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This firm’s profit runs at 17 percent, and the founder knows it should be north of 40. The confession: every move that fixes it makes the number worse first.
A roughly $5 million, 20-person consulting firm, where the founder and the firm’s president still carry a meaningful share of client delivery. The founder named the trap without flinching: every time a client gets switched off the founder’s plate, or the president’s, that senior time stops being billable and becomes overhead. The firm is not at 40 percent EBITDA. It is at 17-ish, which the founder calls already too low, and each handoff pushes it lower.
What makes this a confession rather than a complaint is that the founder is doing it anyway, and said so plainly.
“At $5 million in revenue, we’re a lot more sensitive to if he spends 20% less time delivering, and that becomes overhead. That’s been harder, but unless we do that, we’ll never make it through the donut hole to be able to grow and scale.”
The founder is not guessing about the far side, either. They deliberately sit with a peer group of founders whose firms are mostly past $10 million, precisely because those founders have more time, not less, which is proof the dip has an exit.
Why it matters to you
Founder and partner delivery hours are the most expensive free capacity in your firm. As long as the owners deliver, the margin looks better than the business actually is, and the firm stays priced like a job, not an asset. The dip in the middle, senior time turning into overhead before the leverage arrives, is not a failure of the plan. It is the plan. Firms that refuse the dip protect this year’s margin and quietly cap everything after it, including what a buyer will ever pay.
Your one thing
Name the next client you would hand off. Estimate what the handoff costs you in margin for two quarters, and write down what you will do with the recovered hours before you make the move.
Collective 54 is where boutique service firm founders go to make more money, scale with less friction, and build a firm worth buying.
See if it’s a fit →