There’s a VC-backed, tentacled monster attacking the heart of your practice. It’s not AI, automation or blockchain. It’s much bigger and more dangerous.
Jason Mlicki: Okay, Jeff, so I actually have some good news today that I want to share. I actually read the article that you wrote that’s inspiring our podcast, so I actually did my homework.
Jeff McKay: Wow. Well done.
Jason Mlicki: Are you impressed?
Jeff McKay: First time for everything.
Jason Mlicki: Actually, it’s a very thought provoking article and it had been on my radar since you published it eight months ago or whatever, but actually I hadn’t read the prose end to end prior, but it had definitely shaped my thinking cause when I saw the headline when you wrote it, I went, “Oh man. That’s a really, really thoughtful comment.” That’s what we’re going to talk about, and the article, of course, is How Content Marketing is Destroying Professional Services Firms. At least, I think that’s the title of the article, right?
Jeff McKay: That’s the premise of the article. The article is “The Marketing Trend, Devouring Your Firm’s Core Business.”
Jason Mlicki: Okay. So, I think where I’d like to start is maybe just outline the hypothesis behind what you wrote, cause it is a very compelling piece of intellectual capital, so let’s dive into the hypothesis first and then talk about in more detail what it means.
Jeff McKay: Okay, I’ve been in professional services for 20 plus years. Professional services, I mean they started thought leadership marketing and this recent trend of content marketing, this fad, I’ll call it. The Content Marketing Institute when I first saw that come out, I laughed because professional services firms had been doing this for decades, one might even say for over a century. But, the premise of the article is that the fact that so many firms are giving away content, it is simply devouring the core business of most professional services firms. That’s really straightforward, but who exactly is using it and who is devouring that, I think is probably where we need to spend some time today.
Jason Mlicki: Well, before we get there though, I guess I wanna talk about that central notion of, as you said, I mean I always liked the point at the advent of thought leadership, the moment it became a thing being when McKinsey started publishing McKinsey Quarterly. That may or may not be true, but that would still then gives it at least a 60 year shelf life. And if professional services firms have been doing this forever, why is it more of an existential threat now than it would have been 20, 30, 40 years ago. Is it just the pervasiveness? That it’s now left the professional services’ sector and gone elsewhere? Or is it that the fundamental dynamics of our modern economy? Or is it both?
Jeff McKay: I think it’s a little of both, and I think it’s the convergence of several trends. Maybe I should have said, “The trends devouring your firm’s core business.”
Jason Mlicki: Yeah.
Jeff McKay: The first one we’ve touched on, it’s content, and it’s the ubiquity of content. And it’s not just content, I hate the word content. It’s intellectual capital, and firms are, companies are giving away what firms used to hold as proprietary. So, I think that’s one, that’s the content market.
The second, is the fact that traditional buyers of professional services are looking for solutions to problems and I think professional services firms have lost sight of the fact that there’s any number of ways to solve a problem, you know? I’ve been pontificating for years that old marketing adage that people don’t buy drill bits, they buy holes. And I think this convergence right now with the contents marketing phenomenon reflects this. And I saw this when I was at Hewitt and in Genworth Financial as well.
At Hewitt, I saw it in the outsourcing business, and buyers that were buying traditional HR and human capital services started wanting to replace those services with software. And when they bought software, whether that’s benefits outsourcing or payroll outsourcing, whatever it is, their expectation, and this was amazing revelation to me at the time, their expectation is, I want the best practices that you’re exposed to on the consulting side baked into the software that I’m buying, so that I get a two for one and all I have to do is run your best practice’s software, and that’s going to help me perform as a company.
And I think that phenomenon has accelerated exponentially with the advent of the Cloud and this low-cost, low barrier-to-entry software, where a functional buyer can now purchase software off the shelf, plug it in, have it work, and not have to have these complex, multifunctional, IT-driven purchase decisions in order to get a problem solved. And so many of the problems today are some combination of great business thinking and process, software, and data. This phenomenon is converging in the Cloud with software service or a manage service, or any number of approaches.
Jason Mlicki: Yeah, it doesn’t seem to me that it’s the content itself that’s the threat. It’s not the idea that the SaaS company is putting out a best practices guide on whatever the topic might be, payroll management and whatever, it doesn’t really matter. It’s the idea that they’ve baked the advice that the consultant may have rendered into the product as its core capability.
I like to tell stories and the story I’ll tell is this, I think this may echo buyers’ mind-shift changes, so I like to say we’ve been using SaaS since before SaaS was a thing. So back in 2002, I was looking for a time-tracking software, something to track time for our people in house. And at the time, our mindset on approaching it was, we have a process that we use and we need to find a piece of software that is flexible enough to allow us to follow our process.
If I’m looking for that same software today, I’m looking at it under the lens of, I need to find the software that has the best practices on how I should be managing my projects and will modify our process to the software. It’s a big stretch, I don’t know that this is really how buyers buy, but my hunch is that that’s kind of what’s happened over the last 15 years, is that the mindset has just shifted on the clients’ side. So I totally agree with everything you said.
So I guess my question then is, if there’s all this useful content out there, right? And the software… Well actually, I have two questions. One question was you know you talked about this moment in time when you first saw it happening at Hewitt. Were clients actually directly saying that, bluntly saying, “We’re replacing this outsourced service with this piece of software.” Did that actually happen? Did you see that direct buying behavior occur?
Jeff McKay: Yes.
Jason Mlicki: Really?
Jeff McKay: Yes, and I think it came from both directions. The first, I should say is from the buyer reflecting this back to the company around its problems and how they want them solved, and I already touched on that. The second, and I think this really was born out of the second generation Hewitt, after they had a real rough time assuming Exult, and a new management team was brought in, that the management team’s philosophy was, how can we annuitize the consulting services?
Jason Mlicki: Okay.
Jeff McKay: By converging software and the consulting. So, we started looking at acquisitions and in house consulting services we already had that we could combine with software to achieve that end. And there were multiple things that were just niche types of solutions that were easy to plug and play and move on. So, it was inside and out that moved that firm in that direction.
Jason Mlicki: I have a hypothesis, and tell me if you think I’m crazy. I think that what’s really happening is that the point in time in which consulting services are purchased has moved. So years ago, you’d hire a consultant to give you advice on what type of technology you should run. Now, you buy a piece of software and then you buy consulting services after the software purchase to teach you how to use it. I mean, all this software looks brilliant on the surface, I mean, it all looks like it’s got the best practices baked in, but it’s almost impossible to just turn it on and it’ll do what it’s saying it can do, until you actually customize it to your own unique use case, and that usually requires help, right? I don’t know, do you think I’m crazy? But did the consulting relationship just shift from the consulting firm to the software company and move to later in the buying process or later in the journey?
Jeff McKay: I think that’s a very astute observation, and I think you’re spot on. I’ll take it one step further, because I think this is the phenomenon and the opportunity that exists right now. I have several large SaaS clients, primarily in risk management. How they approach risk management is from different purviews within the risk management market. One is environmental health and safety, the other one is primarily claims administration, but also broad based risk management and safety as well, but more general, not as specific as environmental health and safety.
And within a software firm there are these incredible intellectual thought leaders that have, out of just intellectual curiosity or product development, delved deeply into the data that the SaaS systems are producing. And they are doing very advanced analytics across these things, one for product development, but the most progressive firms are seeing an opportunity to really bring industry leading points of view around the outcome that these softwares are driving. And they’re collaborating with their clients in really unique ways, and even blowing some of these great clients using the software out of the water with how they’re repurposing the data coming out of these systems that are having impacts in other areas of the business, not just, “What enhancement could we add to the next version of this software?”
And the best firms are exploiting that from a value-add perspective; either it makes the software relationship more sticky or, they’re setting up new stand-alone lines of business that are consulting around those areas.
Jason Mlicki: I just thought of this as you were talking, is that part of the risk to the professional services firm, which is that quite frankly as a software company, if I can get you using my software and doing it successfully, I’ve got a longterm annuity with this. Hence, maybe I’ll give the consulting services away, or I’ll certainly give them away at a lower fee than maybe the consulting firm might have charged. Is that a risk as well?
Jeff McKay: I think very much so. These SaaS companies are driven by subscriptions, and it’s very expensive to acquire clients. So, once they’ve acquired a client, they want to reduce the churn. And that’s why I say, anything they can do to make that relationship sticky, they want to do it. I think one of the best at this is a SaaS provider in the space we play in, in marketing and that’s HubSpot. They kind of created the whole inbound methodology, and if you spend any time on their site as a marketer, they have these incredible resources to help you optimize an inbound marketing approach.
And I think, the lower-end of the value, I mean don’t get me wrong here Jason, that’s lower-end of the value-chain in this space, because you can give somebody a template, or a blog post, or a guide, but that doesn’t mean that it gets applied because so many of these solutions that you and I work on with these companies, it’s not a matter of marketing knowledge, it’s an ability to facilitate change, right? To navigate the political waters that exist in the firm and build coalitions and move the firm in a particular strategic direction, and no piece of content does that, right? That’s human-to-human interaction, and that’s the value that higher-end firms provide.
Jason Mlicki: Well I think the interesting story, well I’ll just tell a brief story at least from my experiences with them over the last six or seven years. They have a very aggressive channel program, meaning they aggressively went after acquiring agencies to use their software, then of course recommend it and refer it and help their clients use their software. And of course, as part of that, that’s the trainer mentality, right? So training the agency on how to use their software.
Yeah, I’ve engaged with them at two or three points in time over the last six or seven years, and I’ve also worked with the leading advisers, so management consulting type advisors to this industry. So I know those folks fairly well as well, who have been keynote speakers at HubSpot’s signature event. And the thing I noticed over that period is that the advice that is generally provided for a fee by the expert consultants in this industry has slowly found its way into HubSpot’s client success program. So if you engage with HubSpot’s client success program now, a lotta what the salesperson or account manager is guiding you through is a lotta== the thinking that’s been put out by the leading consultants in the industry for a very long time.
Now, I would argue they’re not doing it as well as the consultants who crafted the thinking int the first place, cause how could they, right? But it doesn’t really matter, on some level they’re end-arounding that, right? They’re taking all that intellectual capital that was developed by those really, really talented industry experts and then baking it in, not only to their software, but baking it into their client success model. And it’s pretty fascinating to have, again as someone whose not been engaged in the HubSpot community straight on for seven straight years, or whatever or 10 straight years as some agencies have. As someone who’s come in and out of that community at various points in time and watching the maturity of their thinking on the community, it’s pretty fascinating.
You know, a question I have for you, and you may not know the answer, cause I know I don’t know the answer, is we know that this notion of content driven marketing is pervasive in marketing software, and we also both know that the landscape of marketing software has exploded dramatically over the last seven or eight years to an impalpable noise that will probably… a whole bunch of companies will get whacked off in a recession eventually. And we also know that fin-tech, ops-tech, all of these other categories of tech, have also had equally large scale explosions around all this new Cloud technology. I’m wondering, are they following the same playbook? The playbook of the mar-tech is certainly the content marketing model, are the fin-tech companies, or your risk-tech clients, are they all following that same content playbook, or are they using a different strategy?
Jeff McKay: From my perspective…
Jason Mlicki: And I don’t have the answer.
Jeff McKay: Yeah, they’re all using the same playbook, and I believe it’s built out of necessity, form follows function. Most of these SaaS companies have a low barrier to entry in terms of setting up software in the Cloud, and there’s a race for market share and they need to control their burn rate. And when 60-70% of the buying decision is made online before a sales rep even gets a call, it lends itself to content marketing model to keep that cost-per-lead as low as possible. And it’s just done out of necessity. You need volume because of the churn, because it’s subscription, and you can’t have a high price salesperson spending days or months closing the deal sizes that they have here. They need to be able to churn with very little human interaction and that’s why the content marketing is so important.
Jason Mlicki: Yeah, I asked the question cause, again, I don’t feel like I know the answer. I haven’t studied fintech that well or the other categories, but my sense is that the dynamics that we’re describing, I think at least for both of us anyway in terms of mental frame of reference, start within, at least for me I shouldn’t speak for you, in the marketing genre. But it would seem that any advisory practice has some exposure here. If you’re providing financial services advice, if you’re providing risk management advice, if you’re providing organizational design advice, any one of these things that could be exploited by software has some exposure to this new competitive threat.
Jeff McKay: Absolutely, and in the article that I wrote I outline some of the ubiquity of SaaS solutions by function and you can see that in the article. But, I saw this at Genworth Financial less than a decade ago, financial services has really commoditized. You see a huge movement out of traditionally managed funds into indexed funds, cause people have just finally said, “Hey, it’s so rare to beat the market, just give me the market returns.” Right?
Jason Mlicki: Yep.
Jeff McKay: You don’t need a financial advisor for that. That’s an algorithm, that’s software and it’s low cost. And Vanguard, I just saw in the Wall Street Journal the other day, went from just around a trillion dollars of assets over the last couple years to over five trillion in assets. And you’re just seeing roll-up, after roll-up, after roll-up of brokered dealers and financial advisory services in that space because it’s commoditized and it can be handled by software. And a firm dimensional with… two of their principals just won a Nobel Prize for the algorithm they built into their investment model.
We already mentioned HR, the accounting’s coming, I have an accounting client who’s built their entire practice around Cloud software and they target nothing but small business. And you would think small businesses want a lotta handholding around their accounting, right? “My accountant, I want to talk to my accountant.” They just want to keep costs low and easy to do business with and they don’t want to get in trouble, right, with the IRS or cash flow? And they’re on with it. So, I think every industry with some kind of advisory arm is seeing this phenomenon.
Jason Mlicki: I think you’re absolutely right and I think it feels like a pretty good place to stop. I think it’s almost like this podcast stops with the classic Mark Andreessen refrain which is, “Software is eating the world,” and you’re either in it or not, I guess. I would also say real quick, the article that was the impetus for this discussion is a really, really thought provoking piece and I think in terms of explaining the dynamics and how they’re coming together to curate this risk or opportunity depending on how you look at it. I think every firm that has a long-view needs to take a good read on that article and have serious leadership discussions about what this means at a practice.
So anyway, great discussion, thanks Jeff.
Jeff McKay: Thank you, Jason.
Jason Mlicki: Talk next time.
Jeff McKay: Alright buddy, have a good one.