Productising is raising the stakes

Many services businesses say they want to “productise”, i.e. to standardise what they do in order to be more profitable and scalable, and to increase shareholder value. Sadly, many struggle to make the journey. There are tough challenges in adopting a ‘product approach’, but I’m here to give you a blueprint for success. First let’s look at the problem:

Anyone who runs an agency or consultancy will recognise the term “utilisation”. It’s a measure of the proportion of time spent by “resources” (a dehumanising term for the people in your company who can do valuable stuff) on activities that directly generate revenue. There are only two scalars for a services business, utilisation and day rates. To grow you must sell more days and/or at a higher rate whilst keeping your costs under control.

It’s very tricky because your costs are primarily salaries, and unless you’re already large it’s easy to run into cashflow difficulties, with people sitting on their hands waiting for the next paying project to start. When the sales pipeline is lean, your sales qualification rules are quickly forgotten - you say “Yes” to anyone with a budget that arrives at your front door, because the painful alternative is laying people off. It’s only later you realise that by taking on the wrong client, you’ve stored up even more trouble.

It helps to look at this from the customer’s viewpoint. Consider this (sadly, all-too-common) customer journey. They:

• Notice an unsolved problem or unexploited opportunity.
• Do some research and thinking to identify a solution.
• Evaluate a shortlist of potential suppliers and choose one to engage with.
• Negotiate a budget and timescale to deliver the desired solution.
• Become progressively more anxious and irritated as expectations aren’t met.
• Eventually bring the engagement to a close, disappointed and exhausted.
• (optional extra step) Put it down to being swindled and find another supplier.

The supplier in this scenario may well put this down to it being a ‘nightmare client’, but in my experience it’s usually their own fault. In contracts for the supply of specialist services, the client probably lacks the expertise to control and judge the quality of the delivery. They must trust the supplier not only to produce high quality results, but - crucially - to understand what was needed.

All too often, suppliers agree to deliver something the client has already defined (step 2 above), which is likely to be a poor choice given their lack of expertise. The supplier’s role is seen by the client as simply to execute a (probably poorly articulated) solution, and the supplier plays along because they need the revenue. It’s a low-value, transactional relationship, and unlikely to create the best outcome for anyone.

At some point in the growth of a services business somebody notices that there’s a good deal of repetition in the work done. Somebody suggests that they should ‘bottle’ this by defining standard procedures, perhaps embodying them in software (with AI, natch). The aim is that your people can focus on value-added activities specific to a client, whilst generating high profit margins by selling the same bottled content (i.e. a product) repeatedly.

The challenge here is to say “No” to revenue opportunities because they don’t fit your model, even though you have salary-earners waiting for something to do. It’s a form of investment, which means burning cash upfront with no guarantee that you’ll recoup it. Unless you have a healthy balance to start with and the nerve to hold to your strategy, it’s likely you’ll succumb to the temptation to say “Yes” to an ill-fitting prospect. There’s never any room left for your productisation goal, because you’re always too busy delivering yesterday’s promises.

It’s not easy, but I can give you a proven step-by-step process for breaking out of this. Here are my ten steps to productisation:

• Redefine your proposition in terms of results, not activities. Stop agreeing to “build precisely this” and instead to “aim for these measurable outcomes, subject to these conditions, using our scarce and valuable capabilities.”
• Redefine the customer journey as starting with first awareness of the company. There are no phases. As soon as someone engages with your company, they are your customer, and you will need to be selling and delivering to them indefinitely.
• Reposition Sales as relationship builders; they’re good at spotting opportunities, but should delegate customer needs analysis and solution design to others.
• Appoint people to own solution development throughout the customer journey. Let’s call them Solution Managers for want of a better term - ‘Product Delivery Manager’ brings to mind a servile, transactional role. A Solution Manager should be included in any customer meeting in which their needs or proposed solutions are discussed.
• When contracting with the customer, agree only to things you can guarantee, such as measurable outcomes, time spent, unambiguous and low-risk capabilities. Avoid promising to solve a problem in a specific or novel way.
• Get serious about customer qualification. If they can’t agree to the above and you can’t be confident about diagnosing and meeting their needs, then don’t sign a contract with them and move on.
• Begin to focus your marketing on market segments for whom you know you can solve problems at low risk and cost, because you’ve done it before. This will require market research and analysis, because until now you’ve been reactive to customer needs.
• Move your pricing model from ‘time spent’ to ‘results achieved’. You can think about selling licence fees later, once you’ve proven your success model.
• Progressively reduce the time spent building things for one client, aiming for zero bespoke development eventually. Where there is variance between customer needs, look for patterns and provide configuration options for these when strictly necessary. Try to maximise your customers adopting your standard approach, and minimise them adapting your product to their way of working.
• Monitor the performance of your standardised solutions so that you can proactively take decisions about investing in, harvesting or divesting them. Plan for succession and innovation.

There’s a lot to unpack here, and I’ll be doing that in my upcoming articles.