It’s one of the biggest sand traps for firms as they start to grow – particularly for those founders that have built the firm from the ground up and who are known as scrappy problem solvers.
These founders and their teams become driven by finding the next new problem, and for some time, their intuition and pure hustle are richly rewarded. Then the firm begins to scale and there is a wonderful new batch of problems to be solved – many of them internal to the firm. However, when the founder next looks up, sales have started to flatten. Their first thought is, “This isn’t an issue, I know how to do this,” and they go out and find some new clients with new problems.
And in return for their business, you agree to solve them.
It feels good for awhile and then…
There it is. You’ve become a consulting house.
Do you have any of these symptoms in your firm?
- A Major Dropped Ball. This isn’t a small issue – there is a mother of all missed deadlines and it costs you real money. There is a quality issue that forces you to make a major refund or restitution.
- A Large Backlog. Your development team is “sold out” providing new features to clients that we have sold and “promised” your products and services. Many times this backlog balloons to years.
- Hand Holding. Every sale seems to need a development team member present. When they are present, they are pressed to commit to custom changes in the product.
- Selling More, Making Less. The margins are suddenly thinner and you’re not sure why. Even when sales recover, your profits don’t.
The Numbers Don’t Lie
At some point the CEO realizes that this is not just your average crisis that she is going to “hustle” through. Rather, this is a shift that needs a strategic answer combined with some really hard work.
What has happened is that the firm made an unintentional business model shift. When they were in the early stages of strong growth, they were a traditional firm with products that scaled to a customer base. They earned their first clients by solving their problems better than their competitors, with more service than larger firms would provide (because they were lean and hungry). The development team could keep up and all the clients were uniform, so everything went well.
Then at a certain point, larger firms became interested. But while small firms are willing to flex to use a solution, larger firms expect the solution to be conformed to the way they do work. This requires a very different product strategy to avoid the symptoms we highlighted above. Get it right and you get back on your path to scaling and growth (and a big jump in valuation). If you don’t address it and allow it to drift, however, at some point your board is going to have a very difficult conversation with the leadership team.
There is a pivot that will put them back on track, but there will be hard work ahead:
- Put a real product manager in place. This person needs to have the credentials of working through an issue like this. Specifically, they need to have been with a firm that has had the customer “over voiced,” and done the hard work of getting the product roadmap back in order.
- Get to work on product market fit. Which client segment can use 80 percent of your products features? Get really specific about the exact carve out of this customer group. This is the sales team’s new target.
- Turn off access to development resources. This will cause a very big blow back from your sales force, as they will need to develop new skills to hunt with “what’s on the truck.” They will eventually learn to sell the advantage you have, not burn the furniture to heat the house.
- Deal with the backlog. This needs to be led by the CEO. Once the 80 percent product map has been locked in and committed to, you need to contact each and every customer in the backlog and offer an incentive (usually something like extended warranty) and your heartfelt thanks for agreeing to use the product on the roadmap. If a client insists on the features you have promised, be sure that the compensation is appropriate for both of you.
I’ve worked through this cycle a couple of times in my career and it’s never easy. If you’d like to work through it together, give me a call at 847-651-1014 or use this link to set up a 20-minute consultation.
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