Tomicide Solutions, May 2019

Growing Your IT Service Firm Without Enlarging It

By Tom "Bald Dog" Varjan

It all started in 1953 when famous Dr. Ancel Keys published his theory that obesity was caused by saturated fat and eating tonnes of sugar was perfectly all right. He supported his work with case studies from Harvard and other Ivy League universities.

It turned out only later that the all studies had been manipulated according to the expectations and funding of various agricultural lobby groups.

Then, after a lifetime of eating a virtually sugar-free low-carb diet of steaks, eggs and bacon, Keys kicked the bucket at age 100, the truth came out that the miserable bastard misled the world and he was one of the main causes of today's grossly overweight society.

He was famous for ridiculing and discrediting doctors who dared to disagree with him.

And something similar happened in the IT service (consulting, custom software development, etc.) industry too.

IT firm leaders have been made to believe that if they pay attention to certain KPIs, everything will be just fine and dandy, and their firms will be very successful.

Yes, I know, you want to grow your IT firm. But when IT firm leaders think of growth, they often leave the territory of growth and wander over to the territory of enlargement. Then they develop the enlargement-based goals, strategies, tactics and KPIs.

And when they achieve their goals and sit back in their comfy chairs, they realise that they've achieved the wrong goal which is about as useful as a fart in a windstorm.

So, let's take a quick look at some differences between enlargement and growth...

Enlargement

Growth

Now having seen the differences, let dig into some growth tactics that can help you to stay clear of enlargement.

Let start with enquiring...

The Right Business Development Attitude

1. The Right Sales Process

In his book, Atomic Habits, author James Clear states, "You do not rise to the level of your goals. You fall to the level of your systems."

Yes, as a low-volume premium service provider, you have relatively few clients in comparison to a SaaS firm, but you still need a carefully orchestrated and highly choreographed client acquisition system.

But this system, based on consultative selling, is quite different from a SaaS firm's high-volume transactional sales system.

Consultative buyers

Transactional shoppers

2. The Right Number Of Clients

You can estimate an IT firm's client load pretty accurately based on how fast it hires or fires associates.

The problem is this. The salespeople, often on straight commission, don't really care about the quality of clients, but do care about the quantity and the generated short-term sales.

So, they flood the shop with obnoxious, argumentative shithead clients that the competition has already rejected.

Salespeople get paid and the project managers and subject matter experts start duking it out with those self-righteous arseholes.

There are multiple problems during projects, and clients violate your terms and conditions and demand royal treatment for the discounted price they've paid.

That's the wrong mindset. Instead of more clients, focus on better clients.

As a rule of thumb, make sure that no more than 30% of your revenue comes from any one client. Scale up your clients based on service-delivering capability.

Of course, this is all dependent on the size of your firm.

In my experience, one full-time service-delivery person can handle three clients.

Based on that, divide your desired minimum annual revenue by the number of clients you can handle per year and you get your MEL (Minimum Engagement Level). This is the absolute minimum dollar value at which you can take on projects.

3. Social Media Is Not A Qualification Tool

Missionary-Mercenary Matrix

Yes, your firm may get invitations from LinkedIn, followers from Twitter or likes from Facebook, but those are not signs of qualification, so they must not get automatically accepted as new clients.

I know, this is hard, because, being a nice IT missionary, you try to help people, but you need to be a bit of a mercenary too to make money and stay in business.

4. Your Clients Must Want What Know They Need

You must not sell what your buyers merely want unless you can establish what they really need.

A patient may want only a painkiller, but having raging gangrene in his leg, he really needs instant amputation. The painkiller can bring short-term relief but it also brings certain death in the near future.

You don't have to take your buyer's self-diagnosis-based solution on face value.

You and your buyers jointly discover what buyers' real business problems are and what solutions they really need. And buyers must want to buy those solutions.

Hence => Real Client Want = Justified Client Need + Matching Budget.

And just accept it that budget is always available.

And what is a matching budget? It can be anywhere 5-15% of the value the buyer has stipulated.

If the value is recurring every year, then you can make this calculation.

Take the buyer's expected annualised improvement (X) and project it out five years (5X).

Now add some 15-25% to it for the "soft" factor (higher morale, better teamwork, higher reputation, improved brand, etc.)

Make sure the annualised improvement (X) includes both bull's eye value (value that directly happens) and peripheral value (value that's added indirectly).

Bullseye value: Better sales copy increases lead conversion.

Peripheral value: Due to better lead conversion, the firm can scale down the sales force and save the total cost employment of five salespeople. Total cost of employment is ~ 2.3-times of a person's gross compensation.

I want to demonstrate a minimum 10:1 ROI for clients.

Example:

$100,000 annual value + peace of mind, security, higher morale and better reputation

Go out five years: $500,000

Add soft value: $50,000 => $50,000

10% of $550,000 = $55,000 => This is the lowest option in your proposal

High: $138,000 | Middle: $87,000 | Low #1: $55,000

Start your proposals with the most expensive options.

5. Free Goodwill Is Good. Haggled-Down Free Is Bad

Free goodwill is fine; "secretly free" is not. Share benchmarking stats and the occasional free tip, but say "no" to spec work.

Every now and then you may feel you want to do certain things for your clients for free. That's great. Nevertheless, let clients know that what you do costs money but only this time, you do it as a favour. Write the real price in the invoice line item field and put zero in the subtotal field. The best bet is to call it goodwill.

And make sure this goodwill is part of your strategy and not just an out-of-scope, haggled down to zero.

6. Be Careful With Marketing Complacency

As Raymond Chandler wrote in his first Philip Marlowe book, The High Window (1942), "From 30 feet away, she looked like a lot of class. From 10 feet away, she looked like something made up to be seen from 30 feet away."

Your sales funnel may suffer from the same illness. It may look healthy from a fair distance, but when you take a closer look, you instantly want to switch back to the fair distance view.

There are four common sales funnel illnesses...

  1. Bloated midsection - too many leads, low conversion

  2. Skinny midsection - lead starvation

  3. Small end section - poor real conversion

  4. Sales tube - not sales funnel - several possible problems from shortage of leads and poor qualification. Lots of tyre-kickers get to the final stage, wasting a lot of time and resources for sellers.

Pay attention to your funnel and keep an eye on your funnel KPIs.

It's Not More Sales Leads But Better Ones

7. The Hero's Journey

Think of the 12 steps of Joseph Campbell's hero's journey.

You can translate this journey into a business decision-making sequence following the progression of agreements...

  1. Buyer has to agree he has a problem.

  2. He has to agree that his problem can have grave consequences.

  3. He has to agree he is able to get the problem solved - but not necessarily solve himself.

  4. He has to agree he is willing to get the problem solved.

  5. He has to agree that your solution is better than your competitors' solutions.

  6. He has to agree when to start to solve the problem.

  7. He buys your solution.

This is how your buyers are going through your sales funnel. Not exactly the same steps but it's a journey nevertheless. It also means you have to make your buyer, not yourself or your firm, the hero. The mistake many IT firms make is that they present themselves and their services as the hero, and are unsure what to call their buyers.

8. Keep An Eye On Your Funnel

Imagine two houses deep in a valley and it's raining cats and dogs.

The first house has solid walls and roof, but no gutters. Rain falls on the roof and then the water flows off the roof all around the house in multiple random directions, including under the house, gradually weakening the foundation.

The second house has solid walls, roof and a gutter network. Rain falls on the roof and then off the roof into the horizontal gutters, taking the water to the four vertical gutters at the four corners of the house. Then from the vertical gutters, the water goes through a filter which catches leaves, dead birds and other undesirable bits and bobs. Then the water passes through a purification system to filter the still remaining undesirable particles. Then the filtered rainwater falls into four big barrels. Now the filtered and purified rainwater is ready for use.

It is a highly controlled process from the fallen rain to the purified water.

A sales funnel is the same.

Without a funnel, your prospects move all over the place without any direction taking all sorts of irrelevant actions.

With a sales funnel, you control your prospects' movement from the first time they show up on your horizon to the time when they become your clients.

The process from first contact to signed contract must be carefully orchestrated and meticulously choreographed.

This is what your sales funnel does in a 100% consistent, predictable and reliable manner.

9. You Bring Up Possible Objections

There can be multiple objections even in simple, transactional sales.

In high-ticket transformational sales, well, it's doubly so.

You've been in business long enough to know those objections, so instead of waiting for your buyers to voice them, take the initiative and put them on the table.

Then it's your buyers who have to address them and refute them one by one. If there is even one objection left, then you can get up and leave the negotiation table.

10. Use Inbound Marketing

While inbound marketing makes life easier, you should know that it takes time to gain traction. Inbound marketing takes significant preparation and then about 8-12 months to gain traction.

The best bet is to use it together with normal outbound marketing. Yes, I know it's become fashionable to look down on outbound marketing, but when done well, it works and doesn't feel sleazy and slimy.

11. You Have Content, But Do You Have A Content Marketing Strategy?

Look at most of your competitors and you see that what they mean by content marketing is churning out dozens or hundreds of low-quality $5 blog posts without an overarching strategy and with no regard for distribution.

They are like General Motors, producing cars regardless of whether or not anyone buys them.

And luckily, no one reads their content because the way their materials are written would bury their reputation faster than greased lightning.

Become A Better Negotiator

12. Recommended Books On Negotiation

13. Build Trust-Building Into Every Client-Facing Process

Make trust-building the foundation of your business development function. The best way to pull it off is that you keep your attitude and practices the same before and after your buyers become clients.

The typical practice is that before money exchanges hands, sellers are responsive, helpful and courteous. Then as soon as buyers become clients, all senior associates, a.k.a. the real experts, vanish like the grey donkey in the thick fog and get replaced with fresh grads, interns and apprentices.

At that moment, clients know they've made the wrong choice.

14. Request 100% Payment In Advance And Offer 50%-50% As A Goodwill Gesture

In this world, everything must be paid in advance. You have to pay your mortgage on the 1st of every month, yet, your home belongs to the bank until and unless your mortgage is paid off.

When buyers argue over your payment structure, you'd better run very fast and very far because that argument is just the harbinger of a much bigger storm down the road.

15. Offer An Unconditional Money Back Guarantee

No, I don't mean guarantee for results. Not even the owner of a business can guarantee results, let alone an outside professional.

But you can guarantee the quality of your work and that it's a pleasant experience to work with you.

A fixed price guarantee alone justifies a 5-10% price increase and the service guarantee a 10-40% increase.

Look, you offer guarantee anyway. If a client is pissed off with you for poor service he will hang you on social media anyway and then you might as well hang yourself... get your picture taken and have it posted on social media.

So, if you guarantee your work anyway, make some noise about it and put it on your website.

I suggest you read Christopher W. L. Hart: Extraordinary Guarantees: A New Way to Build Quality Throughout Your Company and Ensure Satisfaction for Your Customers

And now a few words about...

Disqualifying Your Sales Leads Prospects

Yes, qualification should be disqualification. That is, looking for reasons why you cannot do business together. If you find even a small reason and it can't be resolved, you'd better abandon the buyer and move on.

If you have a good lead generation system, the number of abandoned leads shouldn't worry you.

16. Using The Right Qualification Method

Set your qualification criteria correctly.

Many years ag, IBM created BANT (Budget, authority, needs, and timeline), but today it's a tad obsolete.

Valid alternatives are...

Look how BANT starts with the budget and tailors the solution accordingly.

It's like the doctor who adjusts the remedy according to the patient's stated budget: "Yes, you need surgery, but based on your stated budget, I can give you only some painkillers. Let's hope you don't die."

17. Use A Questionnaire Before A Sales Call

When you sell your services through a complex sales process (consultative selling), it takes some time for buyers to be ready for a call with you. And when they are ready for the call, you want to slow down the sales process by inserting a qualifying questionnaire with some deep and high-level questions that self-important flunkies (self-appointed buyers) can't answer. Questions like...

These answers tell you whether or not to do the project.

The questionnaire also tells buyers that they can't have a call with you just by requesting one and they have to qualify for the call.

Yes, you will lose some gigs because some buyers perceive you as arrogant, but, well, it's good riddance. Those buyers would cause you headaches later on as clients.

18. Do A Basic Personality Assessment

The project may be to your liking, but what about the person you will work with?

Even the best projects are not worth accepting if you have to work with problematic people.

What does problematic mean in this context? It means their character traits are drastically different from yours.

For instance, I don't work with hard-charging Type A personalities because I'm more of a Type A-B.

Type A personality

Type B personality

For this test, you can use DiSC, Myers-Briggs or one of the many other personality assessments.

19. Do A Basic Talent Assessment

After discovering your personality (character), take some time to discover your talents too using the Clifton Strengthsfinder and your action-taking habits using the Kolbe A test.

This trinity of personality, talents and action-taking gives you the best picture of how you work, so you can tweak the type of clients you work with.

20. Your Buyers' Personal And Business Goals

Take your time and create a process to discover your buyer's higher-level aspirations. Yes, you render technical services, but make sure you link them to high-level business and personal problems.

Having a custom-made CRM is not a technical goal. There is a higher level business goal that drives the need for such CRM software. Is it the preparation for an IPO or a merger?

21. Be Aware Of Politics

The larger your clients are, the more significant role politics plays in their companies. Different people handle this situation differently. I gave up working with larger companies many years ago. This choice may make me lose some money, but I prefer to work with high-level people in or near the C-suite.

When working with large companies, you often don't even know where the C-suite is, let alone working with C-suite dwellers.

In August 2018, I was discussing the details of a copywriting project with a local software firm. I was pretty close to closing the deal when we touched upon politics for a second.

I said something negative about minimum wage and how incompetent union workers demand the kind of wages that the free market would never pay them.

And that was more than enough for the pro-minimum wage, pro-union Marxist zealot content marketing guy who came down on me like a tonne of bricks, explaining the virtues of socialism. I told him that I grew up in socialism but couldn't find any virtue in it in 27 years. On that note, he declared me to be a moron.

Then the meeting ended, and the marketing director stopped responding to my emails.

Well, maybe it was better this way.

22. Check Your Prospects' LinkedIn Profiles

LI profiles can reveal a lot. You can see who your prospects are associated with and what sort of game they play in the market.

23. Reject Clients Who Offer "Deals" And "Discounts" To Their Clients

People buy the way they sell. When buyers push you for discounts, rest assured they sell discounts to their clients. I can also predict that they have massive accounts receivable problems and cash flow problems in general. They use substandard materials and hire discounted people to perform discounted work.

Their whole operation revolves around discounts and cheapness.

And you'd better run as far and as fast as you can before you get sucked in by this evil discount vortex.

Playing The Great Proposal Game

24. The Proposal Must Be A Document Of Summary Not A Discovery

Write a proposal if and only if there is an agreement to work together. Your proposal should be merely a written summary of a verbally made agreement.

If the buyer insists on the proposal, it means that either the buyer is not the real buyer or the buyer wants to use your proposal as a basis of comparison and coerce the incumbent to offer concessions.

25. Always Offer Options

Offer three service options in your proposal with three service levels at three price points, starting with the most expensive option.

The most expensive option anchors your services.

Spell out the buyer's cost of living without your solution and then anchor your price as a percentage of that cost. Paying a one-time $100,000 to solve a problem that costs the client an annual $500,000 is not a big investment.

26. Offer Business Solutions, Not Technical Solutions

Server room people love technical solutions, but they can't hire your firm.

And those who can hire you don't care about technical solutions. They do care about business solutions.

So, offer business solutions to business problems using technology.

You may find it deflating but let's just realise that technology is just a means to the end. And the end is all about running a better, more profitable business. That's what your clients want.

27. Proposal Follow-Up

After walking your buyers through your proposal (never just send it), it's perfectly normal that your buyers need some time to digest your offer. But make sure you agree when you get together to discuss the decision.

Oh, and don't accept the typical "I'll email you my decision". Discuss the decision on a live call in an interactive fashion.

Yes, you accept the buyer's decision but want to hear why your proposal has been rejected.

Flake buyers don't give you this call because they've planned to string you along right from the beginning and now you're about to call them on their dirty practice.

28. Play Quid Pro Quo

If buyers request concessions on price, ask them what to remove from the services they're about to buy. You don't have to put your most senior engineers and developers on projects that have been closed with concessions.

You can match concession requests with varying several factors in your services...

29. Keep Your Proposals Short And Sweet

Focus on what business improvements your buyers get from working with you not what list of technical tasks you will perform.

Write your proposals in plain English. The more legalese you include, the more likely your proposals go to the lawyers and then gets lost in a bottomless pit of legal documents.

Be a Better Firm Leader

30. Hold Short Daily Huddles

It can take as short as 15 minutes every day, but it's amazing how much those huddles can speed up your firm's operation. They can put springs in your people's steps and sparks in their eyes.

Good huddles reinforce team spirit. Mind you, bad huddles can lead to mutiny.

31. Straighten Out Payment Incentives In Your Firm

Treat your business development people the same way you treat everyone else and pay them in a similar fashion. Get rid of the commission structure because it promotes short-term thinking and undermines teamwork.

And to make sure your people give their 100%, pay them enough to enjoy a good life and they can afford more than the mere basics in life. $75,000 is a sort of watershed. Under that amount, people worry about daily survival. Above that amount, they relax, so they can focus on their work. But financially stressed people can't work properly.

Oh, and if you can't afford to pay your people well, look at your firm because there are some other problems too. Either firm leaders live far too high on the hog or your firm doesn't need so many people on the payroll.

And let's remember: If you improve only 1% a day, in a mere 70 days, you can be twice as good as you were when you started.

In the meantime, don't sell harder. Market smarter and your business will be better off for it.

Attribution: "This article was written by Tom "Bald Dog" Varjan who helps privately held information technology companies to develop high leverage client acquisition systems and business development teams in order to sell their products and services to premium clients at premium fees and prices. Visit Tom's website at http://www.varjan.com.