Startups Providing a Service are Difficult to Scale



The critical success factors for a product business are well known, starting with selling every unit with a gross margin of 50 percent or more, building a patent and other intellectual property, and continuous product improvement. If your forte is a service, like consulting or web site design, it is harder to find guidance on what will get you funded, and how you can scale your business. On the product side, once you have a proven product and business model, all you need is money to build inventory, and a sales and marketing operation to drive the business. With services, scaling the business often implies cloning yourself, since you are the intellectual property and the competitive advantage. You have no shelf life, so you cannot make money while you sleep.
Indeed, there are some success factors that are common to both environments. For example, both need to provide exemplary customer service, build customer loyalty, and provide real value for a competitive price. Here are the additional success factors that are key to a startup with a services offering:
1. Get your service out of your head and down on paper. If you cannot quantify or document your service for repeatability and new employee training, you will kill yourself trying to grow the business. Even artisan-based services, like graphic design and writing good ad copy, have innovative processes and principles. Capture your “secret sauce.”
2. Start with a service you know and love. A successful services business, more than a product business, comes from a skill or insight that you have honed from experience. If you do not have a high level of commitment and passion, you customers will not seek you out. Now all you have to do is pass it to the many new members as you grow your team.
3. Do not let your service be viewed as a commodity. Low cost and low margin products can be winners, if the volume is high enough. You do not have enough hours in a day, or trained people, to succeed with lower margins in a services startup. Thus, you need to highlight how your service is more innovative and higher value to your target customers.
4. Recruit only the best people, with the right base skills. Customers will not pay to see your new employees learning on the job, and outsourcing the real work to a cheap labor source is a recipe for disaster. Make sure they bring solid base skills, so your training can focus on the innovative and unique elements that your service brings to the arena.
5. Be a visible and available expert in your domain. Be accessible on social media, write a blog or articles for industry publications, and participate in conference panels and speaking engagements. This substantiates your expertise and value, builds peer relationships and gives you access to the people and technology to keep you current.
6. Practice being a good communicator. Customers can touch and see a great product, but services are a bit ethereal. You have to communicate how your service is the best, to your own team, as well as to your customers. If you deliver a great service, but no one knows it, your business will suffer. Make sure everyone knows your vision and values.
7. The customer experience is more than the service. Product companies sometimes equate customer satisfaction with customer service, but it is more than that, especially with services. Make sure that every interaction with every customer is positive, the service delivered is exemplary, and always follow-up for reference and repeat business.
For some entrepreneurs who feel the need to attract outside investors as a critical success factor, they should be aware that professional investors almost never invest in a services-only company. The investor perspective is that no manufacturing or inventory implies a minimal need for capital up front. They tell these entrepreneurs to sell themselves, execute well, and grow organically.
Thus, your services business success totally depends on you, your skills and resources and your ability to bring customers to the table. You are the ultimate critical success factor for your business. Are you ready to make it happen?



Reprinted by permission.

Image credit: CC by Kai Chan Vong

About the author: Martin Zwilling

Martin is the CEO & Founder of Startup Professionals, Inc., a consultancy focused on assisting entrepreneurs with mentoring, business strategy and planning, and networking.

Martin for years has provided entrepreneurs with first-hand advice, mentoring and business plan assistance as a startup consultant. He has a unique combination of business and high-tech experience, and executive mentoring and connecting startups with potential investors, board members, and service providers.

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