Transforming both my business and myself - going from soft to hard, going hard-line with "no free work", and letting go of people and turning profit

[YelmisPravida]

Posted this in my personal chronicle, but I think it deserves to be its own post:

Serious changes going on in the business right now. This has forced me to change as a person and face fears I've not had the courage to face before. I'll summarize them here.

Thread 1: Loss of our largest customer resulting in new strategy​

In October last year, we lost our biggest customer. This forced me to let go of people. But I used the opportunity to restructure the business. The main change is that I made a commission deal with two of our employees, allowing me to put them 100% on marketing instead of delivery (they are much more suited to marketing and this is the role they've wanted for a long time). This allowed me to both cut costs and shift resources from delivery to growth.

This has since resulted in a cascade of effects. Mainly:

• In depth interviews with many of our customers by our new marketing team to figure out what they value, what they don't value. Surprisingly, our assumptions were turned on their head on some regards. This resulted in the next point: Change of service model. (We had thought that they came to us for the included services we offer - it turns out they value that after buying, not before buying.)
  • Lesson: Don't assume things. Find out.
• New price model where services are separated from the core license fee, and shifting our most time-consuming (hence least profitable customers) to this model. As a result, our least profitable customers have suddenly become profitable (both less work and higher pay!)
  • It was extremely scary to do this. "What if they cancel?". Nobody cancelled. We prepared meticulously, gave them options to reduce pricing if they didn't want to use any services, and explained the rationale behind the price raise and the new model. Amazingly, they were both happier and paying more and using less services!Pretty amazing.
    • Strongly recommended book: Untapped by James Ashford - this is the reason I was able to go through with this change.
• New product launched. More on this below. This will allow us to become more "software driven" rather than "service driven".
• New strategy: Focus on a single target group in a single market. This is the biggest change we're undergoing right now. We are following the methodology outlined in Playing to Win: How Strategy Really Works (strongly recommended) to create a focused, coherent, differentiated, hard-to-copy strategy that we will be able to execute.

Thread 2: Launching new product​

We have historically offered whitelabelled marketing and CRM software. We have recently found an awesome alternative that allows us much more customization. It's also easier, and our margins on it are 100%. Yes, 100%. We have one upfront cost for the subscription, but we can add an unlimited number of "sub accounts" (i.e. customers) on our end with no additional cost to us.

It also allows us a lot more customization.

This goes along with our new strategy to become a product-oriented rather than service oriented business.

Thread 3: Profit profit profit​

The step described above (charging our least profitable customers more for services while reducing amount of work) has worked wonders.

As a result of that, we have more revenue, and I have been able to let go of 1.5 people, reducing our costs.

We are once again profitable!

But we need to go further.

Next step is to consider whether we can and will go hard-line on charging for every bit of service (except technical support) we provide.

We have done some initial churn and profit estimations, and it turns out that, yes, we could do this.

If we go through with this, it will mean even less work, and even more revenue - resulting in us being able to reduce hours for freelancers (which is very very very hard - it is so heart-wrenching). But I can also raise pay for people who do the work.

This, in combination with the more product-lead approach, and putting the money that goes into "providing exceptional service" (that nobody pays for) can instead be shifted to more marketing, which may actually result in less net churn. But it is a bet.

Though even if the bet doesn't pan out, we will fill our cash buffer - and we need to do that, in order to brace for the large changes ahead with AI etc. So I still believe that it's worth it.

But this will be the hardest decision I'm going to have to make since starting the business.

Personally, I'm transforming from a soft "team oriented" leader to a "profit oriented" businessman. It's difficult. But to force myself to undergo this kind of personal transformation is why I decided to become an entrepreneur in the first place.....

 

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