I have long heard the mantra that service businesses don’t scale.
People who are running consultancies often cite their frustrations with growth and trouble hiring as reasons behind wanting to build a product business.
But there are two fantastic examples of massively scalable service businesses that I can think of: finance and insurance.
Boy are they big.
And they are definitely service businesses: they provide the service of taking money and figuring out how to keep as much of it as they can.
So what is the difference between them and you?
In this 8 part series I will be exploring the merits of creating a productised service business from your little slice of consulting hell rather than trying to build the now infamous product business.
Companies like Basecamp (nee 37signals), which left the limitations of consultancy behind to enter the glittering world of monthly revenue from SaaS products, as well as consultants like Brennan Dunn and Amy Hoy have long been the poster children of successful productisation.
Their stories sound very attractive, but I believe that in looking to emulate that outcome, people have come to conflate scalability and recurring revenue with SaaS products (or physical products via ecommerce).
I also think it makes far more sense for a service business to package up their services as products than it does to try and launch a software product tangentially to their primary business.
The explanation for this is pretty simple: it’s cheaper and way less risky.
Whereas you can only begin to earn revenue from a product once it is built, you can start selling a productised service almost immediately once you conceive of it, and usually for much more money than people typically expect to pay for software products.
When you first start to sell a productised service, chances are that you will be doing most of the work. In fact, you are probably already selling productised services … you just haven’t acknowledged them for what they are.
From this point you can then gradually isolate aspects of that work to outsource, or hire people to do so for you. You can choose to either reduce the cost as you become more efficient or keep the cost high and pocket the extra margin.
THE MOST COMMON BARRIER TO PRODUCTISATION
Just because I think that productising a service business is less risky than investing in building a tangential product business doesn’t mean I think it’s easy.
I think the biggest mistake that service businesses make which prevents them from seeing their services as products is to sell their capabilities.
What I mean is that they try to sell what they can do. Since most service businesses in a particular industry can do many different things, this usually ends up as some sort of hideously long list of services under a “what we do” section on their website. Nowhere is this more apparent than in the world of website and digital marketing services.
Here are some examples of businesses that I think are selling “capabilities” rather than “products”:
46digital Marketing who provide web design and content for small businesses in the Sunshine Coast area of Australia:
Dilate, Based in Western Australia, caters to “marketing and online presence”.
Parachute Digital Marketing based in NSW, Australia provide “digital education” in order to generate online sales.
There are, of course examples of companies that have productised their service offerings, and many of those are in the SEO and PPC marketing space.
I’m sure we’ve all seen examples of pricing pages such as this one from 1st On the List who offer SEO and Pay Per Click marketing in Canada and the USA:
As we’ll see below, though, having a product and pricing table that is so insanely complex that only people intimately familiar with your industry will understand it, only really does half the job.
Most of the time all I see from service businesses is capabilities masquerading as products, and there is a big difference.
HOW TO DISTILL PRODUCTS FROM CAPABILITIES
A good product has a few key characteristics:
- A well defined target market
- A simple way to access that market
- A simple way to explain how the product satisfies a need of that market
- Simple and predictable pricing
- A scalable production process
In the case of a productised service, the above can be achieved almost entirely by writing down how to provide an existing service.
By beginning to write down a set of policies and procedures that specify how to deliver a service – from finding and closing customers to setting them up and delivering the service – you start to realise just how narrowly defined your services need to be in order to be truly productised.
If every sales conversation is so specialised that only the founder can do it, you had better be closing million dollar deals … But more likely what you will start to realise is that there are subsets of your existing services that could be spun off into independent brands and delivered as productised services.
Also, don’t think that you can only create products that are related to your existing core services. Quite often you will find that you have developed capabilities in your organisation that can be used to deliver independent value to a target market, and that this can be used as a starting point for cross sells into more complex offerings.
Want an Example? You’re looking at it: The Procedure People is a new brand that I have started based on capabilities developed within my software company Working Software. I want to help small businesses that are having difficulty scaling to write down good policies and procedures to make their businesses more sellable. In the process I gain access to just the right target market for my software company and simplify the sales conversation around custom business automation software – yet another productised service offering we’re working on.
So the action to take after reading this first installment is to look at both existing services you offer and other capabilities you have developed in your business, and start writing down details of how those are delivered.
In subsequent articles I’ll go through strategies for finding your target market and refining those initial documentation efforts into a highly productised and scalable service offering.
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If you have any great examples of highly productised services I’d love to hear about them in the comments.