of taking anything on, we said, look, we’re not going to do anything under a specific deal size, and that was probably the hardest part, because it took a lot of rigor and a lot of consistency and a lot of conviction to not take projects under that specific deal size. So, moving up market, bigger, more sophisticated buyers at the C-level, $100 million to $10 billion in revenue, a minimum deal size, and the discipline around that have all been really deliberate growth, and margin levers for us, and it’s resulted in longer-term engagements and higher margins for our projects.
Greg Alexander: Okay, so those are the obvious items, for sure, and congratulations on pulling that off. our listeners, members of Collective 54, are going to say, that sounds great, but if I want to reach the sea level, I mean, how do I do it? So you can’t just flick a switch, and next thing you know, you’re sitting in the CEO’s office of a $10 billion company. So what changed? How did you execute this?
Christian Barnard: Yep, so I’ll move on to, that was sort of who we decided to sell to, but then after that, operationalizing it, to your point, we had to figure out what we were selling that would be of value to that ICP. So we started with combining strategy and engineering into a single, seamless offering for us. And so combining those two allowed us to connect business outcomes to the solutions and implementation. In one sales motion. So that helped us win larger executive-sponsored deals and expanded our share of wallet within existing clients. It was actually what we were selling to them. De-risking their investment by saying, look, you don’t have to hire a strategy firm and an engineering firm. We will do both together at the same time. It’ll be seamless to you. And that helped us get in front of more senior executives, to that C-level. And that was a deliberate differentiator for us. And so it naturally increased deal size because clients weren’t just buying a strategy assessment, they were buying strategy through deployment and implementation, which is just a larger engagement by definition. The other… sort of the two other what we decided to sell differently is we decided to sell a fractional team model. and year-long capacity retainers. And this might be unique to our space, but, you know, we found ourselves having conversations with clients that needed to do something in AI, and instead of trying to put together a small project, we said, you need an AI team, we will be that team for you. And so we started selling fractional team models that scale a lot better than TNM or fixed fee. We’re able to surge strategy and engineering and change management at the right times for the clients. Which is somewhat of a unique commercial structure. For us, it resulted in higher utilization, less overstaffing, resulting in very nimble, fractional teams. So that naturally, you know, evolved into year-long capacity retainer engagements, which naturally increased our average deal size and average duration. And then the final point around what we were selling was, the sales and delivery motion, and this is a really important point, is, you know, whenever we start selling something differently, you’ve got to contemplate how you’re going to deliver that downstream, right? Otherwise, you’re going to break the agency and break the system. So, the sales and delivery motion evolved into a very structured progression. Define an AI strategy, build a proof of concept. do your engineering work, and then deploy. So we started selling an initial fixed-fee engagement to de-risk the relationship, to define the AI strategy, and then the subsequent phases naturally expanded the relationship, right? So we start with that minimum deal size, defining a strategy. that turns into a year-long EOC engineering and deployment. Motion, which is really helpful. So those are sort of the what, you know, we decided to, Change what we were selling, and those are really the 3 key levers there.
Greg Alexander: Okay. Steven, let me come to you and have you give us the market perspective, because I understand Christian’s approach very well, makes a ton of sense. But the market has to be receptive to this. I mean, for example, combining strategy and engineering, if it’s the early days of a market, they might say, let’s just do the strategy, I’m not sure I want to deploy yet, so I don’t need the engineering. So what was happening overall in the AI consulting space that allowed you to time this correctly?
Stephen Straus: Well, Greg, just to give this, some context. I co-founded this company in 2017, 9 years ago. And up until ChatGPT came out, we couldn’t find any other, or almost any other services firms talking about AI. or any clients who had budget for AI. And it was only until after ChatGPT came out in, you know, November of, 22, that, we started seeing people… other services people talking about AI, and clients starting to have budgets. And it’s only really last year and this year where clients have had Larger, sustained budgets.
Stephen Straus: So, there’s a whole kind of AI market context that goes on here. But, You know, for me, our vision from the beginning was that we had to combine strategy and engineering, because How do you know what to build? you know, there’s all sorts of things you could do, but you want to focus on the most strategic things. And the other question we asked ourselves early on was, how do you do strategy in the age of AI? when the technology’s moving so fast, and only deep practitioners can really understand what the capabilities are. And so we had a vision from the very beginning of combining those two. We didn’t necessarily do it seamlessly, until Christian came along and really, you know. Morphed our offering and the way we sell it.
Greg Alexander: Nope. So the lesson for listeners there is that, you know, when you want to change what you sell. How you sell it and who you sell it to. make sure you’re thinking about market receptivity, and the demand drivers behind the market, and will those things be received? You know, to Steven’s point, you know, the C-suite had to be ready to not only put budget aside, but to have 3 budgets. So budget one was strategy, budget two was engineering, and budget three was the fractional team, you know, to handle the change management side that Christian talked about. That’s the sign that the market was ready for a total solution, not just a point product. And when you move from a point service to a total solution, the average deal size is going to go up exponentially, as is the length of the engagement. And the combination of those three things is what has allowed Kung Fu AI to be successful. Yes, Steven? you know.
Stephen Straus: So, Greg, I was going to say there’s one enabling thing that we did that I think is an easy win for people. An easy takeaway, which is. when Christian-defined, you know, are offering to be much narrower and the like. We all figured, and we all realized, that we were going to need to be turning away people. But we’re all in the business of helping people. And so, you know, the natural reaction is, let’s… I’ll just help you off on the side, or we’ll just do this one-off project. And so what we’ve done to counteract that is we’ve built a document of trusted people we can refer people to that have smaller ICP, ideal client profile, or, as Christian said, ICP squared. ideal client project, right? So if a client is bringing something to us that’s not ICP squared, we have a trusted set of people that we refer others to. And I think that really emotionally helped the people who are on the front lines talking to clients, be comfortable to say, hey, this isn’t a great fit for us, but I have someone I can refer you to. And that was a bit of an unlock, I think, to help us stay disciplined around the structure that Christian was, you know, was building here.
Greg Alexander: Yeah. Christian, let me come back to you and talk about this term, discipline. It takes a lot of discipline to have a minimum deal size. And to walk away from business, especially when you’re a young, emerging company, worried about making payroll every month, you know, etc, etc. So… How did you enforce the minimum deal size?
Christian Barnard: Yeah, especially in troughs of low bookings periods. It’s very difficult to maintain that discipline. And, you know, I think one of the things that I walked into in joining Kung Fu four years ago was a really strong leadership team and strong culture. And I think we described why we were doing this thing, and why we were putting a floor in place, because, you know, we are what we do today, right? What Kung Fu is today is what we decided to do a year ago. And, you know, saying no is… was really a lot easier, I think, than I expected, because of the culture that was already in place. When we put… when we put that threshold in place, the team was totally bought into it.
Greg Alexander: Let’s talk about skills. So when you move upmarket from small businesses to large enterprises, when you move from the VP level, the department level, to the C-suite, the enterprise level. When you start talking about strategy, engineering, and fractional teams, and you start talking about million-dollar deals, as opposed to $100,000 deals, it requires a different level of skill. to be in those meetings and run those sales campaigns. So, did you train the existing team? Did you swap out the team? How did you address the skill gap?
Christian Barnard: Yeah. I mean, that is… so we, we actually piloted going up upmarket to make sure that we were prepared, Greg, to mitigate some of our own risk in saying, alright, we’re only going to work with Fortune 500 clients. Because you’re right, the delivery motion, the sales motion and the delivery motion are very different. So we did a couple things. One, we were fortunate to have a very, very senior team already in place. at Kung Fu AI, so it’s still today mostly, senior folks, which is great. We did find some external training. That we rolled out to the entire organization, which… Was positioned to… to train people to become consultants, to move from engineering to consultants. Because what we’re really doing now is consulting, right? And how we’re selling, we’re selling value, we’re delivering value. So the words that we use, the nomenclature that we use, how we show up really has to be couched in business value and outcomes. Instead of talking about the technology, right? So instead of talking about a sigmoid function of this particular AI model, we’re talking about the value that it’s going to deliver to the business. And that’s taken some time, and quite honestly, we’re not… we’re not perfect at that today, right? That’s going to be a muscle that we need to continue to exercise to get better and better at.
Greg Alexander: And when you go from the department to the enterprise level. When you go from a… An executive to a senior executive. you start running into different competitors. You know, if I think about what it is that you do. strategy, engineering, and then fractional teams, you’re probably competing with the top consulting firms in the world, the top engineering firms in the world, the top, you know, fractional C-suite companies in the world. It’s a whole different set of competitors. So, how… I mean, did you find them easy to defeat? Did you find them difficult to beat? Like, what was the reality around that?
Christian Barnard: You know, I’d say, without sounding very arrogant, I think 100% of the times that we came in to a client after one of those big consultancies. Or incumbents were in place. Almost 100% of the time, we were successful in either cleaning up a strategy that they had worked on, or taking on a deployment that they were unable to actually put into production. So I think that window for us, again, to Steven’s point around the market timing and the maturity of the market, that window has been open, and I think it will be open. It’s not going to be open forever, because they will catch up. Eventually. But the competitive space has definitely, definitely changed, and to your point, it’s all sort of like big four consultancies right now.
Greg Alexander: Yo. Steven, I’m gonna come over to you now. So, when you think about, you know, going from $180,000 per deal to $800,000 plus per deal. the impact on the P&L is quite dramatic. Did you have to change the cost structure and the capital structure of the firm, because I would imagine you went from, I don’t know, 60-day sales cycles to 6-month sales cycles, and you gotta carry that expense when that’s happening. How did it affect the cost structure and capital structure? Or did it?
Stephen Straus: You know, it’s a great question, Greg. I don’t know… you know, I know that this podcast is for you know. the whole Collective 54 community, which is very, you know, wide and varied in what they do and what markets are in. the market we’re in is completely unique, you know, this is… you know, maybe the largest technical transformation we’re ever going to see in our lifetime, and we were an early player. So I don’t know that all our lessons here are relevant, but to answer your question more specifically, I intended from the very beginning to run this company at break-even. Because I didn’t really care about profits in the pre… you know, the phase of the market before we hit the knee of the hockey stick. I wanted to build… I was investing all that you know, profit into being able to hire much more senior people like Christian, so that when the wave came, we wouldn’t get, you know, the wave wouldn’t pass us, or it wouldn’t crash on us. And so, we overbuilt from the beginning, and so, once once the market hit, our… all our metrics fell into place because they were intentionally out of place because I was forward investing. So again, I don’t think that’s terribly relevant to most people and how they run their companies.
Greg Alexander: Well, I agree, it is very unique, and you had the courage in 2017 to make a bet on AI, when it probably…
Stephen Straus: Courage, courage, or… I don’t know what the word is.
Christian Barnard: Stupidity?
Stephen Straus: Or…
Greg Alexander: Well, because if you think about it, I mean, yes, we had the chat GPT moment at the end of 22, but by the time that triggered into corporations’ budgets and C-suite priority lists, it probably wasn’t until 25, I would imagine. So…
Stephen Straus: Last… it was last year.
Greg Alexander: Yeah, so that’s an 8-year… Kind of hold period. So I guess I gotta ask the question, because yes, this is a massive technical disruption, but there will be others. I mean, how did you have the guts to hang in there for 8 years?
Stephen Straus: You know, Greg, guts is not the right term, and… you know, clearly we were vindicated on the direction, but clearly way off on the timing, because my co-founders and I all thought that we’d be hitting the knee of the hockey stick, the inflection point, in just a few years, and obviously it was more like 8 years later. It was really… it’s got to the long term, it’s conviction. You know, we… we all found each other because we had conviction that AI was going to be the next big thing, and And, we… it was… to all four of us, it was always perfectly obvious it was going to happen. We were just surprised it didn’t happen sooner. So, I think it comes to conviction, and that, for me, personally, came from pattern matching from the internet revolution. I had a front row seat to the internet revolution at a venture capital firm. You know, where I became a general partner during the dot-com era, and for whatever reason, I got conviction that this was gonna be the next technology that was going to change the basis of competition in every industry, and I think You know, you are very passionate and articulate about how it’s going to change the basis of competition in professional services, and I agree with you completely. But, you know, that’s what our mission is as a company. It really is to help every company understand the landscape of the technology and you know, business and change the basis of competition in their industry. Because if they’re not doing it, it’s going to happen to them. And that’s… that’s the value that we bring to our clients. By the way, that’s a… that’s a C-suite and board-level conversation. It is not below that level.
Greg Alexander: Yeah. I ask the question because I find myself in dialogue with entrepreneurs in professional services. In the emerging tech space. For example, I had a call this morning with a guy in quantum computing. Last week, I spoke to somebody in gene editing, and whenever there’s an emerging field, there’s a tremendous amount of spend in professional services, particularly strategy, because people are trying to figure out, what do I do with this? They don’t have the expertise in-house, so they go outside and they rent it. But it takes a period of time before it moves to, like, from, like, you know, Skunk Works projects, you know, almost, like, think tank-type projects to actual commercialization.
Stephen Straus: And the book that describes that so well is Crossing the Chasm by Jeffrey Moore, and I know you.
Greg Alexander: I agree.
Stephen Straus: But that’s… if anyone’s in an emerging market, they have to read that book. It clearly explains how markets evolve.
Greg Alexander: Do you feel, using that Crossing the Chasm framework, do you feel we have crossed the Chasm?
Stephen Straus: Absolutely.
Greg Alexander: Yeah.
Stephen Straus: Yeah, we’ve completely crossed the chasm, and I basically… you asked, you know, about conviction and guts, etc. I used a slide about crossing the chasm every, you know, quarter. For years, until it sounded like I was a broken record. And then I had to put a sign up from Ted Lasso, which I have behind me, called Believe. I had to say, look, I know I sound like a broken record, but you have to believe that we are going to get here. And then once we got here, you know, now everyone’s like, we’re here. It’s clearly we’ve crossed the chasm.
Greg Alexander: All right, Kristen, let me come back to you. Maybe we can end on this, because I want to reserve, you know, the follow-up questions that will come from members for the, role model session. You know, if you’re somebody that’s listening to this, And conceptually, they understand. That they have to increase their average deal size. Or they’re gonna run into the law of large numbers, and scalability is going to become unnecessarily difficult. They understand your prescription, you know, a new ICP, sell to the C-suite, minimum deal size, change what you’re selling, etc, etc. But getting started can be difficult. So if you look back on it now, with 4 years of hindsight. Knowing what you now know, what would be the one or two things you would do first on this journey?
Christian Barnard: Well, I think the third part is… is, how… how you sell, which we really didn’t talk about, but I think you need to have… you know, conviction, a good word… a good word for today, and really just to test and learn your way into it, right? I mean, when we made some of these changes, we also didn’t make them wholesale, right? We said, look, let’s try to target companies within $100 million and $10 billion in revenue. Let’s try to go to the CEO. Let’s… let’s start talking about value. And all the things that I’ve outlined today, all those levers, didn’t all happen at once. It was really a… and we did… we made some mistakes, right? We tried to productize service offerings way too early. Clients weren’t ready for that, and we put a lot of effort into it, we tested it, we learned, we realized it wasn’t the right path. And maybe it will be the right path soon, but I guess the theme is test and learn, your way into it. Every company’s different. And don’t try to boil the ocean. Put a plan in place, start with the end in mind, and work backward from there, and take small steps to get to where you’re headed.
Greg Alexander: So I lied, I said that was going to be my last question, but I have one more, and maybe you can tease the audience as a… with your answer to encourage them to show up for the Friday Q&A session. how you sell. You changed how you sell to enable these things, so give me the overview of how you changed how you sell.
Christian Barnard: We focused on pricing, value, and outcomes, as opposed to pricing the inputs. So we basically separated how we price, from what we… the amount of effort that it takes to do the work, which was a big shift, and it basically separates you know, your cost from price, and it increases a lot of margin elasticity, which is great. The other thing that I’ll tee up is… we propose options to our clients. Instead of going after the answer and proposing THE answer, which is, as you know, it’s a 50-50 chance that you’re going to get that answer correct, right? We take a very, very different approach and tee up options. Which… honestly, it increases deal velocity, it increases credibility, it brings the client into the solution, which increases their accountability into what you’re selling. Game changer. Absolutely game changer. The third thing, that we changed is we focus on lab day, which is We can talk a little bit more in more detail, but we reserve Fridays for no client meetings, because our team needs to stay on the cutting edge of what’s happening in artificial intelligence. We don’t turn that into a handicap, we turn that into value. Because Lab Day increases internal IP, which increases delivery speed, increases value, increases pricing power. Which turns into a flywheel for us, right? So internal IP allows faster delivery, faster delivery creates more value, more value supports premium pricing, and premium pricing increases deal size.
Greg Alexander: Yeah. Lab day, I love it. I learned about that from you guys, and we’ve implemented it ourselves as well, and it’s really added a tremendous amount of value. Steven, you had one more thing to say?
Stephen Straus: I was… I was just gonna say, and I agree with everything Christian said, but from a… from a client point of view, it increases our ability to deliver value to them. And that’s the most important thing, because, you know, we always work backwards from that, and I… That was implicit in everything Christian said, and he always starts with that as the end in mind, which is how do we add the most strategic value to our clients. I want to give just a huge kudos to Christian, because he’s the one who came up with this need to do this by observing the We’re just going to have to increase, you know, the number of deals to get to our goals. And then he architected it, and then he’s, you know, experimented his way through, and then we’ve gotten there, and we continue to move forward in this way, and just huge kudos to Christian. For this.
Christian Barnard: Thank you. Thank you.
Greg Alexander: Gretchen, I would like to second that. I mean, I met you early on in this journey, and I know where you started from and where you are today, and you should be very proud of what you’ve accomplished. It’s quite the story. So congrats to you.
Christian Barnard: Thank you, thank you both.
Greg Alexander: Alright, well, let’s conclude here. So, just a couple calls to action. So, if you’re a member. And you listening to this, and you have a bunch of questions, which I’m sure you do, please attend the member Q&A session. Which you should be getting a meeting invitation for that shortly, and we’ll hear a lot more. We’ll double-click on some of these things. And then if you’re not a member, and after listening to this, you might want to become one, go to collective54.com, fill out an application, and we’ll get in contact with you, but… Thank you for working me into your busy day. I appreciate the attention you’ve given me. I hope you got some value out of this session, and I wish you all the best of luck as you try to grow, scale, and someday exit your firm.