Service businesses are easy to start but notoriously hard to build into multi-million dollar companies. Most exist as 1–2 person operations and never hit seven-figures in revenue.
Don’t get me wrong, that’s not bad if it fits their lifestyle. But I’m not talking to that person here. I’m talking to you. You want to build a lasting empire. Something that makes a difference and provides a superior customer experience.
Up until today, you’ve been eager to attract as many customers as you can. Offering an assortment of services, across a range of industries. The very definition of “full service”.
And you bill your clients by the hour. Customers insist on this form of payment given their other vendors operate that way. It’s also simple for you to produce revenue. You work a million hours and you make a million dollars. It’s a tried-and-true approach.
I know this because I lived it. It’s how I ran my first business early on. Before I discovered a better way and began winning awards for growth and culture. Since then I’ve sold that business and now spend my days helping other founders avoid the same messy mistakes.
Today, I’m going to rock your world. I’m going to expose that operating model for what it truly is — a cop-out. I don’t mean to be so rude, but you’re phoning it in. And your customers are getting the shaft. So are you.
You are capable of so much more.
The standard model for service businesses is broken. Especially those that focus on providing knowledge and white-collar expertise.
Most operate with “uninspired defaults” that get copied over and over again from one mediocre business to the next. This means that innovation and real customer value often elude many of these businesses.
But there’s a cure. Are you up for the challenge?
Challenge #1: Do Fewer Things Better
By offering a laundry list of services and catering to a wide range of industries, you don’t stand out. How could you possibly be great at all those things and for all those potential customers?
Casting a wide net may catch you many fish, but most will taste bad and provide little nourishment. Who would you rather be, the person that sells bluefin tuna for big money or the joker that sells whatever they manage to catch?
This is where pushing away from uninspired defaults comes into play. The allure of casting a wide net is easy to see. Attracting as many customers as possible seems logical, but by doing so, you look like everyone else doing the same exact thing. Yawn!
Ask yourself this, “why would a customer consider my business over another that does one thing very well?” Said another way, if (God forbid) you had cancer, would you accept care from just any old local doctor or would you look far and wide for a specialist?
The concept of “full service” is a fallacy. By trying to be everything to everyone, you fail to be great for someone. This is the trap that most service businesses get caught up in. We want to be widely appealing, but then fail to show how we’re truly great at anything.
I want you to go narrow, but understand that narrow is not the same as small. In his book, Positioning For Professionals, Tim Williams shares:
Most business professionals equate “narrow” with “small,” but in reality these are two completely different concepts. To have a narrow business strategy doesn’t mean you’ll have a small business. Quite the opposite.
And Tim goes on to say:
A business that knows what it stands for will always have happier employees, happier customers, and happier owners. Because it’s a lot more rewarding to be good at something rather than trying to be good at everything.
What should you do instead? The short answer: focus on a specific type of customer and offer them one solution that adds exceptional value to their business.
In their book, Rework, Jason Fried and David Hansson, of Basecamp fame, made a compelling case for why “less is more”. Among other things, they preach principles like:
- Say no instead of always saying yes
- Stop worrying about what your competitors are doing
- Curate your offering; decide what not to show or do
- Offer less than your competition
- Instead of always adding services, subtract
- Do fewer things better
With that, look at your business and put these principles to the test. How can your business be exceptional at a couple of things rather than mediocre at many things?
Challenge #2: Charge For Value Created
Most service businesses bill clients by the hour. While an easy (albeit flawed) proxy for value, it puts the risk squarely on your client. Even if you don’t manage to create anything of value, you still invoice your client for the effort you put in.
You probably haven’t thought of it that way before. I know I didn’t when I built my first professional firm. While I didn’t see it at the time, my clients were routinely subjected to my ego. If I spent time working for a client, I felt they should pay me for that effort. But what if I didn’t provide any real results?
The concept of hourly billing has become so pervasive that clients expect it. Even developing sophisticated processes to crush your rates. But they don’t care about your hours or your effort. What they want are results. Results that grow their revenue or reduce their operating costs.
Hourly billing is our fault. The service industry gave up thinking about pricing long ago and settled on this hair-brained scheme of focusing on costs instead. Clients are just reacting to what we throw at them.
What if instead, you talk to your clients and discover what they hope to achieve? If you put the effort in, you can even learn what that means to their business. In some cases, you’re helping them grow revenue, while in others, you’re helping them save money.
When you understand the benefit and the financial implications, you can steer the pricing conversation in new ways.
Pricing is the exchange rate you put on all the tangible and intangible aspects of your business. Value for cash.
— Patrick Campbell, CEO of ProfitWell
While some customers will push back at first, most will see the light. After all, they truly only want results, not your effort.
This approach also offers you a benefit that flies in the face of conventional wisdom. Your labor is no longer tied to revenue. Said another way, hours no longer matter. This frees you up to innovate and reduce the effort needed to deliver customer value. The faster you can help your client, the more valuable your work is.
A business is defined by the value it creates for its customers. Your price speaks volumes about your value proposition, more so than any other component of your firm’s marketing.
— Ron Baker, Founder of the Verasage Institute
This is where your incentives suddenly align with your client. You’re no longer trying to maximize hours, while your customer seeks to minimize them. You’re both working for the same goal. They get a valuable outcome and you get paid in proportion for that value.
Challenge #3: Sell a Packaged Solution
After tackling the first two challenges, this one is the next logical one to pursue. It’s time to get paid for providing peace of mind.
The goal is to find a way to help your best type of customer while minimizing the effort on your part. What can you create that has massive appeal and requires minimal effort over time?
But you’re not stopping there, the other half of your goal is getting paid on an on-going basis. I’m talking about recurring revenue. This will change your business in a radical way with smooth and consistent cash flow.
As an example, let’s pretend you’re a writer that specializes in blog content. Rather than offering hourly writing services for blog posts, build a “Blog Growth System” that guarantees one high-quality blog post each week. You’re still offering the same thing (writing), but you’re selling peace of mind and results rather than hours. Clients will be thrilled knowing that they don’t have to worry about their blog, and you’ll be able to enjoy a scalable business model that generates recurring revenue.
This can be replicated in any number of ways. What sort of situation do your customers face often that they want to avoid? The answer to that question is the premise for your solution.
With my first firm, this meant avoiding downtime within shipping facilities. Downtime meant disappointing customers and missing sales opportunities. My goal was to eliminate the common causes of downtime and discover anomalies before they became problems. As a result, my firm and customers found alignment, allowing us to show exceptional value, which translated into bigger profits and happier customers.
Following the herd does little to help your firm stand out. Instead, focus on creating a business that takes a contrarian view of what everyone else is doing.
You can start by tackling three challenges and capitalizing on the momentum and distinction they produce.
1. Do fewer things better. This means going “narrow” which is not the same thing as “small”. Focus on a specific type of customer and offer them one solution that adds massive value to their business.
2. Charge for the value you create. Talk to customers and discover what they value and price according to that outcome. This means you need to go all-in on delivering results, not simply trying hard.
3. Sell a packaged solution. What do your customers worry about on an on-going basis? Understanding that will help you build a solution that continuously adds value and turns your transactional customers into subscribers. Your cash flow will thank you.
This article originally appeared in Entrepreneur's Handbook on Medium.
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