Service-based companies rely on the work of people, typically with limited daily schedules—let’s say an 8-hour workday limit. This is why scaling a service-based company requires adding more people to the business. In this way, the company grows in proportion to its workforce—each additional person brings in additional revenue.
This article is about how to make the growth of a service-based company less dependent on individuals to achieve the following:
- Makes it easier to run the service-based company.
- Reduces the company’s dependence on its founders.
- Increases the company’s profits and/or its value.
These benefits can, of course, occur individually or in combination. They can also happen in a different order than you’ll find below, and only some companies will experience all of them.
Organizing the First Service Offering
Many service-based companies start by assisting their clients in a specific area. Initially, this scope can be broad and general, such as “sales consulting,” “financial support,” or “legal assistance.” Over time, more precisely defined areas of collaboration emerge, like “building a sales team,” “implementing financial controls,” or “drafting and reviewing contracts.”
This doesn’t necessarily mean that the scope of the company’s work has become narrower or broader; it simply has become more precisely defined. This makes it easier to explain to clients what the collaboration will entail, and employees can start structuring their work into processes.
Execution of Services without the Involvement of Founders
Typically, at the start, the company founders handle service delivery, as they often possess industry knowledge and expertise. At the beginning, regular employees working with clients might require support from the founders because managing client relationships independently might be too challenging. As the company evolves, it reaches a point where the:
- clients are satisfied,
- and the founders’ involvement in these collaborations is close to 0%.
When such collaborations start happening repeatedly, the founders can dedicate time to work “on the company” rather than “in the company” or on other aspects of the business.
Internal Work Methods
Over time, the service delivery process becomes repeatable enough to be documented as a process— one that allows new employees to provide value to clients in a predictable manner without requiring the founders’ support. Sometimes, how a service is delivered becomes so characteristic that it is referred to as a proprietary method or framework.
Having your own working method or framework allows you to:
- Deliver the service in a more predictable manner.
- Onboard new employees more quickly.
- Stand out in the market and better answer the question, “What makes you different from the competition?”
The concept of a “proprietary method” or “unique framework” is valid but often overused. Some companies call their working method roughly the same as what everyone else does (but with a unique name). Others build their “own” frameworks based on methods described in foreign sources, “forgetting” to mention the original name or claiming it’s “framework XYZ, adapted to the specifics of our market”. As a potential client of such companies, be vigilant.
New Business Lines
A service-based company that used to provide accounting services may start offering tax advisory as well. A marketing agency focused on social media might expand into Google Ads campaigns. A new business line often means helping the same market segment with a different problem. Consequently, a client who used to pay, for example, $5,000 per month for collaboration, may start paying $8,000 generating more revenue from the same client base. Other times, a new business line means generating income from a different industry altogether.
New Business Lines with Higher Margins
Similar to the previous point, but with higher profit margins. This improvement enhances the company’s profitability, increases cash reserves, and allows for more ambitious investments.
Higher margins also facilitate faster scaling. Suppose the main business line had a 30% margin, and one employee could serve many clients, paying a total of $20,000.
Now, let’s see what happens when the margin increases from 30% to 40%.
The same team of people can generate more profit.
Business Lines Requiring Fewer People
Materials created by the company that clients can use without requiring additional work from the company’s employees—these are lines of business that require minimal involvement from the company’s employees; such as recorded video courses, and paid ebooks or knowledge databases. When these products gain a sufficient number of clients, they become sources of additional revenue and profit that do not require additional labor.
Is it worth creating such products? It depends. An additional margin of $30,000 from a course for a company with a $100,000 profit is significant. However, for a company with a $1.5 million profit, it’s much smaller. The potential revenue from such a product should be compared to the difference it makes in the company, taking into account the investment required to create the product.
Repeatable Customer Acquisition from Sources Other than Referrals or Networking
A customer who comes through a referral already trusts us more at the beginning of conversations because someone has already said, “Casbeg is a reliable company – I worked with them and am very satisfied.” Conversely, a customer who comes to us through inbound marketing (advertising campaigns, expert content) is less trusting. Their trust is solely based on what they see on our website and during our sales process, making it more challenging to convince them to start a collaboration.
When we can do this in a repeatable way, we have trained the “customer acquisition muscle” in our company, freeing us from depending on referrals and networks, which are slower to scale.
Customer Acquisition without the Involvement of Company Founders
Initially, the founders are responsible for acquiring the first customers. They know the industry, are experts in their service, and can often persuade the first customers to collaborate based on their expertise. Acquiring subsequent customers may require the founders’ involvement in the sales process.
As time goes on, a sales team may emerge. Typically, salespeople possess a different level of expertise in the service than the founders, so potential clients may not perceive them as industry experts. Salespeople must compensate for this by leveraging other skills and selling differently than the founders.
When the sales process is successfully executed without the founders’ presence in most cases, it’s another “muscle” that the company has trained. The company can acquire customers in a repeatable way without relying on the founders, whose schedules are limited.
In summary, the milestones mentioned in this article are breakthrough steps in the development of a service-based company. Achieving them gradually reduces your company’s dependence on:
- the founders or specific individuals in the company,
- specific services,
- particular customer segments,
- and specific lead sources.
As a result, running the company becomes easier, for both the founders and employees.
Which of these milestones has your company achieved?