The Four Reasons Service-Based Businesses Fail

Don’t put your company at risk of early death by making these common mistakes.

I’ve worked with my fair share of agencies and service-based companies in my time, and everywhere I go I see the same four mistakes being made.

Let’s jump right in.

1. They don’t specialise

Read the “about” pages of marketing agencies and you’ll spot buzzwords like “extensive in-house capabilities”, “complete range of integrated services” and “full-service marketing”.

When you dig into their client base, you’ll rarely find one sector. Beauty and fashion sit alongside sport, retail and automotive rub shoulders with food and beverage …

Businesses are terrified of losing an opportunity. They worry that if they can’t do it all and offer it to everyone, prospective clients will walk away.

They respond to this fear by hiring lots of people with lots of skills, breaking a magnitude of services out into different teams or departments, even buying out other companies so that there are agencies within agencies.

Does this work? All signs point towards no. The agency model is dying.

This isn’t the only reason, but it’s certainly one of them.

Think about a restaurant that wants to cater for everyone. The menu has salads, burgers, curry, pasta, steak, fish and chips, roast chicken, vegan dishes, French soup, lobster … it offers anything anyone could ever possibly feel like eating.

The only way to offer a menu this mental is to hire chefs who are happy to work for a restaurant with no vision, and to buy lots of cheap produce that you’re prepared to throw away if no one orders something.

As a “full-service” marketing agency, you end up technically able to service everyone, but actually doing none of it very well. It also becomes impossible to market if your only USP is the fact you can do a cheap and average job at anything.

2. They don’t productise

To productise: to turn a service or concept into a market-ready product (that solves a customer-specific problem, has a clear pricing structure, and is delivered in a defined way).

I’ve worked with many agencies who proudly tell clients they can help with anything. The client expresses their pain point and the agency says “Yes! We can help you!”. They then spend hours coming up with a solution, scoping out how much it’s going to cost, working out how to deliver it, and preparing a pitch (which alone costs the company a lot) that they may or may not win.

If you don’t have a product, you can’t sell. You certainly can’t market yourself. All you can do is respond to briefs.

Many agencies say it’s impossible to productise. I say that’s rubbish.

Don’t get me wrong, it is very hard. You’ll need to sift through a lot of data to assess:

  • What clients bought and why (and what they didn’t buy and why).
  • What clients paid, the effort involved and the margin made.
  • What value the client got, what they bought again, and what they got others to buy.

Then you need to have the courage to cut down your offering so that you have three to five products that are relevant to a very particular type of client.

Then you need to design a methodology and a pricing model that holds true for 80% of cases. One you’d be prepared to publish on your website.

In short, you need to have a menu.

Without this, you aren’t offering a product – you’re just offering to follow the instructions given to you by others.

3. They don’t lead

I’m pretty sure most people don’t like making decisions. And even though I’m very confident in my decision-making abilities, it’s bloody nice (and a relief) when someone else comes along who knows what they’re doing and tells me what’s what. That’s one less decision I have to make in my day.

Yet I’ve witnessed many agency executives who don’t have the courage to stand up to clients. The client makes demands about what they want and how they want it done, and the executive bows subserviently and tells their staff to do what the client says.

I don’t think this is just because agencies are scared of losing clients. That’s a symptom, but not the real problem here. The problem is that the market is cluttered with agencies that don’t specialise and don’t have products, leaving the client no choice but to be the one who takes charge.

I’m about to get laser eye surgery. I’ve researched the best clinic in London. It offers two techniques with distinct pricing and process, all available on the website. It charges some of the highest fees in the country but gets the most business because the people who work there clearly know their shit. They’re not going to let me come in and tell them what process I’d like them to follow, and they don’t care if I’m happy or unhappy about that. Their job is not to make me happy, their job is to fix my eyesight. And I want to give them my money because I can tell I’m in good hands.

It’s fitting that agencies use the term “Client Services” and SaaS companies (entirely product-led) prefer “Client Success”. The former focuses on attending to the needs of the client, while the latter focuses on ensuring the client gets results.

4. They don’t say no

Anyone who’s worked in an agency has groaned when some bigwig has gone and sold something that’s a) at a price too low to deliver on properly, or b) not within their area of expertise.

It’s not that I don’t sympathise with sales people – the market is tough and it’s hard to walk away from revenue. But while saying yes to the client might gain you short-term revenue, in the long term it will lead to failure.

If your company stops making the first three mistakes, then your sales people will know when to say no. And clients are getting really really smart – they recognise which companies specialise in products and lead in their specialised field.

I once thought I needed to hire a CFO and was introduced to a recruitment agent who specialised in this. I met with the agent, and after an informative and enlightening conversation (this guy really knew his shit) he convinced me I didn’t need a CFO, I needed an FD. Now I knew this agent had pretty high commission rates, but he was so crazy knowledgeable that I wanted him to find me that FD.

And he refused.

At first I objected. In my mind, if he had a network of CFOs, surely he could find me an FD. But still he refused. He hired CFOs and CFOs only. He gave me a lot of advice and suggestions about what to do next, but he wouldn’t help me. He didn’t sell the product I needed.

Any time someone needs a CFO, I point them to him. When I need a CFO, I’m going to him. He could have made £40-50k from me, but his processes weren’t set up to give me what I wanted in a way in a way that protected his margin, and he didn’t want to get distracted from his vision, dilute his expertise or risk his reputation. You could say he lost the chance to make £50k, or you could say that by saying no, he ensured I’m going to sell his services for him.

If you’re a service-based company, start acting like a restaurant

Come up with a menu of three to five products to sell to your clients. Figure out the recipe: what’s the process your team follows to create those products? How do you present them?

It’s hard to edit, it’s hard to cull, and it takes balls to say this is what I do and what I don’t. But unless you take this approach, you’ll have to keep lowering your margins. Plus, your clients will eventually get fed up with needing to lead.

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