TMBA555: Are Productized Services Overrated?

Podcast 50:56| Download | Spotify| Stitcher | iTunes | Comment

Productized services have long been a subject of discussion on this podcast.

They are a relatively attractive business model, especially among first-time entrepreneurs, and we’ve shared many examples over the years of how to create these kinds of businesses and scale them.

Meryl Johnston, founder of the online bookkeeping firm Bean Ninjas, recently started a rather lively debate in the members’ forum of our online community The Dynamite Circle with a post titled, ‘Are Productized Services Overrated?’

We’ve invited Meryl on to the show to find out why she decided to raise that question and to hear her thoughts on a business model that she has personally followed for the last five years.

Meryl joins us today to discuss what a productized service really is, the strengths and weaknesses of the model, and why she’s wondering whether her own company needs to evolve past it.

See the full transcript below


 

Listen to this week’s show and learn:

  • Why Bean Ninjas originally decided to productize their services. (6:30)
  • What a productized service is and why the definition is often debated. (12:26)
  • How productizing your service can have an adverse effect on profit margins. (20:48)
  • Why they have recently chosen to start working only with eCommerce businesses. (32:05)
  • Some of the challenges of working with a productized service model. (34:57)

 

Mentioned in the episode:

Before the Exit – Our New Book
TMBA Masterminds
Partner With Us
The Dynamite Circle
Dynamite Jobs
Dynamite Deals
Tropical MBA on YouTube
Bean Ninjas
Meryl Johnston
Ben McAdam
Dan Norris
Black Hops Brewing
The 7 Day Startup by Dan Norris
This is the Answer by Dan Norris
Xero
Rob Walling

Enjoyed this podcast? Check out these:

TMBA331: Productized #4 – The Evolution of a Business Idea
TMBA391: Breaking Up is Hard to Do
TMBA551: Transitioning from Freelancer to Running a Business

 

This week’s sponsor:

Today’s podcast is sponsored by Earth Class Mail.

Earth Class Mail is an online service that makes it easier for you to live and work from anywhere without worrying about your postal mail.

Earth Class Mail enables you to have your postal mail delivered at a US-based address. It will then be scanned and digitized so you can easily manage it from anywhere, and on any device. Read your mail from your phone or computer, physically store it, forward it worldwide, or even have it securely shredded.

Plus, get paid faster with automated check deposits.

All your data is encrypted during transfer and your mail is processed in a secure facility by HIPAA-certified technicians.

Virtual mail plans start at $19 a month and Earth Class Mail is offering Tropical MBA listeners a 25% discount for your first three months.

All you have to do is head over to EarthClassMail.com/TropicalMBA to take advantage of this great offer.

 

Listening options:

Subscribe via iTunes.
Listen on Stitcher Radio.
Android users can grab our RSS feed here.
Right-click and “save file as” for direct download.
Or click here to get sent to the top of the page where the on-site player is.

Have comments about the show?

Do you have ideas for things you’d like Dan and Ian to discuss on future episodes?

Our producer Jane would love to hear from you at [email protected] or leave us a voice message using the record button below.

 

 

Thanks for listening to our show! We’ll be back next Thursday morning 8AM EST.

Cheers,

Dan & Ian

 


 

 

 

Full Transcript

Meryl: And so in the early stages of business, I think that’s actually one of the downfalls where I’m seeing new entrepreneurs going straight into productized services facing the challenges that I had where it can take many years to pay yourself any kind of decent salary and then getting disheartened and sometimes going back to a job.

TMBA Ident

Dan All right happy Thursday morning. Welcome back to the TMBA pod. Today I’ve paid the boss man’s hourly rate to have them come by and talk about productized services. How are you doing Bossman? (laughs)

Ian: This show is going to get expensive for you. Less laughing, more talking, let’s get to it.

Dan: That’s because at the end of this episode Bossman and I are going to swing back and share some bonus thoughts, as well as maybe some news updates. So stick around for that.

Today’s episode is about something we’re really interested in, both the concept and the theory of productized services. And we’ll talk a little bit about what that’s all about, as well as contrasting that with an actual story of an implementation of that theory.

I think that back and forth, exploring the difference between ideas and reality is a big theme on the show and another big theme is watching businesses grow from their origins, and add an incredible amount of value to the world.

And today’s show is about the evolution of a business that was hatched five years ago in part inside our online community, the Dynamite Circle, but it’s also going to critique that productized model that we’ve often talked about. So let me take you back to Episode 331.

FX static
TMBA331: Productized #4 – The Evolution of a Business Idea
Ben: What we do at Bean Ninjas is online bookkeeping in a nutshell. I mean most people will have a bookkeeper but we do it online using the Xero software. We have a range of fixed fee plans and so we take care of all the bookkeeping, we try and make it as painless and in the background as possible.

Meryl: Ben and I hadn’t actually met in person; I was working from a co-working space in the Gold Coast and came across Dan Norris. I had a consulting business that was proving difficult to scale and I chatted with Dan and he was saying, “Someone’s got to start the WP Curve for bookkeeping,” and introduced me to the DC.

When I joined, I came across Ben, who was another accountant based in Australia, and we’d both been experimenting in our businesses with a subscription type service. We chatted through a DC mastermind about potential ideas and eventually decided that we were a good fit to start a business together.
FX static

Dan: That was Ben McAdam and Meryl Johnston, two accountants who joined forces to start the Bean Ninjas. And at that time, when we spoke to them back in 2016, they were working with 10 freelance contactors and around 135k of annual recurring revenue.

Now I’m just going to pick up another name Meryl mentioned: Dan Norris. Dan was the founder of the productized service called ‘WP Engine’, which offered unlimited WordPress fixes.

He’s now focusing his time now on his brewery Black Hops and we hope to have him on the show some time in the future to talk about that. But, in this context, he’s been an inspirational force in entrepreneurship through his book, ‘The Seven Day Startup’, in fact he helped develop this idea in the ether now that we’re calling a ‘productised service’, the definition of which is, in itself, the topic of great debate and we’ll get into some of that in this episode. But, at its core, a productized service is one that has a fixed price that you can buy with a click on a website, say, and not necessarily a quote or a proposal as traditional services are often sold.

So, Dan Norris is also the author of a few great books, including his most recent titled ‘This is the Answer’ which we’ll refer to later.

But let’s get back to Bean Ninjas and a crucial event that happened two years into Ben and Meryl’s partnership:

FX Static
TMBA391: Breaking Up is Hard to Do
Meryl: This was a process. It wasn’t overnight, “Let’s break up.” The initial phone call, I just told Ben how I was feeling and that I think we should consider one of us buying the other out. So I was open to hearing Ben’s perspective as well before we made a final decision.

Ben: I possibly could have stayed on in Bean Ninjas, maybe take on a lower level management position, but I think that would have been a bit messy a situation, so we just decided a clean split of the partnership between us was the best option. In the end, I think it was definitely for the best. I mean Meryl and I still have a good relationship now. I think partly that’s because we pulled the cord a bit earlier rather than it becoming one of those horror stories that you hear about business splits.
FX static

Dan: Which brings us to today. Now, recently Meryl started a thread in the online community, the DC, titled, ‘Are productized services overrated?’ Pretty good title and it prompted a heck of a debate by some really smart people, some of which we’ll bring you on this show.

And just to say – massive respect to Meryl for coming on and opening up ‘during the process’ of transition in her business, rather than saying ‘waiting til it’s all tied up with a bow’.

I started out by asking Meryl about what’s happening within ‘Bean Ninjas’ that prompted her to start the thread I mentioned.

Music

Meryl: So we’ve always in the past described ourselves as a productized service and we’re in a process of evolving from that, and I would say, un-productizing. But we’re still going through that process. And I’m still doing that thinking, and we’re testing different things at the moment. And it’s really interesting. I’ve had a lot of thoughts and had a lot of conversations with different people about this thought process around un productizing.

Dan: Can you talk to me about that original decision.

Meryl: The original thought process was that we’d read all about productized services. And a lot of that reading was – you need to be niche. And you need to pick something that you can do in a repeatable way. And we knew that we wanted to deliver our bookkeeping service on one accounting platform to keep things simple. So we did testing, back around the time that we were starting, of different tools like Xero, QuickBooks to try figure out what would be the best accounting software platform for the small business type of clients that we wanted to have.

And at that time, through the different testing that we did we identified that Xero was the best tool. And we still stand by that. But it’s not always the best in every situation. We were looking at it broadly as a great tool for solving particular problems that we could see with our small business customers.

Dan: You know, we’ve used like the term SWAS on the show before where it’s like, you choose a complicated piece of software that takes expertise to execute and then you bundle it up in a service and you sell it as a SWAS, would you describe early Bean Ninjas as in that model?

Meryl: When you describe that, I could say, ‘Yes, Bean Ninjas does fit in that model’, but I never actually thought of it in that way. And I think the reason behind that was I was picturing us in the accounting industry and there were already lots of accounting firms and less bookkeeping businesses. So my picture of us was more trying to systemize and scale what is generally difficult to do in the accounting industry. So that was the picture I had. But I think you could also describe us as SWAS as well.

Dan: Did you ever wonder in those years, why bother? You could just go out and make money so why bother with all of this complexity?

Meryl: Absolutely, I had definitely had those thoughts. It was challenging. But my biggest goal was that I wanted to own a business. And I didn’t like my consulting thing – it wasn’t a real business. That was just me selling my skills and my expertise. Whereas with Bean Ninjas, we were building a brand. And even in those early years, if I went to a conference in the accounting industry, no one knew who Meryl Johnston was, but they knew the Bean Ninjas brand. And that made me feel proud that we were building something bigger than ourselves.

And my longer term goal was to create financial independence. I love working. So it’s not that I wanted to never work again. But I wanted to build an asset and build wealth where I would have options about where I spent my time and what I worked on. And I didn’t feel like I could do that with consulting.

Dan: You mentioned, like when you go to a conference and you’re the owner of Bean Ninjas, just that’s different than being the owner of a reputation? How?

Meryl: I suppose there’s a couple of components to that. So one is the brand itself. That’s a valuable asset. And then we also have the IP and the systems that we’ve built within the business that are valuable too.

And for some entrepreneurs, I think their goal is to have a big exit. And I think that can be possible. I think it’s more likely with something like a technology company or SaaS but some productized services still get good valuations compared to say a service business.

And I’ve tried to think with the end in mind in terms of building a company to sell, but for me, that’s not actually my goal. I see productized services, that the real benefit there is that you’re working with customers, you’re building a network and building an audience and you’re earning money while you’re doing it. And I see productized services really as a great vehicle to build cash flow, take that money out of the business and then build asset classes.

Dan: And we’re at five years now. And can you give us a sense of the scale of the Bean Ninjas, however you like to do that, whether it’s your team size, or your revenue or number of clients, or whatever.

Meryl: So we’re a team of 15 now, mostly full time, and we’ve got a couple of part timers. So it doesn’t sound like we’ve changed that much from the 18 month mark, where we had 10 contractors, but it feels like the business has significantly evolved.

And the reason I say that is because if you look at an organisational chart now we have leaders who are responsible for different areas of the business and we have different levels of management in the bookkeeping team.

Dan: And what are the key challenges you guys have faced in the past few years?

Meryl: The initial big challenge, and this was probably more of a personal challenge for me was trying to set up the business so that it wasn’t sort of reliant on me. After the break up with Ben, if you looked at an organisational chart, my name was in every single box apart from bookkeeping. And that was a huge challenge, that was a goal to recreate that organisational chart where my name was only in the CEO box, not in any of the others. And that took hard work and a number of years to hire the right people, build the right systems.

That was really important for me, in the early 2019 my partner and I had a baby. And that really was the catalyst to make sure that that happened, so that I could step out of the business and take some time off.

And now we’re starting to face new challenges as the accounting industry evolves. And, specific to our industry, we’re seeing more automation with the lower end bookkeeping processing. And we’re also seeing some trends in the industry around accounting firms wanting to build bookkeeping services into their packages.

Dan: I want to start to dig into this wonderful thread you posted but first, before we do it, I think I have to ask for the definition of a productized service.

Meryl: (Laughs) When I posted this thread, I realised that my definition might be different to many other people’s definitions, and what actually is the definition? So maybe we start with what a productised service isn’t. And if I look at what an agency is, I think of someone going out to a client and understanding and scoping out a problem, and then delivering a custom solution to solve that problem.

If we look at an example of a marketing agency, they might go in, scope out requirements, and then say, ‘Right, we need to invest in branding, we need a new website. We can spend some time on SEO and Facebook ads’, and then they would with their team, they would go and execute on these projects, whereas a productized service would have a set price for a set of deliverables.

If we use the marketing example, again, it might be content writing. And they might produce four articles a month for a set price. But they’re not providing any of the other services around that. So it’s quite a defined scope. And as I’m discovering there’s some variables around, ‘Where does something move from a productised service to an agency?’, and for me, that’s a little bit grey. And it seems like there’s a lot of different opinions around that.

Dan: Would it be fair for us to say that a productized service can be bought like a product, whereas a service typically involves some kind of proposal, I think, or some kind of in depth sales process?

Meryl: I have similar thinking around that. A lot of productized services you would see on the website, a fixed price, or maybe there’s three packages, and you would pick the right package and off you go.

I think in practice, many productized services still have to sell through a sales call. So it’s not just a purchase off the website. And there might be some kind of initial call just to talk through it, build some trust, pick the right package. But it’s still a long way from the example I gave earlier, where there’s a detailed scoping process, and then a custom proposal written.

Dan: Yeah, and there’s all kinds of nuance to this. So I do think it makes sense because there are a lot of complexities and stuff and I don’t necessarily think that they’re all that interesting all the time.

I want to try to move on to a statement that you made, which was pretty shocking, I think. And you said, I quote, ‘I’ve been running a productized service for almost five years. And I’m starting to think the business model is a little over rated’.

Let’s talk about the main attractions. If it’s a little overrated, there’s obviously a lot of people selling this idea that you ought to go out and start a productized service. Let’s talk about some of those attractions as you saw them.

Meryl: The main attractions for me were addressing the challenges I had with a consulting business. So with the consulting business, it was project based, so there was no recurring revenue or ongoing cash flow streams.

It was custom each time which made it difficult to build a team and difficult to systemize and scale. Sales was based off the back of my own personal network, so there was no marketing system in place. We didn’t really have a niche, and we didn’t have a clear value proposition. It was just, ‘Come to me, tell me your general accounting problem, I’ll solve that problem’.

All of these challenges meant that it was very hard for me to get out of service delivery, I was involved in every single project and I was very hands on with that. And that was something I didn’t like. I was tied to sometimes working on the weekends, having phone calls from clients in the evenings and it’s been very difficult to remove myself from the business.

Whereas with a productized service, I saw that I could solve a lot of those challenges. If I could create a repeatable bookkeeping service that a team could deliver, I could remove myself from service delivery.

If we could create a brand that wasn’t ‘Meryl Johnston Consulting’, then we could build something again where clients weren’t expecting to work with me. And we could build a marketing system that, again, the leads are coming in without having previously met me at a conference. Or something like that. So that was really the attraction that it felt like I could actually find a way to get myself out of service delivery and build a real business.

Dan: So there’s almost like ‘productized services as a concept’. But then there’s also, ‘productizing as a discipline’, which can be very difficult for lone wolf types who can go out and just make money because, you know, it’s like, I can talk to 10 people and convince three of them to give me a whole lot of money at you know, and then if you have a product, then you might have to talk to a lot more than 10 people. And then it’s like, well, ‘Oh my gosh, I can’t talk to 10 people’, and now all of a sudden it’s a discipline that puts you out of the equation and gets you thinking in terms of systems.

Meryl: Absolutely. And that’s where I think it’s so valuable. It creates discipline as an entrepreneur or a founder to actually build a business and say, ‘No’. I

If you’re trying to build something where you’re, you need to be out of service delivery, then you can’t be selling a product or a service that involves you, you need to have created something that can be delivered without you.

And it means you need to build marketing systems, build a team, there’s so many things involved in creating a successful productized service. I think it’s great for the development of founders and entrepreneurs to have that discipline, it forces you to say ‘No’ to things and to build a business and build a brand.

So from that perspective, I think it’s really valuable. But one of the disadvantages if we talk about the ‘lone wolf’ example, if you’re working in a job, and you’re thinking about ‘what’s the best way for me to earn six figures with a business’, I would say the easiest path to doing that is actually consulting and then step up. If we use Rob Walling’s stair stepping theory, it would be to do consulting first, create the freedom and time and then do productized services.

And so in the early stages of business, I think that’s actually one of the downfalls where I’m seeing new entrepreneurs going straight into productized services facing the challenges that I had as well where it can take many years to pay yourself any kind of decent salary and then getting disheartened and sometimes going back to a job.

Dan: Yeah, it’s so true. And it was true in my case, as well that I used consulting as a way to … It allowed me to get through paying other people more than I was making, and not seeing progress on a lot of things and waiting for product feedback loops, which happens so, so much slower than what I did in my consulting gig, which is convince buyers to pay me money, and they would a enough times that I was in a job, you know.

Meryl: And I think sometimes consulting can get a bad rap when we’re in entrepreneurship circles, and I think it can be leveraged, it might not be what you want to do for the next 20 years. But it’s a great stepping stone or something that you can use in combination with other business models as a way of enabling you to stick with it and get through the tough years.

Dan: One of the downsides you pointed out about the productized service model ‘Is that the price you pay for scaling back complexity is a cut to the fees you can charge and potentially reduced profit margins’. What you just said is, or what I read that you said, is a bit complex to me. So can you give me maybe a real world example of what we’re talking about here.

Meryl: I’ll use my own business in this example. We started out by just providing bookkeeping services and so we’ll process the transactions in your accounting system, we’ll do it weekly or monthly, and then we’ll send a set of reports. And that’s fine. A lot of businesses need that. But the real value in having financial data and reports is how you use it. And it’s a lot more complex to be able to interpret financial information, tell the story of what that means and what’s happening in a business and be able to forecast based on what’s happening now and what you’re predicting in the future, to make really good business decisions.

So, stage one, preparing that data, that’s still helpful and useful, but to me real value is in that much more complex work around using that? That information to make great business decisions. But how do you scale that, that requires someone that’s got technical skills, great communication skills, they need to be experienced in business. And they probably need to have an understanding of the particular industry of the business and in Year One of Bean Ninjas, it would have felt impossible to build a service like that or to build a firm like that.

But five years in, if I’m looking at where our customers see value, a lot of our customers, that’s what they want, that’s what they need is that kind of help. And if we’re not providing it, either they’re not getting it, which means they’re not getting as much value from the service we’re providing, which is reports or they’re going elsewhere to get that.

And because that’s where their value is, that’s where customers are willing to pay that, that’s where they’re willing to pay higher prices. And so I was looking at the fact that many of our customers are getting that help elsewhere, thinking, ‘Well, maybe we’re leaving money on the table’, and yes, in year one, it would have felt difficult to build a business around that kind of complex advice because; how could we afford to hire other people to do that work, we would have had to do it ourselves, which was exactly what we were trying to avoid.

But I feel like there’s a bit of a lifecycle here. So we’ve been through that productization path, the business is systemized. If we looked at the organisational chart my name is out of those all of the other boxes. Can we actually add some complexity, add a component that is custom but still have 80% of our work systemized and then start to move up market, work with big clients and charge high prices, which, if everything systemized should flow through to higher profits?

Dan: And can you?

Meryl: Well, we’re in the early stages of that. So we’ve been testing this and we’ve got three clients where we’re trying this higher level advice type offering, and we are charging those prices and it’s not systemized at the moment, because we’re still learning – we can deliver it well, but we’re still learning the back end of how do we actually systemize this and deliver it at scale.

I believe that it is the right path for us. But I think three is probably not a big enough sample size for me to say absolutely, ‘Yes, I think this is going to work’. But I think that we’re on the right path here.

And also, I think it’s important to experiment. I don’t think you can just keep doing the same. We’ve been doing something similar for five years. When COVID hit, it really forced us to assess everything in the business. We did a lot of analysis about where we’re going the industry, what’s happening in the market, what we think is going to happen.

What I’m seeing in the accounting industry is that accounting firms who normally specialise in tax for small business are starting to think about where they can create extra revenue streams.

So the extra advice that I was talking about: interpreting reports, building forecasts, they’re wanting to build out that revenue stream for themselves as well. But in order to do that, they need to control the bookkeeping data that comes in. Because if that’s a mess, then they can’t really do the value added service.

And because of that, accounting firms are starting to add bookkeeping into their suite of products. They could use bookkeeping as a revenue stream. But most of not, they’re sometimes using it as a loss leader, they’ll actually lose money on the bookkeeping, to make money on the advisory work. It’s only the early adopters, the early innovative accounting firms that are really doing that at the moment. But I see that as a trend.

So we needed to be ready to adapt to that. We either need to build tax into our offering, or we need to be so good at providing the advice and so deep into an industry that were the experts at that, that it doesn’t matter if an accounting firms offering bookkeeping, our clients would want to work with us anyway. And that was part of the reason we decided to specialise in Ecommerce and then also in agencies so that we could go a lot deeper in those industries, and build that expertise. I don’t think it’s possible to do that in 50 different industries. So that was the thought process behind that decision.

Dan: One of the things we talked about on the show is this triangle where like at the top, you have like one job and then you have 10 clients and then you have like 100 customers and 1000 fans and stuff.

You can put in all your values and like do some brainstorming but it occurs to me that what you did is you know, you used your one consulting one true client or a couple true clients, to then go to 100 true customers or whatever, you know, you, you’ve got hundreds of customers paying like, you know, a couple hundred bucks a month or whatever your fees are. And now you’ve got these 10 true clients emerging on the back after having done the customers, how is that different than getting those clients on the front end?

Meryl: We actually do have one example of having someone that’s come to us just for advisory work, not for bookkeeping. So I think it would be possible, but our positioning probably isn’t going to help loads. We’re not going to achieve that at the moment.

For us, it’s working better on the backend, we already have the relationship. We’ve got the systems in place, which are needed to create good bookkeeping data to then do the extra piece of work for a smaller selection of client base. But if we keep looking at that triangle and then we had the one the 10 100. And then it might be the thousand true fans. I’m also thinking from that perspective, too.

And something I didn’t mention was we’ve created a couple of online courses about accounting. And that’s also a direction that we’re going in, which is the opposite end of the more complex custom consulting. And I think it’s important to have a suite of offerings.

So the productized service is at the core of what we do, and then for some customers we will have that higher end more expensive option. And then we’ll also have the. ‘Done with you’, and in some cases, the DIY course which is available to a lot more people.

Dan: I think if I had to choose in a vacuum, I choose to do it the way you did it, which is if it does turn out that your client model really gets narrowed and systematised and profitable for you and helps very wealthy companies do very important thingS, the fact that you pre qualified them with a paid product and service seems to make a lot of sense to me, because then by the time they get put into the higher service, they already understand the culture, you understand them that they’re going to be a good client, and that they’re worth, like, sort of accelerating into your higher level service offering.

Meryl: I agree. I didn’t plan it like that. But it’s kind of worked out that way. It is interesting to think about, alright, well, if it was a vacuum, or if I was to stop this whole thing again, would I do it in the same way? And I think that I would, in terms, I think it’s helpful to productize first, because that forces you to create all the systems and it makes you do a lot of hard thinking about what your value proposition is because you need to be able to communicate that really concisely, not in big long proposals and meetings.

Probably something I might have done a bit differently was niche earlier. I mean, we said that we were niche. I remember talking about that in one of our early conversations, that our niche was online business. I don’t know if that’s really a nation, it’s very, very broad. There’s a lot of different types of businesses within them.

Dan: Why do you think that’s important, I was reading Dan’s book the other day, and one of the things he believes is that, yeah, he’s not so sure that that idea of niching is really critical. Why do you think it is?

Meryl: I think it depends what you’re selling. From my perspective, if it’s more complex, like what we’re trying to do, then we couldn’t be experts in all of these different categories. And so it’s important for us to niche so that we can build that expertise. And I think we have a much higher price point than something like WP curve, which means we don’t need as many customers so we should still be able to achieve our revenue and growth goals in the category that we’re in. And I think it’s easier to stand out if we say, Well, we’re ecommerce accountants” or, ‘We’re the accountants for agencies’.

I can see, if you’re trying to build a huge business or a tech company, then being a niche, maybe there’s not enough room to actually grow. But if you’re trying to build a million dollar or $5 million, or $10 million business, I didn’t know that you have to go that broad. I probably have to think about that some more. But I don’t know if I agree with that.

Dan: Well, I think you’re putting your fingers on the right nuances to it. I think the biggest questions in life can typically be answered with two diametrically opposed answers, you know, but in the case of niching or not niching, I can definitely see a strong case for both.

One of the cool things about a service, when you niche down, like you said, not all the expertise part. But if you come to me and you say you do like bookkeeping, it’s like, ‘Cool’. You know, like, I know about bookkeeping. But if you come to me and you say, like, ‘We are the bookkeepers. If you run an e commerce store on the web’, it’s like that’s it. You know, that’s, that’s. So it actually reduces your marketing expenses. And it also doesn’t necessarily preclude you from getting other sorts.

That’s the trick – it doesn’t necessarily preclude you from you know, what I notice when I talk about niching down in order to reduce marketing expenses, I know what conferences to go to, I know it gets posted do I know? I know all of a sudden how to describe my business. And I’ll tell you what, what happens to a lot of those businesses who are like, ‘We are this kind of service for this very specific little thing’, five years later, they are just a very general service for all kinds of related things because they got enough traction that they were able to increase their scope.

Meryl: I love that you just said that. And that was actually my experience. When we made that decision. “Right we’re going to start with e-commerce and then we’ll also do agencies,” it became very clear, ‘Well, what conferences do we need to go to? What podcasts do we need to be on? What kind of content do we need to be writing? It needs to be about ecommerce specific problems’. And it sounds simple, but it made all of our marketing decisions so much easier.

Dan: How did you choose e-commerce, you had clients from all different kinds of businesses?

Meryl: We did some analysis on our customer base. And we looked at who do we like working with, and who sees value in what we do, so who is advocating for us or referring other businesses to us. We looked at who is easy to work with and some businesses are complex or a bit more difficult to work with. Where do we add value?

We also assessed profitability of customers across the board. And then something else we did was just look at the world and the industry and what’s growing and what’s shrinking, and ecommerce seems to be rapidly growing.

And we had made this decision, in part, before COVID hit, but then with all of the lockdowns, we could see that’s actually changing people’s buying habits to around we’ve been forced to buy more online. And yes, people might go back to some of their old habits, but likely some of these changes to buy online will stay as well. And then we also did some competitor analysis. So who are the other top ecommerce accounting firms? What are they doing? Is there room for us in this market?

Dan: I really liked how you pointed out that you’re scaling back the complexity, but yet this complexity is where that profit often exists. So in other words, you’re like you’re watering down your own potential to make money unless you have some kind of enormous scale. And the conclusion for the way forward is to become an expert in one niche and become one of the world’s best ecommerce accounting firms. Sounds pretty cool, actually.

Meryl: Well, it’s exciting for us to strive for something like that, too. We were trying to be a great general bookkeeping business, but to kind of put our flag in the ground and say, ‘We want to be one of the world’s best ecommerce accounting and bookkeeping businesses’, that’s really something to strive for. And that’s excited that team too, we know what direction we’re marching in.

We’ve had to rethink a lot of different processes along the way. If we want to be one of the world leaders, then our branding needs to change, but also, our whole customer experience needs to change. And so that’s a lot of work. And I mentioned earlier in the podcast that I built myself out of the business so it could run without me when my daughter was born. And I’m actually back in the business. I’m acting like a consultant to ‘Bean Ninjas’ at the moment running projects. Basically customer experience from end to end, how do we improve that and how do we go up a level in terms of what we can provide?

Music

Dan: So, finally, just for fun in the last part of the episode, I did a kinda ‘quick fire’ round with Meryl, posing to her a few of the key points that commenters raised or criticized in her original DC thread:

One is ‘there’s an increasing race to the bottom going on’. What do you think about that in the world of productized services? Do you think it’s true that there’s a race to the bottom?

Meryl: I’m definitely seeing that. I’m not seeing it in every case. But I think, if there’s low barriers to entry, and lots of other people can start a similar productized service. If they can’t compete on brand or quality, they’re probably going to compete on price. And so you may lose customers to your competitors. If you can do something that has more of a moat and is more difficult to copy, then that may not be the case. Or if you can position yourself or find customers where they do value what you do, are willing to pay higher prices. But if you’re not doing those things, then I think there’s a trend for race to the bottom for more simple productised services.

Dan: How about this one: “productized services serve the business owners desires more than the customers”.

Meryl: (Laughs) I know this one was a little bit controversial. And in my own experience, when I was picturing a productized service, the primary goal was, ‘What do I want”? What kind of business do I want to run? And I want to be able to take holidays, I want to have a team. It was all, ‘Me, me, me’, what do I want to achieve?” And the other side of that is thinking about what your customers want. You need to provide something of value to your customers to have a sustainable business.

Dan: And I think a truly great productized service, at conception, ought to define a project and a deliverable and a value to the customer that they can’t define themselves. Like, such you read through what you get, and you say, ‘That’s it. That’s what I want’.

You could, you could imagine doing this at a very high level where it’s like, okay, here’s a productized service, you want to sell an e commerce business and you’re planning for a future multi seven figure exit. Okay, so what you need to do is get a bookkeeping service set up, you need to have predictable financials, you need … all that, you’re going to give us access to these three things you need to do this. This will cost $25,000, you know our brand, you’ve already on our bookkeeping, you’ve, you know enough to know that like, of course, it’s not a ‘Buy Now’ button or whatever it’s like starting at 20. But it’s to the point where you don’t have to necessarily go back and forth all day long, you’ve actually identified something in the world, whereas a traditional service business would say something like, ‘Hey, looking to sell your business, we’re the experts at it, why don’t you you know, call us up, and we’ll talk to you about it. And I’ll charge you for that call. And we’ll see how it goes’.

There’s pros and cons to each approach. But you can imagine these very specific productized services that actually do serve, I think good ones can easily serve the customers. And not just founders what I’m getting at.

Meryl: And I actually had some more thinking on that, after more conversations with people after writing that. And I think the problem I was getting at was: if you’re selling, if we use the content example again, if you’re just selling content, and you’re selling to a sophisticated buyer, they can solve all of the other problems that you’re not solving, because they’ve got a marketing team, so they can solve the SEO problem, they can solve the marketing strategy problem. And so they’re getting value from the content.

But if you’re selling to a sole founder, and they don’t have any of the other resources, they’re not getting that much value from your productized service, which is only content because no one else is doing the keyword research. Where’s the strategy? How does this all fit in? Now that I’ve thought through that some more, I think the problem might actually be more based around who your customers are.

So a productized service I think works best with a sophisticated buyer, because they have a way of plugging all of the gaps that are required to fit around the defined thing that you’re doing. Whereas if you’re selling to sole founders, I think there’ll be gaps between what you do and what they need, and that’s where that problem can come.

Dan: That rings true for me. For sure. What was your emotion reading through some of the responses you received?

Meryl: I’m always interested in other perspectives. And I love that people are actually interested in this topic. I’m passionate about productized services, even though I was starting that conversation about. ‘Are they overrated?’ They’ve really served me well in helping me evolve as an entrepreneur. But it was great to see other people jumping in. And there were so many different perspectives to and different opinions about what it means to be a productized service, the advantages, the disadvantages. I loved it.

Dan: Digging through the definitions, it’s at the end of the day, the only reason we’re arguing about this is because we want to grow a good business. And that’s what matters.
And so I’ll ask you to comment on this final piece, which is you said, ‘These are a great way to start. A productized service gives you sort of a framework, a mental discipline, you can apply it and start moving forward’.

You added some nuance to that where maybe you want to have some consulting income and stuff like that to fund it. But you said ‘It’s not an end destination, necessarily’. So where do you feel like your end destination is going to be?

Meryl: I’d like to take this question back to the ‘Stair step’ model again with Rob Walling. And so if it’s consulting, and then it’s productized services, what I thought was the next step for me was building a more scalable product, which was online courses and education.

Something else I’m interested in is investing. And I’ve done one deal so far where a previous Bean Ninjas team member has spun off a related entity using the Bean Ninjas brand and I’m helping to mentor him, but he’s the operator of that business. And I think that’s the next step for me. I’m really interested in that, working with talented people and helping them to grow something.

It’ll be interesting to see where things go. If you’d asked me at the beginning of Bean Ninjas five years ago, ‘Would I be wanting to invest in other businesses?’ I wouldn’t, I wouldn’t have even thought about it. And I think it’s just being involved in communities like the DC where you’re around other entrepreneurs who sometimes are further ahead than you and hearing about what they’re doing. It makes me think that these things are actually a possibility for you as well.

Dan: Certainly are, cheers. Well, Meryl, thanks for coming by the show today. We appreciate coming on the TMBA pod.

Meryl: That was fun. Thanks for having me, Dan.

Music

Dan: A big shout out to Meryl for coming on the show. Ian, one of the cool things that Meryl has done with us over the years is that she’s not waiting to have a bow tie on all this before she comes by the show and shares what is going on. I really value that because a lot of times you hear these podcast retrospectives and just everything made so much sense, everything was in line with the theory and all that. That’s just not what our conversations look like on a day to day basis. Even in the most profitable companies there are nuanced conversations and mistakes and compromises that happen every day and I really appreciate Meryl stopping by the show and sharing her experiences.

One of the things that I want to do is to give you the chance to share some of your experiences. We can’t possibly capture the nuance of this thread in the DC forum on this podcast. I’d really need to go to the woodshed and so I really want to add and open the conversation, see if we get emails from the listeners, voicemails, maybe go back to that thread and see what the state of the theory is with productized services right now because we’ve got hundreds, if not thousands of the people who are listening to this show who are currently tinkering with the theory of that.

Ian: I think obviously, the one thing that’s happened in the last five years is that more people are doing it. So it’s becoming kind of more of an established idea in terms of internet businesses. So, you know, it’s a tool. It’s a tool. When we talk about productized services, the productized part is on the front end. So like that’s what the customer sees.

Dan: So your marketing and sales?

Ian: Right so your marketing and sales is kind of in a neat little box. So I come to your website, and I can click and then now I purchase this thing. Now the back end. What you do in your business, how you actually deliver on this productized service could be very disorganised or it could be organised.

Dan: Or it could be incredibly systemised. It could be like a product, you’re stamping it out, or whatever.

Ian: Yeah.

Dan: I like to call it – on the front end the productization of service is, you’re selling with clicks not quotes. The idea of a productized service gives an entrepreneur, a lot of us who started our careers quoting our time, selling ourselves and our services. So your conversation rate isn’t necessarily high. Now as you become an entrepreneur and you build an audience and the addressable market you’re selling to, it’s a tough mindset shift to say, ‘Hey I’m not going to sell to everybody and I’m going to define a clear product, a clear deliverable that people can buy with a click, not a quote’. And as I’m not calibrating it to each and every client, clearly you find some efficiency there but clearly I have to exercise the muscle of marketing that to a larger group of people.

Ian: It’s important to know that, in most cases I’ve seen, productized services come from some level of frustration. You are sending out a bunch of custom quotes, you are doing everything for everybody. You are running around with your hair on fire. And so you’re trying to figure out a way to systematise things for yourself mostly, not so much for the customer necessarily. But, you know, on the customer side, or on the marketing side of things like it might make sense to distil this into something that’s easy to digest, right? You don’t have a million options. These are your three options. So there’s some benefit on the marketing side too. But just getting back to the idea of frustration.
If you’re starting a business and you’ve never delivered the service before, I think it would be very hard to offer a productized service because most of the productized services that I see are whittled down from doing anything for everybody.

Dan: It’s a learning process. You go through the frustration of offering a service and then you find one element of that service that can potentially scale and so you start offering that. Now, some of the critiques and problems entrepreneurs face with productized services are, strangely enough, the same problems that product entrepreneurs face. Ok my competition is eroding my margins, ok my product doesn’t stand up to this or that. And now, all of a sudden, your product is vulnerable in way that maybe, if you’re running a services business, it’s all this mish mash of relationships and ‘hours delivered’ and all this kind of stuff, so you can’t just toss a product out into the world and just let it ride for five years or ten years. So this idea of constant evolution, going up and down the value chain and figuring out tweaks and ways to diversify your income or ways to deliver more or enhanced products to your customers, it’s always part of the game.

Ian: I kind of kind of liken it Dan to this idea, you know you walk in the pizza shop, current day pizza shop. There’s a big glass case, if it’s one of these good places where they got all the pizzas on display. You say, ‘Let me get one of those’, and they throw it in the oven, get a nice hot slice.

I think before productized services or before pizza, you just walked in the shop and there was like a pile of dough, some tomatoes, some anchovies, and then like it was up to the customer what the guy makes, ‘I’d like to see a ;ittle dough on the bottom then a tomato and then a little dough on the top’. Eventually the guy just got really fed up with it. He’s like, ‘You know what I’m gonna do: productized services here’.

Dan: I’m going to productize this pizza. So that’s it. We’re going to start this conversation. Obviously we’re in no position to end it right now. In fact I’m just thinking about pizza and how delicious it it. So we are going to let this conversation stand as is, we hope you enjoyed it. But before we go, I’m going to play a voicemail from a listener:

Voicemail: Hi Dan and Ian, love the podcast. Thank you for producing it. You often mention that it’s available at 8am Eastern Standard Time. Thought you might want to know that Eastern Standard Time is only during November through March when we’re not on daylight savings time. And it’s Eastern Daylight Time when we’re on daylight savings time, which is March through November. Lots of people call it standard, not sure why that is. But anyway, I thought you guys might want to know that. Again, love the podcast. Thank you.

Dan: Now Bossman, worth addressing, this issue of EST.

Ian: Wow.

Dan: Because it’s been brought up a few times and I think, you know, we’re trying to present ourselves as their worldly guys and we don’t even know basic timezone stuff. I had a few thoughts – the first one was we should only do the podcast six months out the year, what do you think of that?

Ian: That’s one solution to the problem that we have right now.

Dan: Another solution is that we re-record the intros and outros.

Ian: The problem there is I think we lost the music. Like at some point, you made the music and then we had to remake the music and now we’ve lost the music again. So we have a problem there, because we’re not sure exactly where our assets are for this. So changing it would be quite a problem, but let me just inject this idea.

Dan: Every Thursday morning UTC-5 time.

Ian: Look, let me just let me just bring this up. So I actually did a little bit of research on this because I was surprised too, because in my emails, I’m always saying, you know, ‘Let’s talk on at 10am CST’, I realised that having a worldwide business, I should probably be using the UTC but here’s the thing. EST and EDT are two different things. One exists in the summer, and one exists in the winter. All right, I was not aware of this. But here’s the thing from a branding perspective. The D is losing. I can tell you that.

Dan: Yes EDT has lost the branding. It is clearly the Pepsi in the Pepsi/Coke battle.

Ian: If you ask most people, I think that the D just doesn’t exist. ‘I live in New York. You live in New York. It’s eight o’clock. We know that’. You know, it’s the EST.

Dan: It’s like one of those things, the east coast of America, UTC-5 has this brand like EST amongst idiots like us that don’t know what we’re talking about so that’s what has happened here. But look, I think that’s part of the charm of the show. So we’re going to keep it. We’re not the smartest guys and frankly re-recording the intros and outros is an expensive proposition.

Ian: Yes. Harder harder than getting the EST/EDT thing right.

Dan: We appreciate all feedback and I think at some point we will address this because it’s no fun to have a big old mistake every episode. With that said, appreciate your voicemails, comments, emails, also want to give a shoutout to our sponsor Earth Class Mail. And, as always, we will be back Thursday, UTC-5.

TMBA Ident