Why Your AI Consultant Hopes You Never Graduate

A recent $7.7 billion acquisition highlights a growing trend in the AI consulting industry. Sequence Holdings and Michael Dell's family office bought Baldwin, an insurance broker, for a record-breaking fee. The deal underscores a key challenge within the AI consulting sector: consultants often aim to maintain long-term relationships rather than help businesses transition to self-sustaining operations.

Michael Lee, CEO of Sequence Holdings, explained this dynamic on the No Priors podcast. He noted that consultants are frequently paid to stay on long-term contracts, while software is sold based on the existing workflows rather than promoting innovation. This incentive structure can lead to consultants optimizing services to keep clients engaged, rather than reinventing their business processes.

The consulting industry's recurring engagement model presents several issues. Retainers are often extended indefinitely, with each renewal being smaller than the project to replace the consultant entirely. Clients end up relying on consultants for software licenses, tool stacks, and knowledge that doesn't transfer to their own teams. This arrangement can create a dependency that benefits the consultant but hinders the client's ability to operate independently.

To mitigate these challenges, it's crucial to focus on outcomes and establish clear exit strategies. Clients should negotiate for deliverables that include ownership of accounts, data, code, documentation, and access. The contract should specify what the client will know and be able to do once the consultant has left. Additionally, the cost of maintaining a consultant indefinitely should be compared to the cost of replacing them, as the latter can provide a more sustainable solution.

Ultimately, the goal should be to transfer capability to your own teams, ensuring that the consultants become unnecessary over time. This approach not only fosters long-term independence but also enhances the value of the business during exit scenarios. By structuring contracts that prioritize the client's independence and embedding engineers within the organization, businesses can successfully navigate the AI consulting landscape and achieve sustainable growth.