Many professional services firms have one or more of the following growth strategies:
Product profit margins are closer to 70%, 80% or even 90%, versus an industry standard of 40% for customized services. Subscription-based products have fantastic revenue visibility. This is why “as-a-service” companies or those with “off-the-shelf” products have higher valuations than traditional professional services firms.
A “productization” strategy can be right solution for your company's growth. But, none of the strategies are easy.
These strategies require a different set of skills, business processes and investments. So, if you want to do these well, where should you start?
What “product” means in the context of professional services firms.
Let’s take a step back and first clearly define what we are talking about when we talk about “products” versus “services.” "Product" refers to the classic term for a scalable, often tech-enabled, tool or program that can be packaged and sold. Just like a tube of toothpaste that you might buy at a store, a knowledge-based product has a name, a pre-defined set of services and benefits, a pre-defined process for delivering those benefits, and a set price.
Here’s an example from a recent client of ours that’ll show you what I mean.
A consulting firm built a database and data analysis methodology they use as part of their consulting engagements. But, if that data analysis is sold as part of highly customized consulting engagements only, the firm can only grow revenue as fast as it can add and train staff (especially if it wants to maintain the quality of service it is known for in the industry).
The firm realized it could grow its revenue and improve its profit margin by offering that database and data analysis as a “product” for companies to subscribe to and access through a self-service portal.
The firm converted a component of its customized service offering (the database and data analysis methodology) into a product that could be sold in addition to its less scalable, customized service. The firm developed the product using an approach that helped it grow revenue by attracting new customer segments and grow profit margins, while simultaneously not putting its existing consulting services business at risk. That’s the sweet spot.
Approaches to “productizing”
In the scenario above the firm's product developed from something it had already established as part of its service offerings. Finding the right product often comes through a process of discovery and scoping to uncover customer needs, see the gaps in the market and fill them with something your firm already does well. There are two popular approaches:
1) Automate existing services
In Putting Products into Services, Mohanbir Sawhney, discusses how some professional services firms develop marketable products by looking for the “…untapped potential to automate the services they are already providing successfully.”
Sawhney provides an example of an analytics company that reviewed medical claims for fraud, waste, and abuse. Years ago, this was done manually through the physical review of claims for duplicate services, miscoding, or other indicators of inappropriate billing. Over time, the company observed patterns in questionable claims. These patterns were robust enough that the company built an algorithm to detect and flag potential fraud, waste, and abuse for further review.
“ Tasks that meet two criteria – they’re performed frequently and they require little sophistication – are the low-hanging fruit for productization.”
Worth noting is that that algorithm did not eliminate the human-expertise needed to examine claims thoroughly. Instead, it expedited it thereby allowing the company to significantly increase the number of claims reviewed, reduce the overall cost of the reviewing process, and save even more money for its clients.
2) Start with the customer need
Another approach to product development starts with finding “…poorly performed ‘jobs’ in customers’ lives-and then design[ing] products, experiences, and processes around those jobs” as discussed by Clayton Christiansen in Jobs to be Done.
We refer to this as finding your customers’ most urgent and expensive problem.
During the development stage, we employ a proprietary, proven approach for helping companies identify, develop, and introduce products. We find products that solve urgent and expensive customer problems while also leveraging our clients' existing business assets and new advancements in technology and analytics.
Watch this space
This is the first article in a series of articles aimed at helping professional service firms better understand what it takes to develop and manage scalable products. In the next article I’ll show you how to make sure your new products don’t cannibalize your services. As I mentioned briefly above in the consulting firm example, the ideal, yet tricky, situation is finding a product that expands your reach without eating into your current service offerings. Stay tuned for more!
In the meantime, don’t hesitate to reach out if you want to learn more.
Sawhney, M. S. (2016). Putting products into services. Harvard Business Review, 94(9) 82. (read it here)
Christensen, C. M., Hall, T., Dillon, K., & Duncan, D. S. (2016). Know your customers'" jobs to be done." Harvard Business Review, 94(9), 14. (read here)
Such a small, powerful, and, sometimes, frightening word. It's a word most of us hate to hear and that we don't say enough. “No," however, can be our sanity and productivity savior in our personal and professional lives when used well.
In our businesses, “No” can free up resources to pursue longer-term growth. Requests for product customization (a.k.a. one-off-work), for example, is a significant resource drain for product development teams. In fact, reducing custom development requests is the largest challenge for companies that are migrating from customized solutions to more standardized products.
Customization is often promised by well-meaning sales or account management teams that don’t fully understand a more scalable product strategy. However, if your development team is spending all of its time on custom requests, it will never have the time to make your scalable products successful.
“Simplicity boils down to two steps:
Identify the essential. Eliminate the rest.”
– Leo Babauta, Zen Habits
That leaves a lot of CEOs asking: “What can I do to reduce the amount of customized work my product development team is doing?”
I’d argue that the smartest strategy would be to correctly identify customer needs before developing new products (read our COO’s blog about how to do this), and then deliver on what gives 80% of your customers, 80% of what they need. But even when we’ve identified the product features that meet the largest customer need, we still might find ourselves with customization requests, again, typically coming from well-meaning staff who do not embrace the new scalable product strategy.
One of our clients has solved the problem of customized development requests, and they did so in less than nine months. Here’s their story.
Case Study: Reducing Customization
After decades of success selling services that were often heavily customized, our client decided they needed to build more scalable, technology-based products to effectively compete in a changing market. They did not have new investment dollars to fund building more scalable products, so they diverted their existing product development teams away from customized work toward building the more scalable products.
The shift started, first, with the CEO and the Head of Sales, announcing the strategy change at the annual sales kick-off. Knowing that they could not flip a switch and completely stop custom work for clients, they also created a way for the sales and account management team to request an exception on behalf of a client. This came in the form of a “help desk ticket” that was first reviewed by the product team and ultimately decided upon by the Head of Sales and the CEO, if necessary.
When completing this customized work request ticket, the submitter had to outline a super simple business case:
Once our client started implementing this process, many requests that may have been fulfilled before were automatically dismissed because of a lack of a positive ROI. It’s a lot easier to assess the value of a customization when it is spelled out in front of you in black and white.
The big help, especially for sales team engagement, was that it wasn’t the product development team saying, "no,” rather it was the leadership team, including the Head of Sales, saying “no.”
Additionally, the executive team and sales leadership could turn to the salesperson and say, “go look for something more profitable.” Even if the immediate request was denied, the door was open for a viable solution.
Our client started with a goal of no more than 25% of total product development teams’ effort being spent on client custom projects. In January of this year, they were at about 40%. In the last three months, the average was about 15-20%. That is a 50% decline!
Saying "no" to clients isn't always easy, which is why putting a process together to build the case for "no" is essential. We like our client's strategy to reduce customization because it allows for thoughtful consideration of the impact on the company's scalability and revenue goals.
What other strategies have you tried to reduce custom development requests? And how successful would you say they were? What do you think of this approach?
Many of the organizations we work with are founded by visionary leaders—people who can identify important customer problems and have the creative spark to deliver a successful solution to those problems.
Visionaries can communicate their great ideas and get people excited about them. While demonstrating exceptional resilience and adaptability as market needs change, new ideas seem to magically strike! It is exciting to work for a visionary as they can bring out the best in those around them by encouraging creativity and abstract thinking. And they have a knack for inspiring others to action.
But, at some point, these unique and special abilities can start holding companies back and, even, push loyal employees away. An excellent example of a visionary leader, or perhaps a caricature, is Elon Musk. As one of his former employees said about Tesla, "it was incredible," and "I’d never work there again."[i]
I am not going to speculate as to what it’s like to work for Mr. Musk. I can share, however, what I have heard from clients are the downsides from those who work for visionaries. Scope creep and turn-on-a-dime redirection, as the leader hops from idea to idea, is a common theme. They also talk about how visionaries get bored with the details and ignore the steps it takes to bring their ideas to fruition. Some around them start to feel defeated and exhausted.
Working with a visionary doesn't have to be a Jekyll and Hyde experience. If you’re someone who craves routine and order, and the constant barrage of ideas gives you a headache, you can still have a fantastic experience with a few simple tricks.
How to Work with a Visionary
1. Share their passion, enthusiasm, and drive
First and foremost, you have to want to be on this wild ride. The energy pushed out by your visionary leader will either drain you or invigorate you. For it to do the latter, you have to believe in the vision and be committed to delivering on it by providing the structure that is missing, which brings me to tips two and three.
2. Get clear on the criteria for moving forward
As discussed earlier, visionaries are the idea people, or more pointedly, they are often the LOTS of ideas people. While each one of their ideas could be a breakthrough innovation, rapidly moving from one idea to the next is not always practical or profitable. It’s important to have clear criteria on when to move forward with an idea and when to ignore it. To do so, you need to define how to prioritize the work, and then stick to it!
At Vecteris, we use a simple prioritization tool with clients that measures new product ideas in four areas:
With a simple calculation, we prioritize the ideas and have buy-in on what is most important. And we don't waver from the results. We trust the process to keep us focused on what's best for our business, so we don't get side-tracked, bogged down, or de-energized.
3. Give actionable plans with specific steps, job responsibilities, and deliverables
People with big vision often see the goal, but the steps to get there are glazed over. They can get bored with or lost in the process. The end goal won't matter, though, if no one takes the project to completion.
Our leadership team has built an action planning process upon which we can all rely. [ii] During our weekly executive team meeting we:
We do this quickly, using the standard green, yellow, red designation. Any problems get moved to the “issue solving” section of our agenda so we can brainstorm and decide upon a solution.
Throughout the week, our CEO and any other team members add new ideas, suggestions, or problems to our weekly executive team meeting agenda. At that meeting, we take the time to discuss, prioritize, and plan as needed.
This approach has brought about a couple of great results: first, our broader team doesn't get distracted by un-vetted ideas or frustrated by continually changing plans. Second, the executive team has the accountability needed to make sure we get the most important projects done without distraction.
Last but, definitely, not least is not so much a trick or strategy as it's a reminder:
4. Be comfortable being honest
In any healthy relationship, be it personal or professional, honesty is vital. Your organization should have a culture of psychological safety so that you feel comfortable being honest, saying no, and questioning an idea without confrontation. According to Amy Edmondson, Harvard Business School researcher and award-winning author, psychological safety “is the belief that the environment is safe for interpersonal risk-taking.”[iii]
We’ve worked hard as an executive team to build this safety with each other and with our team. We know each other, and each of our team members well. Some relationships started before Vecteris, but many did not. But we've purposefully built trust that is rooted in understanding.
Without this strength of relationship and psychological safety, we'd become, or we'd surround ourselves with, ‘yes, men' and ‘yes, women' who wouldn't be capable of helping us reach our goals.
Working with a visionary can either be the most rewarding or most damaging experience (or both, as that Tesla employee found). If you are working for one now, try these tips to make the most of the experience.
If you would like a copy of our prioritization tool and/or the executive meeting agenda we to keep us on track just send me an email at email@example.com. Happy to share!
When my partners and I launched Vecteris a year ago, our primary purpose was to create a place where we love to work. We wanted to create an environment that inspires innovation, fosters collaboration, and welcomes diverse working styles and talents.
To build the culture we want, we’ve spent a lot of time this first year defining our core values and making a commitment to live them.
Five recurring themes emerged: fearless, generous, creative, committed and inclusive. The most important value for us to embrace this first year has been fearless.
Why Fearless?Our mission is to help organizations successfully innovate. And, to successfully innovate, the leaders that we work with have to overcome their own fears of failure and change.
Also, each of the co-founders overcame fear to start Vecteris. Personally, I left a rewarding job and a secure paycheck that provided stability for my family. I had to learn new skills associated with the day-to-day operations of running a consulting business, stretching me out of my comfort zone. I started tapping my network to land our first few clients, which could have put those relationships, and my professional reputation, at risk if we failed. The list of fears I have faced this past year is very, very long.
The problem is that fear is a natural, fundamental human emotion. It is easy to say "face your fears." The hard part is learning the behaviors that help us face, and move through, our fears.
Yet, here we are, celebrating a year of facing fears:
Through my client work, my research and my personal experience, I’ve learned that the behaviors that help us successfully face our fears are different than what one might typically think.
When you picture a leader who is “fearless” what do you envision? Perhaps someone decisive, with a clear plan, hard-charging, competitive, risk-taking?
What I’ve observed, and personally experienced, is that we are better able to overcome our natural fears about the unknown when we do these four things:
Listen, Especially to Our IntuitionThe most fearless clients I’ve worked with are fantastic listeners. Not only do they listen to their customers and employees, they listen to their inner voice. Often times referred to as “gut instinct” or “founder’s intuition”, these leaders have an inner voice encouraging them to take the unknown path and these leaders are following that inner voice, not ignoring it.
I’ve had a regular yoga practice for ten years and a regular meditation practice for two years. Both have helped me tap into my inner voice by quieting the chatter of my mind. Hearing, and following, my inner voice has helped me clarify my purpose, see opportunity, and ease my fears about venturing into the unknown. I firmly believe that without my practice of yoga and meditation, I never would have launched Vecteris because my fears would have been louder than the inner voice telling me to follow this path.
And the research supports this. Tibetan monks, who have mastered meditation, were found by neuroscientists to have abnormally high levels of gamma brainwaves, which are associated with our ability to synthesize disparate bits of data, solve problems, heighten perception, and boost consciousness.[i]The study found that meditation can actually rewire the brain to make better connections and generate ideas.
Other research confirms that some kind of meditative practice, such as yoga, prayer, running, even taking a nice long bath, aids the brain’s process of idea incubation which means these breaks are a key ingredient to productivity and creativity.[ii]
Ask for HelpI’ve found that fear is best overcome when we ask for help. I’ve observed that my clients who are best able to guide their organizations through fear of the unknown will often state an intention to innovate without also communicating a concrete plan to achieve their vision. Instead, they ask others to help them figure out how to make the impossible possible.
I recently had a conversation with one of my CEO clients about how best to help the senior leadership team embrace a new product innovation idea. This CEO was frustrated that the team seemed resistant to the changes the innovation would require and was wondering how to proceed. We discussed two options:
The CEO chose the first approach – having the team own the plan – and, although it took longer, it ultimately ended in a more ambitious (and successful) product.
My personal leadership journey is similar to this CEO’s. For me, asking for help meant giving up the idea that I needed to have all of the answers. As a classic ‘smarty-pants’ overachiever this has not been easy.
I’ve had to resist the urge to leap in with all of my ideas at every opportunity. I had to go back to listening (see above!) and opening my mind to others’ ideas. I’ve also had to get much more comfortable leaning into debate or discomfort and staying there. Gary Pisano wrote a great article for HBR that covers this topic. In it, he explains why healthy collaboration and comfort in debate is essential to innovation. “If people are afraid to criticize, openly challenge superiors’ views, debate the ideas of others, and raise counter-perspectives, innovation can be crushed.”[iii]
Let Go of Perfectionism
It is easier to face our fears of failure when we accept that what we do does not have to be perfect.
Getting comfortable with ‘good enough’ has been a game changer for some of my clients who are trying to innovate. Brené Brown nailed it in her book, The Gifts of Imperfection, when she said,
“Perfectionism is not the same thing as striving to be your best. Perfectionism is the belief that if we live perfect, look perfect, and act perfect, we can minimize or avoid the pain of blame, judgement, and shame.
It’s a shield. It’s a twenty-ton shield that we lug around thinking it will protect us when, in fact, it’s the thing that’s really preventing us from flight.”[iv]For me, this has meant launching our website, publishing blogs, and even delivering work to clients without endless rounds of editing and agonizing over typos or imperfect graphics. I certainly do not want to deliver a crappy product (and we do have a few editing rounds!) but I try to model for my clients and my team that, especially when we are talking about digital innovation, we need to rapidly iterate, rather than taking months of research and development to perfect. Again, as a classic type-A, this has been a hard lesson for me to internalize.
Practice GratitudeI consciously started a regular habit of writing thank you cards and keeping a gratitude journal in 2017, around the same time I started meditating. Both the thank you notes and the journal have helped to shift my mindset to one where I see opportunity, rather than scarcity. It keeps me positively focused. I believe that mindset shift has helped me have more courage to try new things, take risks and tackle my fears.
My successful clients do something similar. They have a very strong understanding of their assets and their strengths, and they focus on building on those strengths. When generating new product ideas based on a SWOT analysis, for example, they focus on their strengths and opportunities, rather than their weaknesses and threats. This helps them talk to their teams in terms of opportunity, rather than dwelling on the obstacles.
Recent research from Gallup shows that strengths-based workplaces are more productive, too: [v]“Organizations whose mission, values and processes are based on their strengths have:
Coming from a place of strength and gratitude helps to remind ourselves, our team, and our clients of the most important fearless act of all: believing that we are powerful beyond measure. Marianne Williamson' s wisdom below is still my favorite “face my fears” touchstone:
“Our deepest fear is not that we are inadequate. Our deepest fear is that we are powerful beyond measure. It is our light, not our darkness, that most frightens us. We ask ourselves, 'Who am I to be brilliant, gorgeous, talented, fabulous?' Actually, who are you not to be? . . . as we let our own light shine, we unconsciously give other people permission to do the same. As we are liberated from our own fear, our presence automatically liberates others.”
-Marianne Williamson, A Return to Love
Understanding our customers—or more specifically their urgent and expensive problems—is the key to developing a successful product. I’ve seen too many companies waste time developing a new product that no customer wants or needs. This often happens when a CEO develops a product because they have fallen in love with an idea or a technology or are trying to out-do a competitor and they don’t want to take the time to talk to any customers about what real-life problems they are solving.
To understand those real-life problems, we need talk to our customers directly. Feedback from a sales force is not a replacement for our own customer conversations.
Interviews can be time consuming and a bit of a headache, if we’re being completely honest. But there is no other approach that can yield rich data with the deepest insights. And if you do them well, you don’t need to do that many.
I’ve talked to a lot of customers over there years. Here are 5 useful tips I’ve learned for doing this well – with a minimal amount of pain for you and the customer.
1. Be Clear on What You Need to Learn
We need to be sure the conversation stays on task. We can easily let open ended questions spiral out of control or run off in a million tangents.
Then build your interview guide around those hypotheses. Your goal will be to prove or disprove each hypothesis. Review after each interview to see what you have learned and what you have left to learn. This keeps conversations headed in the right direction, to get the answers we need, without being overly prescriptive about where the conversation goes.
2. Start with the Basics
Remember, the #1 goal is to understand your customers’ most urgent and expensive problems. Use two or three broad and open-ended questions in the beginning of every customer conversation about their experience. Not only does this warm-up the conversation, it gives you the opportunity to explore the big picture. You are looking to learn:
Really explore the most pressing problems customers are facing from their point of view. Broad and open-ended questions open the door for the customer to express themselves without biasing the results (a real risk to be aware of).
3. Talk to a Representative Sample
We don’t have time to talk to everyone. So, this is where our customer personas come in. Well-developed customer personas will help us make sure we talk to the right mix of sample customers to capture a diverse mix of voices.
Keep in mind the product you plan to create – is it intended to bring in new clients? Make sure you have prospects in the mix. Could the product be received differently by very mature vs less mature customers? Will there be differences between the end user and actual buyers?
This may sound like a daunting number of interviews, but it is really about quality over quantity. If you plan ahead to have a good mix of participants, you should be able to get the data you need from 10-12 interviews.
4. Iterate, Iterate, Iterate
This should be your mantra in all thing’s product. Pull up your notes after every interview to highlight what you have learned. Return to those questions we discussed earlier. What is the most expensive, urgent problem people are facing? Can we solve that problem? Are we creating enough value for customers to jump on board? Have you proven or disproven your hypotheses? Do you need to re-work your assumptions?
Now, ask yourself, what do you need to change in the next conversation to continue learning? Should you tweak an opening question? Should you make changes to your product vision? Can you add more specificity to your sample packaging or pricing? Don’t go more than 2-3 interviews without adjusting your interview guide.
5. Be Customer Centric
Finally, it’s imperative that we remember that we are dealing with people. People with packed schedules, to-do lists a mile long, and, basically, a million other things they could be doing instead of answering our questions. Keep the entire process focused on the customer. Work around their schedules. Thank them for giving up their time and sharing their insights.
You’ll also need to make them comfortable sharing – even when they have something to say that we might not want to hear. Be prepared for your customer to crush your vision entirely.
“Disarm “politeness” training: people are trained not to call your baby ugly. You need to make them feel safe to do this. My approach was to explain that I needed their honesty, so I didn’t build something nobody wanted to use, which seemed to resonate with folks.” –Giff Constable Chief Product Officer at Meetup
Last but not least, we need to listen more than we talk. It’s human nature to fill the gaps that make us feel awkward. We can use prompting cues like “tell me more” or “interesting, can we expand on that?” The goal is to get the customer talking again.
As we have already noted, people are busy and sometimes hard to schedule, but don’t let that stop you. With hundreds of interviews under my belt, I can honestly say that 99% of people really enjoy being part of the product development process and appreciate that we value their opinions and care about their problems.
Don’t forget our team at Vecteris has decades of experience working with companies as they quickly bring products to market. Our team is highly-skilled at conducting the research companies need and providing actionable recommendations to move quickly on product ideas. Don't hesitate to reach out to see how we can help.
Product innovation and management are key capabilities for developing successful scalable, digital products. But if you're new to product innovation and management, building the processes and competencies you need to be successful can be overwhelming. For example, should you start by improving your voice of the customer skills or Agile project management skills or product usage analytics skills or all of the above?
My recent executive conversations have a common theme - speed. Specifically, they all want their teams to move faster.
For example, one client acknowledged they were still trying to figure out how to better prioritize so they could focus on executing at a pace they’ve never moved at before. They need to release products faster so they can learn from the market faster, but the team’s focus and sense of urgency is not where it needs to be.
To move faster, we need to adopt more flexible operating structures but we also need to change our standards of what ‘done’ looks like.
Earlier in my career, after returning from one of my maternity leaves, I was told that my role had expanded to that of “Product Manager.”
As a “Practice Leader,” I had strong customer voice and product development skills, but now my job was expanding to include product marketing, KPI management (including revenue targets), and long-term product strategy. I loved the expanded scope; however, although I had an MBA, I never received any formal Product Management training.
I was given an article about Product Management to read and I had to figure the role out on the fly. I made it work, but it wasn’t easy. I took a very boot-strap approach: I tacked a copy of Ben Horowtiz's Good Product Manager/Bad Product Manager  to my bulletin board, and read it every morning. And I took a leap of faith.
The companies I work with are usually B2B, knowledge-based companies (such as professional services firms) that are trying to develop new technology-enabled products—something outside their core product set. To do so requires them to think differently about how they work and how they create value for their customers.
It requires innovation.
I’ve come to learn that innovation can be tricky, and it takes hard work. It's not because the leaders are not visionary, or the team isn't creative or smart. Nor is it because the company culture is stagnating or stifling. It's because, as humans, we tend to favor the routine, the known, the comfortable. Innovation often takes us outside our comfort zones and it certainly almost always requires behavior change. So, rather than suggesting genuinely new ideas, we suggest ideas that we have seen work elsewhere. Or we turn to gimmicks that we think will make us more innovative. For example, “The right business process tool will help – let’s ditch Asana and start using Notion!” Or, even worse, we imagine that adopting open floor plans and bringing in a ping-pong table is what we need to get our teams to think more creatively.
In my experience, and the research supports this, making our companies more innovative requires 1) organizing for innovation, 2) upskilling our people, 3) adopting a disciplined process, and 4) establishing clear and aligned priorities. Here's what I’ve learned about how each of these elements can build an organization where ideas flourish and new revenue growth is possible.
“If I give this new product to my current sales team to sell, it might eat away my existing business.”
We hear this a lot.
So many executives get caught up in the fear that new products will detract, or worse destroy, their existing business. It is a legitimate concern. Total or partial cannibalization can occur when a new product moves customers away from current service offerings or product lines.
That’s why we spend a lot of time helping companies to scope, position, and launch new product innovations in a way that does not mistakenly cannibalize existing revenue streams.
We call our approach the 3 Cs of Cannibalization.