Re-engineering your business model

Like about half the Internet, I’ve been reading Steve Pavlina’s Blog over recent days (sheesh, that guy is a machine). One thing that caught my attention was a comment on the often-heard statistic, “80% of businesses go bust within 5 years” .

Steve commented that, of the nominal 20% that survive, the vast majority end up doing something quite different from their original business plan. This meshes nicely with my belief that most business plans aren’t worth the paper they’re written on. Within a month, your nice ring-bound business plan is so out of date you have to waste another week writing a new one. Or just do what most small business owners do and put it in the bin and and wing it from there.

This has certainly been the case for me - my business model has morphed consistently over the two and a half years that I’ve been running Marketing Results. And further dramatic changes are in the pipes for 2006.

This article traces how my own business model has developed and some of the wrong turns that I’ve taken along the way.

How my business model has evolved

The impetus for starting my marketing consulting business was partly the fact that a cushy consulting contract with my former employer was showing signs of winding down. I needed something to go on to, and I had become very interested in high-leverage marketing techniques espoused by the likes of Jay Abraham.

Answer: A marketing consulting business!

On the surface, consulting sounds great. It doesn’t require stock, equipment or expensive premises. But there are some hidden catches. One is that any humbug can be a consultant, but it takes real smarts to sell consulting services.

In my case, it took at least a year to get a handle on how to market my services (i.e. to graduate from Marketing for Consultants 101). Then it took another year to decide on my current business model (i.e. fee for service Internet marketing consulting and lead generation).

Phase 1

My initial service offerings were a hotch-potch of the various skills that I had picked up in my previous direct marketing role:

• Trade consulting (specialising in the Japanese market)
• Direct marketing consulting (a fully outsourced direct marketing solution)
• Websites that sell (web design and marketing)

I had little success with this lineup. Apart from the relatively poor fit between the different services, none of our offerings were developed into a sufficiently compelling proposition for clients.

Phase 2

There’s a joke my Dad used to tell that goes like this:

Man to Insurance Salesman: Do you realise you need a licence to sell insurance in this state? Insurance Salesman: I knew I wasn’t selling any, I just didn’t know why!

Hey, I didn’t promise it would be a good joke.

This was my situation in Phase 1. Things weren’t working because the cash register wasn’t ringing, but with very little data to go on, it was hard to understand what the specific problems were (at the time - now with the benefit of hindsight and greater experience I could list them in about 2 minutes).

One thing I did know was that our offererings were far too broad and unfocussed. So I got rid of trade consulting (originally, that was supposed to be our lucrative core business) and added advertising copywriting as a stand-alone service. Direct marketing consulting morphed into general marketing consulting.

So now our service offerings were:

• Small business marketing consulting
• Websites that sell (web design and marketing)
• Advertising copywriting

A day or two after we changed the website, we turned on Google Adwords for the first time. That very morning, we received our very first enquiry for copywriting. At last, some positive feedback.

Phase 3

With the combination of our new service offerings and effective Google Adwords campaigns, new leads started to trickle in. Not enough to pay the bills, but enough to get a foothold.

At this stage, I remember our strategy was to first get smaller copywriting jobs and aim to convert them into repeat business and more comprehensive marketing projects. Copywriting was the “doorway service” that would lead to further work [that turned out not to be the case].

It was now a year since I started the business. The cash wasn’t rolling in like I expected, but we were making some headway.

Around this time I decided to enrol in Jay Abraham’s Internet Marketing Empire course, a 6-month mentorship program with a US$6,000 price tag. This was a huge leap of faith, and it meant dipping (further) into savings, but I felt it would be worth it if we could really build competency in one area (especially the area that had brought us our first few clients).

After starting the course (but not necessarily as a direct result) our sales started to pick up. We started two consulting contracts with new clients that would pay our bills and then some.

One of these turned out to be a huge success. The other client turned out to be a shyster with an aversion to paying their account (but that’s another blog post).

At any rate, things were picking up.

Phase 4

About 16 months after starting the business an acquaintance, Chris Khoo, came by my office to say hi and mentioned that he was looking for a job. Chris is a very good programmer with all the Certifications to prove it.

On the spur of the moment I asked him if he’d consider working with us. He said OK. I didn’t have the cashflow to pay him but figured that we could see how it goes for 3 months and reconsider from there.

Although the first couple of months were scary, it worked. Chris brought a new set of skills to the business that were effectively like pulling out an old steam engine and replacing it with a modern petrol equivalent. Because although we already had the marketing skills, our technical skills were severely lacking. Chris helped to correct that imbalance.

Phase 5

18 months after starting the business, we had started to focus more on Internet marketing consulting and “websites that sell”. There were a couple of reasons for this…

1. Our web projects were getting fast results for clients.
2. Most of the variables of a website project are within our control. With, say, marketing consulting, much of the implementation can depend on circumstances beyond our control.
3. Websites enable the work to be spread across a team. Marketing consulting tends to be me, one-on-one with the client, leaving us with excess capacity elsewhere

Red Flag: At around this time, we identified a problem. Namely, I was the bottleneck that was slowing down our capacity to perform work.

As our only copywriter, I was spending too much time copywriting and not enough time selling. While I was flat out, our other team members had excess capacity.

We tried to alleviate this problem by outsourcing copywriting work etc., but with poor results. This issue alone probably slowed down the growth of the business by 12 months.

Simple 80/20 analysis showed that revenue and profits were coming from websites, not copywriting (in fact, copywriting is probably negatively profitable), yet I found it very hard to pull the trigger:

“Yes, but isn’t it nice to have that one or two thousand in revenue that’s being generated by copywriting every month?”

The simple answer to that is that time saved on copywriting could lead to an extra 6 or 10K in revenue from more profitable website work. But sometimes it’s hard to do the obvious.

As business owners, we become attached to our business model. We grow more reluctant to take on risk on an ongoing basis, having survived the initial risk of starting the business. Now I realise that a certain degree of risk is an integral and ongoing part of running any business.

So it wasn’t until almost 10 months later that I finally removed copywriting from our website as a stand-alone service. As soon as I did it, I felt a weight lift from my shoulders.

If you’re wrestling with a change to your business model like this, just do it. You can always give the new change a 30 or 60 day trial, and if it doesn’t work out, return to the status quo.

Further changes ahead

Another series of events over the past couple of months have made me rethink my entire business model again. Basically, our current model is hopelessly flawed. It’s 10,000% better than the one we started with, but it’s still flawed.

Why? Because it relies too much on gruntwork and volume. Certainly, as the business owner, I do far too much of the 80% of activities that lead to 20% of results.

Our current model revolves around constantly getting new business. Yes, we have repeat clients, but because my focus is on obtaining new business most of the time, when we do work for repeat clients, it tends to be on a reactive, rather than a proactive, basis.

So I asked myself - why is that? The reason is because new business is much more profitable than repeat business, given our current service structure. Our current model requires us to continually chase new work to pay our considerable [$10K+] overhead, and the end result is that repeat clients sometimes miss out on ongoing services that could significantly benefit them.

Quantity at the expense of quality. It doesn’t make sense.

So in 2006, things are gonna change around here…

1. We’re getting rid of our city office and moving to a cheaper and more informal suburban office (all our work is done over phone and email anyway).
2. We’re laser focusing our offerings on profitable websites and online lead generation.
3. Proactive consulting services will be offered to our best clients on an ongoing basis. This will not only produce far better results for clients, but it will free up my time to focus on working proactively with them.
4. Our mantra will be “quality, not quantity”. My primary goals will be enjoyment and balance. When you have those right, profits normally follow.

Further updates to come

That’s the theory anyway - we’ll see how it pans out. Further updates will be added in 2006.

Will Swayne

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