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Beating churn in a knowledge-based implementation-first business
If your knowledge-based implementation-first business struggles with retention or upselling to strategy, this may help explain why.
Churn is expensive for a knowledge-based, implementation-first business. New customer acquisition is a lot slower than in a product-based or SaaS business. The relationships are more intimate, so we have a slower sales cycle and put more effort into discovery and onboarding.
Selling implementation requires showing the marketplace that you can do the work. It’s nearly impossible for customers to accurately judge this before the work is completed; however, fields vary widely when it comes to the ability of non-technical customers to assess the quality of work upon completion.
🎂 Product-based implementation is a piece of cake
Take a bakery, for example. If you order a birthday cake from a local bakery, you can’t be absolutely sure the cake will turn out well. So the bakery displays some of their prior work, positive reviews from prior customers, and the credentials of the head baker.
Picking up your cake is the first opportunity to gauge the quality of the bakery’s work. But you know what a good birthday cake should look like. And if you try a bit of frosting from an inconspicuous spot, you know how it should taste.
When it comes to everyday things from product-based businesses, customers generally can gauge the quality of the output upon delivery of the ordered product. The cake looks and tastes good, or it doesn’t. The chair is beautiful and comfortable, or it isn’t.
And to gain repeat and referral business, the product just needs to stay consistent. If you can provide a birthday cake as pretty and delicious as the prior one a few months later, now you’ve locked yourself in as that customer’s preferred bakery, at least until the quality of your output dips.
And not only will you get that customer’s birthday cake orders for a long time, you’ll start getting orders from their family and friends, too. And as long as you can match the beauty and quality of that first cake, this will continue.
🤯 Knowledge-based implementation is a struggle
But for knowledge-based fields—physicians, attorneys, accountants, consultants—customers don’t know what a good deliverable, prognosis, or strategy looks or sounds like. Instead, they either trust the output and its provider, or they seek a second opinion—and take their business—elsewhere. You can provide a stellar recommendation for your customer, but if she doesn’t trust you, it won’t matter.
But while both product-based and knowledge-based businesses rely on building trust through strong signals—portfolios, reviews, credentials—to bring customers in, knowledge-based businesses have to expand that trust to keep getting business from its customers.
In fact, knowledge-based providers have to go above and beyond each time just to maintain the relationship. As the old saying goes, “What got you here, won’t get you there.” Finding an extra $5,000 in tax savings last year was great, but you need to find another $10,000 this year, or your customer might switch to the preparer promising that result. Delivering clean financial statements each month by the 10th is great, except the business is growing, and the owner suddenly wants “more insight” from a firm offering fractional CFO services.
So to retain a customer with ongoing knowledge-based implementation, you quickly have to provide strategy anyway. The deliverable of a knowledge-based, implementation-first business carries diminishing value over time because the customer loses trust in its optimality. You maintain trust by increasing the value of the deliverable, but that requires innovation, advisory, or strategy.
🤔 Two solutions for knowledge-based implementation
I’ve seen two solutions to the problem of churn in knowledge-based, implementation-first businesses. The first is a change in offering. The second is a change of the entire business model.
The offering change is to sell one-off projects as the bulk of the business. Don’t worry about churn, because it isn’t the goal of your main offering.
A few website developers I’ve worked with have mastered this approach. They build out a new website for a fixed pay, usually paid upfront or 50/50 at the start and completion.
Of course, as a business owner, having a website built and maintaining that website’s usefulness on the Internet are two very different things. So the developer also sells a subscription to its SEO optimization service, or something like that. The subscription provides a nice bit of ongoing, high-margin revenue. But the bulk of revenue will always come from new websites.
The second solution is to switch to (or spin off a new business that is) strategy-first, and include limited implementation where appropriate.
For example, you wouldn’t expect an interior designer to pick up a sledgehammer and start knocking down walls the minute after you hire her. But you might expect her to coordinate the hiring and scheduling of the contractors who will provide the physical labor. Because identifying, hiring, and managing the right people to implement a strategy is itself a strategic matter.
But if the market sees you as a hammer-wielding contractor, you will probably struggle selling your interior design ideas. You may need to reset the market’s perception and expectations with an entirely new brand.
That’s the plan with my new firm. My current firm has positioned itself as a bookkeeping and tax preparation-first firm, and selling strategy has proved difficult. Retention also proves difficult because my typical customer perceives great value during the startup phase, but after a couple of years of growth and tax planning, the relationship stales.
I don’t want to provide strategy at implementation prices, and they don’t want to pay strategy prices to someone who has been doing implementation work.
And this isn’t sustainable for my business or me. I want to focus on strategy-first.