We spotlight the services industry to highlight what changes need to be made to improve profitability, breakthrough growth barriers and be ready 2-4 years before you want to sell so that you will be attractive to buyers.
To know more about how to do any of the strategies we suggest, you book time in Lorraine’s calendar. Let’s help you get started.
Service businesses rely on selling an hour of time for a specialized service. Think spas, consulting, tax advice, medical advice, the dentist, physical therapy, HR advice, strategic advice. Once the hour is gone and isn’t sold to someone, it’s expired. Your ‘product’ is perishable.
People come back for the service because of particular people’s expertise, their know-how and their sparkling and effective communication. You like the experience so you come back. The relationship and loyalty is to the individual rather than the company.
The M&A world hasn’t particularly been a fan of service based businesses because of these limitations. But that is changing in some sectors.
Take the spa industry. Some big brands have established several locations, and medi-spas are super popular and super effective at selling not just services but products. I’ve had my share of spa experiences. Lots of atmosphere, personal service, intriguing and unusual treatments (chocolate bath!), chilled light bulbs and even horizontal pedicures (me, not the pedicure!). The industry runs the gamut from big brand names with tip toeing practitioners occupying a rabbit warren of spa rooms to the solo-prenuer answering phones while exfoliating clients.
Some private equity groups are acquiring Medi-spas and letting the seller cash out some of their share-holdings while continuing to run the business.
Some consulting firms are saleable because they have a niche expertise with highly trained experts on their team that deliver high margin offerings loyal clients keep coming back for. These kinds of firms often get sold to the big consulting groups because of that niche.
A service business no matter how successful has a problem when it comes to becoming saleable and growing to the next level: Service-based companies are hard to position well so they are transferrable, growing, predictably profitable and saleable.
In the past, the entrepreneur would have to go big, or go home, as the saying goes. The thinking was to invest heavily in the establishment so that it is memorable while wooing in talented service providers who could also sell products and try and win more revenue. A risky juggling act that required active business development (not just waiting and hoping the client today will come back on their own initiative) and aggressive product sales to cover all those fixed costs.
Every business owner has these challenges. What turns a successful business into a saleable business is showing predictable revenue. And predictable stable and growing margins. That’s hard to do by selling services. You have to think differently.
ProActive Planning and Tracking
In a service business you have to sell the talent you have. Every hour that they are not active with a client is not just lost revenue but represents costs that are not covered which will affect next month’s cash flow. Tracking that information is how you can manage to stay out of the hole. If you have five full time employees, you have 200 hours to sell in a week. That is the maximum revenue you can gain from paying their wages.
200 hours is also the goal that needs to drive your business development activities so by the time the week starts, you have the calendar full.
Don’t Sell, Be an Expert
Yes, you can grow that revenue with high margin products and services but how you do that is complicated by how well your team of experts are trained in not just delivering services but upselling using product education, influencing spotting opportunities to be of service in other areas. Finding experts who are comfortable influencing (not selling, persuading, pushing or avoiding product sales) is very difficult.
Every service based business appears to the outsider as having the same attributes which makes one accounting firm or HR consultant or Tax advisor hard to distinguish over another from a customer perspective. The service experience and the problems that it caters to are what brings people back. The biggest problem that service providers have is the un-predictability of the returning client.
Don’t Discount the Basics
With Groupon, prospective clients have bought deals from numerous spas for instance, to find the particular one that meets their needs… and they don’t go back to the rest of them. That’s a waste of your financial resources! Owners should only use Groupon for attracting new prospects to a new offering framed as a solution, not for the same commodity services everyone else offers. That’s just a recipe for low margin sales that don’t cover costs.
Think Solutions Not Services
To have a saleable growing business, service providers need to do more than differentiate themselves with personalities and events. They need to stand in the shoes of the people who use such services consistently, then consider those that show up occasionally and finally those prospects that have yet to experience your value proposition where you’ve removed the hassles your competitors are blind to.
Your business has to grow the pie, not just your current share of the small pie. Those people that consistently use such expertise (rather than bringing it in-house) are the backbone of your business but in the minority because of the way services are marketed. You need many more ‘Consistent Connies’ to thrive. Why do they keep coming back? Because your operation solves a problem that Connie believes she can’t do without. The inconsistent buyer of expertise needs guidance and your expertise at drawing out the issues that trouble him or her. Education is what will bring Carl back.
You Need a Deep Market Niche
We don’t buy massages, we buy relief from the stress of the week.
We don’t buy a dentist, we buy the feeling of being care for in a way that doesn’t hurt!
We don’t need a cloud solution expert, we want to understand why our costs keep ballooning and we’re not seeing benefits from all the data we’re saving.
We don’t want a construction carpenter, we want someone who can fix the leak in the deck without it taking a long time & costing double what was quoted.
We don’t want a tax expert or wealth advisor to lecture us, we need to know they care enough to ask the right questions to uncover our critical problems and discuss options for solutions.
What I’ve just described here is a certain kind of person who believes in hiring experts, learning what they need to know and is somewhat coachable plus those that know life would be better if they invested more in learning about such subjects.
To have a more profitable business that is growing, a service provider company owner needs three strategies:
- Track your utilization rate and enact a strategy to sell those hours.
- Go deep on a target market that wants to solve a problem – from her/his perspective, not yours, on a regular basis. When you find this type of people, define their behaviour, likes, dislikes and the problem they are trying to solve in looking for a service provider. Now you have identified your target market ‘niche’.
- Build branded solutions and a ‘maintenance’ schedule – you are the expert on what should be in that package and when each visit or treatment should be… just like your dentist and car dealer does.
Now your service provider business is growing in the right direction and you can fine tune it based on the results you see each month. This is one example of how you can grow your service-based business to the next level, more profitably… and start the process of making it saleable.
Want to know more about how to plan and implement these ideas and craft your plan? Get on our schedule so we can talk about what is important to you.
