Taking Your Professional Services to the Next Level
Did you know that “professional services” constitutes the second biggest business sector in the US after oil and gas? Earning trillions of dollars annually, the North American industry classification for professional services is 54, so Greg Alexander named his mastermind community for boutique professional services firms, Collective 54.
Collective 54 works with founders at each phase of their professional services business:
Young, hungry, and trying to get a foothold on income through client acquisition,
Making a great living but working hands-on, 70 hours a week, earning by brute force, and
Lining up the ducks to transition out of the business (i.e., sell).
Understanding where your business lies in the lifecycle can help you to prioritize your goals and plan for the next phase.
Greg was a recent guest on the Hourly to Exit podcast. Our perspectives couldn’t have been more aligned about how founders of professional services businesses should think about themselves and their businesses. Here are some essential nuggets of wisdom.
IP is Key
Whether you are growing, scaling, or selling, IP is critical to the success of a professional services business. It was no surprise that Greg and I agree that identifying and managing your intellectual property and other intellectual capital is the key to evolving your business from a lifestyle business to an actual enterprise.
In the early years, your goal is to differentiate yourself from your competition, and this boils down to having a unique understanding or approach that appeals to your clients. Guess what? That’s your intellectual property, and you need to track and protect it from the outset.
As you grow, you need to find a way to offer services without being the only hand on deck – your expertise needs to systemized and either taught to your team so that they can deliver the services without you or reduced to an asset like a course that can be sold to many.
Finally, as you prepare to sell, you must demonstrate that you have valuable assets (i.e., IP) that can be transferred to the buyer without needing you to stick around and do the work (or else what would be the point?).
The Importance of Diversification
Two failure points for professional services firms are client concentration and revenue concentration. You have a client concentration problem if a firm’s top clients are responsible for too significant a percentage of revenue. The loss of one (or more!) of these clients will devastate the business. A business that has multiple sources of income will be healthier and more appealing to buyers.
You have a revenue concentration problem if the business that relies entirely on one expert (typically the founder) to make sales and/or deliver the services. Anything that happens to the expert, goodbye profits. A business needs to sell its expertise rather than its experts. Or, as I like to say, “be an expertise-based business, not an expert-based business.”
Greg recounts the lessons from his own business, where he developed a methodology that could be taught to other, less expensive team members but could deliver valuable results, nonetheless. Diversifying the number revenue generators in the business reduces the expense and risk of relying on a few experts at the top for all revenue.
Leveraging your IP to add products or productized services to your offerings kills two birds with one stone: (i) a new revenue stream that provides income stability and (ii) a new offering at a different price point that attracts new clients. This addition may eventually drive clients to the existing services, or the new products might complement existing services.
You can find a detailed example of the benefits of graduating from an expert-based business to an expertise-based business here.
Greg’s wisdom will benefit any professional services firm. Regarding the IP piece of the puzzle, contact me to ensure your business is on track for success.