How do I scale my service business?
Eventually most service business owners ask themselves if they might be able to make more money, work fewer hours, expand or exit from their business at some point in the future. They believe that scaling might be the key to this next step, but when it comes to the concept of scale, most of what they read or hear about seems to relate to product or tech companies. So how do you scale a service business?
It is important to understand that scaling is somewhat different than traditionally growing a business. Scaling requires a company to reduce the incremental cost of adding a unit of revenue, but that can be difficult to do when the incremental revenue is generated by incremental effort and time on the part of the service provider.
After researching service businesses in the legal, accounting, engineering, construction and consulting industries it is clear that there are some similarities in both strategy and execution as these types of service companies begin to scale.
Difference Between Product and Service Businesses
To begin scaling your business, it is important to recognize the differences between product and service businesses:
- Products are tangible while services are intangible. You can’t see, touch, taste, hear or smell them. You may be able to see, touch, taste, hear or smell the result of the service, but not the service itself.
- Other than live products (food, plants, etc.) products are able to be stored and are, to some extent, nonperishable, while services cannot be stored – services are perishable. That means that if the time it takes to deliver a service is not used, that time perishes forever – it cannot be stored on a shelf for some later use.
- Products are often standardized while services are variable and usually customized. Because they are delivered by people, even if the same person is delivering the service to two different customers, there will always be some variation in how the service is performed. Two attorneys, two accountants, two barbers will not deliver a service in the same way though the outcome or result may be the same – a document, a tax return, a haircut. Virtually everything is customized vs. standardized, even if only slightly, because no two customers have exactly the same needs or situation.
- Products are independent from the person selling or delivering them (every customer receives the same thing) while services are inseparable from the person delivering the service. The bug service person may essentially perform the same treatment on your house, but no two people have the same personality so no two service delivery people will interact with the customer in the exact same way. The same goes for attorneys, CPAs, barbers, designers, etc. The skill set and process followed may be the same but the personality of the deliverer is always different. Products, on the other hand, are standardized. In the customers’ hands they are the same, all the time, regardless of who hands them the box.
The Key to Scaling
The key to scaling is to reduce the incremental cost of delivering each additional unit of revenue. Product companies can do this in many different ways – standardizing, automating, re-engineering, creating derivatives of existing products, etc. But what can you do to make your services more tangible, nonperishable, standard, and more independent from the service provider? Here are some simple examples to get you thinking:
One. To the extent you can, “productize” your offerings to make them tangible. Create products from your services that you can simply take off the shelf and hand to someone to execute. Can you put your knowledge or skill into program that can be taught to and delivered by others or even used as a DIY approach by those who may not be inclined, for whatever reason, to purchase your service? How can you turn your knowledge or skill into a video, workbooks, programs, guides, e-courses? You can license, brand or private label some of your supplies or processes or offer train-the-trainer credentialing to use your material. This allows you to expand into new target markets, maybe even into new geographic territories without having to reinvent your service offerings every time you expand or hire new people.
An example might be “back school” that a Physical Therapist offers. The therapist creates a Back School therapy algorithm to help people understand how best to protect their backs. Back School can be delivered in person, to groups of people, via video, Skype/Zoom, a You Tube channel, email, etc. Other therapists and health/wellness/fitness professionals can be trained to use the algorithm, modify it according to their needs, and individuals could purchase the Back School program to follow on their own if they can’t or won’t visit a provider. KEY POINT: When you create a process to deliver something, often the process can be automated – and automation is a game changer; you don’t have to be there for the process to work.
Two. To eliminate perishability (lost time/productivity) of service providers, you must be able to predict the level of “inventory” – number of people, number of hours – required at any given point in time. Start with a full understanding of the business drivers of your industry and rethink how you use them.
Accountants know they will be busy during tax season and virtually all of their capacity (# of people x # hours worked) is used during that time. If the staffing level does not change when things are not busy, much of that talent “perishes” – it is not used. In this example there are a few options – lay people off, overwork people during busy periods, hire temporary workers, expand service offerings to take advantage of the “down” time. Keeping people “fresh” so their time does not perish often means better hiring and keeping people engaged, which is often more important than productivity. KEY POINT: Hire the right people who can help you with analysis, perhaps help you productize some of your offerings, and have a good recruiting, hiring and retention plan to support their engagement.
Continuing the CPA example, a firm might consider are offering their existing business clients consulting on how different business entity structures might affect their tax burden, mid-year tax planning and/or retirement tax strategies. These services can be spaced out throughout the year, allowing the firm to keep their staff busy once tax season has passed.
Three. Because services are not manufactured to standard tolerances the way products are, service delivery will always vary from one provider to another. Creating systems and processes that people follow minimizes many differences in service delivery. I am not talking about standardizing the actual work, but doing what you can to eliminate all possible variability – two engineers may approach a project is different ways – but how parts of the work get done can be the same from person to person.
Standardizing workflow processes is the game changer here. Do you have an outreach process? A client or customer intake process? What about your process for creating a document? Delivering a haircut? Creating a design? Streamlining the repetitive parts of the process (invoicing, printing, data input, appointment taking, etc.) leaves more time for your employees to use their skill and expertise delivering services for which you can charge. KEY POINT: For this to work, the processes must be followed – by everyone, all the time, no exceptions.
Four. Finally, the perception of a service is inseparable from the person delivering the service so you will want the most qualified people you can find for your service delivery. In the absence of cloning technology, your next best thing is to identify, train, engage and retain people who are competent, willing and able to follow your processes, and who are a good fit for your culture.
After identifying and codifying the “perfect” employee profile for your business, your recruiting, training and hiring processes should be standardized, just as any other process. What are the processes you will use to identify, evaluate and hire people? What metrics will you use to determine who gets an interview, what questions are asked and who eventually gets hired? The use of data and rubrics is important. Though we can never entirely remove subjectivity from the process, the more objective we can make the hiring decision, the easier it is to reduce variability in your results. To be clear, you are not reducing variability in the people – people are unique and all should be valued. Rather, you are removing variability in the decision-making criteria that are used to identify those people you believe will be successful employees.
Once you have made your hiring decision, your onboarding process should be consistent, inclusive of expectations, and make it easy for people to assimilate into your culture. This should help you get as close as you can to finding those people who will best represent you and your company and it helps you hand off the hiring process to anyone with some level of predictable results. This last point is important because a key marker of scalability is the ability of the company to run itself without you.
Clearly, most small businesses cannot tackle all of this at one time, but understanding what needs to be done is the first step to allocating the appropriate resources (time, talent, money, energy) to those areas where you will get your greatest return on your investment. Be sure to get help when you need it – there are many low and no cost options for business consulting assistance including the FSBDC at UNF. We’re here to help!
Our guest blogger is Linda Teza Kulka, a Certified Business Consultant with the Florida Small Business Development Center at UNF and an adjunct faculty member in the Coggin College of Business, Management Department. Linda can be reached at 904.620.2476 or [email protected] (www.sbdc.unf.edu).