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Video transcript
Introduction
Let's face it, the billable hour is a great way to get started. It's a great way to estimate. It's a great way to bill your clients. However, service companies cannot scale on the billable hour.
For the billable hour, you charge X rate for X number of hours. That's the basic idea of the billable hour. It's a great way to get started. You'll pay me for a thing you don't want to do, and I'll charge you per hour to do that thing.
If you want to grow, you need to find more people to pay you more money. Then you find more employees to bill more hours. More billable hours, bigger projects, more clients, more employees.
But that's not a way to scale. Ultimately, if you want to scale your company, you need to start thinking about your service company more like a tech company thinks about a product.
A product company is always looking for ways to be efficient, ways to automate, ways to have one value proposition meet as many customers as possible. Service company's struggle with that because, they're thinking only about the billable hour.
If you think about productizing your services, that's an opportunity to create the efficiencies needed to actually scale. So, what does it look like to "productize" your services. Let's start with the basics.
Productize your service offering
How might you productize your current service offering? Meaning how can you look at ways to automate or create major efficiencies in what you do today. Reducing the amount of hours it takes, while still charging a premium rate or a value rate for that service.
This might look like using technology to automate what you do. It might look like creating a really packaged service that you can repeat without having to customize it every single time.
A good example of this in the consulting industry is something a like design sprint. A design sprint is a packaged three to five day process that we do the same way every single time. It can be applied to almost any company. As we get more efficient with it, we actually get better.
Another example is a construction company. Imagine that you're building multi-unit housing. So these big stacked houses of apartments. We're seeing these pop up over all cities across the country, right?
Most of them look basically the same. And you could definitely have really skilled professional workers go out and hammer every single board and make sure it's all done custom, but you're going to bill in the hour to get that done.
Or you could build 60-70 percent of those walls in a factory through machines and then ship the walls to the site, lean them up and fasten them together. And do it a lot more efficient, but still charge that full rate for that construction project.
It's a way to productize something that you do over and over again, but you don't need to have some custom hour of work being done. Then how do you go about thinking about productizing your services?
One way is to look at the things that you're getting really good at. Are there areas of your business where you say, 'oh man, we're doing this the same way, and while we're customizing it here or there, we could probably narrow our focus and keep it consistent.'
Train people on the same way of doing things. Find a tool that allows us to repeat this process faster. Automate some part of our process. Take inventory, look around you. Just take a step back and look to see if there's something in your offering that can be productized.
It doesn't mean the whole organization has to be productized, you could just start with one service offering or maybe one category and productize that. Then look for additional ways to can scale that out to other service offerings. Some services aren't going to be able to do this and that's okay.
Productize your knowledge
The second way to productize your service company is to actually look for how might you productize your knowledge. This is really popular right now with coaches or consultants online.
It’s anybody on Instagram or LinkedIn saying, ‘Hey, follow me. And I'm going to drip these little knowledge nuggets out to you’. What those individuals have done is taken some expertise (hopefully some real experience that actually proves they know what they're talking about) and productized it into a learning solution.
So they've been able to put it in some type of learning management system or some type of video course that allows them to charge you a rate. For this knowledge they can sell one package or one course to a thousand people or ten thousand people or a million people instead of sitting down one to one.
Knowledge is a great way for you to share your secret sauce, how you do things a little bit different than the competitors. What if you took that knowledge, that secret sauce, and you actually turned it into the product?
The best way to approach this is to take an assessment of your company, looking at how you do things differently, and writing it down. Turn it first into a PDF, just noting how you approach these things.
You're probably doing this already as you think about training your employees or onboarding new team members. Take that onboarding process or that training material and think about how to sell that to peers or competitors. Or maybe my clients who can't afford to pay me the full rate for our services would be willing to pay a little bit less to use my training material.
These are all great options to figure out how you can get revenue. From one to many, out of the knowledge that you have. A great example of this is the classic Tony Robbins, right? He was always up on stage saying, here's the knowledge bombs about business and life and ways of working.
And of course, you had to pay to go see him. And then you had to pay to have a course from him, or you had to pay for his book. And so he could take his knowledge, this one guy's knowledge, and actually sell it to tens of thousands of people.
And of course, over the course of many, many years, probably hundreds of thousands of people. But ultimately, if you really wanted to sit down with Tony you are going to pay an extremely premium rate to sit down one to one with him.
Make your service a tech company
So the last way to productize your service company is to think about making your service company a tech company. So we've seen lots of organizations that have actually grown to the size where the off-the-shelf solutions like SaaS products or product management solutions or CRMs or a little estimation tool or whatever weren’t meeting the needs of their unique ways of working, especially at the size that they've become.
So it might've worked when you were a hundred people might've worked when you're 500 people, but maybe you've gotten to be thousands of employees and you start realizing there's an opportunity to build technology for yourself.
Now, as you build that technology, it's going to help you to run better, more efficient. So that kind of goes back up to number one, which is maybe productizing through automation. But what if that automation, through your intellectual property or building a tool for yourself, you could possibly convert that to being a tool that the rest of the market might want to buy?Like a SaaS tool.
So converting a product or a technology that you have in house to actually selling it to your peers, to your competitors, or to other markets is a great way to productize what you know or what you do. Not increasing your cost, but definitely increasing your revenue and your profit.
An example of this is a company called 37 Signals. 37 Signals back in 2008 or 2009, maybe even before then, they were a creative agency. They did UX, design, and development and ultimately they moved to a project management solution.
That's just easier to use. It's more lightweight and there were solutions that were on the market. Ultimately, they wanted something that was just faster, better, cloud based. And what they created was a tool called Basecamp. They started telling their friends and looking for opportunities for others.
It was the dawn of Ruby on Rails. They were curious if other people would would want a project management tool like this. Ultimately, that led to 37signals becoming completely a product firm. And they ended up releasing Basecamp, Campfire, Lighthouse and other tools. Ultimately, they became a product company, a tech company. They gave up the services.
Now, this doesn't mean that you have to give up your services to move to being a tech company, but you might want to think about decoupling them because sometimes when you try to be a tech company and a service company in the same house it can get crowded.
They start competing for attention, for focus, and definitely for the culture. A lot of times service companies struggle with working in one way because they're working for the billable hour. They're working for knowing how to serve customers one on one. But when you start moving to a tech company, the way you work, the culture of working, it changes a little bit.
So you need to think about maybe decoupling those things, whether they're separate companies or definitely separate departments, and then look to building a tool that can scale. beyond your billable hour.
Conclusion
Okay, let's recap. So we've already explained how you can definitely grow a services company on the billable hour. That's how most services companies grow. And you can get quite large, up to thousands of employees.
But if you really want to think about scaling a revenue opportunity, scaling your profit opportunity, scaling your service company, you need to be thinking about these three things.
How do you automate your repeatable services? How do you sell your knowledge? Or how do you turn the unique way of working into a technology solution that you can sell to lots of other people?
Ultimately, billable hours are fine, but maybe we can scale our service companies through these three ways.
