To productize consulting services and build a sellable company, the ultimate challenge is to try to find something that you offer which is truly unique to what you do. It’s very likely that if you canvas your customers, there is one or two things that you do better than anybody else. The raw material is going to be customer insight. Bestselling author and founder of five companies John Warrillow says they spend a lot of time talking to their customers and their salespeople as well to get a good intuition and a good sense of what is it that makes people buy from running the company. John says a fundamental decision consultants need to make answers two questions, “Do I want to have a lifestyle business where at the end of the day when I’m ready to retire, I close the doors and move on and there’s no value created?” or, “Do I want to create something of lasting value that is bigger than me personally that has an exit potential?”
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How To Productize Consulting Services with John Warrillow
I’m excited to have John Warrillow joining us. John, welcome.
Thanks Michael. It’s good to be here.
John, for those who don’t know you, just take a moment and explain what you do.
I run a company called The Value Builder System where we help entrepreneurs improve the value of their company and our delivery model is to license that platform to consultants. We got 900 consultants all around the world, mostly in North America, some in the UK, some in Australia and they help companies improve their value. That’s what we do.
One of the reasons why I was excited to have you on the show is because I know that back in the ‘90s, you started a consulting business, an advisory-type of business, and later went onto sell that business after some transitions and shifts. You started that consulting business about three years or so after leaving university, is that correct?
How did you get into consulting?
I was producing a radio show about entrepreneurs. I interviewed a different entrepreneur every day of the week over a three-year period and one of the sponsors was a big Canadian bank called RBC. They started asking for advice and said, “We sponsor this radio show you produce. It seems like you’re talking to all these entrepreneurs, how do they think? As a big bank, we’re having trouble connecting with them. They think we’re just this huge monolith and we can’t get any traction in our marketing. We get terrible response rates to our direct mail campaigns. Come in, sit in a boardroom with us and give us some advice on how these guys think.” I’m like, “No problem. You’re paying us a truckload of money to sponsor this show. I’d be happy to do that.” They asked me back and back. Eventually, after the third or fourth time, I was like, “Maybe I should start charging u guys for advice,” and that’s how it started.
Essentially, your first client was RBC or Royal Bank. How did you move forward from that? What did your next client look like? Was it continuing to provide advice for larger organizations around small businesses? Walk us through what the business looked like and how you went about getting those next clients.
That’s exactly right. We picked a very hyper niche. I didn’t set up to be a consultant. I knew nothing about consulting. I’ve done school for sociology. I was completely unqualified to be a consultant and I still am now, by the way. What I was a very hyper niche which was helping large enterprise organizations like RBC, understand and market to the SMB segment or small-medium business owners. Royal Bank was a client and I went to IBM. At the time, they had a big strategy for reaching out SMB. I said, “Royal Bank is a client, would you let me come in and tell you about our little niche?” I was the only guy in town helping big companies understand small companies.In the early days, an email was all you needed. Click To Tweet
It’s relatively easy to get a meeting, even though it was IBM. Once we had IBM as a customer, we got Dell as a customer. Once we got Dell, we got Apple. Once we got Apple, we got Verizon and it snowballed. One of the key things I learned from that, is the critical importance of being hyper niche. As soon as we had a couple of clients, we got people that didn’t want to reach SMB, ask for advice, and it took enormous discipline, especially back in those early days were cashflow is a problem. You try to scrape together a business. It took a lot of discipline to turn away stuff that didn’t fit within that niche, a couple of very large companies reached very small companies. We stuck to it and ultimately that company was acquired by a public business. Now, you would know the company is Gartner Group. They’re a $2 billion, Fortune 500.
Did you have any anxiety or fear going on? A lot of consultants when they think about reaching out to an enterprise-size organizations or large organizations in general, there’s a lot of fear in their minds. The feeling of venturing into this unknown place, this abyss and they tend to hesitate around that. It sounds like you reached out to these people and made things happen. Take us back to that time. What was going through your mind when you decided to reach out to these large organizations?
Maybe I was just ignorant. I was 20, 23, or 24. Probably too stupid and too young to realize that they would likely say no, which is a part of it. I was also a part of an organization, I should give credit where credit is due to, called YEA. I don’t know if it still exists. Someone might correct me if I’m wrong. I think it stands for Young Entrepreneurs Association. It was a loosely affiliated with EO, Entrepreneurs’ Organization. YEA was for smaller and start-up companies. I was fortunate because a couple of the sponsors of YEA were Royal Bank and IBM. I got a chance to meet some of the executives from these companies because I was a member of this organization. I don’t want to take too much credit. I was fortunate to have had the opportunity to meet some people that were looking to support young, ambitious entrepreneurs. I probably got lucky by being part of that organization as well.
That gave you the confidence then to reach out to these people, but how did you reach out to them? Were you picking up the phone and giving them a call or sending an email? What is the actual process that you used to prospect and land these clients?
That goes back now to the mid-1990. This is early email days. An email at that time was all you needed. People weren’t getting a thousand emails a day. They might get five. This goes back to that. I came from a background of radio sales before I got in the production of radio, so I wasn’t too nervous about picking up the phone. It would have been a combination of email and phone. These days, we use LinkedIn a lot. We were to cold prospect a large enterprise organization. It would most likely be LinkedIn and a very highly tailored LinkedIn message acknowledging the people that we know uncommon and that would be the way we do it now.
You built up that business, picked up these larger enterprise clients and then shifted your model. You went from advising, consulting these clients to more of a subscription-based business.
This was the fundamental change that made us from a traditional consultancy into a sellable company. Traditional consultancies as you could imagine are difficult to sell because David Ogilvy said the assets go up and down the elevator the end of the night and they don’t have a lasting value. I got to thinking that I wanted to build something that had some value that I might want to exit at some point and so I looked around at different models. At that time, there were companies like IDC, Yankee Group, and Gartner Group.
They were these big companies that did syndicated market research. Instead of doing a one-off consulting project, they would say, “It looks like a dozen or so of our clients have the same questions, the same fundamental consulting need and so why don’t we go out do some research. Instead of doing it on a one-off basis, we would share the results across all of our subscribers, all of our customers.” That’s the model we changed to. That was a fundamental shift and I believe in addition to focusing on a specific niche, that was the second most important thing we did, which was shift from a one-off project-based consulting to syndicated subscription-based research which was a fundamental shift for us.
How hard of a shift was that to make?
We screwed it up the first time.
Tell me more about that.
We made a fundamental mistake at the beginning and now it’s something that we talk a lot about is that we did not give our customers an ultimatum. We went in to customers like Royal Bank, IBM, Apple, GE and all these very large enterprise organizations and we put our tail between our legs and say, “We’ve got a new idea for a company. We’re thinking of offering subscription services, but you can continue to use us as a traditional consulting firm. If you’d like, we can sell you this little subscription over here.” Companies like IBM and Royal Bank, if given the choice, they will always choose a custom solution. That’s nice that you have this little syndicated offering but we’re Royal Bank. We’re going to have you do it exactly the way we want it to.”
We went in and we got a half dozen subscribers, but we were running both companies in unison, in parallel, a custom consulting company and a syndicated market research company. Doing that was a huge mistake because it takes two different staffing models. In custom consulting, you need high-end consultants, quite expensive people, and lower gearing ratio, whereas in a syndicated research, you can get away with cheaper people. They’re totally different business models. You have limited cash resources and are privately funded. I funded the company so our limited cash resources were being spread across two business models.In a traditional consultancy, you're not building value. You're just driving and taking money out of the company at the end of the year. Click To Tweet
Eventually, the biggest mistake I made was looking at traditional key performance metrics of traditional consulting businesses because in a traditional consultancy you’re not building value, you’re just focused on driving and taking money out of the company at the end of the year which is compensation per partner. I was using the profit and loss statement as my key performance indicator of how I was doing as a company. What I didn’t realize that subscription recurring revenue model companies use a completely different operating set of metrics. They look at something called LTV:CAC ratio as a way to measure the success of the company. They virtually ignored the profit and loss statement for the first three to four years of a subscription offering.
Here I was using a traditional business profit and loss statement as a way to measure subscription. I made a fundamental mistake. Maybe six months into offering subscriptions, we turned off subscriptions. We went back to custom consulting and for a few months, it felt good because our profitability came back. One of the things you have to know about syndicated research is that you spread or amortize the revenue over the life of the subscription. We would sell a subscription for $40,000 for our research but we took that in twelve equal instalments of $3,500. It had the artificial response of decreasing our profitability dramatically because we were spreading that revenue out. That became a problem. Our profitability was hampered and I turned off the subscription offer thinking, “That was a mistake.” Not realizing we had taken a huge step backwards at building a more valuable company because we’ve retreated against a more scalable offering.
About two years later, we realized the error of our ways. We relaunched the subscription offering. The difference the second time around is we gave customers an ultimatum. We went to Royal Bank, IBM and others and said, “We’ve changed our business model. We believe this better serves you in the long run and we’re no longer going to do business with you in the old way.” It’s an ultimatum. You either change and move to the subscription offering or we can’t do business anymore. There’s a funny thing that happens when you do that to large enterprise organizations. Companies like Apple, JP Morgan Chase, Wells Fargo, they don’t take kindly to being told how to do business with you.
All of a sudden they get on the edge of their seat and they say, “You cocky, how dare you come in here to JP Morgan Chase in New York City and tell us how we’re going to buy from you? You tell me how good the subscription is. I want to know why is this subscription so good? What do I get out of it? How many seats do I get? How many of my customers will I get?” All of a sudden they’re probing you with penetrating questions. If you can respond to them favourably, you’ve got their attention, but as long as you sit on the fence and say, “You can still use a subscription offer,” or “You can still use us in your consultancy,” they’re going to say, “We got the information on the subscription but let’s focus now on my custom solution because I’m JP Morgan Chase.” Forcing them do an ultimatum is strong cheese, but if you could get them to pay attention, then it will get them to pay attention one way or the other.
John, how do you make that more compelling? Even for those that aren’t looking to offer a subscription or syndicated research, they may be looking to productize their service offerings and so this could apply to them just the same. How do you make that then more compelling to whether it’s a large client or a midsize client or a small client? If they’ve been on custom services, they have been treated and they have been feeling everything that you’re doing is specifically for them and now you’re saying, “We’re going to offer you this. We’re offering the same thing to other people.” How do you get them to say yes to that?
The ultimate challenge is to try to find something that you offer which is truly unique to what you do. It’s unlikely to be all of your services or even a broad set of your services. It’s very likely that if you canvas your customers, there is one or two things that you do better than anybody else. The raw material is going to be customer insight. Either doing it yourself or commissioning a third party research company to go out and talk to your customers to ask questions like, “What does this company do better than anybody else? What do you truly value coming from this company? What does this company offer now that’s a commodity that you could get from five other consultancies? What is it that you truly value coming from this company?”
I’ll give you an example. I was asked to advise a new start-up advertising agency. I’ve met with the guys. One of the partners comes from digital marketing and the other comes from brand, the traditional agencies. For them I said, “What makes you guys unique is the marriage of digital marketing chops and brand credibility.” That’s a very unique marriage. Usually you get people who are great at making pretty pictures in advertising, but can’t look at a Google Analytics spreadsheet and decipher what’s going on.
Likewise, you get people who are good at pay-per-click marketing but couldn’t make something compelling to save your lives.” What these two guys had was the convergence of those two things and that I believe was something quite compelling. I can’t answer the question for every consultant out there but what I would do is canvas our customers and probe deeply to try to find out what is it of the hundred things we do for you, what are the two or three that you can’t find anywhere else? That’s the raw material for creating some form of subscription offering that people will be compelled to buy.What is it that makes people buy? Click To Tweet
Did you have those conversations and do that work yourself or is this looking back in hindsight as a best practice?
No, we did not do it. We did not hire somebody but we spent a lot of time talking to customers. We had salespeople at the time and had three or four them as part of our company. We spent a lot of time talking to our salespeople saying, “What is it that makes people buy? What are the messages you need to use to get people to buy?” We had a good intuition and a good sense of it from running the company. By that time, we knew why customers came to us. The tell-tale sign is if you ever get asked to compete in a request for proposal, that’s a service that is not unique to you. If they’re trying to commoditize you and say, “Respond to this RFP.” You know that whatever they’re asking for is not something they truly view as valuable coming from you. That can be a negative option way of looking at what makes you unique is what do you get asked to participate in RFPs for, that service is not something that is truly differentiated in most of your customers.
This comes back to less is more. The more that you can hone in, subtract all the things that aren’t necessary and focus on just what your ideal client wants the most, that’s where the most compelling offer comes from.
It may sound like trite advice. As a consultant, you can rely on a personal rapport with your clients, customers like you. You’re probably the founder of the company so they want to do business with you. They want to be with you. You can create a nice lifestyle business as a consultant by being a nice guy or gal. Reasonably intelligent, reasonably reliable, a good solid block and tackle person, you can create a very nice lifestyle for yourself, but you’re not going to create a sellable asset. That’s a fundamental decision consultants need to make. Do I want to have a lifestyle business where at the end of the day when I’m ready to retire, I close the doors and move on? There’s no value created. Or do I want to create something of lasting value that is bigger than me personally that has an exit potential?
If it’s the latter, you can’t rely on the human elements of why people use you. If you ask your customer, “Why do you use us as a consultancy and not the three other guys who use us?” If the words are things like, “I like you or I trust you or I think we have good personal rapport,” you know those are good sticking attributes, but that’s not something that you could build a business around. To build a business around, it has to be something hard that they would buy from you even if they didn’t like you.
These are really great points. You mentioned pricing, going from much higher profitability where you might be selling, let’s just say $40,000 or $100,000 consulting engagements to all of a sudden now landing maybe $40,000 subscription, but it’s spaced out over twelve months so instead of collecting $40,000 all at once or split over two, you’re splitting that over twelve so you’re making $3,333 roughly or so per month. Is that the way that you would recommend the people to think about it when they’re saying, “I’m going to give up a lot of money. I’m not going to make as much as I could because I’m not landing these larger projects and things are getting spaced out over the monthly period.”
Is that the way that they should think? It’s about creating more value and so they need to be prepared to think about it with a long-term mindset? Is there some other way that people should be thinking about the difference that they’re going to be in terms of their earnings from landing much higher paying projects as a custom consulting engagement to one where you’re doing something on an ongoing recurring manner?
I was thinking about it in terms of cashflow as opposed to profitability because its scale, a subscription-based or syndicated-based consultancy, can be very profitable. It can be even more profitable than a project-based consultancy, but the key is at scale. Meaning, when you’ve got hundreds or thousands of subscribers or consulting clients. In the short term, when you make the change, the custom project is going to be much easier to drive a short-term profit from. In the short term, if you’re going to move to more of a syndicated or productized service, you can expect that that profitability will be reduced in particular as you scale up the offering. In those first few months and years, it will likely reduce your profitability.If you could get them to pay attention, then it will get them to pay attention one way or the other. Click To Tweet
From a cashflow perspective, it depends on when you charge for your subscription. The benchmark companies that we were looking at, these would be Bloomberg, IDC, at the time, Jupiter, Yankee Group, Forrester, etc. all charge for their subscriptions upfront. From a cashflow perspective, if you’re charging for your subscription upfront, your cashflow can be fine. In our case, we would charge a $40,000 subscription upfront, but then we would express that in terms on our accounting books as it will be in instalments. It’s important to make sure you’re thinking about this shift and how you’re going to distinguish that from profitability and the difference between profitability now versus at scale.
John, you’re best known for your terrific book Built to Sell. Why did you write that book?
This goes back to 2010 or 2011, I felt I’d learned a few things about building a sellable company and in my case, it’s the hard way. I owned a little graphic design and marketing agency similar to the protagonist in the book of Alex Stapleton. At the time, we had about $1.5 million in revenue and about $150,000 in profit. I went to a couple of advisors that I had because I wanted to raise an investment round to get new investors to give us some growth capital.
Marketing agencies were trading on the New York Stock Exchange for 20X earnings. Being stupid and naive, I said, “I’ve cooped up $150,000 of profit then our company must be worth $3 million, $150,000 times twenty.” I went into these two guys who were advisors to us and said, “Our company is worth $3 million, so 10% of it is worth $300,000. I’d like you to invest $300,000 in return for 10% of the company.” They laughed at me at the office. You have no idea what you’re doing. It was lessons like that I’ve learned along the way about what drives value of my own personal experience, having been involved in four different companies that I wanted to impart. I left the business that had acquired ours. I stayed on for a year and had nothing to do, lots of time. I don’t know if that’s ever happened to you where you have this some big life experiences that you feel like you want to share for some reason. That was what precipitated the book.
How did you get it because it’s done very well and it is a terrific book? Anyone who has not checked it out, make sure that you go and grab that. You have another book, The Automatic Customer. That’s also a very good book. How did you get Built to Sell, starting with that one because I think that’s the one that you’re probably best known for, how did you get in front of so many people? There are a lot of authors who write books and then nothing happens with it. They might sell some, but they don’t make the level of impact or get into the hands of as many people as they’d like. What did you do specifically to make that book such a success?
I got a publisher and more importantly, I got an agent. The first iteration of Built to Sell was self-published and a lot of consultants would have self-published books. It’s almost cliché to say that each create a self-published book. There are a whole lot of very credible authors, Seth Godin, Tim Ferriss, who’ve gone down the route of self-publishing. As well as lots of unknown authors who’ve sold 100 copies of their book have also self-published. When I first started Built to Sell, I couldn’t get a publisher and didn’t know how to start getting a publisher I didn’t know anything about it and so I said, “I’ll self-publish it.” I got a few copies sold. One of the people who read it and contacted me was a guy named Bo Burlingham who was at the time the editor-at-large of Inc. Magazine. He has written lots of amazing books, A Stake in the Outcome and many others. Bo said, “I like this book. Let me know how I can help you promote it.”
We got in touch and he put me in touch with his agent. The agent he put me in touch with had relationships with the big five publishers in New York. She said, “This is the next E-Myth. I’ll take it to the five big publishing shops,” and sure enough Random House bought the rights. That would never have happened if I hadn’t had an agent. It wouldn’t have happened if I did not have a lucky relationship with Bo or a lucky interaction with Bo Burlingham. My advice, you can self-publish for sure and sell copies at the back of the room and you can get some copies sold through self-publishing, but if you’re not Tim Ferriss and you’re not Seth Godin, the credibility of top five publishing masthead catapults it into a totally different head space for a lot of people.
If you have built in credibility and you are a famous author, then by all means self-publish. You’re going to make a whole lot more money on each book you sell. If you try to make the lead from unknown consultants to household name, if you will, I’m not sure if that’s the right frame, but more credible authors, there’s nothing that beats that credibility of saying, “Yeah, it was published by Random House or Simon and Schuster.” Those mastheads have maybe diminished in credibility over time but there’s still a huge swath of people who use them as a shortcut, “Is this a vanity project book or is this a real book?” That’s my advice is trying to get a publisher and the first step in that is get a good agent.
Someone that has maybe published or self-published a book and now they’re hearing you say, “You should take it to a trade publisher.” Was there any pushback, any negative consequence of you first self-publishing the same book and then taking it to an agent and then a publisher who would put it out again?
That’s the downside. That is definitely a potential risk in doing it that way. Random House asked me to write a whole new section for the book. If you compare that self-published book with the actual Random House version, it’s got another 10,000 words, maybe 80 pages in the Random House edition. They changed the cover. They made some changes to it. I can’t remember but I would assume I gave them sales numbers on the self-published book and they realized that it was a relatively modest distribution on the self-published book. We probably sold a thousand copies. It wasn’t like we had sold 50% of the potential market for the book already. They probably got comfortable with it for those reasons but it was not their ideal scenario. The ideal scenario would have been at us going to them with a manuscript as opposed to a finished book. It was definitely a downside.The raw material is going to be customer insight. Click To Tweet
You spent some time in Europe with your family, is that correct?
In 2017, I spent about five months out of the country with my family traveling in Europe, Japan and other places. I’m always interested when I meet and speak with other entrepreneurs and business owners who have created the freedom, the lifestyle, the flexibility to be able to live and work in different places. If I’m not mistaken, you were you based in Aix-en-Provence or somewhere in southern France?
That’s right. We lived there for three years.
It’s a terrific place. Why did you go there?
I had sold my most recent company in 2009 and so I was not working at the time. Our kids were five and three. My wife and I realized it was probably a good time in our lives before we sunk our teeth and do something else to try something big and bold. Our kids weren’t so established with friends and sports in school that they were relatively transferable. We thought Europe was a cool choice because it felt exotic enough but still safe.
There are some places that would be certainly more exotic and more transformative from an experience perspective, but with the three-year-old and five-year-old, we thought, “It’s an industrialized economy, we get good healthcare and so forth,” and then being Canadian we thought, “France would be good because they get a little bit of French if we move there.” I Googled the sunniest place in France and Aix-en-Provence came up as the sunniest, most beautiful weather. It’s sunny 300 days a year, something like that. It’s desert climate. We moved there and it was a tremendous experience. I would recommend it to anyone with the flexibility to live and work where they can. It was a tremendous experience for our family.
Your new business here, The Value Builder Company and System that you have, you mentioned you have 900 consultants that are now teaching these principles and steps, helping companies to increase their value. You’ve written multiple books, accomplished a lot, what’s your daily routine or what keeps you sharp, productive, focused and working at these high levels of performance? Any habits that you have in place that you’ve got this on a regular basis or even daily basis that help you to accomplish what you’re accomplishing?
I’m a big gratitude guy so I keep a gratitude journal every morning. First thing I do in the morning is write three things I’m grateful for and three things that would make now a great day. It sounds corny and cheesy, but it’s my own little way of saying thank you to the stars. We’re big believer in daily huddles at our company. I have a daily huddle with our management team here, which I think is a great practice for us. It allows us to know that no matter what happens, we have that opportunity to connect with each other and talk about what’s going on.
Where are we stuck and what are some of the accomplishments we have to this day. In a funny way, it frees us up for the rest of the day. We don’t have to have constant meetings all day because we know we’re all going to check in at the same time and the same place. That’s a good practice for us here at Value Builder. Our leadership team here does a daily meeting and then they in turn have a daily meeting with their direct reports and so forth.
For the consultant who is reading this, who’s still very much the center of their business but is saying to themselves after listening to this or maybe has been considering for some time that they want to create more value within their business. They want to set it up for a potential sale down the road, what are maybe a couple of things that are top priority or should be top priority for them that they should be implementing or starting to work on?
The first thing I would do is find your TVR. TVR stands for teachable, valuable and repeatable. What you want to do is grab a whiteboard or a piece of blank paper and write down the last two or three years, all of the services that you’ve offered, all the consulting projects that you’ve been involved in. Rate them on a score of zero to ten on these three attributes. Have teachable back services to employees. If you were to hire employees, could they deliver it or do you have some unique expertise that enables you to do that? Zero to ten on teachable. Zero to ten on valuable. Valuable means valuable in the eyes of your customer.
The opposite of valuable is commodity. If it’s a commodity, it’s service that they get from 50 other consultants, give it a zero. If you’ve got something unique then given it a ten as it relates to a service. Repeatable relates to the buying cadence of the customer. If you’re offering strategic planning services to large enterprise organizations, they don’t write strategic plans every day. You give that a very low score. Whereas if you’re offering SEO or SEM, search engine marketing services, and they need an SEM report every month on the efficacy and efficiency of their keywords, that would be highly repeatable. The customers need it every month. Give it a score of zero to ten on repeatable.Valuable means valuable in the eyes of your customer. Click To Tweet
Once you’ve got your TVR for all the services that you offered in the last year or two, what you’re looking for is to eliminate any that score low on that TVR. They’re deeply dependent on you personally or things that customers only ever buy once and eliminate those services from your offering. They may feel good, they may keep you busy, but they’re taking away from your ultimate ability to build a more scalable practice. Try to zero in on it. Ask yourself, is there a service or a product that you could scale beyond you personally? That’s where the raw material making this transition is. I think the very first step is TVR. TVR all your services, score them on a scale with ten and figure out which ones have the potential to scale of.
John, I want to thank you so much for coming on here. Where is the best place for people to go to learn more about you, your company and your work?
The best place is to go to ValueBuilder.com/Apply. That’s the page we have for consultants.
John, thank you so much.
My pleasure, Mike. It’s great to be here.
- John Warrillow
- The Value Builder System
- Gartner Group
- Young Entrepreneurs Association
- Entrepreneurs’ Organization
- Built to Sell
- The Automatic Customer
- Bo Burlingham
- A Stake in the Outcome
- Random House
- Value Builder