From Budget to Best Match

A case study from the business world

In the HBS case study “Catalant: The Future of Work?,” Thomas Eisenmann, Jeffrey F. Rayport, and Christine Snively examine the rise of Catalant, a platform that connects business clients with skilled freelance talent to help execute their projects. Originally founded in 2013 as HourlyNerd, an online tool geared primarily toward small businesses and middle-market companies who might make use of M.B.A. students and recent graduates as management consultants, the company quickly grew to serve some of the largest companies in the United States. Today, Catalant’s website boasts that it serves “more than 30 percent of the Fortune 100.”

How does it work? To start, clients post work on the Catalant marketplace, identifying details about the project (for example, start and end dates, budget range, and so forth) but also thoughts about the ideal person to complete that project (for example, career background, more-granular industry expertise, skills, seniority, and more). Freelance consultants find project postings on the marketplace and submit proposals. The platform facilitates this process, giving clients and consultants a space to share information, ask and answer questions, agree to contract terms, and eventually make respective payments.

This issue of The Practice considers various methodologies for finding the best talent for the legal needs at hand. While Eisenmann, Rayport, and Snively’s case study is ostensibly about Catalant’s development as a young company—its early fundraising, building a brand, and creating a sustainable organizational culture, to name a few examples—this story highlights the company’s core function of matching clients with service providers. The mechanisms and thinking behind Catalant’s marketplace, which the case study captures in fascinating detail, has direct parallels to the legal profession and how legal services clients think about communicating their needs and ultimately selecting outside counsel. We explore some of these salient pieces of Catalant’s story below.

The evolution from HourlyNerd to Catalant

What is now known as Catalant began as a project in a first-year M.B.A. course at Harvard Business School in the spring semester of 2013. The objective of the project was to work in teams to create a company that would earn revenue before the semester was over. One team, which included current Catalant co-CEOs Rob Biederman and Pat Petitti, conceived their idea starting from a few observations:

1. The market for management consulting was highly fragmented, with industry leaders McKinsey, Deloitte, Accenture, BCG, and Bain collectively accounting for less than a sixth of the total share.
2. Small-to-midsize businesses had an unmet demand for management consulting services. While in the previous year they made up nearly half of all U.S. private-sector output and encountered issues of the sort typically handled by management consultants, these companies often did not have the resources for such outside help.
3. Taking a look around them, the team also gathered that M.B.A. students would generally be willing to partake in part-time consulting for a chance to earn some extra money.

The result was HourlyNerd, a web-based marketplace that helped freelance M.B.A. consultants (lightheartedly referred to as “nerds”) and small-to-midsize businesses find each other. Where HourlyNerd went from there is just as noteworthy as where it began. It started as a platform that served small-to-midsize companies (for more on how companies of this size intersect with the legal profession, see “Taking Care of Small Business”) by connecting them with relatively inexperienced consultants and had a central value proposition of providing good-enough consulting services for cheap. Overtime, nearly all this original intent would change.

HourlyNerd quickly discovered that their platform was attractive to much larger companies than perhaps the typical client they had previously envisioned. It turned out that in addition to unlocking management consulting as a viable option for small-to-midsize companies, their marketplace technology unlocked it for “lower-level” managers in large corporations as well, particularly those who often lacked the budget for a consultant from a top firm. Thus, as the case study notes, HourlyNerd tapped into a whole different underserved demand for outside expertise, and these more-midlevel corporate managers proved not only eager but generally satisfied with the platform’s ability to meet their needs. As Eisenmann, Rayport, and Snively highlight, the impact was significant and HourlyNerd had found a market. Indeed, they report, one Fortune 100 company had 16 projects serviced by nerds through HourlyNerd. In this group, the quality of the nerds’ work was considered “superior to that of incumbent vendors 42% of the time (and was otherwise comparable); work was delivered faster 48% of the time. The client estimated 75% cost savings from using HourlyNerd, relative to existing solutions.”

As its client base (and revenue generation) grew upmarket, HourlyNerd revisited its strategy. In particular, they needed the right “nerd pool” to match the level of work these newer (and larger) clients were looking to fill. Over time, the “nerds” were instead referred to as “experts,” and the expert pool grew to include not just current M.B.A. students and recent M.B.A. graduates but also experienced consultants (for example, those who were retired or who preferred more ad hoc, nontraditional work formats). In similar fashion, the company’s value proposition evolved. Where once they existed to provide cheaper consulting alternatives to the larger firms that would still produce acceptable results, their mission refocused on pinpointing the right talent for the clients’ needs and facilitating their connection.

In the process of advancing these changes, HourlyNerd rebranded as Catalant (which Eisenmann, Rayport, and Snively note is a portmanteau of “catalyst,” “talent,” and “brilliant”). Through feedback, HourlyNerd discovered their name was more of an obstacle than an advantage among its larger clients. In short, the self-deprecating humor inherent in a company name like HourlyNerd put corporate clients in uncomfortable positions when requesting funds to pay for it and often kept them from talking about it with their peers. Since it remained a suitable brand for many of their smaller clients, a separate small-to-midsize marketplace was dubbed “HourlyNerd powered by Catalant.”

The challenges

Catalant encountered a few notable challenges along the way. One supply-side challenge was an uneven distribution of project matches throughout that talent pool. As the case writers note, while Catalant had about 35,000 registered experts around 2016, only a small fraction—less than 4 percent—were completing a majority of the projects posted up to that time. Eisenmann, Rayport, and Snively write, “For this group, success bred success: clients were drawn to their Catalant profile pages, which displayed high satisfaction ratings from many past clients.” These dominant experts tended to be generalists, but the company’s expectation was that there would be increased demand for specialist experts with deeper industry knowledge and other niche expertise required by some sophisticated projects. Would this shift be enough to create a more egalitarian division of work across the talent pool?

Another challenge related to the demand side of the business. Although Catalant enjoyed a high rate of repeat business among its top clients, it was difficult to tell when a new project might be posted. This, in turn, made goal setting a challenge, raising the importance of constantly attracting new clients—and educating prospective clients on what they do. As Jeff Kauflin writes in Forbes, “[Catalant] faces a difficult challenge: It’s offering a service that many companies don’t know they need. Educating them about how its solutions are worthwhile is expensive. That’s why about 70 of Catalant’s 150 employees are salespeople.”

One challenge that Catalant had avoided—which Eisenmann, Rayport, and Snively note is otherwise common in online marketplaces—was a tendency of satisfied parties to conduct future business together away from the online marketplace to cut costs. The case writers quote cofounder and then-CFO Peter Maglathlin: “The marketplace is sticky for experts, because we manage a lot of messy tasks for them, including data storage, payment processing, and dispute resolution.” In other words, Catalant’s technology was a significant draw for users, and their ability to largely avoid the challenge of disintermediation owes at least in part to the usefulness of the platform’s project management capabilities.

What the law can learn from Catalant

According to the case study, Catalant had at one time considered expanding their marketplace to cover legal services but ultimately decided against the move. Nevertheless, Catalant’s success creating an online marketplace for consulting services offers those in the legal profession plenty to think about. As Robert Couture explains in “Postrecession Strategies,” “In the United States, the market for outside legal counsel is estimated to be more than $275 billion, with the largest firm (by revenue) commanding less than 1 percent of total market share.” As we see in “Taking Care of Small Business,” there is no single, preeminent marketplace for small-to-midsize companies to find the legal services for their needs (and, indeed, the ample discourse around the access-to justice gap speaks to a mass of unmet demand for legal services). And, as we explored in “Everyone’s a Ladw Company” (see the “The evolution of ALSP careers” breakout box in particular), clients’ perceptions of contract work are evolving as lawyers are increasingly attracted to more-flexible work arrangements. These three developments are not unlike the three that led to Catalant’s founding.

What might a Catalant Legal look like? What holes in the market for legal services could such a platform help address? What might clients of existing legal service providers find attractive about such a platform? How should the profession respond? These are questions that lawyers would do well to consider as they look to the future of work.