Catalant Technologies Analysis - Innovation: From Creativity to Entrepreneurship

I had a lot of fun researching and writing about Catalant Technologies, as part of my Capstone for "Innovation: From Creativity to Entrepreneurship" specialization for my MBA program.

Catalant – Company Background:
 
Catalant (formerly known as HourlyNerd), incepted the idea of connecting well-educated business consultants to small businesses as part of a class competition at Harvard Business School in 2013 [1]. Pat Petitti and Rob Biederman noticed that their fellow students excelled in business acumen, knowledge and skills, but remained un-employed. Armed with this idea, both Petitti and Biederman, through door-to-door sales, reached out to multitude of small businesses and validated the need for such an offering. After landing a few small projects, both created a simple web-site, costing them $10 dollars. The early business model stipulated that the consultants or “nerds”, must have an MBA from a top 40 business school as ranked by U.S News and World Report, among others. The revenue would be generated for HoulyNerd by charging 15% from the hiring company and 5% from the consultants, for an overall 20% of the project value. The founders estimated a saving of 90% for the firms in this model.

When HourlyNerd was presented as a class project, an Angel investor approached them for an early investment. As a result, Accanto Partners along with Mark Cuban participated in a $750,000 seed round at HourlyNerd [2], noting that the firm was tapping into a market that had abundance of talent who wanted to control their own destiny versus working for a firm. Even with an infusion of cash, contrary to the norm of dropping out of school, both Petitti and Biederman stayed at Harvard. Both referred to Harvard as being a “super-incubator” and cited the guidance from their professors as being meticulous. The advice, coupled with the course work, helped them understand and shape their business, which otherwise might have gone through turbulence due to trial and errors.

From its humble beginning as a classroom project, HourlyNerd has since changed its name to Catalant and as June 2017 has raised a whopping $41M in Series D funding, bringing its total funds raised to date just under $76M. Catalant has also enhanced its scope to providing business expertise on a global scale, to firms of all sizes, including more than 10% of the Fortune 1000 companies [3]. Catalant has systematically increased its consumer base, by continuously improving its core offering through the creation of a marketplace driven by proprietary algorithms that matches talent with projects in almost real-time.
 
Strategic Innovation:

Catalant identified that most small and medium businesses (SMB’s) have a need to address the same issues as compared to their larger counterparts in terms of growth, strategy, accounting, financials…etc - though affordability of talent at large consulting firm resources was out of scope. Catalant, addressed this issue by creating a marketplace for “renting” MBA’s, with fees ranging from $10-$50/hr and not to exceed $100/hr, based on experience. For the students themselves, as they could afford to spend 8-10/week on side projects, the low cost benefited the businesses from affordability perspective, while providing invaluable experience and a revenue stream for the students. With Catalant charging 20% of the project value, the offering is disruptive to consulting industry as it creates a viable value-proposition for both businesses and consultants in terms of affordability and desired skills [4].

If the prospect theory is applied to this offering, a price range from $10-$100 creates a price point that shows be sensitive to the needs of most SMB’s [5], where large consulting firms can charge up to $500/hr. The price in unison with the marketplace, allowed Catalant to quickly cross the chasm and move from beachhead segment to mass adoption. As of 2017, Catalant is only 4 years old, yet has expanded beyond small business, boasting more than 30K+ experts, serving 650+ firms. Additionally, Catalant consultants may have higher charge rate per day, which is still 50-60% less compared to what companies might have to pay large consulting firms [6].

The weakness to this model is twofold:
 
1. More consultants than projects – Based on the numbers of consultants and serving firms, a ratio of consultant to firm is less than 0.02%. This may be serve in favor of firms
who have a large of talent to choose from, but not as much for consultants as their chances for landing a project are quite low.
2. Quality of consulting being offered – Even though firms have a large talent pool at Catalant, that does explicitly ensure the quality of work that the consultants will perform will be up-to-par. One reason could be the vetting and continuous training that consultants at well-established firms must go through. Additionally, the exposure to high end clients sharpens the innate aural and oral skills for the consultants, which might be lacking for Catalant consultants.

Creative Thinking:

In its early years, Catalant’s focus was to target the small businesses, though it realized that its growth is hindered by keeping its offering limited, hence reaching an impasse. Applying the PAGES framework to Catalant, HourlyNerd identified the parts to be the connection that matches the talent i.e consultants and businesses, through taking actions taken on marketplace Catalant crated, having a goal to provide full set of services when the firms triggered an event to hire professionals, with a self-perspective of an enabler that can seamlessly make the demand meet the supply.

By using both Zoom-out and Zoom-In techniques, Catalant identified its competitors were not only the large consulting firms, but every placement agency who could connect the talent to the firms of any size. With these insights, HourlyNerd rebranded its self to Catalant circa 2016, where it expanded the scope of its offerings to a full employment agency, placing both part-time and full-time talent for businesses [7].

To maintain a growth trajectory, Catalant used the re-categorization technique to convert its initial web-site into a full suite of services, by introducing machine learning that could better match the talent with organizations. This was primarily introduced when Catalant’s perspective was changed when large enterprises started using their platform and considered Catalant as the future of how work will get done [8]. These insights couple with a rise in “shared economy”, Catalant identified that beyond providing the optimal matches, there was need in the market place to connect team to projects vs just a single resource. As of 2017, Catalant
offers the option of pre-assembled teams or specialized items or a firm has the ability to create their own teams [9]. Overall, Catalant started with an idea and has continued to grow it through insights it has gained over the short span of four years.

Even though Catalant was able to pivot from small business to medium and large firms, the change only transpired when large firms approached Catalant for their services. This highlights a weakness with Catalant in its early stages, when the founders made lot of effort to reach out to small business and gain their perspective, though it would have been very beneficial to gauge similar perspective from large firms. Especially when dealing with multi-divisional firms where each division is responsible for their profit and loss, it can be akin to a small business. Conformity, lack of authentic descent and individualism could shed some light on lack of gaining different perspectives with the founders. If the founders had utilized the crosstalk cue, it could have introduced new knowledge, which could have given birth to new ideas and surprised the founders with new perspectives. This would have also allowed Catalant to penetrate a larger segment that could’ve fueled their growth even at a faster pace.

From Startup to Growth:

As Catalant started to grow beyond small-businesses, it had to stay competitive through pricing, which gave birth to a bidding process for projects. In simple steps, a firm could create a project with a fixed price, the experts matching the necessary skills would be notified and would review and bid on the project. The firm then selected the best proposal from the bids received. Being a fixed price, both consultants and firms clearly understood the cost and price model, removing any ambiguities. Upon the conclusion the of the project, the consultants would be rated on their performance, and if during the project, the consultant(s) were unable to continue with the services, Catalant would mediate and provide alternative solutions, allowing for amicable conclusion to the projects. Catalant through their platform also ensure security and compliance with the firms policies, while encouraging both consultants and firms to sign additional Non-Disclosures (NDA) as needed [9].

To support their growth, Catalant started with seed money and as of 2017 closed a Series D funding worth $41 million dollars. Understanding that there are competitors in the market place, who can easily replicate Catalant’s business model and offering, Catalant plans to spend majority of the capital raised on marketing and research and development (R&D). The founders have kept their ears close to the ground and beyond matching talent have ascertained the need to educate the firms about their services, therefore having their salesforce equate to about ~46% of their overall workforce. Another shift in perspective has led to creation of a service, which allows firms to leverage Catalant’s technology to catalogue the capabilities of their own personal, therefore enabling the best resources to work on projects that align with their strengths. Based on all capital raised and generation of revenue through its marketplace, Catalant is projected to have $50M in revenue in 2017. Not a small feat for a company that’s only 4 years old [10].

Even though the financials are solid, Catalant has a basic problem of having more consultants on its platforms than the firms utilizing their services. Even though R&D and marketing are now in focus, new entrants can easily disrupt Catalant’s business model as there is no intellectual property to content with. Catalant has an opportunity for organic growth by signing exclusivity contracts with firms to provide talent and bench strength.

Recommendations:

Catalant is great example of a company that identified a shortcoming in the marketplace, and through research converted the opportunity into a valid idea, which created a viable model, driven by a mission that led to its growth from a concept to a firm that has over $75M in funding and projected to have $50M in revenue within 4 years of inception. Even though Catalant has done most things right a few recommendations would be:

Education Vertical - MOOC (Massive Open Online Course):

Most of Catalant’s services are offered in the area of business management. This provides a unique opportunity for Catalant to create video based trainings that can be offered through MOOC’s (Massive Open Online Course). Being a firm that is primarily driven by technology, MOOC’s will serve as another education arm for Catalant, while simultaneously providing marketing opportunity. This service can be provided to both consultants on the platform and outside to increase placement opportunities.

The University Program couple with Subscription Model:

Staying true to its inspiration of connecting students with projects, Catalant can tap into alliance with top universities where students and professors can work on academic projects that are more research centric. Catalant can also fund these research projects and can then resell the content to firms who are looking for such research. Catalant can also use a subscription model where paying customers can access data as needed, while non-subscribers can purchase the content at premium price.

Catalant Consulting:

Firms that have a need for long-term projects might not consider Catalant. This provides an opportunity for Catalant to hire a limited workforce from its own talent pool who are interested in long term projects. Catalant can spin this firm into a new subsidiary, so it can compete with the likes of Bain and Accenture. Through this model, Catalant can also expand its offerings beyond business consulting and penetrate markets such as Information Technology and Software. With Machine Learning, Artificial intelligence on the rise, Catalant can leverage its business expertise to create new verticals and offer them as services to specialized firms in those areas.

Finally, Catalant is a firm that epitomizes on how to take an entrepreneurship approach to an idea, the genesis of which came as a classroom project and within four years is generating almost $50M in revenue. They have done almost everything right and if they continue on the same trajectory, could be the next Unicorn.

References:
1.    https://www.entrepreneur.com/article/235395 
2.    https://www.crunchbase.com/funding_round/hourlynerd-seed--1ee563e6
3.    https://www.crunchbase.com/search/funding_rounds/field/organizations/num_funding_rounds/hourlynerd
4.    https://www.cnbc.com/id/100627530
5.    http://mmmahmood.blogspot.com/2017/07/prospect-theory-understand-your-target.html
6.    https://rctom.hbs.org/submission/catalyzing-brilliant-talent-in-a-digitized-world/
7.    http://us2.campaign-archive2.com/?u=db9445295faf284e450fdd256&id=b5f4e0bfe4&e=7f3f6ae7f8
8.    https://www.americaninno.com/boston/hourlynerd-is-catalant-entreprise-freelance-consulting/
9.    https://gocatalant.com/our-experts
10.    https://gocatalant.com/how-it-works
11.    https://www.forbes.com/sites/jeffkauflin/2017/06/27/exclusive-consulting-matchmaker-catalant-lands-41-million-in-new-funding/#18de85d54efd