Transcript

In this episode, Jason and Jeff talk about how consulting firms can turn a service into a tangible product that can be sold to clients.

They start the episode by sharing the reasons a firm might consider turning a service into a product. Then they cover how a firm can go about productizing a service, whether it’s developing training or creating a true Saas product.

Next they cover the challenges a firm might encounter when going through the process of developing a training program or a piece of software. And they finish the episode with some recommendations that firms can use to go about the process successfully.

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Transcript
Jason Mlicki: So Jeff, in preparing for this episode, I had this really random loose thought, and that is that we’ve seen over the last decade or more this migration of software to software as a service, from software to SaaS. And I think there’s an inverse model to this, which is service to software, so turning a service into a piece of software, which increasingly is really what I see firms wanting to do or trying to do. And so that is what I want to talk about.

Jeff McKay: Boy, and I thought there was going to be a great punchline in that setup.

Jason Mlicki: I was thinking of giving it some kind of moniker, SaaS, SeaS, maybe service as a software. But I don’t know if that really holds up that well.

Jeff McKay: Another one of the holy grails of professional services.

Jason Mlicki: All right, so why would we want to do this? We’re actually I guess calling it productizing a service. And what we mean by that is taking a tangible service that’s delivered presumably by high-powered, high-compensation consultants in a very customized one-to-one way, and turning it into something different. A product, a tangible product of some kind that can be bought. I’ve got at least five of them.

Jeff McKay: Whoa.

Jason Mlicki: Some of them kind of came out in that little snippet there.

Jeff McKay: Let’s hear them.

Jason Mlicki: The first one that jumped to mind was just this idea of turning IP into a repeatable revenue stream. So the idea that we’ve got this IP that we’ve developed around this consulting service we’re providing, and now the whole premise of the SaaS industry is to make something monthly or annual credit card transactions. So that the idea of having this repeatable revenue stream that’s going to pay us with a 97% customer loyalty rate in perpetuity, sounds pretty appealing right?

Jeff McKay: If it’s profitable, yes.

Jason Mlicki: Well maybe, we’ll come back to that one later. Profitability, it turns out it may not be that important, that’s the first thing. Second thing I came up with was the idea of just tangibility. So you making something that’s tangible that you can both scale and sell. A piece of software that’s based on IP that has contractual customers that retain at a 90% plus rate is much easier to sell in the open marketplace than a mushy consulting service that hinges on the relationships of partners.

Jeff McKay: You’re learning. We discussed that when we were talking about marketing heroes and Theodore Levitz. Make tangible the intangible. That’s a good one. Keep going. You’re on a roll.

Jason Mlicki: So the next one that came to mind was this idea, and we’ve had a couple of clients that have kind of done this, sort of shifting from expensive resources that are rare. So really rare senior talent consultants that are really expensive, that are delivered into the client experience to diagnose the problem and develop a solution to something that can be delivered by a little less expensive, less rare resource. So I think there’s some real advantages to that potentially.

Jeff McKay: So what you’re saying is reallocating those high end resources to higher value types of projects and work?

Jason Mlicki: Yep.

Jeff McKay: Okay.

Jason Mlicki: Yep. Yep. So, and then being able to deliver the service you use to deliver with seasoned high level resource through something that’s more repeatable, intangible with a lower level resource. The other one that jumps out is sort of moving from one-to-one working relationships to one-to-many working relationships. So the idea of well, a consulting arrangement is usually a one to one relationship between the consulting firm and the client. And when you productize something, you have the ability to work with many clients at the same time that are at different points of their maturity but all kind of on a similar journey together. And that’s a different way of operating. And it’s in some ways maybe a little more efficient.

Jeff McKay: Mm-hmm. A lot more efficient. Yeah. I think that’s …

Jason Mlicki: Yeah, a lot more. Sorry. You’re right.

Jeff McKay: Yeah, yeah. Boy you did all right.

Jason Mlicki: My last one of five would be to deliver advice and expertise remotely. So the idea that one of the biggest frustrations for most consultants is not, I shouldn’t say most, but a lot of consultants is the travel, right? At some point they get burned out of how much travel they’re doing in the consulting role that they’re in. And turning that into something that can be delivered more remotely with less travel is generally appealing to certain people. You see a lot of training, in which we’ll talk more about that, emerge from firms as a ways to mitigate the demand of travel.

Jeff McKay: Mmm, yes. That’s another good one.

Jason Mlicki: I’m sure there’s more. That’s just what came to mind for me when I was thinking about this. These are all the reasons that I see clients want to productize services. And on full disclosure, we’ve looked to productize services here and we’ve done it a couple of times.

I suppose there’s another one actually as we’re talking that just jumps out to me, which would be creating incremental value on top of an existing service. So we had a couple of clients that at certain points in time either built or had technology that was used to enhance the value proposition of the service that they were providing. So the software was not necessarily a stand alone product. It was an added value to the working relationship.

Jeff McKay: That is a really good one. I see that a lot and oftentimes with these products, I think they evolve along that path. They aren’t developed in traditional, I think product development, life cycle steps. They evolve out of some kind of demand from the client. I was going to add that one to yours. I thought that was a really good add. Kind of the flip side of that would be the clients are demanding a more cost effective approach than time and material and they’re looking for some kind of solution.

The other one I think is is really important, and I’ve seen this a lot as well, is the development of a product to protect market share. Because of other firms, non-traditional firms coming into the space or to your point, incremental value to differentiate from a direct competitor. But people will invest in products, and even money losing products to some degree, in order to protect that big consulting relationship.

Jason Mlicki: Yeah, it makes sense. I mean the software in some instances, it’s bundled in the relationship and the client doesn’t want to lose that technology that they’re using to facilitate the relationship because it’s so valuable to them even in and of itself. Yeah, it’s interesting. We’ve had a couple of relationships like that as a matter of fact with people that we work with that have done that in servicing our agency. Where they’ve got a specific piece of technology that they’ve either built or they have licensed and resold and used it to service the relationship. And after a while you become attached to that software and you go, well, this relationship isn’t working real well right now, but I don’t want to give up my software. How do I fix that?

Jeff McKay: Well, it’s the cost of change right. And you don’t want to pay that cost. But it also speaks to, and we’ve talked about this on other podcasts, those three drivers of brand preference, expertise, results, and that relationship or ease of doing business with. And the software definitely can fall into that, boy, they sure make this easy for me. Even though it’s not perfect, it sure allows me to do a lot of other things.

Jason Mlicki: Yeah. Interesting.

Jeff McKay: Yeah.

Jason Mlicki: Okay, so now let’s talk about the ways you can productize. Because as I see it, there’s at least two ways you can productize a highly customized consulting service. There’s probably a lot more, but there was just two that jumped out to me that were obvious that I see from our clients. The first would be to take that customized consulting service and turn it into training and turning it into something that’s more tangible. Like you said, sort of almost designed as a product, so it’s more this is specifically what happens when and how and how it’s done. And it’s buttoned up with process and materials and all kinds of supporting things that the client’s going to use to consume the training either online, off, in person or some combination of the two.

And then there’s the obvious one, which is consulting software. So turning what is provided as a service and turning it into software, straight up software. I’m sure there’s more, but those are the ones that jumped out to me right away.

Jeff McKay: It’s so funny that you mentioned that. I never considered training as a productization, but it really is. And you and I have worked on some clients that that was the model. They went from kind of hardcore consulting to teaching clients how to do what they do and we know where that ends up. Sometimes, right? You can train yourself out of a business altogether.

Jason Mlicki: Train yourself out of a job. Yeah, well it’s interesting because if you think about large training providers, Dale Carnegie or some of the training firms we’ve talked about in those settings, they’re essentially providing a consulting like relationship, right? They’re teaching people how to apply a set of ideas and concepts to improve whatever it is they’re doing. But the people that develop the methodologies are not delivering it at all. And in fact, in Dale Carnegie’s instance, it’s a franchise model, right? So you’ve got someone who develops the curriculum, structures it, designs it, packages it, builds it, and then hands it off to a set of franchisees that are then trained on how to deliver it. So I think that’s a really good example of what that looks like and how it’s, so is really becoming a product that I can buy off the shelf. And I said to myself, well, if I’m struggling through this issue, is there a training product out there that I could buy to help me work through that?

Jeff McKay: Boy, we could do a whole show on that one.

Jason Mlicki: Yeah. I mean you really could and you could spend a lot of time talking about it. And it’s funny as we have another client that actually sort of has both of those models side by side. So you have a challenge and you have a desired outcome and you can either buy it as a consulting relationship and a one on one delivery or you can buy it as a trading system that’s more, obviously less expensive and delivered through with different resources. And we’ve actually, we’ve done it here. I mean we have an online training program that we’ve stood up and we and people can buy into. And a lot of the methodologies that we use to deliver service to our clients are baked into that training program. And you can buy it on a monthly licensing fee or not a licensing fee, but a monthly fee. And sort of DIY, right. Can I go through the journey that we would take a client on all by yourself with us as a little voice in this, coming out of a website.

I would say as we shift into the challenges of this, I think that’s probably the first challenge I see in general for firms that want to make this journey is that the delivery model is changing. You’re going from being one-on-one, rendering advice and telling someone how to do something or even doing it for them to sort of co-creating. Where you’re providing a curriculum or you’re providing a set of best practices or you’re providing a tool that enables someone to do something, but they’re largely going to do it on their own. And so you’re empowering them. Which I don’t think it’s a sea change shift for consulting firms. Because a lot of consulting firms do lots of knowledge transfer in their work. But I do think it’s something that they aren’t used to doing. Thinking that way.

Jeff McKay: I think that’s true of both. Training requires a unique discipline in order to teach effectively and particularly adult learners. But the software is the same thing. You have firms moving outside of their core capabilities and into new disciplines and we’ll get to challenges in just a moment, but that’s one of the top ones on the list. And when you’re dealing with highly educated, highly driven, normally successful types of professionals, they can over estimate their ability to deliver on some of these things.

Jason Mlicki: Yeah.

Jeff McKay: That’s a big challenge. So let’s talk a little bit about product as software.

Jason Mlicki: Okay.

Jeff McKay: And what that looks like and how people …

Jason Mlicki: You mean, SeaS? Service as software.

Jeff McKay: Yeah, yeah, yeah. And in my experience, I see very few firms think about, hey, let’s become a software company because consulting is not going to be around long and there’s more money in software or something. They don’t think in those terms. They normally, as we talked about earlier, approach it from an incremental standpoint. There’s not a lot of due diligence. It’s not well thought out. It may start with simple database or excel spreadsheet that’s over engineered and offered to a client to administrate some mundane tasks, benefits administration in the HR space. That’s how that kind of evolved. So much of what Hewitt and Towers Perrin were doing, all started with Excel spreadsheets. And today, I mean they’re just starting with different database tables and probably put in some kind of pretty front end on it because a client needs a productivity tool and then they kind of evolve from there. So they’re not well thought out.

Jason Mlicki: The software exists, as you said earlier, to create ease of use for the service delivery for the customer. For the client.

Jeff McKay: Yes, yes. And then it evolves from a evolutionary perspective and it probably happens that way because there’s nobody in the market providing that stuff. When that stuff was was going on, PeopleSoft and workday, all those things were not around. They evolved out of that. And the same is true with the ADPs of the world and those types of services. Because a lot of professional services in HR space, moved into that payroll space because it was an incremental add on to the administration of the benefits and stuff they were doing. It’s like, well that’s the next logical place to go.

Jason Mlicki: Yeah, so in a way what you’re saying is firms, just by design, are highly unlikely to say, well let’s take this service and turn it into a piece of software. They’re more likely to say, let’s look at ways we can incrementally use software to make this service easier for the customer, less expensive to deliver whatever it might be. I can buy that.

Jeff McKay: Yeah.

Jason Mlicki: I can buy that. It’s the rare person that looks at the world and sees it differently. And the example that comes to mind for me is a friend of mine, so Chris Parsons who runs Knowledge Architecture, which is a social intranet for architecture engineering firms. I remember I talked to him about this once and when he first started the business, he said, “I started the business because I had a hypothesis and my hypothesis was that intranets should be products, not projects.” So that was his whole hypothesis was that he wanted to replace something that was being bought as a service in to being bought as a piece of software. And a hundred plus clients later, here he is. Right. But to your point, he didn’t take a existing design firm or something that was building intranets. He came at it from an entirely different place. He sort of walked in and looked around and said, well this is all backwards.

Jeff McKay: And that’s brilliant. To me, that’s brilliant. That’s atypical, that’s hey I’m thinking about this completely different. I’m starting with a software company and addressing a big problem because those intranets are self consuming.

Jason Mlicki: Yeah.

Jeff McKay: Oh my gosh. They are always over engineered and underperforming and they’re built on proprietary software. And they always always end up collapsing. So there is a great opportunity right there. I love it.

Jason Mlicki: But to me, of the biggest challenges that firms have in making a decision to productize a service, especially around software, if they’re going to turn it into software. And I learned this the hard way and I actually I learned it from Chris. Is they don’t have technologists. They don’t have people on staff that look at the world that way. Their inclination is to take a partner and the partner is going to champion this thing or they’ll take the IT lead who’s responsible for infrastructure and he or she will champion it. But a technologist looks at the world in a totally different way. And so that’s sort of the first thing I think that firms lack that they need is they have to really get a true technologist who can look at this and say, well, wait a minute, what would that really mean? How would that change things?

To your point, the intranet example, how do we go from, instead of making these intranets heinously complex and over invested in, how do we simplify them and streamline them so that they can be stood up in a much more efficient manner so that it is viable as a product. Right? And I don’t think partners and typical IT folks think that way. I could be wrong. And there’s rare exceptions of course. There always are.

Jeff McKay: Yeah. And, and again, I think it’s evolutionary because it takes time to learn. You get into situations, you try to fix it, you kind of fix it, you don’t fix it, and you just iterate on these things. And I think that’s why the how to launch, how to develop a product often gets muddied in professional services firms.

I’ll give you two examples. I have a friend who runs sales and marketing support company in the accounting industry. And they went through, I don’t know how many CRM systems, off the shelf CRM systems, and trying to implement them for their clients. And after years of doing this work, they made their own for their own sales methodology. And they just stripped away everything that’s not relevant to the way the accounting industry works and came up with something that worked for them.

Well, they decided to implementation of off the shelf stuff in their clients was just too time consuming and not effective. They started offering their solutions to their clients in order to make it easier for them to get the other work they needed to be done. Well, the clients were having great success with it, so they refined it some more and then all of a sudden it’s a product offered exclusively to their clients. Initially they refined it some more and then they launched it on a more broad basis. I have a client that’s in document management. If you just Google document management, you’ll start with SharePoint and you’ll get 50 different document management types of software companies.

Well, this client did the exact same thing. They had a niche, they streamlined, they took all of the superfluous stuff out. They looked at the document management value chain and they said, we’re not messing with the early stages of contract management. We’re just managing this one section for this market, and went to market that way. And that product evolved out of just scanning. They were just scanning and cleaning out documents for old paper and just codifying them. Then all of a sudden they have a software product. It’s interesting how these evolve.

So I think the challenge, you need to appreciate that they evolve and manage from an agile perspective that you don’t have this big strategy. So you have to do it with an agile methodology and probably most don’t even have that or you need to think more strategically about what you’re doing here before you just squander a lot of resources and time.

Jason Mlicki: The other big challenge that jumps out to me and thinking through all the clients that we’ve had who’ve ever tried to productize a service into a piece of software. And a couple of them jumped out where they never reset their expectations for what it means to run a software. And you mentioned it earlier, because you kind of hinted at it. You said, “well as long as it’s profitable.” That’s actually not true in the world of software. So the world of software operates under a different operating model than the world of consulting. And the typical professional services firm wants 20% profit at the bottom and all growth that we’re pursuing is all perceived to be profitable growth.

That’s not how SaaS companies behave. And in fact there’s a pretty well published notion of this thing of the rule of 40, which is this idea that the growth of a software firm plus its profit should be roughly 40%. So if you’re not growing, you should get 40% profit. If you’re growing at a 50% clip, you should be losing 10% right? It’s a loose idea. But the idea is when you think about software companies, profitability is rarely even a topic of conversation. And so the challenge here is not necessarily that you have to take venture money and you have to rethink everything about what you thought about business. But I think it is, you have to quickly recognize that that typical margin model that you’re used to operating under as a professional services firm, you need to throw it out the window and operate with a whole different model.

And that means usually as we talked earlier in this podcast, more investments in marketing than you’re probably used to and comfortable with. And in certain stages of growth, low or no, or negative profit and higher profits at certain other stages. It’s a very different business mindset that needs to come to the table and so actually I think that sort of changing the mindset might be the biggest challenge that firms have in making this leap.

Jeff McKay: Yeah, I think that’s a good one. I think that’s a really good one. I like your explanation of the rule of 40 there too. Related to that is along that profitability model that you just said, the financial model, is the delivery model. And not just how it’s delivered, but how you deal with client issues.

Jason Mlicki: Yeah.

Jeff McKay: Dealing with a software issue is very different than dealing with a consulting people issue or project issue. It’s very different. And then to your point, how do you sell it on the front end? Selling a product versus a consulting service is a somewhat significant difference, I think. You’re definitely talking features and benefits and different things, so I think that’s a real good one.

Jason Mlicki: Yeah.

Jeff McKay: You know the other, I guess this is a challenge. We talked about it on another podcast, is firms aren’t equipped to do due diligence. So they let these things evolve as I said, and they don’t do the proper due diligence around the market viability and trying as we said before, disprove that viability before they invest in it. And we also kind of talked about milestones of an investment because these things evolve. I think all those disciplines kind of, can go out the window. So you have to be aware that you still have to do due diligence on these products even if they’re evolving.

Jason Mlicki: I totally agree. As you’re talking, what I’m trying to do is I’m realizing that we are basically out of time and so what I’m thinking through is, I don’t want to leave our listeners on, hey, here’s all the challenges. I want to leave them with some good advice. So I was thinking through the three or four things. When I think about our experience, either turning services into products on our own, or helping our clients do it. I think about the typical mistakes that we’ve seen and how if I could rewind it and do it all over again, these are the three or four things that would sort of jump out to me. And I’ll let you kind of layer on from there and we’ll take it to our wrap.

The first one I follow is what you just said, which is be rigorous. Make sure you do your due diligence and you really understand the niche that this new product is going to fit, especially if it’s a piece of software. Although I suppose that holds true for a training service as well. So make sure you have clarity on on the white space for this offering. That’s sort of the first one.

The second one is you need to quickly change your mindset on operating models. You’ve got to get embedded in the technology community on this. If you’re doing a software product, you’ve got to get into the business of software. You have to get into all the different ways of thinking that software companies bring to the table.

Paired with that is you need a technologist. If you’re really going to make this work, you need a technologist that has a vision for what the technology is going to be. And then I think like you said, it may be maybe the fourth thing on that would be, you need to understand that the sales and marketing model for your software is pretty radically different from the sales and marketing model from your consulting firm and you need to be quick to understand that and what that means. Those are sort of I guess my four big ones. Anything you want to layer on top of that?

Jeff McKay: I’d layer too, you have to think strategically about it. You hinted at that, in terms of doing due diligence and thinking through the capabilities that you need. Not just the technologist but you know somebody that heads product development from a strategic perspective. And then related to your sales and marketing, not only does it change, you have to invest in it. Softwares are a dime a dozen now with the cloud. I mean just look at the CRM or marketing automation markets. But I mean just look at project or team management and there’s just hundreds of them. And you really need to decide do you want to be in the software business or is it better just to pick a partner and use that one with all of its warts to get your work done. Because launching a software product like that sucks a lot of time and resources and if it’s not your core capability, you’re going to run into some challenges that might affect your core business.

Jason Mlicki: I think that was a challenge masquerading as advice, but we’ll wrap on that anyway.

Jeff McKay: That’s always how I deliver. Yeah. A year and three episodes in, I’m still working on it, Jason.

Jason Mlicki: Well, this was a good discussion and I hope that listeners were able to follow the arc of why you might want to productize a service, how you can do it, the challenges associated with it, and then walked away at least with a handful of pieces of recommendations of how to do it successfully. So, alright man, I’ll talk to you next week.

Jeff McKay: See you buddy.