Transcript

Jason Mlicki: When we left off, when we last talked, we were talking about the assault on intellectual capital in professional services firms from SaaS companies, and I think we both wrapped that conversation and kind of thought to each other, “Boy, you know, we sure did a good job of presenting this threat,” but now we need to talk about some of the solutions, so how should a firm respond? I think we both agree that there are plenty of other threats to talk about to the professional services model, but, today, we’re just going to talk about that one, so where do you want to start?

Jeff McKay: I think probably the best place to jump in, as always, is probably with the client.

Jason Mlicki: Okay.

Jeff McKay: I say jumping in with the client, and what is the client looking to do? I think, traditionally, we define ourselves in terms of who we are and what we do, and when I say we, professional services, that we’re an accounting firm, we’re a law firm, we’re an architectural firm, we’re a strategy firm, and while clients may buckets firms into those categories, I think what’s happening with this problem is those definitions have really blurred, in terms of the clients’ minds, and the solutions they’re willing to look at, purchase and implement, so probably the best place to jump is a definition of what business you’re actually in.

Jason Mlicki: Yeah, I totally agree with you. I think back. I had a client. It was a mid-sized engineering firm, so a middle market engineering firm. I’ll never forget, the leader one day got really fired up and he basically said, “Look. He was like, we are not an engineering firm. He was like, we are in the business of designing and improving silos. We are in the business of improving how companies handle waste,” and he had the laundry list of things that they do, and I love the way he changed the context. He said, “We’re in the business of this,” and not describing it as a firm, but describing it as a business that helps clients solve these problems, and I think that I would agree with you.

I see a lot of firms where their definition of themselves is almost too narrow. It’s almost too limiting. “We are an accounting firm.” “We are an audit firm.” “We are a consulting firm.” “We are this,” and their frame of reference is that clients need to buy that service and, your point, clients need to solve a problem and the service needs to be built around whatever that problem is, and they’ll buy it no matter what shapes it comes in, whether it’s software or advice or outsourced or whatever else.

Jeff McKay: Yeah, I think you’re spot on, and, clients, what they’re buying is a solution, and I can just see people’s expression. I don’t know how many discussions/arguments I’ve had about the nomenclature, right? Is it a service? Is it an offering? Is it a solution? It doesn’t matter what goes at the top of your navigation menu or in your descriptor, right? In the end, clients are buying a solution to a problem and, if you define that problem or the answer to that problem as a service and only a service, you’re going to lose.

Jason Mlicki: Yeah, and they’re buying outcomes and, call it what you want, can you get me the outcome or not? I don’t really care how you get me the outcome. I just want the outcome. In a way, I think that actually dovetails nicely to what I think is maybe the second answer to the problem, the second answer to the problem of the content attack, which is just pure positioning of the firm.

I know, from our standpoint, when I look across the market, I tend to feel that most of the small and mid-sized firms that I see in the marketplace are too broad, so they’re just … They’re trying to straddle too many markets and too many disciplines and too many services at one time, and I think that that creates the problem we just described, which is just that it’s the flip on it, right?

If my mindset is, “I’m a professional services firm and I’ve got this expertise to sell,” then I’m looking for anybody in any market that might need that expertise, but if I flip it around and say, “Well, I’m going to choose to compete in just these three or four markets, and I’m going to think like a marketer and understand the core unmet needs of those markets,” then I’m changing my mindset, and that’s hard to do if you’re too diverse, right? It’s hard to do if you’re spread too thin, looking at too many places at once. I guess I’m of the opinion that I see a lot of firms that are just too diverse, that they have to make some hard choices. Would you agree with me, or do you think I’m off?

Jeff McKay: I would agree with you. I think when we talk about changing, too broad, too diverse, being the simple consultant that I am, I always think of things in X and Y axes. On the vertical axis maybe you have a traditional demographic, this industry, this size, this functional buyer, and it’s easy to align services with what a CFO buys, a chief HR officer buys, a chief marketing officer buys, and if you want to narrow down on services because you’re too diverse, that’s kind of a straightforward way of doing it, but I think what’s more important than the demographic would be the X axis, and these two components kind of come together in the ideal client. For lack of a better word, I’d describe it as psychographic. My psychographic, how do these clients think about their own businesses? How do they think about solving problems? How do they think in terms of world view? How do they think in terms of how they use consultants or outside advisors?

Jeff McKay: All CMOs at mid-size manufacturers of, pick your product, are not monolithic. They’re all different. I think sometimes a quicker, and easy way, and less disruptive way of adjusting is to look more at that psychographic and hone in on a specific psychographic in a given demographic, and align all those services for a more comprehensive solution, potentially, but more specialized in whom it’s meeting the needs of.

Jason Mlicki: Essentially, you’re arguing that a firm doesn’t necessarily need to tighten up its demographic choices, necessarily. They just need to tighten up their psychographic choices, so get better at defining the mental-emotional states of the ideal clients they want to attract, and then design services and solutions around clients of that type.

Jeff McKay: Yes. I’m saying that there’s more than one way to skin the cat.

Jason Mlicki: I totally agree. The only that I struggle with this in general is, I think the act of getting demographically narrow, saying, “We service clients of this type,” is that it enables you to build deeper accretive knowledge and see patterns. The ability as a consulting firm, if you’re a content expert, and you’re working with healthcare clients over and over and over again, you just see more patterns, I think, than you would if you’re working in healthcare today and then retail on Friday, and logistics on next Tuesday. Even if all those clients think similarly, their need states are logically different, so you’re getting less pattern recognition. That’s the only downside I see to that, is that the notion of marrying up your demographic, in this case I’m saying vertically, vertical markets. That’s not necessarily the only way to do it, it just enables you to see more patterns in the work you do, and hence, build deeper accretive knowledge.

Jeff McKay: I think that’s the key to the best thought leadership and positioning, is that specialization that allows you to see the patterns. That’s the key. It really doesn’t matter if you pick an industry or a function, or a particular psychographic. You will develop that specialization as you engage the market.

I’ve seen this at every firm I’ve been to. You can have an incredibly large organization that has a CMO, a CFO, a COO, who is not very sophisticated, and you can have a smaller company in the exact same industry that has a very sophisticated leader in a given role. If your psychographic is only working with sophisticated leaders, whether they’re large companies or not, that gives you the strength to really specialize in your given position.

I think most people think, “Well, the only place to make money is in big companies with big, functional buyers.” I just haven’t found that to be the case. Some of the best clients for professional services firms are sophisticated users at smaller companies.

Jason Mlicki: Yeah, sort of that untapped middle market, that I think a lot of firms are starting to go after and see. Even large firms are saying, “Wait a minute, we can go downstream and we have have really healthy client relationships.”

Jeff McKay: The middle market is not monolithic, right.

Jason Mlicki: No. No, no, no.

Jeff McKay: That gets back to the point that you were making, and that’s that the solution has to be built for that particular buyer. You could develop an incredibly profitable solution for somebody that’s unsophisticated, that has all the same demographics but a different mindset, world view of the issue.

Jason Mlicki: I think that’s the third notion that we mapped out together, as solutions to this big problem, which is just that notion of better solution design. I think for a lot of firms, I think they see themselves as technical solution providers. I like to say their services are designed to sell capacity, not to solve problems. It’s like, “Hey, we know how to do this. Let’s go find people that want to buy this,” when they need to flip it around and say, “Well, I’ve got to tighten up the value proposition. I’ve got to get clear on, really, what that core problem is,” which comes from pattern recognition. Then, design the solution to solve it.

That solution can be, I think, more multidimensional. It doesn’t have a to be a service, to your point earlier. It can be a piece of software. It can be an outsourcing relationship. It can be advisory work. It can be training. It can be a variety of different thinks beyond just, “Hey, we know how to do this service. Let’s go find clients that need it.”

Jeff McKay: Yeah, absolutely.

Jason Mlicki: I think there’s a big opportunity there for a lot of firms, and this is just my randomness, but if I go across professional services firms’ websites all over the place, it is very hard to find firms that do a good job of problem definition in their service methodologies. Which, your point, whatever they call it in the nav bar, expertise, services, solutions, doesn’t matter. When you get to the page that articulates what they do, there’s almost never a problem statement. Why does this exist? Why would anybody need this? I just think that that’s a big opportunity for firms.

Jeff McKay: I think you couldn’t be more on. I see this with Prudent Pedal, in terms of our clients and how professional services firms want to address marketing. You probably see this as well. One of the services that Prudent Pedal offers is outsourced marketing. As a CMO in a professional services firm, or if I were a managing partner, I would never outsource marketing, because marketing, in my mind, is so strategic, so core to understanding markets, helping develop solutions, and taking those solutions to market. I would never want that core competency outside of my firm. Not all professional services firms see marketing that way. Some see it as corporate communications or not strategic, but the firms that we work with, are the ones that see marketing as strategic, but they don’t have the capacity yet to build out a marketing team. That’s a sliver of the market, and while it’s kind of inconsistent with the core of how I would see the market, it is consistent with a ideal client who sees marketing as strategic. In that service, it’s like, “This is an 18 month, two year, and then we’re going to bring this in-house, so you have this strategic capability in house.” I don’t think most professional services firms think like that.

Jason Mlicki: They’re not designing the solution to the problem at hand. The solution is just there. “WE do this.” I love to ask them, “Why? Why do you do that? Why do you provide this service?” They kind of scratch their head and look at me and go, “I don’t know. I’ve never thought about it.” “Why does the client buy in the first place?” “Well, they have to.” What do you mean they have to? They don’t have to do anything, short of, I guess, audit. I mean, I guess you have to do that by law, but other than that, technically a client can choose not to do audit, if they’re not a publicly traded company, I think. Maybe. I think it’s really interesting.

Jeff McKay: I think another interesting dimension about solutions, where professional services can fall in love with their solution and become that proverbial hammer looking for a nail. I think upstart SaaS companies who are this threat aren’t as inclined to be so tied to some historic service. A lot of these firms are venture capital-backed. They’re looking for a return on that investment, and they don’t hesitate to shift strategic directions and adapt the solution as they get feedback from the market. They are much faster and much more willing to go to where the market is going, or is, but other people haven’t seen. Your often used adage from Wayne Gretzky, I think it is, “Skate to where the puck is going to be.” They just get there so much faster than traditional professional services firms.

Jason Mlicki: It’s funny. As you said that, I think back. When i was in business school, I took a class in entrepreneurialism, and I remember one of the central tenets of the teacher was, you had to build a business plan around whatever, whatever you wanted it to be. You’re going to build a business as an entrepreneur. What would it be? Her only rule was, it cannot be a consulting firm. She’s like, “You cannot build a business plan for a consulting firm, because,” she’s like, “That is not a business.”

It’s really interesting because her point wasn’t necessarily, I’m not saying all of our professional services firm clients that you don’t have a business. What she’s saying is, if your business is to provide advice, you’re not creating something. You’re not necessarily fulfilling an unmet need. I think that’s the frame of reference that the entrepreneurial SaaS entity brings to the table, that most firms do not, which is that they came into business for the very purpose of solving an unmet need they see in the marketplace. At least in my experience, I haven’t found a lot of firms that started that same way.

We have found some that literally solve this need, and went, “Holy cow, no one’s doing this. We’re going to fill that need,” but more often than not, it’s an expert practitioner. Maybe it’s a licensed professional if it’s a regulated industry, or it’s just someone who’s, quite frankly, really smart and really has great objective advice to bring to bear, and they’re there to sell that objective advice, I guess, into the headwind of lack of a clearly defined unmet need or something.

To your point, just the founding nature of the company is different, and it changes the dynamics of the offering. I think that any firm can learn from that, can learn from the venture-backed startups and say, “What are the unmet needs of our clients, and how do we solve them in the most effective way possible?”

Jeff McKay: You know, the irony of it, Jason, is given that professional services firms are really just living, breathing, points of view, and intellectual capital in people’s heads, they actually could move so much more quickly. Where software firms, like, “Whoa, whoa, whoa, whoa. Hold it. We have all these clients on this platform. How will we transition them over?” They have development time, they have programming time, they have debugging time. They actually are at a disadvantage, and they’re still moving faster, to a large degree.

Jason Mlicki: I actually think that that’s really spot-on. I think it’s part of the root of the problem for a lot of firms, is that because they can spin off a new service at will, they can create any new solution at any moment to meet any need that’s in front of them, they don’t step back and think as deeply about the need as they probably should. When the burden is higher … If I’m a car company, and I’m going to spend half a billion dollars on a production line, you better believe I’m going to think pretty hard about the design of that car and how it meets the needs of the marketplace.

But if I can just throw some words on a page and go sell it tomorrow, I don’t have to think as hard. I think that actually hurts them, and I think, maybe to your point, maybe it forces them into inaction a little bit, in that, “We don’t have to think that deeply about this issue, because when the need presents itself, we’ll customize a solution on the fly.” I don’t think that’s healthy. I’m not saying you should productize your firm, necessarily, but I just don’t think it’s a healthy way to approach the marketplace.

Jeff McKay: Yeah. I’ll just add this and then we can move on to the next point, is that’s why the positioning and self-definition is so important. That establishes the walls between which you can play. If you say, “We’re solving these types of problems for these types of clients,” then the pattern recognition, the core capability development, and the specialization has a chance to develop within those parameters, whereas if it’s a more functional size, then you get into, “Well, we can solve any problem for any client,” and instead of honing in, you’re expanding out.

I understand why professional services firms do that. They’re filled with great people that love clients, and they love to solve problems. The bigger the problem, the more rewarding it is to attack. I get that, but that is a strategic choice you have to make. If you say, “This is going to be our culture, and this is how we’re going to meet clients’ needs, big complex problems,” great. That’s fine. Then that becomes your positioning. That’s your specialization. That’s your pattern recognition, all those things that we talked about earlier. Where you run into a problem is when you position one way, but you act and operate another.

Jason Mlicki: Yeah, I agree fully. I think the transition to that, it’s a logical segue … Is that the fourth or fifth solution? I’ve lost track, but is to just raise your thought leadership game. I think that comes right out of that, which is that if firms are just throwing content at the marketplace, I guess maybe the way I want to articulate this is that I think you said it, if a professional services firm is nothing more than a collection of people’s points of view, and a software company is throwing points of view at the marketplace, then man, you’ve got to have a better point of view. Maybe it’s just that simplistic.

Just as a firm, is if what you sell is raw advice, at the end of the day, or advice tethered with delivery, you’d better have a deeper and more valid and more powerful point of view than that software company that’s just throwing content at the marketplace. Does that make sense? I think firms have to seriously look at raising their thought leadership game.

Jeff McKay: One adjective you didn’t use, I think is important and I’ll throw it on the pile, is relevant.

Jason Mlicki: Yeah.

Jeff McKay: It needs to be relevant to the market that you’re serving, to the buyer who is going to buy it or, shall I say, the buyers who are going to buy it, because oftentimes these are complex sales. I think if you were to look at thought leadership in the most of professional services firms, they too-narrowly define what thought leadership is. You work with Bob Buday, and he is one of the best in this area. His holistic view at thought leadership has just resonated with me for decades. When I was a CMO, it was his thinking that really shaped my own, in terms of what thought leadership is.

Most firms think of it as a white paper to go out and generate demand, build awareness of your brand. I really do not differentiate between really kind of hardcore client understanding research that traditionally would fall into a marketing or a branding study, versus how you position some kind of tax loophole in new tax legislation. To me, all of this knowledge about the market should feed into an intellectual capital solution or approach, so that your intellectual capital agenda is built on business intelligence about clients, and needs, and the way the industry is going. It’s feeding solution development. It’s enhancing the service delivery.

Is this better as a service? An outsourced service? As a software? Is there friction in this system that we’re getting feedback from the market about, or where we see competitors exploiting how we’re actually delivering it? Is there something in our relationships that inhibit our ability to move 180 degrees this way versus that way? All of that, to me, is part of an intellectual capital agenda, not just “What’s the latest trend in 401(k) funding?” How may firms have held that out as some kind of big thinking that the amount of money that employees are putting into 401(k)s has dropped 2%? That, to me, is not thought leadership. That’s just simple trend data point.

Jason Mlicki: I think that at the end of the day, firms need, to your point, they have to get a much more robust intellectual capital agenda that says, “This is the research we’re going to develop, because we want to answer these tightly-bound questions.”

Jeff McKay: For these people.

Jason Mlicki: “We don’t know the answers these these questions for these type of clients. We want to know what best practices are, and once we know what best practices are, we think we can find new ground on how to solve big, complex problems that clients aren’t aware of, and that will create a new solution for us, and will create, maybe, a whole new market of opportunity for us,” which I think also roots back to the very beginning of the conversation, how do we define our business and where we position. I do think that’s a big opportunity for firms.

It’s very difficult, at least in my experience, for software companies, because of their dynamics, to be as relevant to that individual client as a professional services firm, and because the software companies have venture capitalists behind them, and their pressure is to make the product relevant to as many people as possible, whereas the pressure on the firm is to be as relevant to a much more specific type of client as possible. I just think there’s tremendous opportunity for firms to raise their thought leadership game by being more relevant, than kind of this just massive content engine is capable of being.

Which, I guess, for me brings us to the next thought, which is just to get more digital. I think that ultimately, the whole content explosion came out, really, of everywhere but certainly came out of a lot of SaaS companies over the last eight or nine years, is Google driven, right? Google has everybody competing for mind share on some level, but I think the SaaS companies are digital at their core, and for professional services firms, it’s sort of new.

At least from my experience, I see the software companies winning on search with inferior content, so a lot of the professional services firms have better thought leadership, they have better thinking, but they’re not in the search game, and it’s because they’re just not operating in a digital native mindset. It’s a sideshow for them. It still is. There’s very few firms where it’s truly at the heart of the model. You know, these SaaS companies, their whole business is built in the cloud.

Jeff McKay: Yes, yes.

Jason Mlicki: I think in this sense, that the firms can learn a lot from the SaaS companies, in terms of how they approach digital marketing. It’s a huge opportunity for the firms that really embrace it, and quite frankly, also, there may even be a bit of a spending issue there, right? They’re getting outspent. There’s no doubt about that. A venture-backed SaaS company can dramatically outspend a group of partners. They just can, so that’s a challenge.

Jeff McKay: You make a very valid point. I would go beyond that in terms of digitization and being a digital native goes well beyond that first page SEO landing. One of the things that the SaaS companies do not have that professional services do have are personal, face-to-face, touching hands with clients. The digital experience of SaaS is very different than the very personal touch of professional services. I don’t think you’re saying, to our listeners, “Replace your traditional personal touch with a digital one.” What you’re saying is, “You have to supplement that and you have to get in the game,” and that’s part of what we’re talking here about raising your game.

Keep up the personal stuff, but also bring the digitization, because in my experience, every brand study I’ve ever done, and I’ve written a lot about this on the blog, there’s three drivers of brand preference. There’s expertise, there’s results, and there’s relationship. Most professional services firms think of relationship as, “Oh, I’m that trusted advisor,” and it’s much broader than that. It’s about being easy to do business with.

When we talk about digitization from a non-search engine management perspective, digitization is about making your firm easy to do business with, but I don’t think most organizations think in those terms. They either think in pure marketing or web, or they think about personal technology, but what they need to be thinking about and taking their game higher is, “Where can digitization either add value, or eliminate frustration and pain in interacting with firms?”

Jason Mlicki: That’s a really valid point. Again, you see it right away in most firms’ websites in that, quite frankly, a lot of times they make it really hard to do business with them. It’s really hard to figure out … I’ve read this incredible piece of thought leadership, and it’s incredibly difficult for me to figure out actually who I can talk to about it. They make that almost impossible. Or, it’s very hard for me to vet. It’s very hard for me to see what service has been designed around this idea. You’ve got this big idea, but what solution would I buy? I don’t even know what solution to buy to solve the problem that you’ve so eloquently ripped apart in this awesome article, right?

Jeff McKay: Right. What’s the next step?

Jason Mlicki: What do I do next? Whereas the SaaS companies, they collapse it down to a couple things. “This is what you buy. You buy this, this, or this, and it’s all on one page, and there’s three pricing models.” Okay. Not saying that’s ever what a professional services firm should do. That would be a horrible decision, but your point is really valid, which is that, make it easy to do business with them, and the digital side of that is big there.

We’re running out of time here, so let’s get to the last recommendation we have, the sixth and final one, which is really all about culture. Talk to me about culture. What has to happen, culturally, for firms to deal with this threat that’s coming at them?

Jeff McKay: I’ve seen this time and time again in many of my clients. We probably save this to last, so that we get everybody listening all excited and ready to go on taking their IC to the next level. This is probably the hardest thing to do for firms when they’re confronted with this issue, and it is simply this. Your leadership team needs to do a gut check, and do a fearless moral inventory, I guess, of do you really have the capacity and the wherewithal to be a thought leader? Will your culture support that?

If it won’t, what’s it going to take to change the culture? Cultures seldom change, but what’s it going to take to change it? If it can support it, what is it going to take to accelerate it? Don’t be a culture who has no capacity to ever become a thought leader, because you didn’t hire that way, you don’t reward that way, you don’t value thought leadership in terms of hiring and firing and promoting around it. Don’t pretend that you’re going to be. Just own that. Just own that and say, “Our strategy is not to be a thought leader, it is to be a fast follower,” or, “It is to be a …”, Drop down a couple of levels in terms of the services and solutions that you provide. “We’re not going to be cutting edge. We’re going to be implementers,” or, “We’re going to be outsourcers,” or “We’re going to be something else,” but be honest with yourselves, because there’s nothing worse than misaligned expectations, and I’ve seen this just destroy practices and sometimes firms where there’s just some misalignment between culture and what the people absorbed in that culture and being asked to do.

Jason Mlicki: Is the misalignment between the leaders? The leaders want something of the culture that the culture’s not able to provide?

Jeff McKay: And that they’re not leading and building the firm to deliver. How many times has a partner gone out to a conference or read a white paper, seen a Wall Street Journal or a Fortune article about some progressive success that a firm is having and saying, “We’re going to do that,” when the firm has no capacity and no moral support in terms of the culture to execute against it? It’s not right or wrong, it just is.

Jason Mlicki: Would you argue that everything we discussed today, the five or six solutions that a firm could take to deal with the threat of the content, intellectual capital explosion, all of them hinge on this, on some level: Does your culture enable you to frame your business differently? Does it enable you to think more deeply about positioning? Does it enable you to design services around problems? Does it enable you to raise your thought leadership and intellectual capital agenda? Is culture just the glue for all of that, that you have to take a deep, hard look at culture to decide what, if any of those things, you can do to get better.

Jeff McKay: Yes.

Jason Mlicki: Well, I can’t think of a better place to end than right there. One thing I do want to say before we leave, though, is I think I really want to hear that conversation around why culture doesn’t change. I guess I’m going to put you on the spot and say I think that’s a podcast that should be coming down the pipe for us. Thanks, Jeff, for the chat.

Jeff McKay: All right, Jason. I’ll see you, buddy.