You run a service business and things are going well. But you have an appetite for a new venture? The excitement of starting something new? What about a spin-off business?
Here’s the process I used to start a wildly successful productized service business out of my consulting business (find the link to the business at the end of this article).
These are the steps you need to take:
- Identify the offering
- Develop a service-business model
- Test the idea and customer acquisition
- Execute 1-2 pilot projects
- Find a partner
- Find a CEO
- Keep risk and fixed cost low
- Watch it grow
Let’s dive in!
1. Identify the Offering
You already run a service-business. So you’re in a privileged position: You know your clients and their industry. And you have first hand data about what they’re looking for.
Map out past services
A simple way to identify an offering is this:
List all your past and active clients as rows in a spreadsheet. If you have more than 50, only focus on the top 20% clients that generate 80% of revenue.
Next, in the columns, map all the services that you provide.
Lastly, fill out for each client which services you provided for them.
Find Your Most Sought-After Service
Build a sum under all services and sort the services by highest count.
Doing this exercise, my result was clear. I had been in business for 1.5 years at the time, and we had a few more clients than in the example above.
While all of them needed something different, there was one thing all of them wanted: Standard Operating Procedures.
This was the best candidate for us to see if we could offer that service stand-alone.
Your distribution and services will look different than ours. But I am sure you’ll also find a service that’s almost needed by every client.
The key here is to pick one service, and one only. The whole point is to create a super simple spin-off. So resist the temptation to bundle things together. Get as granular as you can. And then pick the winner. Don’t add or bundle up.
2. Develop a Service Business Model
Now that you have a good candidate for a service, think about what your service business model looks like.
You will have some experience from delivering the service to your existing customers, so you’ll know a few things you like about it. And a few things you want to change.
You’ll want to decide on the following dimensions (please note that I’m only listing service business models here; there are countless others that are more product-based and could be equally valuable.
1:1 or 1:Many
Will you deliver your service in a 1:1 setup or will you serve multiple clients / customers at a time?
Done-by-you, Done-with-you, Done-for-you
Decide on the level of involvement from the client. In a done-by-you setup, the client executes most of the work, and you serve mainly as a consultant or advisor.
In done-with-you service models, both you and your client hold a considerable volume of execution work.
In done-for-you service models, you do the heavy lifting and the client merely gives you input and approves work.
Physical or Digital
While most personal services are by default delivered physically, there are plenty of services especially in B2B that can be fully digital. Decide what your service delivery is going to be like.
Simple is key
If you’re anything like me, your main business is great fun, but also quite complex. For the spin-off, you’re looking for something really simple. Simplicity here includes:
- Simple client relationships
- Simple offering
- Easy access to execution talent
- Simple management systems
3. Test the idea and customer acquisition
Now, the most important part. Test your idea. The earlier you can test it, the less time you spend on stuff that won’t workout anyway.
Test idea and offering in one step
This goes against best practice, but I recommend testing the idea simultaneously to your most promising acquisition channel.
The idea is only as viable as your customer acquisition is, so they go hand-in-hand.
For any test, you want it to happen quickly. This means that your way of sharing your offering with your target audience needs to be instantaneous. This determines the options you have.
Here are a few examples:
Landing Page and Paid Ads
If your offer is super clear, a landing page with some Google Ads (or other paid traffic) will be a good starting point
Landing page
The landing page needs to have a clear, value based headline that entices the reader to read on. It needs to specifically address your target client.
A great visual is key to building an attractive appearance.
The subheadline is your chance to explain in more detail what benefits your service will bring to the client.
The last key component is a crisp Call-to-Action (CTA). It needs to tell the visitor clearly what action to take (“Schedule a Call”, “Get your free offer now”) and a reason why to do it now.
Make your landing page irresistible by adding:
- Social Proof in the form of case studies, testimonials and reviews. For this test, you can draw from reviews of your core business.
- Some form of guarantee to reduce the risk for the lead (if you can offer one).
- A more detailed explanation of the service and what the prospective clients will be getting when buying your service.
Paid ads
Set up some paid ads to direct targeted traffic to your new landing page. Google is the most common starting point. But if you believe that your prospective clients are somewhere else
Other options
If your offering needs more explanation and a warm intro, you might consider creating a sales deck for the new service and sending it to contacts you already have.
These could either be in social networks like Facebook or Linkedin, or inside your email list.
Whatever other way you can think of to get your offering in front of the right people quickly will work as well.
Define what success looks like
To avoid dragging the test for a long time, define upfront what target metrics you’re looking for, what you want to test and what a successful outcome looks like.
Examples:
You might define success as 2% of the people you send your sales deck to booking a call.
Or you might define success as 1 call booked per 100 USD ad spend.
Whatever it is, be clear about it upfront so you recognize success when it’s there and can be realistic about it not working.
Test, test, test
Regardless of how you get your offering to the target client, you need to test different versions of headline, visual, subheadline and CTA. The same goes for the name of the new service.
At this stage, you don’t know if a lack of response means your offering isn’t good, or you’re just not advertising it in the right way.
Give yourself some time to test different versions.
We’ve found that an ads budget of 500 to 1,000 USD will give you a first idea whether your current combination of headline, picture and subheadline works.
If your offering hits a pain point and you get the right traffic, you might need less.
If you test different versions as described above, you’ll need more.
Execute 1 or 2 pilot projects
If you find interest in your standalone offering, the easiest way to learn how the new offer works is to run it inside of your existing service business.
The benefits are clear:
You have the infrastructure you need and you have the people that can execute the service (after all, they have done it before).
Lastly, you don’t enter into any additional risk and expenses because you don’t have to set up a new business.
Spin-off or business unit?
At this stage of the test, you will learn a lot about the new offering.
Who are the clients that you’re servicing and what are they really looking for?
What’s the right pricing structure, price level and type of engagement?
What’s the operating structure, what tools do you need, and what people will execute the service?
If all of these dimensions are fairly similar to your core business, you might just run the new offering as a business unit inside your existing business.
If the clients, the branding as well as the operational infrastructure differ significantly from your core business, then the new venture calls for a new legal entity, a spin-off.
Refine the offering
With what you’ve learned during the 1-2 pilot projects, refine the offering further. Make sure deliverables are on point. Also, you can collect your first testimonials.
Find a partner
At this stage, you have to make the decision if you want to invest the time and money it will take to get the new business off the ground.
This becomes a lot easier if you have a partner who can take over half of the workload and financial investment. While this is optional, I’ve found it to be very helpful.
After all, your resources are limited as you’re still running your main business.
Potential partners can be entrepreneurs in the same field as you are, even competitors. It can be CEOs of companies with complementary services (that help you enhance your offer). Or it can be CEOs of companies with a large client base and credibility in the industry you’re targeting.
Deal structure
Given that it’s your idea, and you’ve done the heavy lifting, you should aim at maintaining the majority voting and participating shares in the new venture.
The deal needs to reflect that you’ve had significant investments to get to this page, and the partner will join at a much less risky point than where you started.
Discuss the deal structure with your lawyer or an M&A advisor.
Also, make sure that you and your partner are aligned on or equally undecided about the strategic direction of the new venture. Examples could be building it to scale and then exit, or focusing on profit right from the start and keeping it as an asset.
At this early stage, there’s typically no right or wrong answer to this, but you should be sure that you’re not fundamentally misaligned on that topic.
Find a CEO
The most important step in your journey.
You can’t build a new company, neither can your partner (in most cases). So you need someone else to drive the idea forward and build a business out of it.
You need a CEO.
Finding the right person here will be a make or break point and is critical for the success of the new bootstrapped service business.
You’re roughly looking for this profile:
- Strong sales acumen (MUST)
- Combination of strategic thinking and hands-on approach (MUST)
- Entrepreneurial mindset, embracing uncertainty and willing to build
- Fun to deal with
- Patience
- Long-term thinking
- Great people skills
- High integrity
You can find these people over various sources. Your network is the most likely channel. Plain job platforms have worked for us (pretty unique, I assume).
In the interview process, make sure the CEO candidate shows:
- Understanding of the service and its benefits (ideally, but not necessarily with experience)
- Understanding of the industry you’re dealing with
- A drive to be successful
If you can find this person, you’ve just 10x’ed your chances of the new business becoming a success.
Keep risk and fixed cost low
To start out with, you need to keep fixed costs low.
After all, you don’t know if you can immediately replicate the acquisition success you had with your first 1-2 clients.
The biggest cost of your new service business will be people and advertising.
Keeping customer acquisition cost low
Advertising spend is a given. Try to focus on one channel only and don’t spread your budget across multiple channels.
If ads have worked for you, perfect them. In our spin-off, we have acquired our first 15-20 customers just with a combination of Google Ads and a landing page.
Once your business has traction and solid cash flow, you can add more channels.
Keeping staff cost low
I would suggest starting with the CEO you found on a part-time basis. If they have another job, they might like this model, too.
For the execution team, focus on contracted talent (where regulations allow that). This will make sure you stay cash flow positive from the start.
Be mindful about building infrastructure and increasing spend
As your business grows, resist the urge to reinvest every last dime (that is if you’re building for profitability as we did. If you’re looking for scaling and potentially bringing on additional investment, this might look different for you).
If your business has solid gross margins of at least 55%, you should focus on building cash and runway for your bootstrapped service business.
At one point, for our spin-off, we decided to only reinvest on a monthly basis what is left after generating a 20% net profit margin.
This way, you have a clear action plan on reinvesting in the company, and at the same time build up cash for future larger investments or dividend payments.
Watch it grow
The motto of this last stage is patience. Think back on how long it took you to build your first business to where it is today.
Give the new venture the time that it needs.
Have regular touch points with the CEO. You can spread out the intervals over longer periods as you gain trust and confidence.
And don’t get nervous when the usual growth is interrupted by phases of slow growth, stagnation or even a decline.
As long as there are no qualitative signs for this being a structural problem, and the period of stagnation doesn’t last for longer than 2-3 months, there’s typically nothing to worry about.
Service-business fluctuates. Especially when using Google Ads, you’re not fully in control.
Summary
Building a spin-off can be a fantastic opportunity to create a new service brand and enhance your portfolio of business.
If you have a killer service and a great CEO, the success is yours. These are the two main ingredients.
PS – here’s my service business that I started out of my consulting business – SOP Heroes.