Episode #9. Part 1: How to Build a Successful Service Company with Tom Libelt
Episode #9. Part 1: How to Build a Successful Service Company with Tom Libelt
Guest of the day:
Tom Libelt, founder of the “We Market Online Courses” and ex-CEO of a marketing agency “Libelt SEO”.
In 2010 he launched Smart Brand Marketing, a boutique small business consultancy, to bring smart strategies to businesses and organizations working within a tight budget. In 2015 that transformed into his current business which is We Market Online Courses.
Michael:How did you make money at scale? How to scale the business without actually hiring and growing internally? Obviously if you're not in product, so if you've not developing a SAS product or something where you can support thousands of clients with the handful team. What about when you build a service business? Do you have any kind of advice on how to support a lot of clients or as many clients as possible with having just yourself or just a few people in the core team?
Tom:What needs to be done — and this is different for every niche and in my niche, I'm still testing a couple of things - but you know any time you work on client work, even on high-end stuff, in the beginning, the best thing you can do is raise your prices as high as you can, and work with the least amount of clients for the most money. That's in the beginning of your business. That's just the best way to go. Anything else is just pretty dumb.
So you want to take ten, twenty thousand dollars from a client and just have two or three of those. But then as you start going through a lot of these guys, they're going to take up your time. They're going to tell you to do stuff which you just hate and you just say, no, I'm not doing ever again, and you make that clear to the next clients and the next ones, and eventually you will dial in six or seven things that you're doing all the time that you're pretty good at. You can still charge for it. I got an email today from someone I just sent a proposal to I think two weeks ago and I forgot about them, cause I'm just sending so many of these out and he's like, Tom, is there anything else other than this proposal that you want to say? I'm like, no, it's fairly simple. I'd done this a lot. It's just work. He's like, okay. He messages me back saying you were the most expensive out of all the people I spoke with; I still want to work with you. That's because of my pitch. I know what I'm doing. I narrowed it down to a couple of things.
Now those things are still a bit annoying so I still want to get away from those. So when you look at those few things, you start breaking them off even more. Like if you have six things, see if you can break up one and let's say a sweet spot could be anything between $400 and $700, and see if we can fit that piece into that price point where you can just easily outsource, get a manager. It's one thing. One thing is easy to train; consulting someone and replacing that, that's hard to train. One thing is easy, and you will try selling it in the beginning yourself a few times. You always want to get the sales conversation right before you start marketing because those are two separate things. Once you've figured it out, you create a sales page, you send some people through. Hopefully, you have a bit of an audience. If you don't, you cold trap. It is cool. You've got to go where people are and see if that thing sells. And I've just done this one of these pieces.
So what usually happens is you'll sell 10, 20 and you're going to get a lot of people doing stupid shit with it. You know, Oh I can't figure this out. Okay, we've got to create better instructions for this. Oh, can you do a custom thing? Even from a simple thing, they will just be like, can you do that? And you'll do it and you'll realize, that sucks. I don't want to scale that. So we're going back like we're only offering this from now on, or maybe you like something and you just be like, Oh that's cool. I sold you this for $500.
I can sell a very similar thing for $900 and the whole goal with that is to take yourself out completely from the sales process, because if the sales page is selling if all the instructions are channeling to customer service and if the fulfillment is super easy, you can outsource it. That's scalable and you can go all in on that. But it needs to be a piece that's simple enough where the most, you would need to sell it is one or two emails, and that's something that someone else can do instead of you. If you got to get on the phone, that doesn't work and you're doing something wrong because you shouldn't be getting on the phone for something that's for $700. It has to be at least $1,500 all the way to $35,000 or more. That's when you get on the phone, but for a piece like that that you want to scale, you shouldn't have to be on the phone. Ideally, you shouldn't even need an email or two. They should just buy it from a sales page. It should be a no-brainer offer and it has to be simple enough for a second. You can easily outsource it and throw people in, follow this process and you can always get the same results and that's the best scalable model in the service world.
But once again, it does take a lot of knowledge in your industry to get that right. Usually, it's very rarely where you just come off the bat with something like that and be like, Oh, I made it. It's very rare Usually you do need to know your market and the best way to know your market is charge the most that you can and get a couple of clients and just doing that. So I find that's the best way of scaling a service. So people call it productized service these days.
You probably heard about that — that term, but it's pretty much the same thing. It's just something easy that you don't need to personally deal with, and the output needs to be very clear too. This is where marketing services won't work. It would need to be more of like we help you write these four pages of content, or we help you edit these four pages of content or we help you with graphics for these pages. Do you know what I mean? It has to be very easy to understand a thing that's like, okay, clear input, you give me this; clear output, you get this out. Can't have variables at the end because that's going to cause problems with customer service, so that's the way to scale. And there's a lot of businesses that scale this way.
We can look at Design Pickle, WP Curve. There's a lot of them that scaled hugely like that but to do that, you need to lower your prices to a decent... and if you get recurring in there, which the ones I mentioned are all recurring, that's the gold mine with a service business. So you don't need to be a product. That's what I'm trying to say.
Michael:It's a very fair point, Tom. What do you recommend for companies that are making five, fifty, one hundred thousand dollars per client and they have a sophisticated product line of service, where there is a team of people involved in the delivery process, so it's not just about editing or about the very simple process of delivery? It's more like a stretched, complex process of detailed work. A lot of components are in play. Is there any way that you can still scale it without expanding a lot? Obviously outsourcing some of the work for sure, but do you get my point?
Tom:Yeah. I've only seen a few big agencies like that scale. It's a very rare thing. It's a crappy business model for scaling. It just is. If it's not something that you can have a process behind that works every single time, it's just going to be a pain scale and you're going to grow exponentially and your profit margins will be pretty crappy too because you're going to have a bigger team and a bigger team and a bigger team. So for people like that, and they probably already know this. They grew up like that. Is that the business you want to be in? You know it, I know it. You've got a crappy business model. It's one of the worst. And then it's just a point like, you want to continue growing this, cause at some point if you want to replace yourself and all this stuff and bring the high-end people in like the CEO, CFO, all these positions, you need to restructure the business completely and your profit margins will be horrible.
And then once again, do you still want to continue? I've seen a lot of people stop. They got the company to where it's around 70, 80 employees, which is insane already and they know to get to the next level, it's going to take having that whole upper management change. It can't be just you anymore. It needs to change to grow it and they just said no, they didn't want to do that. It messes up your lifestyle. It messes up everything you've been doing and it's up to the person. Do you want to get into that business model? I personally don't like it. I think it's the worst business model possible.
Michael:Right. Yeah. That's why there are so many companies that are scattered, like the small companies and you can just name let's say a handful of bigger companies that are successfully pursuing this business model. Interesting. You raised a very fair point here and also I think that as you mentioned, everything depends on the personal goal. What's your exit strategy? Why do you do this? Is it that you want to make your first capital? Is it that you wanted to make an experience, connections, that's your first business and then you want to move forward with something more interesting? I think that not many people want to do this their whole life, their whole career pursuing this business model because it is tough because you need to always do this extra push, not just with your clients but also with their team, because if you have 1700 people, the great chunk of your time is taken by the team when you do a lot of internal processes, internal meetings, restructures, planning and all of that.
I think that this model is still possible, due to the fact that there are a lot of platforms and technologies nowadays that allow you to automate and optimize all of those processes. So you can have a distributed business model where there are a lot of people scattered around the world where you can, let's say not outsource but have an office, let's say in Ukraine, in Philippines, in India, where you can outsource some of those top of the funnel basically, or some of those more generic work and then cut some costs. At the same time, you can build without any internal micromanagement so you can have without middle management, like a delivery team and then the sales team and then marketing. Would you say that this is something that could help and then you can automate that through let's say Slag, Zoom meetings and then don't have an office so cut costs there as well. Cut costs on some taxes because you have a team there.
Tom:This is all the same thing. This is what works when you have that lower end item that's systemized, that's got the same input and same output every single time. In that case, this is what you're building. So if I have that piece that I told you about that you sell for between 400 and 700 bucks and it's the same thing, easy to scale, easy to train because it's one simple thing then yes, you just outsource the team to build and a team to sell it, if you even need the team to sell it because if you need the team to sell it, you've done something wrong.
It should be selling itself. It should be a simple product. Well, let's say you do. Then yeah, you build that, but the ones were are talking about where you actually take on the higher end clients, enterprise clients where you would actually need 70, 80 people. That's not going to work.
Those companies, there's going to be two things a big company wants to know what your team looks like. Where are you working? Most of them don't want to deal with this distributed team thing. Most of them don't. Everything's going to be a custom job. If someone pays you two, three hundred thousand dollars or a million, I know what comes with that. It's going to be a pain in the ass and you will need to have those clients to support 70, 80 people. So every time I talk with some of my friends who are still in that stupid business model, they're all whining that they have to make $200,000 this month just to break even and pay for the team. If I make $200,000, $190,000 of that is mine.
You know, it's a different thing, and I can take smaller clients, but I still don't want to do that because even if you take 35,000 from a client, that usually means it's a small job for a big company or it's a pretty big job for a smaller company and it's going to be a pain in the ass too, cause the big company is like oh, we want this, this and that because they think they're doing you a favor. Not really, and a small company is like, you know, this is like so much money. You know, maybe you should help with all this stuff so it's very time-consuming. So anytime you deal with those numbers, it's just painful. You need to be on call, you need to be around and that's the worst business model.
Michael:How would you differentiate yourself to stand out from the competition and make sure that the clients are coming to you and not your competitor?
Tom:So the way I do it is I'm very strategic. I post insightful stuff where my clients are. The podcast I have brings on people from different markets, pretty higher-end people to show social proof. It brings people who would be my perfect clients, which shows that I know what I'm talking about, and it shows people from within my industry that kind of gives that network effect. Like he deals with all of these companies in the same industry and then I've done enough where I actually have the right skillset, so you can't really call me out on anything cause I've done it.
So part of it is being in the right place with the right message, which I think most people get wrong. That's the big thing. They're posting on social media constantly not getting any traction because I'm not your perfect client. Why in the world am I seeing this? You know that's a big problem. And then a part of it is consistency. I'm not saying to be super consistent. I don't post every single day. I might post once every two weeks, but the thing people will say about my podcast more than, oh it's a great podcast is oh you've been doing it for five years. Most people quit after one. Do you know what I mean? That type of consistency.
The biggest thing where people are scared in the online space is that you're not going to be around in six months. You're just following these come and go things. So overnight success will take you a couple of years, cause that's the trust thing. So sometimes you need to be in front of your customer long enough where that's all that it takes to get them to trust you. Just be in front of him for a year, and I've seen this already. You know, I spoke with someone a year or two ago. They've seen me again and again and again. After two years they said I want to work with you. You're the best. I'm like, how do you know? And you just can't convince them that you're not the best because they've seen you so much that they're just, you're the best. But it's all about being in the right with the right messages and kind of being consistent.
Don't post like an idiot, but just get in front of them once every few weeks with a good message and that's hard when you really think about it to do it for years. It's hard, but that's really all it takes in a small market.
Michael:And to add to this, I think also it's worth mentioning that you also need to work with your customers and create a lot of exposure with them, so you don't need to be afraid of the results. If you can actually deliver, then you need to talk about this. Create case studies, create reviews, ask for clients to refer businesses to you. We've seen that if you consistently build your exposure where you put your efforts and your mind into a case status, when you share a lot of numbers, your approach, how you did it best, why it works for your industry, what clients or service from what industry, and then you do that consistently and you build this library of knowledge that you share and you do that for free and you're not afraid that your competitors can use that, because you have already moved a few steps ahead of your competitors.
Whenever a new client comes into you and sees this whole mass of information that you consistently collected over the years, you build a brand for yourself and you didn't put a lot of money into that. So you are just consistently building this for a month or years and then at the end of the day, it organically helps you to convert clients and you can add this information, not just for the case studies, but also like a podcast as you mentioned. It's additional touchpoints that show your expertise. So would you agree with this statement?
Tom:Yeah. Yeah. I think that's very correct. The only thing I would add is one, don't ever do anything for free. I've got case studies, but I've never worked for free for anyone and never will. They should all be paid. And then you might just not reveal who the person is. You show the case study, show everything, but just don't do any free. Don't do any favors. It doesn't help in the long run. And two, don't make two of the same case studies. So when you have clients coming in, you're looking for different problems that they had within your industry. So for example, if you solved the problem in different ways, you want to show those case studies. Like one of them, the funnel was broken. I fixed their funnel. That's a good case study.
I'm not going to do that again. This one, it wasn't selling and then we tried a webinar and I fixed that. That's a good case study. This one he had good cold traffic but no remarketing and I fixed that. Do you see what I mean? Don't create multiples of the same thing because that doesn't help. It clutters and having too many case studies is not a good thing. It's better to have three or seven, a very consistent smaller number than having 20 that people would just keep scrolling and they never make a decision. Well, you have to know your customers. So to me, I only have I think three or four on my website, but they are the most common problems that I solved, and I just show the one way how I solved each problem. And it's not enough to overwhelm people.
They'll be like, okay, he knows what he's doing, but it's not enough for them to just keep reading or like, Oh, I'll go back to this because it's too long. You never want a customer to be like, Oh, I'll come back to this. They should be able to digest it in a couple of minutes and be like, hi, I want to call. I want to get going with this guy. Yeah, there's a danger of too much.
Michael:Yeah. And they shouldn't be looking very generic. A lot of companies are putting as you said, like 20, 25, 50 case studies and all of them are the same images, the same product and you are just scrolling through them and you never engage with that.
Tom:Yes, it's monotonous.
Tom:So just one would be enough for that unless you have a different method. So I see this with some of my clients. That's why I'm mentioning this. That's a dangerous zone with case studies.
Michael:And all this, whether you need to do something for free for your clients. We've seen that first if you put in the contract right away when you start the engagement that if you guys are successful if we deliver on the promise then we want this case study video or a case study article to be posted on your behalf on our website so we can use that in marketing. And very often we've seen that customers that are really satisfied with the result that you delivered to them, they are okay with this because you delivered on the promise, especially in the service business, especially with the competition stuff because we are right now discussing the buyer from the seller perspective.
But from the buyer perspective, it's also tough to select a mentor because there are so many of them. They're very similar. You receive a lot of messages to your inbox about the very next offer and you just don't know who to trust or what to do with it and that's also the challenge.
Tom:So a part of that and then I get these messages where some people said like, okay there's you and there's someone else, and usually once again I'm more expensive but other than that there's not really much difference... So why choose me? And it's always the personality. So if you go to a lot of websites and you've seen this — the company website is your personality. Generic bullshit, you know. There's just nothing to look at. Having sort of a personality so like my whole company, they started to know how I am so everything that comes out has a little Tom to it, and then everyone feels that and it helps buyers make the decision, cause if you don't have anything else to go with, they're going to go with someone that they like or just kind of engages with them more.
I'm not saying go too public because if it was possible I would want everyone to know my name, but no one to see my face ever. Fame is not what I'm looking for, but if it's possible to get your personality out a bit, it's going to help. It's got to be consistent through the whole website, through your messaging, through everything and then I find a lot of people buy from me because of that. They'll be like, oh, everything was the same. You are more expensive, but I want to work with you more because I just think we are on the same page but that's just because of the personality thing. So those are things which are not easy to replicate, but that's where everyone's got their opportunity, because I can't take your personality so if they like yours more, you're going to win every single time. But the problem I'm seeing is most companies have zero personality and then it's an easy choice.
Michael:Yeah. Because they don't have a personality because they didn't figure out why they're doing this. Is this something that I'm doing just temporarily, as a few months and that's it, or I'm building something that will stand or something that I can use later. Or this is like my baby that I grew here and it reflects my personality, what I am, what I do, who I am. It's interesting and to address this point that you raised that you are always expensive, they're saying that my competitors are always less expensive than I am, and that's true.
Michael:That's true, and you need to speak on this in the very first meeting saying that if you're looking for some cheaper version or something, here you go. You know who to talk to but if you want the quality, you want the result, I'm your guy.
Tom:I don't even really do that. Most people don't get even through my funnel without the kind of not knowing this. So there's a lot of points in the funnel where you just see that I am definitely not... A lot of people just don't book the calls and things which is great. That's what I want. My sales page, it's not as much about bringing people in. It's more about turning people away. So I want all the people who would be wasting my time, and thankfully I have barely any of those, to just go away.
But it's just a comment I get a lot when people talk to a lot of their friends cause there are two different types of customers. Those who will go with you immediately, ones who we just don't trust anyone and they will go with you after like I said a couple of years, and then you have those who want to test the waters. It's like that guy who wants to see 50 apartments before he picks the right one. And most of those people that like to pick a lot, they're very price-conscious. That's usually the ones that if someone says like, Oh, I got to talk to 50 people more. Immediately you should know — price-conscious. But from all of those, that's what I hear. I'm the most expensive, most expensive, but yet they still want to work with me. And then you've got to kind of wonder, well why? Why would a price-conscious people still get attracted to what I'm doing?
Sometimes it's hard for me to figure out so I try to dig deeper, and it comes down to that personality thing and just being very straight to the point. So if I see something, I will tell them like okay. The sales page is good, but this is not. This is not, and they kind of feel like, oh well no one talked to me that directly, but that just comes from the experience. I'm not going to hide, like, well this could be better or that's fine. And the funny thing is like someone that spoke with me recently, I told him the sales page is fine, this is fine. And they were like, really? Cause the last two people said I need to fix my sales page. I looked at it again and I was like, I think that's all they do. And then you got to be careful with those people too, like the surgeon that's only cutting. And of course, if you ask him what should we do? Well, we should cut now. So it's like they don't get the whole picture but that's a part of the experience. But the pricing thing, it's a difficult man, because I spoke with a few struggling businesses too.
And this is why I can't always showcase studies because in my industry it's a little sad but some of the people who are marketing are actually acting like their the one's marketing, you see what I mean? They can't even market their own stuff but yet they try to market other people's. So I sometimes tell my clients, I'm like, look, I'm going to put case studies out, but I always change the name and the gender and everything because I know my industry sometimes. I'm helping someone who is acting like they're the expert, you know what I mean? So you would never get that case study unless I change everything around.
But these things depend on industry, like how things work. But the pricing thing is like, I don't know. I really never had the issue with the pricing, but maybe that's because of having enough leads coming in or I just believe in my value so much that I think people see that too.
And I'm not going to buckle down like, Oh, can you do it for half less? No, definitely not and I'll never go back to this person and be like, oh yeah, we can do it for half less. You just move on and go do your thing. Maybe just being completely the opposite of desperate, like having that confidence. Maybe that's what it is, but I don't have as many pricing issues as I hear from some of my clients that do deal with us.
Michael:Do your customers often ask you what your guarantees are? What is your stand on what you should guarantee in the service business?
Tom:This depends. So if you're doing something where there's a clear input and output, there should be a clear guarantee, but if you're doing anything like marketing, who can predict the future? You're paying for my expertise, you're paying for the best shot you have at making this work, but is it going to work 100%? If I told you that I would be lying cause it's like saying the stock market will move in this direction even if you're an expert. You don't know. So I tell people how much of a shot they have percentage-wise. Some people I would say like this is a 50/50, and without me it's probably a 20/80.
Michael:They are probably still going with you, right even it's 50/50?
Tom:Yeah, and some of them will say like well what's the worst-case scenario? And in some cases, I'm like well the worst-case scenario I think will be breaking even months after I'm done. You know, once you get my fee away and then you keep working with the system you should break even, but that's been my experience. Now is it possible what we are evaluating never happens? Very possible. We could give our best shot, do everything right and luck's not on our side, because you can't discount luck — ever. There are just so many things where people did everything wrong and just got lucky. When you get things right, don't discount that.
When you get things wrong, don't discount that either. Sometimes it is just that - luck. So you can mitigate it as much as possible, but in some things like marketing, you just can't ever completely say like, oh no, I've got this thing called luck cause if I did I will be at the casino right now.
Michael:Yeah. Actually, for my business, I got lucky and it actually helped me a lot when we nailed down the guarantee part where I can clearly measure the deliverables and I can guarantee that about the contract as well as I can speak clearly about the end result, and then we can measure the results in a month, in two months, in three months, in six months, in 12 months. And it actually helps not just in sales but also helps to better communicate the process with the clients because then your expertise is at the same level.
So whenever you start the campaign, you can clearly outline the process. You can outline this is where we are, this is where we want to go and this is how much money you're spending and this is how much money you want to make at the end of the day, because whenever we do an investment here at Belkins, we also are not very comfortable with starting something which would don't see a clear outcome from, because then you say, okay, well why don't put the money in something else?
And I think that this is the part of the value proposition that a lot of companies, you know, there's a lot of going on where people are still talking about, well you are not successful because you didn't nail down your ideal customer profile and then your value proposition, because still there are a lot of companies that don't have both. And I think that having a clear result/outcome helps to kind of to package your value proposition. Like starting with the clear onboarding process, clear deliverables, clear reporting, clear result measurement gives you the ability to kind of package your service offering and it's better from the sales standpoint, from the labor standpoint, and from a scalability standpoint.
And this is to support your point at the beginning of the session where you said that if you want this to be scalable, it needs to be a process. It needs to be a repeatable process with a clear income and outcome, and I think that at the end of the day, yes, I agree partially with that if you have this very sophisticated service process and it's difficult to scale it, but if you look at this more strategically and you kind of split it into different parts and create a process out of it and then you can delegate that, and then you built-in a training program and you can focus on hiring, then I think you're still can be successful to a certain level.
Tom:To a certain level. But anytime you get into those big amounts, you're going to have custom stuff and then your process gets derailed and something's got to happen which is not used to happen, and then it's hard to do it with your team. That's the thing. So for like medium size campaigns, yeah, it's usually not too bad, but I know that the bigger ones with this stuff like there's always something custom that happens or some problem that is almost impossible to have in a process every single time.
Michael:Why then are software development companies growing that big? Is that specific of their work that you can assign several engineers or several teams to work with the enterprise client and they're making a few million dollars and you are just mitigating the risks, or why are the software development boutiques growing to a few thousand employees more and there are hundreds of those companies out there? Is there just this specific...?
Tom:Software is very different. There's a clear output. I'm going to create this piece of software. There's A, B and C. It's not like I'm going to run these campaigns where we're relying on third-party companies like Facebook, Google and messaging and competition and then want this result. You can never predict if you put a dollar on Facebook without actually testing it how much you're going to get out. You can predict that if I put this line of code in that makes the program do this thing that you want, it's going to do that thing that you want. It's a different output.
You can still predict because you're writing the code, wherewith things like marketing you cannot predict. Again, anyone who tells me is a liar. If you haven't run a campaign and you throw 100 bucks and this keyword and that, you don't know how much you're going to get back without testing. There's just no way of knowing it. All you know is that you've put a hundred bucks in and you've got to wait.
Michael:That's why many agencies wanting to do something which they can measure. Agencies always start with some full-cycle marketing agency. When you start to put the website design, then you deliver it in the website design. You made the design, you create the content, you have this check to say, okay, this is what I did, and then you pay me a retainer. So in this way, you leverage some of those rights, but if you're selling is too sad, if you're selling just advertising or SEO as a multi retainer, it's impossible to measure what the outcome is.
Tom:The outcome is impossible. That's what I mean. It's very hard to scale that properly because the companies that that's grown in the US it's called men power and all it does is I will find a person to be with you for a certain amount of hours as a temporary worker and you pay us. That's the only output. Has this person shown up? Yes. Did they work for eight hours? Yes. I'm done. I don't care what they did. I don't care about anything else that happened. Did they do that? That's what you're paying me for. Were they sort of qualified? Yes. But that's the output. That's where the output ends. That's your guarantee.
My guarantee is that I will get you a person with the right skillset and show up on time and work for those hours. But if now this company guaranteed that they're going to do a certain thing and that thing's going to have an outcome, they couldn't scale. So you have to define your output. Like with me, it's like, okay, you're going to get my expertise for pretty much 10 hours. I'm going to write an action plan. I'm going to give you the best plan possible and help you implement it and you've got a great chance at winning. But if not, go with someone else cause they're going to give me the same thing. So you get to pick your battles here. Which coach do you want on the NBA team? Will that coach guarantees the success? Okay, I hired Phil Jackson. Are we going to win the fucking NBA championship? I don’t know. I don’t know.
Michael:Yeah, there are a lot of variables there.
Tom:But you've got to think about that. It's like bringing me on your team. It's like having a LeBron coming to the Lakers now. That's the best player in the NBA. The best player. Does he guarantee that they're going to get the championship?
Michael:He just increases the chances, right?
Tom:Yeah, but by a lot, but does he guarantee the championship? Can he say bringing me on this team... come on Lakers, bringing me on your team, I guarantee you the championship? He cannot. So that's the same thing with having a valuable player like me. You know you've got the best chance but can I guarantee it? I don't know. Can LeBron?
Michael:Or like whenever you hire someone who helps, right? Whenever you hire a person you don't like in your injury you'll say, okay, would you be able to guarantee that you build this for me? And then I hire you. You just want to get the best person out there to work for you, but you don't want them to guarantee you a certain performance whenever you hire them.
Tom:Yeah. So that's the whole thing with guarantees. Sometimes you just cannot.
Michael:Can you talk to me about the exit strategy? So you have this business. You have clients. You have your messaging right. You have your funnel right. You're making some money, but it's still kind of a small business. It's like a lifestyle. So you can spend, let's say, we get to the point where you are spending 10 hours per day. You're making let's say 20, 40, $50,000 per month, and then what's next?
You just have that on the back end working for you, making some money for you and that's it and then you're doing your own thing, or you can sell it out to someone, you can merge with someone. So what would you suggest to be the best exit strategy in the case where you have the small business? Or at the same time, what is your strategy when you have an agency that is struggling. You have 50 75 people. You're making, let's say $200,000/ $500,000 per month, what should those people do with our business besides just handing over their gloves and just shutting it down?
Tom:I mean, there are not that many choices. Like in mine, I've always run other things on the side which are more productized and I always try new things to see if I can create more productized things, and those are easy to sell. Having an agency, it's almost impossible to sell this. Unless you're working in an industry where there is someone else who they want to take over your clients, you kind of have some recurring things, maybe a good list, maybe they want to steal some key employees, then you can probably sell it.
Otherwise, you have nothing. You created yourself a job with just some people helping you, and that's why I said it's the worst business model. It's the easiest to make money, but don't ever wake up thinking you've got a really good business. You don't. You have golden cuffs. You're still in this jail of having to work and not being able to really make any moves, but you stay in it because you can make a lot of money quickly. So as long as you're not fooling yourself, I think that's okay.
Michael:Well, you cannot make a lot of money yourself. You can increase your revenue, but then you have this slim margin so you're not still making a lot of money.
Tom:Well, I'm thinking more about my example. At one point I was just a very high-end boutique and the money was really good. Only high-end clients and I pretty much had all of the income because my margins are very big. I don't have many employees and I wish I had none, but I still need a couple. So it was fine, but I never fooled myself that it's anything else that it's not. I know it's a shitty business model. That's why I keep building other things. But sometimes it's just the best way to do, and especially if you can afford to pick and choose your clients, it's not a horrible position to be in.
This month I can say, I don't want to work with you, I want to work with you, don't want to work with you, you, you, you. No, go away. I'm fine. I'm set for the next month. I'm super comfortable. It's not a horrible way to go through things, but I'm never fooling myself into something that it's not. I still know that it's just golden handcuffs. I'm comfortable, but I have to keep growing other things that will make money without me. So I always have those on the side. So if something happens and I can't work for a year, I'm still okay and those things I can sell. But the service business itself, if I'm gone, there's not much value here. My employees will be lost.
Michael:Tom, did you have this mindset all the time or when was the time when you got to the point where you say, okay, I need to change something or here's how it should be?
Tom:I didn't have the same mindset all the time, but I did know that I always need a support team and I always need a system. So even my service business, the first thing I've done is hire people to help take really annoying things that I just can't do off my plate, like hiring, firing, managing people. Is he working? Is she working? That's the dumbest thing I could be doing with my time. But I've gone through a lot of these business models already.
You know, I've had the SEO agency, I have a book publishing thing, I have a product I service, I had the other agency. I went back and forth between things and I have enough friends who are in e-commerce and software and agencies and I just kind of see the things for what they are now, and you just have to kind of be like, are you okay with what you're doing? And always remember if things are going too well, that means you're on a lucky streak and those don't usually last very long so don't take the foot off the pedal at that moment and make sure you're thinking about other things like when this stops you have a plan B already in place.
I think it's just been doing things long enough, because I've been in one or other kinds of businesses since I was 16 so this is over 22 years now, and you go through a lot of different iterations of this and then at some point you'll realize it and it becomes very clear that you know what you're doing, you know what you're getting yourself into. You also see a way out but the scariest thing is when I was running it before, full confidence, without knowing whether it really is, and it's good to have someone kind of open your eyes and be like, okay, well yeah, things are great, but what if they're not?
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