About the Episode

In this episode, Jason and Jeff explore the different reasons a firm might choose to kill off a practice, how to go about doing it, and what role marketing should play.

This is the third episode in a three-part series. The first episode focused on The Typical Mistakes Firms Make When Launching a New Service. The second episode focused on How to Develop and Launch a New Service.

To start the episode, Jason and Jeff define what is meant by the word “practice,” which in a professional services firm, could mean geography, industry, solution, or sub-discipline.

Next, they talk about reasons why a firm might choose to kill a practice, whether is profitability, or opportunity cost, or something else. Then the spend the rest of the episode discussing the different ways a firm can go about ending a practice and what role marketing should have in helping a firm decide to kill a practice.

---

Transcript

Jason Mlicki: Jeff, this podcast is going to be all about death, dismemberment, murder, all the dark sides. I’ve been thinking about this because I’ve been building this practice, I’ve been cultivating it and seeding it. I gave it my heart, I gave it my soul, I put everything into it, and now you, you ruthless marketer, you want to just kill it, kill it dead before it reaches its full potential. Why do you want to do that to me?

Jeff McKay: Because I don’t like you.

Jason Mlicki: All right, so this episode, we’re going to talk about killing a practice is the title we’ve given it. Before we do that, you raised a really valid point, which is what’s a practice? What do we mean by a practice? When we use the phrase practice, what are we saying? Which we’ve sort of danced around this the last three or four episodes, but let’s do that. Let’s define that real quick before we jump into, you know, I guess it’s good to know what you’re going to kill before you kill it, right?

Jeff McKay: Yeah, that’s a great point. Particularly in professional services firms. I mean when you look outside at product companies, killing a product is relatively straight forward, but when you get into professional services and matrix environments, you have practices, you have geographies, you have the industries, you have combinations of those and solutions, and I think for purpose of this podcast we’ll use the word practice, but there really is a continuum of things that we’ll be touching on and the how to kill a practice that we’ll be talking about really applies to all of those things that fall into a matrix. We will probably not be talking primarily about some big P&L driven line of business. What we’re talking about here, probably subsidiaries within a practice. Although, what we’re talking about could pertain to a big practice with a P&L. So that’s what we’re talking about.

Jason Mlicki: Okay, so just to reflect what I think you said, I think what you’re saying is … Sorry, I didn’t mean it that way. The practice, when we use the phrase practice, what we’re really implying is it could be an industry vertical that you’re operating in, it could be a specific discipline that you’ve built. It could be a subdiscipline of a broader discipline I suppose, it could be a geography, it could be you’re an engineering firm and you’re operating in North Dakota and you don’t want to operate in North Dakota anymore for one reason or another. As I said at the beginning, I’ve put my heart and soul into this thing, why do you want to kill it? What’s wrong with it? What’s wrong with my baby? Why are we killing this in the first place?

Jeff McKay: Basic business acumen would say, we’re going to kill this product because there’s no market for it, or it’s not profitable. And that’s relatively straightforward. I think in most professional services firms, while that pertains, it really is about opportunity costs because so many of these practices, industries, geos, pop up opportunistically, either they’re following some fad, some consulting fad, or some partner or want-to-be partner builds a book of business and goes after a given market, and it gets elevated to a practice or a product level within a brand architecture. But I think for us it’s, in professional services, the profitability is relatively straight forward. It’s the opportunity cost of a practice, when is it not generating enough revenue or enough profit to siphon off resources that could be better invested elsewhere?

Jason Mlicki: Well two thoughts on that. The first is to your point, a lot of A/E firms I’ve found over the years, they open up whole geographies just by following a client, so there’ll be a client that takes them to Austin, Texas, and so they go open an office there to do a large project and then they try to build a foot hole in that market as a result. So, your notion of starting something and then maybe it doesn’t pan out, it would be a very relevant example there for some firms.

The second thing I was going to throw out there is that, what about growth? I would imagine there are situations where maybe the practice is not growing, or it’s not growing as fast as the firm would like. So there’s an opportunity cost there, and I’m going to share an example that’s a little bit far field, but here in Columbus years ago, there was Bruegger’s Bagels was in town. They had 12 or 15 locations all over the city and then they just abruptly closed them all down at once, so I don’t know why, they were closing all these things down. I remember the interview they gave on it was, they just basically said that they were not profitable enough, they weren’t growing enough. It wasn’t that they weren’t profitable and it wasn’t that they weren’t growing, it’s that they weren’t growing at the pace that the organization wanted to see from the market, so they exited.

I don’t know that firms are usually quite as deliberate as that, but I do think that is another reason you’d kill a practice. You’d say, “Well you know, this practice over here has grown at a 40% clip, these AI guys are killing it, and over here we’re not growing at all, so maybe we should think about, to your point, opportunity cost allocating our resources elsewhere.”

Jeff McKay: When I think about it, and this is kind of the methodology I’ve used as a CMO and that I use at Prudent Pedal in looking at markets and how we attack and invest in them, is a four square if you will, and up the vertical axis on the left side-

Jason Mlicki: A two by two? Is this a two by two?

Jeff McKay: A two by two.

Jason Mlicki: I’m drawing it right now, all our listeners, get out a piece of paper, draw your two by two, okay go.

Jeff McKay: It’s 3D. Well you can see this in the how to build the optimal marketing organization. How to allocate your marketing investments. Gosh, I think I put this two by two in everything I do.

Jason Mlicki: Did you used to work for BCG? Didn’t they invent the two by ?

Jeff McKay: Oh gosh, stop. Stop.

Jason Mlicki: Okay, keep going, sorry.

Jeff McKay: So up the left vertical axis is the market issue, the challenge that you’re going to solve. Up the right vertical axis is the growth rate, and then along the bottom is the brand’s relevance. Up the left vertical axis of the issue and the awareness of the market at the top of that axis, the market really is not aware of the issue. There’s a lot of demand gen if you will, that needs to be created there. At the bottom is a well known issue, everybody knows what’s going on. And then the growth, you know, high growth at the top, low growth at the bottom and brand relevance, low relevance, bottom left, high brand relevance, far right.

Even if the market is growing really well and the market’s not aware of the issue, if your brand and your marketing just cannot get a foothold in that market, you should get out of it. You should get out of it. I think most firms just spend money, throw money away, trying to build relevance that they’re never going to achieve. When you think about the investment and killing the practice, what’s your starting point and can you get to competitive? It’s a simple way of thinking about it.

Jason Mlicki: I think what you’re saying is, you might want to kill a practice in a high growth market if you have low relevance there, because-

Jeff McKay: And you cannot get to.

Jason Mlicki: Yeah, and you’re not getting the growth. Yeah, the growth is there, but you’re not getting a piece of it. And then of course you might still want to kill a practice in a low growth market where you have high relevance or you know, hey, everyone knows us for this, but this is a dying market. I’ve had a friend of mine that was, former client, that was leading a dry cleaning supply company and I would talk with him a lot about that, where that’s a negative growth market, it’s declining, everyone knows it’s declining, and so how do you manage through that? It’s a pretty fascinating thing.

Okay, so now let’s talk about who makes the decision, you threw this out. Does marketing usually make this decision? My hunch is, I think we both agree and usually marketing probably does not make the decision to kill a practice, but let’s talk about marketing’s role real quick. How should marketing be involved?

Jeff McKay: Marketing clearly does not make this decision. This is a business decision. It’s probably a leadership team decision, whether that’s at the practice level or at the firm level, that marketing should be actively involved. I would argue contrary to way marketing normally performs, that marketing should be bringing to the attention of the leadership team, those practices that should be killed. And on the smart Shinola list, one of the line items is build a business case to kill a practice, because it’s sucking off resources that could be invested elsewhere.

I think a healthy firm is always evaluating that and there’s clear criteria about what’s enough growth, at what rate and at what profitability, that marketing should be bringing the discipline to that because the practice probably isn’t going to, particularly if this is a pet practice industry or geography of a partner, they’re emotionally attached to it. They don’t want it to be seen as a failure. They don’t want it to hurt their reputation. And it’s not healthy for a firm to just let it kind of die through a pocket veto or neglect, because that confuses the market, that confuses existing clients and it’s just not a good high performance way to attack the management of the business.

Jason Mlicki: Let’s talk about that for a second, because I see two ways you kill a practice and that was sort of way number one, as you just starve it. You say, “Well, we’re going to continue providing this service we’re going to stay in the market, but we’re just not go in to market the service.” You can still exist if there’s an inbound inquiry, a client wants help helping this area, and we can make profit delivering it, that’s fine, but let’s not put proactive marketing or business development resources against this practice anymore. I think if I heard you correctly, you’re saying that’s unhealthy and you shouldn’t do that. Just talk about why, why not? What happens when you do that?

Jeff McKay: Well that can be healthy-

Jason Mlicki: Okay.

Jeff McKay: To milk the decline. How you go about milking it is important. I think number one is making sure clients understand how you’re going to milk it, not in those terms, but you know what I mean. Manage expectations of the manage decline. Be very smart about how resources go in. Normally in a mature market, the way you described it from a traditional textbook marketing approach is more marketing dollars are poured into that practice or product and it’s differentiated around the edges for incremental market share gains. I think it’s important for firms to look at is that investment of time, money and resources worth the return that we’re getting from it, or is it now it’s time to stop that or really cut it back.

And then if you do cut it back, if you do cut it back in traditional firms, if my practice is 40% of the business, but it’s declining at 10% a year, but it’s still profitable, what happens to that profit? A wise business decision would be to allocate that profit to the growth areas, but you can get into some pretty political battles about where those dollars are going, and that’s another hard dimension to killing a practice that is still somewhat large and producing profit but declining. That’s why these decisions are so hard in firms.

Jason Mlicki: Yeah, I would think of what you just described is universal, a universal challenge though, it extends beyond professional services firms. You think about product based businesses when you have a large … It’s the cash cow of business, right, business that’s generating all the revenue and profit, but it’s declining in growth and you know it. It’s the crux of the innovator’s dilemma in a lot of ways, right?

Jeff McKay: Absolutely, and that’s why marketing can play a very important role in understanding why is there growth not happening in that practice. Could it be that solution is just simply in decline because of market demand, and if you look at something like, Towers Perrin is a good example, or Hewitt, or Buck, those human capital firms, they were all actuarial firms, helping firms manage pension risk. Well the only place it has pensions anymore are primarily public governments, states and municipalities. There’s no more growth in that. Everybody else has gone to 401Ks or some other kind of plan. That’s clearly a declining market.

But other markets may be doing well, but the practice itself is just broken and needs to be fixed. So delineating between those two and determining whether or not something can be fixed is the role marketing should be playing in that. But when we’re talking about managing and milking a decline, that’s very different than fixing a mature business that’s just kind of gone off the rails.

Jason Mlicki: Yeah. No, there’s so many interesting things in everything you just said, I’m trying not to take us to off too far off track because I would argue there’s whole firms that are, like you said, differentiating on the edges of a mature service that may even be in decline and they may not even fully be aware of it. And it’s a kind of a scary thought, but I would argue that that’s the case. I would actually argue that that’s a problem in a lot of agencies, they’re sort of clinging to services that are somewhat in decline or are just so pervasive and hyper competitive that it’s really hard to really find any differentiable angle to them.

Jason Mlicki: The second way I thought of killing a practice was, I call it just shutting it off Steve Jobs style, and it’s sort of that iconic moment in his return to Apple when he walks in the board room and draws a, I think he draws a two by two matrix on the whiteboard and says, “We’re going to be here, here, here, and here, any business that’s outside of that, we’re shutting off today.” And so that’s when they killed all their peripherals business and their printers and all that kind of stuff, and it was literally we’re shutting it off today. It wasn’t like no six months. It’s like, no, we’re shutting off today. He’s like, call the manufacturing plant and tell them to close.

That to me is the second way to do it, is you literally just, you just shut it down. Is there another way to do this? I mean, you’re either managing through the decline, or starving it. Those are probably different angles of similar things. Or you just shut it off. You just say, “We’re going to stop providing this service. We’re going to stop operating in this market.” Is there any other avenue you would think about taking if you’ve made the decision, we’re shutting this practice down? I can’t think of one, but maybe you’ve got one that’s not right in front of me that I’m not thinking of.

Jeff McKay: Yeah. I think there are. There are, and you just talked about this, of firms out there trying to differentiate on the edge. I think there are firms out there built around fads, whether it’s TQM, these are some historical ones, but TQM, Japanese management, Y2K, management by objectives, even digital to some degree are built around a fad or a trend. I think being able to distinguish between what’s a fad and what’s long-term viability, and we talked about this from a marketing perspective, but I think a lot of those fads practices should be just cut off.

When I was at Anderson, we had a new CEO come in. This was at the height of the Internet/Dot Com phase and I was part of what was called the enterprise group, which was the middle market practice of the firm that had been incredibly profitable, serving family businesses, private mid size businesses, and the new CEO just said, “We’re killing that.” It’s gone and all the resources on that are now allocated towards emerging public companies and we poured all those resources into startups and venture backed companies that we’re trying to get to IPO. It was a strategic decision. We were growing so fast we couldn’t meet the demand coming in and the demand and the profitability and the growth was in emerging companies not in stayed middle market at that time. It really depends on the situation.

Jason Mlicki: We should do a whole podcast on that story because that’s a really fascinating thing, because you think about a mismatch of expertise, right. You couldn’t have two more polarly opposite business types than the one you went out of from the one you went into, that’s crazy, I’d love to hear that story.

Jeff McKay: It is crazy, but to answer your question, and I think this is where most of our listeners will probably play around this, if your firm does not have a codified and agreed upon brand architecture and solution architecture that is signed off by the leadership team, your priority should be building one. Most firms just have some kind of menu structure on their website that says, here’s our solutions, here is our industries. here’s kind of our sub categories. Where most people will be playing in managing a declining or killing a practice industry, geography will be in that brand or solution architecture, and most firms have their primary level of solutions capabilities and normally it’s the same phase as internal structure and where the P&Ls are and then they kind of cascade down.

Marketers control how that market face gets rendered and if you’re going to move a practice down a level or a two, so that you still have market visibility but you communicate to the market that that’s not core to who you are. So if we go back to Towers Perrin, you would move down actuarial and pensions maybe to a lower level from a practice to just general retirement. At Anderson, if you were moving from middle market companies, your brand architecture may be restructured around company size. You know, this is an SAP model, Hewitt was this way where you have global companies, middle market companies and venture back companies, so when people are coming to the website, they see that you serve them as a buyer, so you rearrange that market phase accordingly and then slot in if you need to at practice, service, geography or industry.

Jason Mlicki: Okay. That’s really interesting. From your perspective, almost in some ways marketing’s biggest role in this is codifying the rules of engagement around this, sort of saying, well this is the structure by which we’re going to market and now that the partner group have decided that you want to exit this, we have to rethink this architecture. And that’s sort of the, maybe the most critical role they have in terms of managing the decision to kill a practice.

Jeff McKay: Yeah, and along with that, the communication that we talked about earlier.

Jason Mlicki: Setting client expectations and helping the consultants know how to do that.

Jeff McKay: Yeah. In a corollary to that, let’s say the way you fix a declining business or a business that you choose not to be in anymore, well we haven’t touched on it, could be a strategic decision. We’re getting out of that business because we no longer want to be in it. We’re going to reposition around this business, so we don’t want to just take that revenue off the table and take a big hit, we’re going to sell that unit, that practice to somebody else. If that happens, marketing’s going to play a role in how that’s carved out and how the buyer is going to manage that firm or that part of the firm and transition any brand equity over to the new firm. Marketing needs to play an active role in negotiating to what degree will the new firm be able to use the prior firm’s brand, for how long, if at all, and then help them manage that out as well. I think there’s multiple options there.

Jason Mlicki: Well, that’s a great point because we talked about the mechanics of how you kill a practice and that was one obvious one that we just left off the table up until right now, is well you just carve it off and sell it and that happens all the time. I want to say it was Kurt Salmon that got basically disassembled and sold in his parts to different practices. ECG bought a piece of it, bought the healthcare practice and the retail practice went somewhere else. So I mean, yeah, that’s a really valid point. That’s worth noting.

All right, so in the interest of time, we’re about out of time, so I wanted to just throw out one final thought and then we’ll call it a wrap. We talked about so many other reasons why you might want to kill a practice. What are some reasons that firms might want to retain unprofitable practices? Practices that are either just break even or maybe even losing money.

Jeff McKay: Yeah, that’s a great question. Competitive pressure, creating barriers to entry to new competitors. Some might be offered as loss leaders for follow on types of businesses and many keep them just because of emotional connection to founder or some other reason.

Jason Mlicki: I think there’s, another one I’d throw in there is there’s value in integration, so there’s value in that service being provided by the firm, integrated with other disciplines within the firm.

Jeff McKay: Absolutely.

Jason Mlicki: To the client., but yeah, I thought that was worth noting. Because I think there are situations where you have a practice that’s not profitable, it’s not growing but you shouldn’t kill it, and there may be very tangible reasons for that, and so we shouldn’t necessarily say, hey, let’s just throw it out and no matter what, there may be other reasons to keep it.

Jeff McKay: And you know what’s great about the way you said that Jason, is it’s important for people to know that these are and should be strategic decisions and there should be clear rationale for why they’re there. Having them there just because they’ve always been there or because of some emotional connection, or an inability to actually just cut it, are not strategic reasons. That’s the takeaway for this, that marketers should be guiding the strategic decisions, not just letting something die on the vine. It just doesn’t do the brand any good.

Jason Mlicki: Yeah. The interesting thing, it’s also liberating when you do that. We had a client that was an engineering firm that had basically a drilling practice, so that they would go out and they would drill cores to test ground samples for clients and it was very hard to be profitable in that business. And on some levels it’s sort of like they were beating themselves up because every time they talk about their practice, they would talk about how really it wasn’t very profitable and they should exit the business. And they had all these reasons why it was sort of creating frustration inside the leadership team, and when we approached it strategically and said well why don’t we just get rid of it then, they said, “No, no, no, we need it, because it’s valuable to our other parts of the firm.”

Having that service as a key differentiator for us in other aspects of what we do. It liberated them to look at it differently and say, wait a minute, why are we beating ourselves up for our inability to figure out how to differentiate this thing and make it work as a practice and just focus on it is what it is. It’s there to differentiate the broader offering. I think it just liberates the leaders to look at that differently than they had been and take some of that pressure off and make, like you said, the strategic decision that we’re going to retain this practice and here’s why. Not just let’s go beat ourselves up in perpetuity for our inability to break the mold on this thing, which was kind of what had been happening before we had the conversation. Not that we solved the problem, but we helped them kind of think it through that way.

Jeff McKay: Yeah. Ask the tough questions.

Jason Mlicki: Yup. So on that note, we are going to say goodbye. Say goodbye to that practice you’ve always wanted to kill, you’ve been begging to kill it for years and I finally agreed, so I guess goodbye to whatever practice we’re killing. I enjoyed this conversation immensely. I hope our listeners did as well, and we’ll talk next week.

Jeff McKay: Hey maybe so our listeners aren’t leaving on such a sad note, you should end to U2’s It’s a Beautiful Day. See you Jason.

Jason Mlicki: See you Jeff.

Jeff McKay: Bye.