Solving the Scalability Problem in Service Businesses

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Challenges of service businesses

The biggest issue with a service business is that, eventually, you will max out income and productive capacity unless you keep hiring more people.  Growing this way requires a lot of time and capital, in addition to broad demand for your service and substantial competitive advantage.  Even then, you will end up facing much fiercer competition as the company grows and likely get caught in a war of attrition – one that you will unlikely win unless you have bottomless pockets.  Another problem with service businesses, especially smaller ones, is you are at the mercy of your top clients, who likely account for a sizable portion of your revenue.  This situation means you often make decisions based on what they want and is best for them rather than your business since the alternative could jeopardize your profit potential.

So, what’s the solution?

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The productization path

Many businesses have turned to productization to escape the service conundrum.  Productization involves packaging a service with standardized features and scope, along with fixed prices and delivery dates.  Doing so makes the offering consistent, trainable, repeatable, and much simpler to market. 

Some significant benefits of productization include:

  1. Making the business far easier to scale since the final product is not linked to hourly input and can be automated or standardized to the point where delivery and efficiency increase over time.  The sales and marketing process can also be automated with standardized services, opening the door to selling nationally or internationally. 
  2. Elimination of scope-creep, unbalanced client expectations, proposals, and custom pitches – all of which are costly in terms of time and labour resources. 
  3. Allowing owners and executives to focus on the business growth and strategic planning rather than getting lost in the weeds working in the business. 
  4. Making it easier to sell the business down the road by reducing reliance on any one individual.
  5. Improved cash cycle and forecasting abilities since payment is upfront.
  6. Better able to launch new products in a short amount of time.  Once the packages are created, add them to your website and get the word out to existing and prospective customers. 

There are going to be some trade-offs, of course.  You could lose the personal touch of servicing customers and deep client relations.  Clients will be less loyal, all other things being equal – although there are plenty of strategies to offset this and make clients stickier.  You will also have smaller individual deal tickets, so the business may be less profitable at first until the customer volume grows. 

Finally, it requires a lot more time and effort to start a productized business or pivot an existing service business than it does just to work a straight-up service business.  All processes must be down to a science, the pricing model must be solid, and the entire concept must be validated before going forward. 

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Effects of productization on the funnel

Most service-based companies avoid putting their pricing online or even specifics of their offering, but you don’t have that option with productization. That’s not a bad thing, though.  Putting your price out there will ensure the leads you bring in are more qualified, although the overall number of leads generated will fall.  Again, this is not a bad thing.  Those leads you got in previously were not going to convert anyway once the price was revealed to them.  If prospective buyers express interest and come into the funnel aware of your packages and pricing, they have a much better chance of turning into a client.  

Productization will also eliminate the need for multi-stage discovery and proposals, which will help speed up the journey through the funnel and avoid a backlog.  Clients know the price and deliverables upfront, so you likely don’t have much left in the qualification if they reach out to you or otherwise indicate interest.  However, this depends on what the product is and the information accumulated from the prospect upon entry into the funnel.

Pivoting to a product business

Some of the best, well-known companies began as service businesses before pivoting to a product business, including Microsoft and Dell. An excellent place to start is with your core competencies and value prop.  How can you turn these into complementary products? What unsolved problems are there in the market?  Start there and work your way back to the product you can provide to solve it.  Once you have the problem identified, think about how you could provide a better, faster, or more efficient solution than the existing solutions on the market.  It would help if you also looked for a niche to dominate and avoid competing with established players in a challenging market. 

Before building anything, validate the idea and concept with your target market.  Validation can be done with direct outreach to existing clients or networks, digital marketing campaigns, and even enlisting third-party market research providers.   

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Productized consulting

Companies offering consulting services know all too well the perils of trying to scale.  Productization is the only way to scale a consulting company without pouring massive sums of money into human capital.  Rather than a “done for you” model, you can provide your advice and recommendations to the client who will take care of the execution themselves.  Alternatively, you can have both models on your shelf to upsell clients down the road.

Regardless of which product model(s) you offer, you don’t create a unique solution for each client. Although you will market it as unique since the client will have outcomes specific to their business, the back-end production process is completely standardized. These standardized solutions are the key to scaling.

A word of caution: do not let any opportunity for scope creep to come into play. Keep all packages specific, focused, and all outcomes for all parties clear ahead of time.  Even if clients ask for tweaks to the standard package, don’t say yes, or you will open a can of worms.  The more you deviate from the standard process, the more issues you will face with delivery and ultimately profitability as the benefits of productization will fade.

When making the switch to productized consulting, the process is everything.  Everything should be lean, monitored and documented to a tee.  As you continue to work through clients, constant review and analysis are crucial to quickly identify new opportunities for efficiency and improvement.  Try to break down your consulting process and solutions into smaller pieces.  You can then sell them a-la-carte or in different packages on a one-off or recurring basis.  Keep everything simple and as specialized as possible.  A final consideration, but often overlooked, is that you don’t have to exclusively offer one-on-one consulting.  Instead, your consulting product may be provided to a group, offering increased scalability potential if it makes sense.

Recap

Scalability in service businesses conjures two main problems: ultimately maxing out your income and productive capacity and always being at the mercy of your top clients due to a dependence on their sizable contribution to your revenue. A solution to this is productization. The productization path involves packaging services with standardized features, making the offering consistent, marketable, and adaptable. The final product is not linked to hourly input and can be standardized to ensure a continuous increase in readiness and delivery. Productization eliminates the need for multi-stage discovery and proposals, speeding up the process through the funnel. The key to scaling is having standardized solutions.  Maintain packages that are clear-cut and direct, with clarified outcomes for all parties well in advance. Straying from the standard process will hinder the potential benefits of delivery and profitability found through productization.