A few years back I was hired as a W-2 by a manufacturer of precision parts for the Defence industry, to optimize their floor plan sequencing, in what we call an NP Hard optimization exercise. I sourced a couple great algorithm companies for this work, and then I left. And I left because it seemed like, once this project is done, so will be my role in this company.
So why hire me as a W-2 instead of a 1099 contractor / consultant? Great question, and the next couple thousand words will try to answer exactly that.
As any good market researcher / business planner / whatever, living in this day and age at the end of May Twenty Twenty Four (2024), AI definitely aided me in this work. More specifically Preplexity.ai – a market research AI which can provide you with a quick yet superficial scan of the internet, and at the very least, lead you in the right direction before you decide to spend $5K on a generic market research paper, $15K on a less generic, albeit as biased, more advanced research paper, or in my case just use logic and circumstantial evidence. Because I don’t need to go to law school to know how to do that. As long as lives are not at ris..
Except for friends, family, the occasional steak and the NBA playoffs, there are really 3 things that are of a professional / financial concern to me right now.
- Ever since I purchased my home around a year ago, I have been struggling with the value proposition and the pros and cons of having some construction made in my home, and while I am not as picky as my wife is, I acknowledge that a higher countertop or a beautiful patio would make sense in our 1970s setting. Having said that, Construction is (a) expensive (b) has a very weird demand/price curve, as is witnessed by the sample of 2 which is me and my wife.
- My last blog post talked about SEO, and in reality – Marketing for my tiny consulting company is a huge concern. I am not a salesman or a pusher, so ultimately I, like millions of others, want to create a pull dynamic. For that reason I am writing this blog post, but for that reason also, I am also diligently assessing which of the dozens of marketers I speak to, can actually help me, and which are nothing more than money sucking charlatans (my hunch: most)
- And then there’s the question of my little SMB consultancy. To be clear, I ain’t no MBB (Mckinsey, BCG, Bain), but my clients are also not MBB clients, nor will 99% of the 115 clients I worked with this year ever be, and for those that will – please don’t forget me.
I have no doubt in my mind that there are hundreds, thousands, tens of thousands companies out there with <$10M in ARR and declining or struggling profit margins that can use my proven expertise in market research, financial modeling, pricing optimization, operational optimization or any other service I might be able to provide.
How many companies you might be asking? Well, that’s exactly what I asked Perplexity to provide me with. I made the mistake of asking him (it? I guess it depends on whether it is sentient, but I definitely don’t want to offend Perplexity by assuming its identity).
So yes, I made the mistake of asking Perplexity to provide me with the number of US companies with $1M<ARR<$10M. Perplexity couldn’t answer, but then I realized that ARR might be too complicated a word for it, and when I changed the term to revenue, I discovered that there are just under 950,000 (or a cool million) companies with $1M – $10M in revenue, that can use my services and probably can’t afford MBB, but they can afford me, because I am… affordable. I want to be the MBB4SMB (A domain owned by yours truly, just in case you’re wondering) – but the question is how.
If I were one of my … more… biased… clients (I have some, don’t ask me how many or who they are), I would have said – great. SAM is a million companies, I am great and therefore my SOM is 1% of those, at 1,000 companies, annually who would pay me $$$ each on my way to becoming a millionaire in no time.
But who are we kidding? Ultimately, that’s what marketers are for, right? I definitely want to do this smarter, and for that, I will wow you with Mekko’s.
And having said that, let’s start diagraming these three industries, and see where we get to, and if we can draw conclusions between the comparisons of the three industries and their market dynamics:
- Construction
- Marketing
- SMB Consulting, AKA me (and the inferior competition)
Construction:
The market value is not my primary concern right now. IBIS claims it to be at around $285B with a 3% profit margin, spread across 408,000 establishments at ~3% profit margin. That is $700K per establishment for a profit of $21K, which, at least in my head, seems reasonable. Of course, if someone pays me, I’ll get more accurate numbers – but nobody paid me yet for this blog post, so I won’t.
It should be noted that Statista’s number is much higher at $1.8 Trillion market value, but I found IBIS to usually be a little more accurate than Statista, and I like that $700K number, so let’s keep it that way.
To be clear, the graph above is not accurate, nor does it intend to be. All it states is that there is a market value (okay, $285B) and that there is an unmet demand and an unmet supply – But perplexity.ai can’t quantify it, so who am I to?
I do know the following facts though:
- Me, or the sample of two that are me and my wife (sorry, my wife and I..) are in the unmet demand bucket. The prices are just a little too high for us to justify the work. I don’t want to spend $18K to install a vanity, recess lights and some mirrors in my bathroom, as long as it’s fully functional.
- There is ample evidence for shortage of construction workers in the US, like here and here and here, and you can just google the 300 other sources
- Profit margins are at 2.9%, mostly due to the high cost of materials and labor, or in other words – construction companies can’t really meet the unmet demand because it will just cost them too much.
Which means that the market equilibrium here is indeed one where demand just can’t be met at a certain price point, despite the fierce competition (over 400,000 construction companies)! In a highly fragmented industry where 91% of the market value is derived by companies noted as “others”:
Now, that we know all this, we can provide an additional breakdown which can explain the unmet supply, as following in this deliberately approximate Mekko graph:
You would notice that one field is different – it’s that of the frequently non-licensed, frequently non-insured handyman.
It is my experience that these handymen would not take most of the construction jobs (e.g. – remodeling my bathroom) for a plethora of reasons, including their capabilities, connections, their fear of costs and probably many many others – the fact remains that at least in Southern California, they are not posing much of a threat to the certified construction companies.
Or, I don’t know, maybe we just don’t know how to look for these, which will lead us to the third and final breakdown of this market, adding our incompetent search to the mix;
And yes, that incompetent searching piece is yours truly in this self-deprecating attempt for humor, and while its relevant for the world of construction, you would see it’s much more relevant in other industries
Marketing & SEO
I already wrote a blog post about SEO market dynamics, less than a month ago (Kudos to me), but I am in the Mekko phase, so let’s keep it that way.
The main difference between Marketing and Construction is in the profit margins – You see, according to Perplexity.ai the margins are much higher. For example, ippei.com states the profit margins of SEO companies to be at 20% and the great(?) Neil Patel states it could and should go all the way up to 50% profit margin for big enough agencies, exceeding 6 figures in sales.
But what is true for SEO agencies is not necessarily true for Marketing agencies, who have lower profit margins. For example, a Hubspot survey noted that 37% of responders claimed to have profit margins of 11% – 25%
Not bad, really.
IBIS has another view – while I could not find a US research paper, I did find a UK one, and I mean, how different can the two be – both countries speak English, after all.
Sort of.
The profit margins in The UK, according to IBIS is a relatively (to Construction) healthy 8.6%, with this cost structure:
With wages being the largest defined cost.
Either way though, Perplexity insists that IBIS is indeed more correct than the survey above, and profit margins are on average at the 10% mark, which is still quite healthy, and means that marketing agencies can provide more work if they wanted to, as classic equilibrium is achieved at a profit of 1 US Cent or .00001% profit margin, or in other words – Construction is at equilibrium, but Marketing less so.
My strong assumption though, based on the same non-lawyered circumstantial evidence, is that this average, whatever it may be, has a huge standard deviation. This can be corroborated by the fact that 50% of Social Media agencies fail in their first year according to Hootsuite and that this guy thinks the number of agencies that fail is at 90%, and while he has no evidence what-so-ever, we all know that everything on the internet is true.
Perplexity actually thinks this which is probably not too far from the truth:
“So in summary, while there is no exact data point provided, we can reasonably infer that the failure rate of SEO companies/agencies in their first 1-2 years is likely around 20-30% based on the general small business failure statistics cited in . However, the actual failure rate could potentially be higher given the competitive nature of the digital marketing/SEO space as alluded to in .”
Let’s mekko all this and start talking about what really matters – MY business
The unmet supply is essentially the profit margin (let’s call it 11% in this case) of this $50B industry in the US, . I also assume the unmet demand here is minimal – mostly because unlike construction, there are marketing agencies of all types and forms, which is articulated much better by who else – Perplexity.ai:
Based on the information provided in the search results, here are the typical price ranges for various types of marketing agencies:
Digital Marketing Agency Pricing:
- Average cost: $2,500 to $12,000 per month
Advertising Agency Pricing:
- Average cost: $5,000 to $20,000 for a campaign
Content Marketing Agency Pricing:
- Average cost: $4,000 to $15,000 per month
Email Marketing Agency Pricing:
- Average cost: $600 to $5,000 per campaign or month, depending on scale
Social Media Marketing Agency Pricing:
- Average cost: $1,000 to $20,000 per month
Design and Creative Agency Pricing:
- Average cost: $1,000 to $50,000 depending on the project
SEO Agency Pricing:
- Average cost: $500 to $30,000 per month
Growth Marketing Agency Pricing:
- Average cost: $6,000 to $25,000 per month
Branding Agency Pricing:
- Average cost: $10,000 to $50,000 for a comprehensive branding project
Wow, that’s a lot of numbers, but I do see numbers like $500 and $600 in the mix, which, I assume, is something most companies in the US can handle if they ever want to sell. After all, ask yourself this – have you ever seen a financial model projection without a cost of marketing? Because I haven’t, and I have seen thousands of models for every type of business under the sun. That is of course, not true for Advertising – running ads can be expensive and not every company can afford that, but some type of marketing? Yes, everyone does that.
And don’t forget that many (including yours truly) just outsource the whole thing to cheaper countries, because we can, or sometimes to AI because… well, we can, and because everybody does it anyway.
SMB Consulting
Alright, let’s talk about me, I mean us, I mean the industry I want to dominate or at least get that 1% SOM of (or, you know, .1% or .01%, I’ll still be pretty content), but first a comparison table between the 3 industries:
| Clarity of need | Clarity of necessity | Minimal Cost | Perceived value | Actual value | |
| Construction | YES | NO | $10K+ for residential projects | Physical evidence | If you want a nice house |
| Marketing / SEO | YES | YES | $500 or less if outsourcing for some | I mean, everyone else does it, right? | When it works, you make money. When it doesn’t, you don’t |
| SMB Consulting | NO | NO | Varies, daily projects can run at $500, monthly at much higher prices | What are we? An F500 company? | Some would argue that MBB is actually a negative value, myself included. But some services can really help, if you know what you’re looking for |
Let’s talk about market size – Perplexity has no idea, so I had to take some shortcuts and educated guesses, but this Forbes article helped me, as the $366B market size stated by IBIS clearly includes way too many things that are not (1) SMB (2) Strategy / Business Consulting.
The combined revenue of some of the leading Consultancy marketplaces, including Catalant, Business Talent Group and Talmix is no more than $100M, and assuming their cut (vs. the Consultant) is an average of 20%, that means the market size of these online platforms is at around $.5B.
But, this might just be a fraction of the entire SMB Business Consulting market – and while Perplexity was not able to compute the actual number, I just can’t justify doing so for a blog posjk but suffice to say, it’s definitely higher than $.5B. How much higher? Let’s be generous and say 50X, for a total market value of $25B, which divided by the number of SMBs in the country (established at a cool million, right at the beginning of this post) comes up to $25K per company – and it’s very very easy to assume that (1) we were very very generous with that 50X (2) Catalant and other platforms don’t just cater to SMBs, and in fact, might primarily cater to larger companies and (3) many, maybe most, definitely more than some of these SMBs won’t even consider using a consultant for their work, because (a) They obviously know better, at least, in their biased opinion and very often that’s true, (b) It never crossed their minds (c) They THINK they can’t afford it and (d) They only ever heard of McKinsey anyway, so what’s the point?
And that is the key, unlike Construction and Marketing – both are clean, known, un-obscure and transparent, Consulting just isn’t.
Perplexity.ai tells us the same story –here for example, they talk about the lack of awareness and the biased need for self-reliance and control, and here they talk about the fear of hiring the wrong consultant, and then there’s the fear of high pricing (which really is more a perception thing than a real thing)
Small business can use help, as this survey reveals, but they don’t hire consultants because of biases, lack of knowledge, dogmatism and fear
Knowing all this, the perceived Mekko diagram of the SMB Consulting business looks very different than the other two:
Where the majority of the market – is in ungenerated demand. I.e. services, SMBs can benefit from, but due to the various reasons discussed above in length – just don’t.
In fact, we can even elaborate on the last Mekko and make it look like this:
Where all the black holes are just that – black holes – and yes, I really do believe that is more than 50% of the market, probably much more.
And for a side-by-side comparison of all these 3 mekko’s where black is that black hole of external factors and everything else is the market equilibrium, we receive this visual:
Marketing and SEO is close to equilibrium (although it’s a fake equilibrium, as I described in my last blog post), Construction is disrupted by external factors but has a high degree of market equilibrium, and SMB Consulting has one big glaring hole of un-generated demand, which should be generated and beneficial to all.
Closing Notes
Before we conclude, I do need to add one little point in that (second to) last Mekko
And now there’s that point right in the middle of the Unmet Supply with my company’s logo colors. I have the supply and my readers can meet it, which is great. And after all, this is my blog post, and that is kind of the whole purpose, so contact me