Productising a service business part two: systemising the sales process

In the last article Productising a service business part one: separating capabilities from products, we discussed the difference between capabilities and products. The first step was to start by writing down some of the existing processes for delivering your services.

If you started doing that, what you probably found was that in their current form your services are too complex to be considered as “products”, and as a result you may be thinking “this systemisation stuff just doesn’t work for my business!”

But take heart …

In this article we’re going to talk about how to systemise the sales process in order to create a product from a service.

WHAT A REAL SALES PROCESS LOOKS LIKE

I’m a huge fan of Justin Roff-Marsh and his book The Machine (which is still in production, but much of which is already available online).

It’s a pretty big read and a lot to digest, but fortunately there’s a shortcut for the rest of us to see just what a highly productised sales funnel looks like. All you have to do is open a savings account at your local bank.

Quite often, banks will have an introductory offer which rewards customers for opening a standard savings account. This is the most commoditised product that a bank can offer: everyone needs a savings account these days, they rarely offer any interest and banks usually compete on things like monthly and transaction fees.

Even though a savings account is referred to by the bank as “product”, if you look closely it’s really just a very clearly defined service. It’s a service that has a target market, an easy way to access that market, well defined setup procedures (many of which are automated through custom made technology) and well defined service delivery processes (again supported by custom technology).

Once you’re a customer, banks then have your audience to up-sell all sorts of additional products: personal and business financing options, insurance, term deposits, investment vehicles – the list goes on.

If you look at it closely, the standard savings account is not actually the bank’s main “cash cow”, but it is the way most of their customers are introduced to the bank.

So where does the bulk of bank revenue come from?

A quick look at the figures[1] below shows that the bulk of bank revenue comes from net interest income, which accounts for 65 percent of all revenue.

Bank Revenue Percentages
Bank Revenue Percentages

Broadly speaking, “banks basically make money by lending money at rates higher than the cost of the money they lend.”[2]

This means that for a bank, day-to-day savings accounts with low balances and from which cash can be deducted at any time, are not the ideal account for people to hold.

But these accounts represent most peoples’ first interaction with a bank and they make further revenue possible.

WHAT YOU CAN LEARN FROM BANKS

The key lesson to take away from looking at the sales funnel of a bank is that the first product they sell is not the product that they really want to sell.

Another key characteristic of this initial sell is that it is a low risk product from the consumer’s perspective. Personal savings accounts do not cost money to open and they don’t come with a contract. There is little or no investment on behalf of the consumer when opening one of these accounts.

Additionally, the process of opening one of these accounts can be done by a bank employee with no special training. Whereas more sophisticated products may need to be sold by bank employees with more specialised skills, opening a standard personal savings account can be done over the counter by any teller.

The personal savings account is something that everyone needs, that everyone is actively looking for at some point in time, and which enables the bank to establish a trusting relationship with the consumer as a platform for up-selling future products (or cross-promoting products from partners).

So to summarise, the key characteristics of the initial product you sell are:

  1. Well defined and easily addressable target market that is actively looking for the product
  2. Well defined and easy to describe service that can be delivered by virtually anyone with little training (including being fully automated)
  3. Low risk, low commitment purchase
  4. Establishes a trusting relationship with the customer that can then be used as a platform to sell more complex, higher margin product offerings

HOW THIS WORKS IN PRACTICE

When it comes time to take this theory and put it into practice it can often be difficult to make the conceptual leap from “capability” (what you CAN do) to “product” (what you WILL do).

So here is a suggested process for identifying what capabilities you have that can be turned into easily sellable products:

1. Brainstorm your capabilities then put them in as keywords in the Google AdWords Keyword Planner. If you’d like to see exactly how I use the Google AdWords Keyword Planner you can buy my AdWords eBook, but there are also umpteen free tutorials available on how to use it.

2. Identify an information product you can create based on what search terms have sufficient volume at a price you can afford to “fail while you learn”. For most businesses I’ve found that aiming for about $2/click and 10 clicks per day (i.e. around $600 per month) is an acceptable risk level.

3. Create a landing page for that information product and create a first version of it. Don’t invest too heavily in creating the product before you’ve tested whether or not it will sell. Use email lead generation and drip campaigns to nurture leads into sales.

4. Establish follow up procedures to up-sell prospects to higher margin products. Initially these will still be very service-like offerings, but as you go you can systemise more and more of your services into an ascending sales funnel of highly productised services, hiring more and more skilled people to do the work.

Inevitably, productising your services involves restricting what services you provide to those which can be delivered in a scalable, repeatable fashion.

Productisation is much more than just creating “package pricing” – if you can’t hire people to do all aspects of finding, closing and fulfilling sales, then you’re only doing half the job (or, more correctly THEY are only doing half the job).

In the next article we’re going to look at how you can start to separate the different aspects of product delivery into distinct roles, and start building resilience and scalability into your business.

If you’d like to hear more please subscribe via email by downloading our free “3 mistakes that will doom your policies & procedures manual to failure“, or follow us via RSS, on twitter.com/procedurepeople or like us at facebook.com/procedurepeople

REFERENCES

1. Image chart taken from NationMaster

2. The Banking System: Commercial Banking – How Banks Make Money By Stephen D. Simpson, CFA

A Basic Framework for Creating Your First Procedure

Here is my basic framework for getting someone off the endless treadmill of operational responsibility:

  1. Find something you do every day that is very simple to write down. Even if it only takes you 15 minutes to do. Start small. Start simple.
  2. Next time you do it, write it down, or record it in a screencast. Don’t agonise over every possible contingency, or try to make it clear. Just do it as quickly as you can.
  3. Determine some way you can tell if it’s been done correctly (for example some simple way that activity can be reported) and make that reporting part of the process
  4. Now go to oDesk, hiremymum.com.au or hiremymom.com (in the US) and hire someone to do it for you (NB: if hiring someone is too daunting, you should read my tips on hiring here).
  5. Your new hire will go through and ask questions about anything that is unclear. It’s their job to improve the documentation as you answer those questions
  6. Now hire someone else to do the same thing, only this time instead of asking you questions they should ask the first person you hired questions. Again, documentation is updated as questions are asked

You now have a pretty good process and you know that you can easily find people to do this for you.

The next step is to systemise your hiring process by defining roles within your organisation.

How I Hired a Woman to Hire Herself

This is a quick but valuable post.

For many small business owners, the prospect of outsourcing sensitive tasks to people overseas is a daunting and intimidating prospect. If an employee does something wrong in your own country you can report them to the police. How would this work if your employee was in a completely different country?

In the early days of hiring people, it can feel much more comfortable to hire people locally, however it’s also way more expensive and carries with it the burden of “red tape” associated with employing someone.

So I’m going to give you 2 quick tips that you can put into action today in order to start the process of hiring people no matter how small your business is.

Hire through hiremymum.com.au

This is an Australian website for stay at home mums to get work with flexible conditions. You can typically find someone competent to help you with a range of simple yet time consuming business tasks in the $20 – $30/hour range.

Although I hire lots of people overseas, I currently employ 3 women who I hired through hiremymum.com.au here in Australia. There are certain tasks (such as bookkeeping and client account management) that I think are better performed by people in Australia.

Even for tasks that I will eventually be comfortable outsourcing to people overseas, it can be an excellent “stepping stone” to start with someone local and in your timezone who you can easily chat with on the phone.

Some tips for hiring successfully on hiremymum.com.au:

  • Get the premium listing: it doesn’t cost much, it keeps you on the homepage for longer and it supports the site
  • Hire remotely and put your job in the “work from home” category: you will get way more applicants of a higher calibre at a lower hourly rate if you allow people to work from anywhere and set their own hours. Also, by hiring from anywhere you don’t restrict yourself to only candidates within a specific area; you can get the best person Australia wide to work with you.
  • Put “work from anywhere, hourly pay, set your own hours” in the headline: a tremendous amount of jobs on hiremymum.com.au (particularly in the work from home category) are things like commission only sales or network/multi-level marketing “opportunities” masquerading as jobs. You help differentiate yourself from these shitty advertisers by stating up front that you’re paying a fixed hourly rate.

Their first job is to hire themselves

This was quite an epiphany.

When I was going to hire someone in Australia (after outsourcing through oDesk for quite a while) I was faced with the prospect of filling out forms for the ATO, figuring out PAYG, super and work cover. Yech. I hate that stuff. It was enough to dissuade from me from actually taking action UNTIL …

I realised that I could hire someone and make it their first task to figure all that stuff out. After all, it’s all there on the ATO website, and if you have any questions you can just call the ATO. All the information is freely available I just didn’t have the time to deal with it all.

So that’s what I did: I hired someone as an executive assistant and made it their first task to figure out the details of their own employment.

Red tape: ZERO.

Happy hiring!

Productising a service business part one: separating capabilities from products

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.

WHY PRODUCTISE?

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:

46digital
Image captured from 46digital Marketing Services website

Dilate, Based in Western Australia, caters to “marketing and online presence”.

Image captured from Dilate
Image captured from Dilate website

Parachute Digital Marketing based in NSW, Australia provide “digital education” in order to generate online sales.

Image captured from Parachute Digital Marketing
Image captured from Parachute Digital Marketing

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:

Pay Per Click Management Pricing [Note: due to length, only a portion of the pricing is shown]
Image captured from 1st on the List website: Pay Per Click Management Pricing [Note: due to length, only a portion of the pricing is shown]
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:

  1. A well defined target market
  2. A simple way to access that market
  3. A simple way to explain how the product satisfies a need of that market
  4. Simple and predictable pricing
  5. 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.

GETTING STARTED

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.

If you’d like to hear more please subscribe via email by downloading our free “3 mistakes that will doom your policies & procedures manual to failure“, or follow us via RSS, on twitter.com/procedurepeople or like us at facebook.com/procedurepeople

If you have any great examples of highly productised services I’d love to hear about them in the comments.

 

Could you franchise your Business?

For many first time entrepreneurs, buying a franchise is a popular choice when starting their business.

The popularity of franchises has been growing steadily in Australia over the years, as more and more people – from new entrepreneurs to seasoned business owners – realise the potential and profitability a successful franchise can bring. It is estimated that Australia had 1180 different franchises in 2012, and at least 90 percent of those were Australian owned. This is almost double the amount of franchises in 1998.

Number of franchise businesses in Australia from 1998-2012
Number of franchise businesses in Australia from 1998-2012[1]

A successful franchise benefits both parties – the franchisor and the franchisee. Franchising offers an efficient and profitable way for small businesses to enjoy the benefits of “big business”. It’s little wonder, then that franchising has become one of the most popular ways to do business in Australia.

However, despite recent growth, franchising accounts for just 2.5% of businesses in Australia. This is a drop in the ocean compared to the 40% of businesses that franchises account for in the United States, which has had a healthy and interesting history with the sector:

Facts and figures on American franchises
Facts and figures on American franchises[2]

Although the United States has approximately 770,400 franchise units, the largest number of any country, they do not have the highest number of franchise brands – that honour falls to China, which has 4000 different brands (compared to 2500 in the United States).

THE BIG HEDGE

If you had a successful business, why wouldn’t you go out of your way to protect the secrets of that success?

For example, wouldn’t it make more sense for McDonald’s to just own 100% of all their stores and employ people to manage each one, rather than share the profits with their franchisees?

One of the primary benefits of franchising is that it enables companies to expand without the risk of debt, as Entrepreneur explains:

“Since franchisees provide the initial investment at the unit level, franchising allows for expansion with minimal capital investment on the part of the franchisor. In addition, since it’s the franchisee, and not the franchisor, who signs the lease and commits to various service contracts, franchising allows for expansion with virtually no contingent liability, thus greatly reducing a franchisor’s risk.”

Likewise, franchisees share similar benefits to franchisors. There are many advantages to buying a franchise business rather than starting your own business from scratch:

Benefits of Franchising in Australia
Benefits of Franchising in Australia[4]

There are many examples of successful franchises. Hilton Hotels & Resorts, Starbucks Coffee and Anytime Fitness are just three big-name businesses who have benefited from franchising: Hilton has over 530 hotels worldwide as of 2010, all either owned by, managed by, or franchised to independent operators. Starbucks is the largest coffee chain in the world, and has 23,187 stores in 64 countries. Anytime Fitness is currently the fastest growing health club franchise, with over 2500 gyms in 19 countries.

SO WHAT? I’M WAY TOO LITTLE TO THINK ABOUT FRANCHISING!

Looking at your business today, being able to franchise might seem like a complete impossibility.

But being able to franchise your business turns it into the ultimate asset. My friend Sean Collins from Shirlaws coaching likes to talk about having an “entry strategy” rather than an “exit strategy”. That is, rather than focusing on what it would take for you to get out of your business, think about what it would take for someone else to get into it.

The difference is subtle, but important; and when you think about it, isn’t this precisely what a franchise does?

If you’re creating a sellable business (something I argue we should all be trying to do all the time) it makes sense to prepare it to be franchised. Then you don’t just get to sell your business once, you get to sell it over and over again AND retain a share of the value created in the brand over time.

SO WHAT DOES IT TAKE TO FRANCHISE?

There are all sorts of businesses in every industry imaginable that have benefited from franchising.

So what do they have in common?

1. They have a product

It’s an oft repeated fallacy that service businesses can’t scale. I can think of at least two very good examples of service industries that have scaled to immense global proportions: finance and insurance. The difference between them and the beleaguered web development shop that can’t seem to escape the continual chase for the next client, is that their services have been organised into products.

Think about it: all an insurance company does is take your money and then do their best to avoid giving it back to you.

But they give each of their products names.

Each product consists solely of an agreement and a set of rules that you agree to.

All they’re selling is a contract,  but it’s so well defined that it’s no different from selling a car or a bottle of fizzy drink.

2. They have well defined tactics for selling their product

Whether it’s a matter of choosing the right location for a restaurant chain or setting up a solid pay per click lead generation campaign, franchises have a well defined and repeatable method for finding a prospect and converting them into a customer.

It’s not until you start trying to systemise your sales funnel (and grow beyond the stage of getting new work mostly through word of mouth and referrals) that you realise how important the process of defining your products is.

3. They have systems in place to hire and train people

Small businesses often have a heavy reliance on one or two key staff, and losing these key people can be catastrophic. Alternatively they find themselves incapable of growing because of excessive staff turnover and the inordinate amount of time it takes to hire and train good people.

Successful franchises have systems in place that allow them to hire and train staff from a large pool of potential candidates at breakneck speed.

4. They have an operations manual that can be easily taught to almost anyone

How successful do you think most franchises would be if they could only be operated by high level business experts?

When thinking about an “entry strategy” for your business, you stand the best chance of being able to sell if you can maximise the number of potential buyers.

You need to have an operations manual that can be learned by most people, and a product and business model that doesn’t rely on the ability to hire superstars in a given field.

Of course some roles will be more highly skilled than others, but if your strategy for success includes “hire the best people and have amazing, charismatic, expert leadership” then you’re dramatically limiting the number of people that will be able to buy and succeed with your business.

WHERE DOES IT ALL BEGIN?

Does this all sound completely unachievable? Well it is not. Starting on the journey towards a franchisable business is as simple as writing down what you are already doing and improving upon it over time.

Even if you never sell your business as a traditional franchise, you can do things like release training or info products based on your experiences, or create and sell software systems that will be useful to others in your industry.

Even if you never sell your business AT ALL, the process of thinking like this will create value and efficiency that helps you grow and get some freedom and independence from day to day operations.

REFERENCES

1. Franchising Australia 2012. Prepared by Lorelle Frazer, Scott Weaven and Kelli Bodey
2. 10 Random and Interesting Franchise Facts by Renee Bailey
3. Why Franchising Your Business Makes Sense via Franchise Beacon
4. Benefits of franchising in Australia via whichfranchise.au

The truth about exits

Selling your business is an exciting prospect, but all exits are not created equal.

It’s not uncommon to see headlines that tout acquisitions as an exciting end to an exciting journey, but how many of these represent the best possible outcome for the founder of the business?

The reasons people sell vary considerably, and the trick is making sure you sell for the right reasons. The most important thing to remember if you’re thinking of selling your business is to make sure you’re 100 percent ready to move on.

EXIT, STAGE RIGHT!

Leaving a job can be stressful at the best of times, and when you add letting go of a business to the mix, things can get very overwhelming very quickly.

So why do people sell their businesses?

There are many reasons people choose to move on, but the most common reasons, according to Fair Market Valuations and Gaebler.com, may surprise you.

Both sources say the main reason people sell their businesses is because of personal exhaustion. Owners become fatigued or burnt out running themselves ragged when businesses are highly dependent on them, or conversely become bored when the monotony of the “daily grind” sinks in.

Business struggles, increasing competition and medical or family problems also rate highly on both lists.

These days mergers, buyouts and acquisitions are part and parcel of the business world, and the draw to take up an offer can be too tempting to pass by.

Not a week goes by that we don’t read about some hot tech startup being acquired by some equally hot tech giant for squillions of dollars, but even in the world of hot tech startups and billion dollar acquisitions, the Signal vs. Noise blog “Exit Interview” series shows us that all that glitters is definitely not gold.

SHOULD YOU ALWAYS ANSWER WHEN OPPORTUNITY KNOCKS?

Selling your business can take a heavy emotional toll, as entrepreneur George Jacobs found out back in 1998.[2] Despite Carey International paying him $20 million for his company American Limousine, Jacobs says he felt “miserable” – and continued to do so for many years.

Such a reaction is not uncommon. According to Judith Glaser, an executive coach and communications specialist, many business owners go into a “deep depression” after selling. And this reaction is often exasperated when founders stay on after acquisitions.

New owners mean new changes, new directions and new ways of doing things. Seeing your vision, your “baby” being poked and prodded – or possibly even being destroyed entirely – is something many struggle to cope with. This was the case with Jacobs, who stayed on as a “buffer” between new management and his staff:

“It’s miserable when you’re your own boss, and all of a sudden you’re working for someone else. You’re hurt. Your company is your child.”

SOLD OFF FOR SCRAP

The truth about most business exits is that they represent what could only be called being “sold off for scrap”. These include things like:

  • Acquisition of talent (or “acqui-hire”)
  • Acquisition of intellectual property or technology
  • Acquisition of “goodwill”
  • Acquisition of a user base or client list

What these mean is that the business was not really succeeding on its own, but that there was another business that was better able to monetise some of the assets owned by that business.

So whilst these exit events certainly represent an outcome that is better than simply closing up a business in complete obscurity, I feel as though they are celebrated disproportionately to the outcomes they achieve for the business owner.

HOW TO PROTECT YOURSELF FROM A LOW QUALITY EXIT

The antithesis of these “low quality exits” is selling your business for a return that adequately compensates you for the risks and investment (time and/or money) involved in getting it up to that point, and being able to “walk away” from the business without hanging around to be emotionally tormented by the inevitable changes that will arise when new management takes over.

All of the above scenarios have something in common: they represent an asymmetry in a business; the presence of one skill or asset in the absence of another skill or asset required to take advantage of it:

  • Highly talented individuals working on a failing product
  • Excellent innovation or invention without product/market fit and/or the inability to sell
  • Good sales and marketing without the ability to deliver on the promises being made during the sales process
  • Good technical delivery without the ability to structure a profitable product offering

If you’re already in a position where you have to sell and your business is stuck in one of the above scenarios, there’s a chance that it’s too late to change.

One of the biggest lessons that John Warrillow talks about in his book Built to Sell is that, if you only start to think about maximising business value when it’s time to sell, you may find it impossible to get the exit you’re looking for.

However, if you’re not ready to sell quite yet, and if you still have a bit of breathing room, there may still be time to turn things around and get your business into better shape.

The factors that will prevent you from having to sell in one of the undesirable ways listed above is to have a business that is systemised, has a clearly defined product, that runs independently of you and which consistently generates recurring revenue.

Then again, if you manage to create that kind of business, you may find that you don’t want to sell it after all …

REFERENCES

1. The Emotional Toll of Selling Your Company by Ilan Michari