Running a Lean 80-20 Service Business
While in college, I remember reading and becoming fascinated about the concept of the Pareto principle. The idea that in many situations, roughly 80% of the desired outcomes come from just 20% of the input or effort. I quickly learned that nowhere is this more true than in business. It was around this time when I discovered Tim Ferriss' book, The Four Hour Work Week. In it, he dissects work flows, routines, and business models into their essential parts and shows us how to optimize the return on investment of our most valuable asset as business owners, our time.
Getting the most out of our time and effort is critically important when running a service based business. However, Tim and other online entrepreneurs mostly talk about selling tangible goods, info products, or software as a service technologies that don't require much additional personnel or sweat equity to service each order. And who can blame them? Scalability and passive income is sexy. It is fantastic click bait and sells books. But what if your labor of love is labor intensive... like a food truck, plumbing, consulting, or video production business? Skilled trades all require our personal touch to deliver our brand's promise of quality and customer service.
So how can the 80-20 principles be applied to a service business? Well I've found a few ways.
CHOOSING YOUR CUSTOMERS
Especially when starting out, it's easy to make the mistake of thinking anyone who can use your service is a target customer. When sales are non-existent, there is a tendency to want to say yes to everyone. When I first started my business, I would make a video for anyone who called me. Friends of my mom who needed home video of their mother's 90th birthday party edited, local skateboard and wakeboard contests, mom and pop businesses that wanted a video but didn't yet have a working website. And while those projects might have been good learning opportunities or fun at the time, they did nothing to actually grow my business, or my bottom line. 80% of any larger market are people who are going to price shop you to death, be a pain in the neck to work with, don't truly understand the value of what you do, and won't help you attract more of the clientele that you do want. It is important to take the the time to really narrow down who your ideal customers are. For me, that has turned into medium to large size businesses or agencies. They are the ones who already have a marketing or communications department to provide some direction, assets like logos, fonts and color palettes, and immediately see the value in what we do. They are also less price sensitive than individuals or small businesses. Find clients or customers that don't require you to reinvent the wheel, who let you focus on your core competencies, and are more profitable. If 80% of your profits come from just 20% of your customers, you need to be chasing and delivering over the top service to that segment.
PICKING THE RIGHT PROJECTS
Just as finding the right targeted customers is important, so is focusing on the right types of projects or solutions for them. Likewise, just because you could or can take something on, doesn't mean you should. It is proven to be far more lucrative to do a couple things very well in an industry, than do a ton of things mediocre. What do you do extremely well that your competition can't really compete with you on? Make 80% of your projects, that type of project. The other 20% of projects can be passion projects, or other smaller odd jobs. Just make sure they're low stress and/or not as resource intensive.
At my company SmartVideo.pro, we don't make million dollar television commercials (though we appreciate them), nor do we make many product feature/benefit videos (though we do on occasion). Our strength is in our ability to understand our client's industry, organization, and culture while making their people feel comfortable enough on camera to share their best practices, challenges, or success stories. The result is videos that are more raw and real, but create instant value for our clients and their customers. If a new best practice is replicated across operations or sales of a large organization, that one video can easily save or make the client hundreds of thousands of dollars. This is value selling 101. By being selective of the types of projects we take on, price of the video practically gets taken out of the equation and the conversation becomes more about execution. Before accepting a project I take the litmus test of asking myself, "if I were in my client's shoes, would I be making this video and can I see the return on investment?"
HIRING ROCK STARS
Take a close look at how you're spending the time working on your business each day. If any one task is eating up more than 80% of your time and preventing you from doing other important business development activities, it's time to consider hiring out for that task. Are you the best or only person who can do this job? No, I want you to really think about it. Are you? I doubt it.
This is something I have personally struggled with for years, and still do. I think most entrepreneurs have a hard time relinquishing control, especially when our reputation and livelihood is on the line. Video editing used to be one of my favorite pastimes. I really prided myself in my ability to tell the story in a compelling way, finding the perfect music, cutting between shots or camera angles at just the right times. And it was fun. Until it hurt.
Once business picked up to the point where I was consistently turning down or postponing projects because I was back logged, I knew I had to change my mindset. I read about wedding videographers who had a 6 month or longer turnaround time on their videos during their busy season. The entrepreneur in me knew that was absurd and I couldn't be one of those production companies. So I took the plunge and started hiring freelancers.
Don't be fooled, there will be an adjustment period when you first start to hire someone to do your trade or service for you. For starters, finding the right candidate can be tough. Some might be a great personality fit for your company, but their skills aren't quite up to par. Others might produce a great end product but procrastinate, have a tough time communicating or taking direction. Take your time to find the rock star who can not only do the job like you can, but enjoys it and can do it better. Once you do, pay them well and pay them often. My grandfather always said, "fast pay makes fast friends." You will see your capacity for work, and revenue, increase almost overnight.
PURCHASING NEW EQUIPMENT, TOOLS, SOFTWARE, OR OFFICE SPACE
What is the camera (vehicle, wrench, software program) that will get me 80% of the results I want at 20% of the cost of the other professional cameras on the market? The big AHA moment came for me as it did for many other video professionals with the introduction of the video-capable DSLR (For a full list of the production gear were using today, check out our 80-20 Gear List). Since 2008, this form factor has kept our costs of equipment down while also giving us the distinct advantage of traveling light. allowing us to film for clients in their offices, branches, and other states. Before buying any new piece of equipment, I ask myself, "am I going to use this on 80% of my jobs?" If the answer is no, it is probably a specialy item that you are better off renting or borrowing on those rare occasions you do need it.
Office space or studio space is a huge monthly expense to take on as a small business just starting out. My suggestion is to avoid it if at all possible. You can get by simply by setting up shop in a spare bedroom, garage, or office in your home, or renting one from your landlord. In the instance that you need a larger facility, meeting space, or fully functional studio, just rent one locally by the hour or day and build the added cost into your project. This has helped my keep my monthly overhead extremely low. I am then able to pass some of that savings onto my clients by keeping our prices affordable with our profit margins still equal to or better than our biggest local competition.
MARKETING EFFECTIVENESS
Last, but not least, the 80-20 rule also applies to marketing your video production or other service business. The key here is to pay attention to your customers and do what works well for you. Every business, industry, and brand is going to be different. Don't be tempted to copy others in your field just because it's something everyone seems to be doing. For example, if your best customers are marketing or communications managers of large companies (people with extremely busy inboxes), a weekly email newsletter is probably not going to be very effective. Instead, just drop them a very quick personal note or phone call every couple weeks. Rather than being noise to their day by trying to sell them something, try to add value. Show them something they might not have seen that a competitor of theirs is doing. Share with them an idea you had for their upcoming meeting or trade show. If nothing else, it lets them know that you're thinking of them and their needs, as opposed to a very impersonal news letter.