# Is consulting a sham profession?

> Do consultants lose anything when their advice fails? Small ones do: they live on referrals and reputation, and every client means turning another away.

- URL: https://cultmethod.com/articles/skin-in-the-game/
- Author: Jon Persson, Founder, Cultmethod
- Published: 2019-11-14
- Updated: 2026-10-20
- Category: Rebranding

No. The “skin in the game” critique says consultants lose nothing when their advice fails. For small, specialized consultancies like mine, that isn’t true: we live on referrals, every client means turning another away, and our reputation rides on each project. And skin in the game doesn’t make anyone a better decision-maker anyway.

A while ago I spoke to someone who doesn’t think you should hire consultants because they lack skin in the game. (This is not a new take: Nassim Taleb expresses a similar sentiment.) Now, unsurprisingly I take issue with this idea. Of course I would, right? I make a living building brands for founders!

In this post, I will offer my thoughts on the topic.

## Is it true that consultants don’t have skin in the game?

Not for small, specialized consultancies. They carry real risk, just not always in cash.

Now, on the surface I think the “skin in the game” critique of consulting is a reasonable one. When I read Nassim Taleb’s book (aptly titled “Skin In The Game”), his point about consulting made me pause and think for a while. I don’t want to make my money in a dishonourable way, and it seems to me that if the “skin in the game” critique is correct, consulting would not be an honourable means to make a living. Was I in the wrong business?

But after giving it some careful thought, I don’t think the critique *is* correct.

First of all, we must ask ourselves whether it’s actually true that consultants don’t have skin in the game. I will specifically focus my analysis on *my* kind of consultancy, which is to say *very small* and *specialized* as opposed to, say, Big Four management consultancies.

### No: Client acquisition

Let’s look at how client acquisition works. When I wrote this, about 90% of my new work came through referrals.

This means, that if we fail to produce results for our clients, we receive fewer referrals, which causes business to suffer.

### No: Opportunity costs

Now, you might object: “But you still get paid by existing clients even if you don’t produce results.” That’s true, but your analysis ignores the opportunity costs of working with a client.

When we take on a client engagement, that means there’s someone else that we *can’t* work with during the engagement. Resources are limited in general, and especially so in one-man consultancies.

This means that, beyond just keeping the lights on for X amount of weeks or months, the consulting fee itself does not allow us to grow; the referrals and case study that you can build on the back of the engagement do.

### No: Soft forms of skin in the game

The typical conception of skin in the game is that it needs to be economic, but life is more complicated than that. There are lots of factors that can play just as important of a role in motivating human behaviour, aside from money.

Here are just a few “soft” versions of skin in the game, off the top of my head:
- Reputational costs
- Costs to personal relationships
- Costs to honour and integrity

## Do consultants have enough skin in the game?

Probably not, measured against the client’s downside. A consultant can survive one bad engagement; the client might not.

Now, you might contend: “Yes, consultants risk burning bridges and relationships if they don’t produce results, but they can afford to screw up one engagement—whereas for their client, the same mistake could potentially bankrupt them.”

So the problem then is that consultants do have skin in the game, they just don’t have *enough* of it. The asymmetry between the potential downside for the consultant and the potential downside for the client is too great.

### Should consultants take performance pay?

Usually not. Performance pay pushes the total fee up, and it tempts the consultant to chase the metric instead of the business.

Before getting ready to write this post, I was curious to see what other people had written about the subject. One blog post that I came across suggested that consultants should accept **performance pay** in order to increase the amount of skin in the game.

That sounds interesting in theory, but I don’t think it’s a viable solution. Here’s why:

First of all, there’s inevitably a trade-off between *the amount of risk incurred by the consultant* and *the amount of risk incurred by the client*. This trade-off is accounted for by the [level of compensation](https://www.linkedin.com/pulse/increase-your-revenues-decrease-clients-uncertainty-tim-williams/).

Basically, ceteris paribus, the more a client pays the more risk the consultant will take on.

If you want to make sure that you don’t have to pay *anything* if the project goes wrong, you’ll have to compensate by paying *a lot* if the project goes right (perhaps 100% of the expected value of the engagement: if, hypothetically, the consultant’s work generates $1 million extra in revenue for you over the course of a year, you pay him $1 million instead of, say, $30,000).

![The trade-off between client risk and consultant compensation](https://cultmethod.com/images/posts/risk-fee-tradeoff.png)

So if the whole compensation consists of performance pay, it will approach—or exceed—100% of the expected value of the engagement. Considering that entrepreneurship is literally = taking risks in order to get more value than you gave, I don’t think this is a particularly attractive proposition to most.

But there are less radical ways to implement performance pay. For example, you might do half as a “traditional” payment and the other half as performance pay. But given that few small consultancies run 50% margins (alas!), this kind of structure would necessitate an increase in the base compensation as well.

And then, on top of these complications, you also introduce a conflict of interest. By conditioning payment on reaching certain metrics, the consultant is incentivized to chase those metrics *even if* doing so would negatively impact other aspects of the business. This is the same kind of mechanism that we observe in large corporations and even democratic states, where CEOs and politicians chase short-term gains at the expense of the long-term health of the company or country (because bad things that happens four years later, when someone else is in charge, is not their problem).

## Does skin in the game lead to better decisions?

Not for individuals. Over time, skin in the game weeds bad actors out of markets, but it doesn’t make any one person decide better.

My final objection to the criticism that consultants lack skin in the game is this: It *really* doesn’t matter. At least not in the way you might think it does.

The real argument of Nassim Taleb is that skin in the game promotes the selection of better decision-makers on [a macro level](https://medium.com/incerto/what-do-i-mean-by-skin-in-the-game-my-own-version-cc858dc73260).

Skin in the game *immediately* weeds out outright malevolent actors, and *over time* incompetent actors. It basically operates as a selection pressure on the evolution of large organizations and markets.

But it **doesn’t** give individuals better decision-making skills. Someone *with* skin in the game is just as likely to mess up as someone *without* skin in the game.

In [one study](https://users.nber.org/~jwolfers/papers/DoesMoneyMatter.pdf), play-money prediction markets forecast NFL games as accurately as real-money ones.[^1] Having money on the line didn’t sharpen the forecasts.

## Who should business owners take advice from?

Trusted advisors who know their subject. You still make the final call.

Funnily enough, people who object to consulting are usually quite happy to hire employees.

But if they do something that hurts the business, employees suffer similar consequences as consultants and freelancers: they get fired (and then they find a new job). As far as I can tell, there *are* two differences between employees and consultants/freelancers: they usually stick around longer, and they tend to be more conservative (so they’ll be less likely to recommend changes that might rock the boat).

The harsh reality for business owners is this: **no one cares as much as you do.**

In return, you reap most of the rewards. Founders get the credit for their companies’ breakthroughs, even when their engineers did much of the work. But the founder also carries the blame when things fail.

Heck, even in a formally equal partnership between two co-owners, one will usually shoulder more responsibility, work harder, and invest more sweat equity in the business than the other. This is a function of different personality types & external circumstances (one of you might simply “need” success more than the other).

So what are you to do?

I think there are three options:

1. **Don’t listen to anyone but yourself.** Problem: your knowledge is limited and probably flawed, both on account of the information you have and the perspective you have. Sometimes you *need* other perspectives in order to progress (which is the whole premise of consulting in the first place!).

2. **Listen to everyone:** Consultants, books, online gurus, family members, strangers on the street, etc. Problem: the overwhelming majority of ideas out there are either bad or not applicable to your situation.

3. **Finally,** you can choose to take advice from trusted advisors who are knowledgeable about the thing they advise on—without rescinding your responsibility to evaluate the advice and negotiate it if needed (you know, thesis, antithesis, synthesis—that sort of thing).

I think you can guess which one I favour.

## So, is consulting a sham profession?

No. Hiring good consultants usually beats refusing to, and if I didn’t believe that, I’d be in a different business.

Not every insight needs to be taken to its logical conclusion. That includes Taleb’s concept of skin in the game.

In fact, while preparing myself to write this post I found out that Taleb himself worked as an [advisor to the UK government](https://www.bbc.com/news/uk-politics-17287845) in 2012 — obviously without assuming any of the potential downside of his advice (beyond reputational damage). And, as he readily admits, Taleb also made a successful career for himself in hedge-fund management, investing other people’s money.

In my opinion, the benefits of hiring consultants, advisors, and freelancers are usually much greater than refusing to do so. And yes: Of course I’m biased in this matter, but if I didn’t believe this to be true, **I’d be in a different business.** Who wants to make their money dishonestly?

[^1]: Emile Servan-Schreiber, Justin Wolfers, David Pennock and Brian Galebach, _Prediction Markets: Does Money Matter?_, Electronic Markets 14(3), 2004, pp. 243–251. [PDF](https://users.nber.org/~jwolfers/papers/DoesMoneyMatter.pdf)

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Written by Jon Persson (Founder, Cultmethod). Cultmethod is the branding practice of Jon Persson. It sells one product, the Brand Sprint: positioning, visual identity, a website and an AI brand voice kit, delivered in 10 working days at a fixed price, for one client a month. More: https://cultmethod.com/index.md