Issue #5 - Future Work Is Here
The future of work, specifically how the pandemic accelerated the pace of change and its far-reaching ramifications. Plus a Q&A about scaling your service business.
In this issue, I talk about the future of work, specifically how the pandemic accelerated the pace of change and its far-reaching ramifications, and a Q&A about scaling your service business by rejecting the century-old default business model.
Keep the great questions coming. If you haven’t received an answer yet, know that you will! Want to send a question? Just reply to this email, hit me up on Twitter, or find me on LinkedIn. I will never share your name or business without permission.
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Until next time,
The Future (of Work) Is Already Here
We were pushed (aggressively) to embrace remote work when the pandemic hit earlier this year. Yet for people like me, I’ve been doing it for years, but we’re not the mainstream. Or rather, we weren’t. With that, all sorts of assumptions were shattered.
Articles, such as this one from The Guardian, signaling the great rebalancing and the rise of secondary cities (paywall), put into words what I was feeling and seeing on a small scale. It made me hopeful. The small cities that prospered in the middle of the last century, which have suffered from the pursuit of globalization, offer a compelling pace of life. Yet to move (or remain) there meant significant trade-offs. Until now.
I read A LOT. And, in building this newsletter, it has led me to discover so many other amazing newsletters as well. One such newsletter is Not Boring by Packy McCormick. He recently wrote on this subject and I don’t think I could do the subject as much justice as he has done. Not even close. His analysis is that good!
He opens by acknowledging a debate that is happening within our culture. One that will only become even more relevant as we begin our post-pandemic journey.
Specifically, he calls out three camps: Return, Hybrid, and Remote.
Return. “In this camp are the old school businesses and new school businesses led by more conservative leaders who want their teams to get back to the office so they can get back to real work.”
Remote. “The organizationally bleeding-edge companies were remote-first or remote-friendly even before COVID, and many tech companies have announced that they plan to let their employees work from anywhere even after a vaccine.”
Hybrid. “This camp agrees that things won’t be exactly the same, and their solutions range from ‘Maybe we’ll let people work from home on Fridays!’ to much more creative combinations. ‘Hybrid’ gets a bad rap because to date, it’s meant ‘most of us are in the office but some of you can be remote and Zoom in for meetings,’ but I’ll be referring to a more intentional type of Hybrid that treats everyone as a combination of Remote and in-person.”
Packy follows these definitions with a massive revelation that you need to be acutely aware of as the leader of your firm.
Missing from the debate is the fact that it’s not really up to the companies to choose. Employees will ultimately make the decision. The best employees have more options now than ever before, and they’re not going to work for companies that make them shave, get dressed, hop into a car or a crowded subway, and sit at a desk in an office five days a week with their headphones on trying to avoid distractions and get work done.
To help put that into context, he explores several avenues of thought that personally made me hopeful and cynical at the very same time:
The Remote Hype Cycle. “We all went Remote way too quickly. It’ll get better.”
The Risk of Return. “The decision isn’t up to employers, it’s up to employees. Companies that try to force a Return will lose the talent war.”
New Physical and Digital Solutions. “Remote won’t always mean Zoom, and the Office won’t always mean sitting at a desk five days a week.”
Implications of Remote and Hybrid Work. “The shift to Remote and Hybrid is going to change everything from work itself to housing, gaming, fitness, and so much more.”
Instead of a contrived attempt (by me) to summarize or regurgitate this excellent commentary, check out the essay yourself and come back here for discussion. I want to hear how you think it will affect your business so we can go deep together.
I want to encourage every one of you to ask questions. Reply to this email with whatever you want to know, and I’ll do my best to answer! I’ll keep everything anonymous as well.
This week we’re talking about scaling service businesses. One of the most dangerous mindsets in professional services is “to grow revenue, add more people” and it’s been festering for nearly a century.
Question: We’re about 20 people and I see potential to keep growing, but what I feel will happen is my profit will tank (at least early on) then I’ll have many more people on payroll. Just the thought of that gives me anxiety. Is there another way to grow without having to add people in lockstep?
I could take this in several directions, but today I’ll focus on unraveling people from revenue. The lady that asked this question, let’s call her Emma, is billing her people’s time to customers. Most (if not all) of you are as well — it’s been the default revenue scheme for longer than most of us have walked this earth.
Timesheets and the billable hour are single-handedly the worst things to ever happen to this industry. While presenting a simplistic path to incremental revenue, they kick you in any number of unintended ways. But I want to highlight three things, in particular, that are plaguing Emma’s business.
Income Ceiling - Emma has placed a limit on how much money her business can generate. There are only so many hours in a day and she has a finite number of employees. Unless she has found a way to add more hours to a 24-hour day?
Experience Tax - Emma will hit a limit on how much she can charge her customers per hour. If she can now accomplish a task in 4 hours that once took her 40, Emma will need to raise her rate 10x just to maintain the same income. But that’s unlikely given most customers would look for cheaper hourly options.
Incentive Mismatch - Emma needs to maximize billable hours, but her customer wants to minimize them. This is overly simplistic, but let’s hold on to this line of thinking to illustrate my next point. Both parties are focused on the effort, but that has nothing to do with the customer’s true motivation. The result they want to achieve has inadvertently taken a backseat to a misguided tug-of-war.
So, what now?
For this exercise, I’m going to make a big assumption here. Emma has a solid grasp on what the customer wants to achieve. The customer expects an explicit outcome — they haven’t purchased a glorified bucket of hours (more on that later).
What the outcome is, doesn’t matter here (as long as Emma is capable of delivering it), but we do need to acknowledge that it will either help the customer increase revenue or reduce costs. It is valuable to the customer.
With that, Emma has two questions she needs to answer before proceeding:
What is (truly) necessary to produce the outcome?
How quickly can a high-quality outcome be produced?
If you noticed, I’m looking to minimize effort. That flies in the face of billable hours. Emma wants to grow her business but doesn’t want to add people in lockstep. This is how you scale — you find ways to accomplish more with less effort.
Nail The Essentials
You need to carve up your delivery process to find the elements that make you the essential choice for customers. The 20% that produces 80% of the value. These are the pieces that make you stand out. Most likely they’re tightly coupled to empathy and opportunity costs. When you get them right, you produce exceptional results.
The essentials require talented humans. While aspects of what makes these elements highly valuable could be automated, you’re not striving for efficiency here. Your goal is to keep these parts “human”. They’re crucial for fostering relationships.
Hint: you’ll probably have to talk to customers to get this one right.
Eliminate Everything Else
Once you’ve distilled the essentials, determine how to ditch or minimize everything else. This is where repetition and abstraction come in. You want to engineer the work out of these tasks. This can look like a process accompanied by training and documentation or it can look like tools (software, hardware, etc.) that produce a consistent result. Or it can be a hybrid of both paths.
The idea here is that you’re investing in IP (intellectual property) that makes your firm more effective and productive than any other. You want to free up your people to focus on the aspects of the outcome that will produce outsized benefits.
Bake In Quality
If you can’t do the first two with any consistency, you can’t guarantee a consistent level of quality. This is where you engineer in guardrails in the form of milestones, check-lists, and in-person discussions. The more consistent you are here, the more consistently you can produce a high-quality outcome for your customers.
What I’m not advocating for here is a process that is so rigorous that you spend more time checking boxes than you do adding real value for your customer. If you’re not careful, this can degrade into an efficiency trap where you focus on completing tasks instead of questioning whether they need to be done in the first place.
Change The Price
Everything up to this point has been about producing value by focusing on quality, consistency, and human interaction. I never mentioned hours or timesheets. That’s because they don’t matter. I don’t care if it takes you 5 hours or 50 to complete an essential task. My focus is on the outcome. I only care about hours when you spend time doing something that provides little to no return.
Pricing must evolve if you want to scale your business. But I’m not going to get super in the weeds on it here. You’ll need to approach pricing differently. Think in terms of the value you provide, not the time you spend. This is harder than hourly billing but will set you up for greater success — and remove the income ceiling.
Analogy: Any easy way to look at this is thinking about your mechanic. Most likely, he doesn’t call out the number of hours he spends. He knows his pricing based on the result you need to achieve. It gets more complex than that, but you get the gist of it.
As a first pass, I’ll give you an easy way to get started. I don’t like this approach - mostly because it leaves money on the table — but it gives you a starting point and an incentive to iterate toward better results.
Start with your original pricing for now. The pricing that leveraged your costs (hours) plus a margin when you used to bill by the hour. This isn’t technically pricing — because the focus is on your costs, not the value to your customer — but it provides a likely path to profitability. Plus, your margin will grow as you automate the tedious, low-value tasks and construct guardrails to preserve high-quality results.
There is more to say here, but I’ll unpack individual areas in future issues. To scale your business, you need to produce more with fewer inputs. That in itself implies you don’t need more people to produce more revenue.
The biggest obstacles to scaling are the investments necessary to eliminate or greatly reduce the effort needed to complete low-value work and evolving beyond billing customers based on the number of hours you spend.
A glorified bucket of hours: When simply selling hours, it’s common to punt on the scope of the project. In return, the customer is less likely to get the result they need because it was never specified at the outset. They suffer and so do you.
If you have questions on any of the topics outlined in this Q&A, let me know so I can discuss them in future issues. I’m eager to hear your thoughts so comment away!