The 5 Growing Pains Of Service-Based Businesses In 2024 (And How To Overcome Them)
A service-based business is great because it is easy to start. You need no or only limited resources and can get going right away.
However, the tricky part comes when growing a service-based business from a freelance gig into an actual company.
Here are the five most common growing pains that service-based businesses encounter. And tactics to tackle them.
1. Formalizing an individual performance
When you start a service-based business, you deliver the service yourself.
Eventually, you see some success and start thinking about building a business out of it.
You bring on another person, tell them what to do and – it doesn’t work.
What’s the problem?
There are multiple facets to why your personal performance is well-received by the clients.
Examples include:
- Your deliverables are great.
- Your process is transparent and solid.
- You have a great way of communicating with clients.
- You manage expectations well right from the start.
- You are able to sense and react to the tiniest signals of unhappiness.
- You are able to spontaneously alter or modify your services to fit the client’s need.
- You act as a partner-in-crime for your clients.
All of the above is great.
However, it’s not easily transferable as a whole to another team member.
IDENTIFY WHAT MAKES YOU SUCCESSFUL
To solve that issue, map out what actually makes you successful. What is it that clients value in working with you.
Ask your clients directly why they are happy with your work.
Build a list of these things and then define, how (if at all) they are transferable to another person that works for you.
Examples of measures to systemize your success factors:
- Define your vision and mission
- Build out SOPs
- Defining your value proposition
- Setting up some best practice examples around how you service clients
- Set up standard responses to specific client requests
- Set up decision-making frameworks. This enables new team members to know exactly what’s part of your service offering, which additional tasks you might do as a courtesy to the client, and which topics are simply out of scope.
2. The circle of cashflow and capacity
The first few hires for any service based business are terribly difficult.
Why?
Because of the circle of cashflow and capacity.
You run your service-based business alone. Now you want to add a new team member to be able to bring on more business.
In order to do that, you’ll have to bring on more business. But in order to accept more business, you’d have to already have that new team member.
It’s chasing your own tail.
There are a few tactics that can help you break through that cycle.
WORK WITH CONTRACTORS
To get over that initial cash-flow issue, it can make sense to rely on contractors instead of employees.
Agree on payment terms with your clients and the contractors that allow you to maintain a healthy cashflow.
However, be sure to find a sustainable and regulatory compliant solution for working with contractors.
BUILD SOME CASH RESERVES
If you intend to grow your service-based business by bringing on employees, you’ll need some runway for that.
As a rule of thumb, you should have 4-6 months worth of their salaries in the bank account before bringing someone on full-time.
- They will need some time before they’re ready to hop on a client project.
- Depending on your terms, you’ll only invoice after the work has been performed.
- It may take some time for the client to settle the invoice.
You’ll have to cover the new employee’s cost out of your business’ savings.
3. Managing client experience at scale
What made you successful when you were still alone has only partly to do with the actual deliverables of your work.
Another important component is the client experience. It comprises the perceived value, ease of transaction, the rapport your build with the client and many other things.
You are in control of these things when you’re alone. They become harder to get right if you’re working on a growing number of projects, for a variety of reasons:
- You have team members. Each of them has their unique way of interacting with clients. Sometimes they’re great, sometimes they’re not.
- As you grow, you likely take on larger more complex projects that are more difficult to deliver successfully.
- You work with more and larger clients. The risk of working with a client that is not a great fit increases. With larger clients, you’ll be facing more than one stakeholder in the project.
MONITOR CLIENT SATISFACTION
The first step to manage client experience at scale is to monitor and measure it.
You can join a project meeting with each client once a month.
You can collect satisfaction scores like the net-promoter score at the end of a project.
Make sure you stay on the pulse of how your clients interact with your business. This will enable you to react quickly if things don’t go well.
CONTINUOUSLY IMPROVE
With your knowledge from the above, you can constantly improve client experience.
Your measures will depend on what you find. Examples include:
- Sending regular reports to make sure each client understands what value has been created for them
- Having defined touchpoints with each client
- Training your team on how you want them to engage with the client
- Having a customer satisfaction manager whose only job it is to keep your clients satisfied.
4. Standardizing delivery
Another growing pain is a highly variable nature of projects.
When you start your service based business, you will cater to many client needs that aren’t necessarily part of your core offering.
To an extent, that’s in the nature of any service. After all, the client is involved in delivery, so they will always be part of the equation. And influence delivery.
However, too much catering to client needs will make growing your service-based business impossible. The variety of scope, tasks and decisions will make it impossible to train a team.
STANDARDIZING DELIVERY TO ENSURE OPERATIONAL EFFICIENCY
In order to grow your service-based business, you need to balance two things. Providing your clients with valuable service on the one hand. And standardizing your delivery on the other hand.
A standardized service-delivery will enable you to train your team and constantly improve what you do.
An approach that can work well is working with a modular structure. You develop a tool kit of standardized modules, that can then be combined to a tailored offering for each client.
This will allow you to professionalize delivery while still providing a customized client performance.
5. Attracting and retaining the right talent
As you bring in more clients, your team grows as well.
As the personal relationship is key to the success of any service business relationship, finding the right people is critical.
Especially at the beginning, you will have a hard time acquiring the right talent. You typically can’t pay much, and the reputation of your company is non-existent.
PAY WELL, BE PATIENT
In our experience, there are two critical components that help solve this.
1. As soon as you have your lead generation under control, the availability of talent needs to determine growth.
The sequence is important: Get sales right first. But once this is done, you need to accept the fact that you have to find the right players to grow further.
Don’t be tempted to bring on the “best available” talent, if they don’t meet your requirements. You will risk your reputation, sacrifice quality and harm your growth in the long run.
Accept that sometimes, you need to wait to find the right person.
2. Charge high prices.
If you take away only one thing from this list, then let it be this: To build a successful service business, you need to charge high prices.
Competing over price in service is a downward spiral. If you don’t have enough margin, you can’t afford to train people, improve processes, staff your company sufficiently.
As a result, quality will go down, you’ll have to reduce your price further, etc.
If you have enough slack in the system, it allows you to get the client experience right, pay your team well and still have room for either unforeseen expenses or great profit.
Charge high prices.