Extracted Page: https://training.kalzumeus.com/newsletters/archive/products_vs_services

What Product Companies Can Learn From Consultancies

Consultancies are fundamentally repeatable processes which apply technical expertise to business problems. Typically, one graduates from being a freelancer to being a consultant by focusing less on the technical skill at issue ("I build WordPress sites!") and more on the business results you achieve with it ("I can increase the number of leads your insurance agency gets by 20% per month, making you gobsmacking amounts of money!") If you want to read a lot more on this topic, see my previous email about consulting or listen to my podcast -- co-host Keith Perhac runs a very successful consultancy, and we have previously had guests like Ramit Sethi (here) and Brennan Dunn (here) with advice on this point.

Positioning Your Product

Consultants get good at playing connect-the-dots, generally starting with the business outcome they're aiming for and working backwards to the implementation details. For example, a consultant hired to build an in-house CRM wouldn't pitch "Our CRM is going to be easy to use", they'd pitch "Your sales team will close more deals in less time when using our tool."

Sadly, we product people often get hung up on the feature set of our product. No matter how many times we repeat "Features do not sell software. Benefits sell software.", we often revert to implementation details when pressed for why customers should care about our apps. And when we start thinking in terms of benefits, we pick bad, non-specific, frilly benefits, like "Easy to use" and "Sleekly designed." Does anyone ever try to sell software as being hard to use and clunky? Crikey, I bet if you go back to the original marketing copy for Lotus Notes they probably used the word "sexy" as often as the Web 2.0 darlings do. It is meaningless to customers: they've been lied to so many times about the experience of using software (that was neither easy to use, no sleek, nor sexy) that that claim goes in one ear and out the other.

Instead, I'd pitch your software as solving identifiable business problems and generating the predictable increases-revenue-or-reduces-costs benefits that flow directly from them. This really isn't that difficult: talk to customers, find out what their next best alternative to your software is (manual labor? A crusty old Windows application that they have to keep a Windows 95 box around to use?), quantify the costs of using that, and present them against a typical case for using you software.

Anchoring Value

Everyone who has ever hired a consultant had an answer to the question "Why shouldn't we do this in-house?" That answer often included things like "We could theoretically do this in-house, but we'd spend more to have a less certain outcome."

Consultants get very good at approximating the cost of in-house development / business / etc efforts. For example, the fully-loaded cost of an in-house engineer is $20,000 a month in many US locales. A project which takes a single engineer even 3 weeks to bang out and then 1 week a year of maintenance costs, by implication, $15,000 up-front and then $5,000 a year. What if the project requires a modicum of expertise? For example, let's say it takes an in-house engineer 2 weeks to get up to speed on domain knowledge or technologies involved in the project. That adds $10,000 to the cost. (I loved phrasing this as "You could certainly have your engineering team do this, if you want to write a $10,000 payroll check with the memo 'Reading free information on the Internet'.")

Even when engineers are not involved, people cost crazy amounts of money. A lot of generic office workers in Illinois, for example, might have a $45,000 a year salary. That corresponds to about $70,000 or so in fully-loaded costs (factoring in taxes, healthcare, etc). This means that an hour of their time costs $35.

Products typically do not explicitly anchor themselves to employee costs. Instead, we often make the mistake of positioning ourselves vis-a-vis other products. We should anchor against employees instead, because if the decisions under discussion are:

Product A: $50 a month, Product B: $80 a month

then B looks expensive even if it is on some dimension better than A.

If, however, the decision is between:

Product A: $50 a month, Product B: $80 a month, "Our office manager does it manually and it takes her 20 hours": $700 a month

then Product B suddenly looks like the value option. Better than A for just a piddling amount more! (This scenario is covered in Predictably Irrational, by the way.)

Promoting The Team As A Value-Add

Every consulting engagement is totally new to the world, but if you told customers that they'd feel a lot of risk with dealing with you, so instead consultants demonstrate credibility and imply decreased project risk by:

talking about similar engagements which worked out
talking about unrelated accomplishments which demonstrate that the team is truthworthy
having references of past clients, because 3rd party confirmation is always stronger than 1st party
including consultant bios in proposals

Product companies do an abysmally bad job at this. Most try to sell software as if it were a product which sprung, fully-formed, from the forehead of Insert Faceless Cipher Here, LLC.

If you go to a product conference and say "Put your team members' pictures and names on your About page. It will humanize you.", many of the participants will write that down as if it is new advice they've never heard before. That's how low the bar is. Human. Can you imagine a consultancy telling you "Your engagement will be delivered by a human. They'll probably have a face, too." ? Their proposal would be laughed out of the room. Consultant bios (brief CVs generally sent with proposals) mention educational accomplishments, years of expertise in the field, books written and talks delivered, and professional highlights. All of these suggest that using this consultant is likely to bring in the project successfully. There is no reason your product site can't truthfully brag about the exact same things, to leave the impression that using your product is likely to accomplish the objective for the customer.

As soon as I wrote the above paragraph, I took a look at Appointment Reminder's About page to see if I was taking my own advice. Nope! It was, predictably, written as an after-thought 2 years ago, and didn't even mention my name. Instead, it referenced Kalzumeus Software, a brand which means absolutely nothing to my customers. This means that the ~300 or so folks who visited it in the last 30 days learned absolutely nothing useful as to whether they can trust my business or not.

I added a photo of my smiling mug and a teeny-tiny professional bio:

Patrick founded and runs Appointment Reminder. He is a systems engineer by trade, with 8 years of experience writing reliable software used by large companies, including ones in the United States and Japan. Patrick understands that reliable, secure systems are important -- he has been published in industry journals about how to secure systems better.

There, that will help address concerns prospects frequently have about security and reliability. I could quote stats and tech elsewhere ("We do daily encrypted off-site backups and have 99.9% uptime!"), and I do, but ultimately people are trusting me to do right by them, right? Many customers are much more comfortable knowing there is a trustworthy person in the loop than hearing about the technical details. Martha the practice manager for a dental office doesn't necessarily know that me using Tarsnap means she's vastly less likely to ever have to tell the dentists "We lost all of the appointments for this week due to a hard drive crash", but she can quickly follow the logic "This Patrick guy seems to know what he is doing, so I don't have to worry about that."

Pictures, by the way, are a major win. Ian Landsman, founder of HelpSpot and BeSnappy (both help desk systems), added a tiny 80x80 photo of his smiling mug to the home page a few years ago. It went next to two sentences of fairly pedestrian copy explaining why he, as the founder, thought HelpSpot was better than the alternatives. Ian tells me that they got 15% lift to free trials just on the strength of the photo, with copy held constant, in an A/B test. (I see that he has since redesigned that page, so the photo and CEO quote are both gone, but I wonder whether they'd help the new pages. That would be an interesting thing to test.)

(Speaking of BeSnappy: I just got my virtual assistant set up with it for answering Bingo Card Creator support questions, after we had problems with a few other ticket management/help desk/etc systems which were clearly more for people who love SQL for its simplicity than for people who just want a shared Gmail inbox. It's amazing -- direct quote, "It feels like Facebook!" Given that this means I will finally after eight years no longer have to answer "Can you help me with my password?" ever again, I give it my unreserved recommendation.)

Our eyes are drawn to faces, because our brains are virtually wired to process them preferentially. Sure, you could take advantage of this by using that same photo of a smiling girl in a headset that every third enterprise software company uses, but why not include one that actually shows your team? (Micro-anecdote: I successfully convinced a consulting client of mine to put Joel, their junior engineer tasked with answering support emails, in a headset smiling coquettishly next to their support form. We accompanied it with hand-written microcopy that said "Joel actually works here." Customers loved it and their volume of messages went up quite a bit, which was a win for that product.)

Keeping Yourself At Top Of Mind

A lot of product companies tend to hide. The app sits there unobtrusively, and if the user doesn't interact with it, nothing happens (with the exception of the monthly invoice). Consultants very rarely fall into this trap: they're always continuing to demonstrate value for the client, even when they're between projects which involve lots of heavy lifting.

Some ways you can achieve that with an application:

Actually call them and ask how they're doing: I know most of you just said "That's crazy!", but if a customer is worth thousands of dollars to your company, it makes excellent sense to schedule some time to make sure they're happy. (Before they decide to cancel.) You can automate this if you've already reached scale, but if you only have a few dozen or hundred accounts, just pop 5~10 off the list every Monday and email them to set up a quick chitchat. This gives you an opportunity to do customer development (number of startups who died because they talked to customers too darn much: zero) and will also give people reasons to hang their hat on using you the next time the subject comes up. Nobody at Microsoft or Oracle calls them just to make sure they're happy, after all.

Send a weekly email report: I seem to bang this drum a lot, but a weekly email report recapping their success with the app in the last week is pure win. Tell them about their success using your application every week. You can let them turn it off if it bothers them, but for the vast majority of people, it won't. I particularly like Brennan Dunn's implementation for Planscope project management software, where he uses time and rate data from freelancers to just calculate how much money they made in the preceding week. His customers obviously love getting that email, and it gives him weekly opportunities to get in touch with them about other projects, features, blog posts, discounts, or anything else which he wants to talk about with them. (The email is very well designed, too -- take a look.)

Give them pretty deliverables: A secret about large companies everywhere: large companies are very complex decisionmaking systems which turn PDFs and PowerPoints into money. You might think that "Your appointment no-show rate is down by 10% and we saved you $2,500 in staff costs" is persuasive, and it is, but it is much more persuasive if delivered as a PowerPoint rather than a text-only email.

Why? Because you can take a PowerPoint straight into a meeting, and the bosses appreciate it. So you can make the decision that your application needs to be able to spit out PDF/PPT reports, in addition to your standard plain-text or CSV reports or web pages. (n.b. Web page reports are very difficult to share with decisionmakers who are not in the system, like people with ultimate check-signing authority, guys.) You might even let your end user embed their own logo within that report. Why? Because then they're incentivized to use it as a tool to get them their next promotion. Let Cindy the Customer take credit for the massive business value you're generating! If she feels she owes you a promotion she'll never stop using you.

Give your good customers a reason to remember you: Wufoo famously used to have everyone at the company send out thank-you cards to customers. I like that, but I like an idea we came up for Wistia (video hosting, highly recommended) even more.

Wistia makes absolutely gobsmacking amounts of money from higher-tier customers, and higher-tier customers are incentivized to stick with the product if they're successful in creating video which moves the needle for their business. Wistia has previously put together a lot of educational content on e.g. how to do lighting for videos, and they even put together recommendations for a sub-$100 lighting kit that you can assemble with an afternoon at Home Depot. They also have many customers which pay them substantially more than $100 every month -- my lifetime Wistia bill is already $3,000 or so and I couldn't be happier with them. So my suggestion to Wistia, which I hear they will be adopting shortly, was to surprise customers on the $100+ plans with a lighting kit in the mail. That says "We want you to succeed with video in your business so much that we're going to knock down every obstacle in the way of you looking fantastic doing it." The economics of it are, obviously, quite favorable.

They could also pitch it as an incentive to get people whose predicted volume puts them in lower-tier accounts to start on the $100 plan, by the way. "Start on the $100 tier and we'll mail you a free lighting kit. No, for real." In addition to being vastly more convenient than giving people a Home Depot shopping list, this takes all the guesswork and risk out of getting the lighting for the video set up, and is also less socially awkward for many of their customers. ("Hey boss, I have to leave for a few hours to go search for the right brand of diffusion paper. Is that OK?" versus "click click Monday is going to be awesome.")

Win business with the free phone call

Virtually every engagement I ever won started with going from a lead to "I think I could give you some actionable advice about your product's marketing. Why don't we schedule an hour to chat about it on Skype?"

The agenda for the call was always the same: to convince the customer that there were things I could tell them that they didn't know, I would tell them things they didn't know, and continue doing so until I won the engagement. ("So I see you don't have annual billing on your pricing page. Do you offer annual billing? No? A lot of SaaS companies have found that that's a major win. Let me tell you a great way to implement it, you'll make 6 figures tomorrow...")

Towards the end of the conversation, after the client had more reasons to trust that I was not blowing smoke about my abilities, I'd pitch them on a formal consulting engagement and ask whether I should start working on a proposal. (Naturally, only if it would be a good fit.)

At many consulting shops, that is the basic game plan, but the proposal would involve delivery from other people at the company. For example, if my firm wasn't a one-man consultancy, I might be the rainmaking principal with delivery on many engagements handled by employees I had trained. This would let me concentrate on the highest marginal value activity (winning new engagements) and have delivery done by experts with a lower marginal cost than myself (the employees).

You can replicate this strategy in a product company: win "the engagement" with a free consultation, deliver "the engagement" with your product.

I'm shamelessly stealing from Erica Douglass here. Erica is a smart cookie who I've had the fortune to work with, and got out of SEO consulting to do marketing analytics as a product. (There is currently a rank tracker at Whoosh Traffic but I think her company is expanding out of the SEO niche, much like SEOMoz has as of late.) She is, obviously, very capable of giving companies advice about their online marketing.

So what Erica does, if you sign up for the free trial of her more expensive SaaS plans, is give you an hour of free consulting via Skype. It both offers independent value, makes the clients trust Erica more, and lets her guide their approach to using the SaaS product. Given that the LTVs for the higher tiers of her product are in the $X,000 to $X0,000 range, this essentially gives her a four figure an hour "consulting" rate. And she can always just withdraw that offer, or have it delivered by a team of specialists she trained, after the business scales to the point where doing it personally would make her unable to manage the rest of the business.

Free phone calls are another way to increase account LTV, by the way. Many of the customers with the highest perceived value from your offering make very modest use of your numerical quotas and/or features, and given no reason to step up to the higher plans, they might only pay you $50 a month even though they'd be happy to pay $1,000 if you gave them a reason to hang their hat on. The free phone consultation for people on the $1,000 plan is exactly such a reason.

("But Patrick, doesn't that make it a $X,000 phone consultation?" No, it's neither budgeted nor sold as a consultation. It's just a high-value premium attached to an operating expense small enough for an individual team leader to put on their company card.)

Consultants Could Stand To Learn From Product Companies, Too

I have a stack of tips for consultants on how they can productize portions of their business. For example, they can use many of the same techniques as product companies at the top of their funnel to get more leads, and they can also build productized adjuncts to their consulting offerings which allow them more predictable/recurring revenue in addition to their traditional engagement pipeline.

Unfortunately, it turned out that that advice was rather verbose. So I've broken it off into a second email, which you should get right around next Friday. I'm working on getting a more consistent editorial calendar for this list together, so expect to be hearing from me on a somewhat more regular basis.

As always, I'd love to hear what I can write about which would matter to you. Feel free to write me an email (hit reply, this is my main inbox) and ask for it. I try to read almost everything and I get back to most of it.

Until next time.

Regards,

Patrick McKenzie

P.S. Any other writers in the audience? I find I'm most productive when I can focus on getting thoughts into words, rather than when I'm fighting my tools. Unfortunately, most of my actual production of words happens in a WordPress or IDE editing window, and both of them force me to focus more on balancing tags and whatnot than actually writing.

I just purchased an iPad keyboard ("Logicool iPad keyboard cover", though I think that is the Logitech brand outside of Japan) and the Elements software for iPad, which is just a VERY stripped-down Markdown editor. It is easily my favorite writing environment ever, and (unlike my aircraft carrier of a laptop) travels conveniently even to cramped Japanese cafes. This email took probably half the time they usually take.

What Product Companies Can Learn From Consulting Companies

What Product Companies Can Learn From Consulting Companies

Extracted Page: https://training.kalzumeus.com/newsletters/archive/products_vs_services

What Product Companies Can Learn From Consultancies

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