In this 3-minute video, we share some of the top reasons why your service business may be...
4 Reasons Your Service Revenue Is Inconsistent and How to Fix It
According to Service Performance Insight (SPI), the top two improvement priorities for services companies are:
And sales effectiveness as a close third. Unfortunately, many companies try the same tactics to improve these areas. But what I have found is that there is a major organizational gap to blame. In less than 30 minutes, I cover the most common reasons behind inconsistent revenue as well as explain the organizational gap that impacts marketing, solution portfolio, and sales effectiveness.
Hi everyone, and thank you for joining today's session. We are going to be going over the Four Reasons Your Service Revenue Is Inconsistent And How To Fix It. Just kick it off, I just want to quickly introduce myself. My name's MJ Patent and I am the CEO and co-founder of Alveo, a revenue growth consulting firm that helps service providers accelerate growth by enabling their revenue teams with go-to-market services.
Just some fun facts about myself, I was born in Lithuania and grew up in Chicago. Actually just celebrated 30 years here in the States. I have a two-year-old, so I'm learning how to be a new mom and I've been happily married for almost a decade now. I have a degree in marketing and biochemistry from Loyola, and my MBA is from the University of Maryland. In the last decade, I have spent building and scaling amazing marketing teams for several IT channel companies, ranging from SMB service providers to Fortune 100 distributors.
If you're familiar with STG, before they were acquired by Tech Data, I ran marketing there as well as vertical marketing at Insight, and most recently global marketing for Tech Data service's organization. That's a quick intro about me, so let's jump right in. I know I've timed this, and I'm hoping this is going to take about 20 minutes of your time and then leave it open for questions, but then that gives you back a whole 30 minutes to your day.
Common Revenue Journey For Service Providers
Today, really the things that I wanted to cover, it's the common revenue journey for service providers, as well as the four reasons that might be impacting revenue growth at your organization, what's the organizational gap is there to blame, and also what to do about it. Okay, so let's jump in.
The typical revenue growth pattern for an organization, now, I want you to tell me if this seems familiar.
Stage 1: Service Market Fit
The first stage of a services company is about finding the services market fit. You start a business and initially, you grow it by leveraging your network and your referrals. This is really learning to see if companies will pay for your services.
Stage 2: Go-to-Market Fit
The second stage that you end up entering is the go-to-market fit. The goal of this stage is to figure out where do you win, make sure you focus there, and then try to scale. The idea is to get to be more efficient and effective about the way that you sell.
Now, usually, this is where we have seen service providers bring in sales and they see an immediate revenue increase. All of that makes sense because now you have people fully dedicated to selling your services, but at some point, it ends up tapering off. at that point you hire marketing and once again, you see an immediate revenue increase. I've seen this time and time again because you do a rebranding, you have a new website, you start advertising which you haven't done before, and because of that, you see an immediate sense of impact. But then it tapers off and at this point, this is where we see a lot of companies get stuck. As I said, this is where you're trying to find your go-to-market fit, so that way you can scale. But instead of doing that, we see a lot of companies try to just add additional money, more resources, just in order to increase their revenue and they end up scaling their inconsistent revenue.
Stage 3: Scaling Inconsistency
Instead of seeing this hockey stick approach to your revenue, you end up seeing this scaling of inconsistency. Because of that, you're constantly running after your next deal and you're not hitting that sustainability. If you think you're in this cycle, there's a very clear way to identify that, and it's because of complaining.
In an organization, you're going to hear a lot of these types of comments and I included some that I commonly hear.
Our website is confusing.
Sales and marketing are not aligned.
We need better sales materials.
Our portfolio doesn't make sense.
These things come up and then you're struggling to figure out, "Well, which ones should I prioritize?" And at the end of the day, this is really just sales and marketing bickering, because no one wants to take ownership of the revenue inconsistency. It's always the other person's fault.
What do companies end up doing to fix this?
Unfortunately, they address the squeaky wheel. So here are some of the examples of common fixes that we find in organizations.
They hire more salespeople. "Well, if we add on one more person, they'll just get us into this new company or this other deal."
They replace leaders. Maybe the leadership team has the wrong approach to their sales methodology, or this marketing person is just ineffective.
They end up creating more data sheets. That's always my favorite.
But all of these things are fixes that are only bandaid fixes. They're not actually addressing the core issues that are causing the inconsistent revenue.
Top Reasons for Inconsistent Revenue
Let's go into what those reasons are. So drum roll, the four reasons.
Reason 1: Too Many Go-To-Markets
Let's start with reason number one, it's too many go-to-markets. When I say go-to-market, I mean the way an organization can engage with customers to convince them to buy their product or service and to gain a competitive advantage. For example, if you sell into healthcare and into public sector, those are two different go-to-markets because they have two different distinct selling motions. The customers are different. The buying journey is different. The pain points are different. Now, if you go through these questions and you ask yourself internally,
How many verticals are we going after?
Do we serve SMB solutions as well as enterprise solutions?
How many partner programs are you trying to support? Microsoft, Vmware, IBM?
How many regions are you targeting? Are you going after EMEA, as well APAC, as well as North America?"
And now think about how many dedicated resources do you have for the approach? A lot of companies, what we've seen is that they have way too many go-to-markets and it actually dilutes their resources and their attention. There's a study actually by Winning By Design that says that having this dilution can actually delay your ability to scale by 12 to 18 months.
People in your organization say, "I don't know where to focus." This is one of the largest reasons we see that there is a revenue impact and that inconsistency.
Reason 2: Services Portfolio Goes Stale
Okay, reason number two, your portfolio goes stale. Not managing your portfolio of services with intention, and the keyword is intention, can actually cost you significantly in the future.
For example, if one or two customers are driving what your services are or what you're offering as a solution, you may end up with a disjointed portfolio. You may also end up in a scenario where you just invested a ton of time and resources into a solution that no one else wants. Now imagine the worst-case scenario that that large client that asked you for that specific solution leaves and now you have something that you can't sell anymore.
Additionally, if you aren't paying attention to what the market is needing or expecting, your business will end up becoming outdated and new guys that enter the market will have a very easy time eating up your business. When you end up being forced to change, the amount of money that's required and the resources that are required to get you back on track will be enormous.
We've seen this again where organizations have acquired other service organizations and they put these portfolios together, but no one was actually managing the portfolio and when they started to look at what the market is requiring, they realized, "Oh crap, we to invest a significant amount into infrastructure to even be competitive at this point."
Reason 3: Ineffective Enablement
All right, reason number three is ineffective enablement. Now this one I think is very easy to spot if you have this problem in your organization. If your sales and marketing teams cannot clearly articulate your value to your ideal customer, then you have ineffective enablement. You're going to see lower conversions, longer sales cycles, and ineffective onboarding. If you hire a salesperson and they don't ramp up in the first 60 to 90 days, you probably have a gap here in the enablement section.
This is something that is becoming extremely important, especially because the way people buy, it's more about the impact that you're creating for your business, rather than just, "Well, what service or what SKU do you have to offer them?" So if you can't articulate that that's going to cause a lot of heartache later on.
Reason 4: Internal Misalignment
Reason number four, is internal misalignment, and this is a huge one. We have found that this is one of the key reasons why strategies end up falling apart. Corporate politics, different goals, and lacking communication all contribute to having your teams focus on the wrong thing.
Like I said with reason number one of being too many go-to-markets, if people are focused on different go-to-markets or different strategies and they're not all speaking the same language, they're not going to be able to execute your strategy. You really have to make sure that there's a lot of communication that happens within the organization.
Surprisingly, even small organizations, and I'm talking about companies with less than 20 people, they end up running into this just because they're not staying aligned.
I'm curious, why do you guys think this is happening in organizations and service providers? And if you can put in the chat just your guess of why this is the case.
Lack of Service Portfolio Management
Well, here's what we have found is that the reason why these issues happen is there's actually a major organizational gap among service providers. Now, to help illustrate this, we wanted to look at traditional products companies. In a product organization, there is this dynamic that exists between the different functions and products management sits at the center as a quarterback. My partner, Bruce Sherman who is also on the call, loves to say that product managers are responsible for everything and in charge of nothing because they act as that glue to keep all the areas of the business aligned and also align with the customer's needs. Now for service providers, think about the organizational structure, and do we have this type of function within the organization? Usually, you don't. What we find is that there's delivery, there's sales, and there's marketing, but who's in the middle of that?
Because of that, that's why we're missing that collaboration as well as the input of the who's actually managing the services and the portfolio to help keep everyone in alignment and for them to be more informed as they're running those businesses and those functional areas.
The key that's missing in a service organization is service management. And when I say service management, I'm not saying someone who manages services. This is where there's a lot of confusion around this. It doesn't matter if you call it service management or offer management or portfolio management, all of that is similar. This is the function that is a product manager equivalent. And surprisingly, you don't see a lot of people with this role.
In the past, we've tried to hire an offering manager and we've had to tap into people who have product management backgrounds in order to serve this purpose because it is so uncommon in services. Now you may even be asking, "Okay, MJ, so does that mean I just need to hire this person, and then they will fix everything and we will have consistent revenue?"
Well, unfortunately, that's not how it works and it depends. It depends on where you are as an organization.
Services Go-to-Market Maturity Model
What I have to share with you is Alveo's Services Go-To-Market Maturity Model. This is going to help you identify where you are and what's really needed to get you to that scaling and sustainability stage.
Maturity models are pretty consistent across the board and even services from an operational standpoint has their own, so these stages should seem familiar. But what we're looking at it is from a perspective of go-to-market. As an organization increases in its alignment, as well as its maturity of people, processes, and tools, it goes through five different stages.
The first is opportunistic. You're chasing every opportunity out there, you don't have a go-to-market plan, and everything's inconsistent across your sales and marketing. This is this really lines up to that first stage that I showed earlier, where a lot of your opportunities in the business growth end up happening from the founder or the CEO as they're building their business from referrals and their network.
The next stage ends up going into repeatable. This is where you start documenting and standardizing your services and your capabilities. You start to actually immerse a go-to-market plan and you put deliberate investment into sales and marketing.
We then move on to scalable. This is where you start investing in the infrastructure of the organization to really scale out your sales and marketing investments.
You then go into sustainable. At this point, you really have a great understanding of the customer, you are now expanding into solutions, and you're delivering predictable results.
Finally, you get into optimal. Optimal is really where you have a highly integrated and aligned relationship across sales and marketing and delivery.
Why is this progression so important? It's because as you go from left to right, you actually end up increasing the customer lifetime value and you start decreasing the cost of acquisition. At the end of the day, it has a huge impact on your revenue and that's the win that we're all trying to go after.
Services Go-to-Market Maturity Model Unpacked
Now, if we take this and we break it up across the three functions, this is what that looks like. Now I'm not going to go into each of these boxes, because that would be overkill. If you want, you could take a screenshot, you can save this for later. But the idea here is to show you the progression of the responsibilities in those function areas over time. What we have found is that many service companies actually have a problem transitioning from the repeatable to scalable section, from delivery to offering management. It's something that companies don't do, one because they don't have that function in their organization and so instead, they try to put those expectations on marketing or their delivery team or sales to figure out. The thing is those resources don't have the background or the skillset to do this work, so it just doesn't end up happening.
Instead what happens is marketing and sales continue to mature and they never receive input from their delivery partners about the market, the services, what's going on, what the customer expectations are, and what value are they creating in the market, so then the revenue ends up being driven and it's inconsistent revenue. They never end up reaching scalable or sustainable growth.
This is right here, the area where we're seeing the most issue in a service provider. Now, why is this important? It's because when you have a go-to-market strategy, the strategy ends up strengthening your execution. All of those components that your service offering or portfolio management team would be providing and informing your revenue functions about, all of that is crucial to have more effective execution.
Here's a good example, datasheets. Everyone loves datasheets for some reason, but if you don't know who you're talking to, then those data sheets aren't relevant to the person you're selling to.
That information wouldn't be there and wouldn't be concrete unless you have someone who is doing the personal work. Who is talking to your customers and understanding what are their challenges and making sure that everything you're putting out there is relevant to them? All of these things end up building upon each other and because those components are missing, this is the reason why sales and marketing aren't as effective as they could be.
Example of Holistic Approach
Now I want to show you an example of a company that has put these components together and the results that they were able to achieve. All right, so this is a Fortune 500 VAR/MSP. Now in the vertical space and this includes healthcare, education, state and local, and federal, they had flat revenue growth year over year. Their initiatives had extremely low conversions and everything was focused on vendor content and product features. All of their sales negotiations were based on the price. Sales and marketing didn't speak very often and were extremely siloed, so none of their campaigns were aligned.
What we ended up doing is we aligned across sales, marketing, and product. We made sure that all of the strategies had all three areas talking to each other and making sure that all of the goals were aligned to the same goals, so they developed buyer personas altogether. The content strategy, everyone was in alignment there. The campaigns were in alignment. Even to the point of sales training and who was able to those sales organizations were impacted by the three groups, so that way it met the business objective.
From that, they saw immediate results.
In the first six months, almost tripled their pipeline and you could see there, 364% increased pipeline. We're not talking small numbers. This is a $50 million business that they had to increase.
They accelerated their revenue. They were able to achieve their close revenue goal in half the time.
When we surveyed over 300 sales and marketing professionals, we found that we hit 74% improved collaboration, as well as 89% improved communication.
That really ties to the ability to execute on the overall strategy and then those results that we saw.
What to keep in mind
Now as you try to implement these types of changes in your organization and fix those problems, I want you to keep in mind a few things.
One, you can't add this to an existing employee. Either hire someone in this specific role or leverage a third party to help fill in these gaps and get you to your right stage of maturity and then you can hire later. But you don't want to do this to an existing employee because that person is going to be stuck in the day-to-day and they won't be able to address this. Also, you do need to have this type of skillset in order to bring all of the parties together, and as I said, make sure that you're giving input to these organizations, these function areas, sales, marketing, and delivery, without owning it and calling it their own.
Facilitate internal workshops for alignment. Like I said before, you'd be surprised how many small organizations can be siloed. I have found that internal workshops are best to make sure everyone's aligned, that they've bought in, and it's not one workshop and you let it go. You do a workshop and then you have to check-in and make sure everyone is staying the course. For example, I worked in an organization, we did this at Tech Data where we would bring all of the leaders together on a quarterly basis in order to talk about our strategy and how were we moving towards those goals, and if we had to pivot or not. It was a great way to make sure that we stayed aligned.
Documentation. Now, documentation seems like a pain, but it helps make sure everyone's aligned. Your definition of something is different from someone else's definition, so you don't want to have any vagueness. Documenting helps with that and also, you don't want that information to be stuck in someone's head. As you bring on new hires, the documentation is going to really help with onboarding.
Track your progress and impact. Now revenue is obviously the end goal, the consistent revenue. But there are other things that are going to show you that you are on the right track, like shorter sales cycles, increased conversion rates, shorter onboarding, and things like that.
And then frankly, just be patient. These kinds of things do take time. It's not something that can be done overnight and depending on the complexity of the organization, it can take anywhere from a year to taking several years. It just depends on how many go-to-markets do you have, how complex your portfolio is, etc. So just try to be patient.
That's it. I want to thank everyone. I will be sharing the recording link after this event, but I'm going to open it up to questions to see if you guys have any questions, and then always feel free to connect with me.
Questions and Answers
Where do you find companies struggle most moving to services management?
That's a really great question. I think it's actually the entire concept of services management and understanding what that requires. I think a lot of companies think that the people who are actually delivering the services, that they can manage the services as well. You see that all the time, but the thing is they can't because what they're focused on is the operational aspect of delivering the services. They are caring about, are their customers happy? Are they happy with the SLAs that they're meeting? Are they getting the response times? And they don't have time to be looking at the market and understand what are their competitors doing, what technologies do we need, etc. So they need that individual who's keeping an eye on the market.
It's just as a company goes through that initial stage of opportunistic, grabbing deals to bring in revenue, to get the business to grow, portfolio has a tendency to take on that 80/20 flavor because you're trying to satisfy the customers that are in front of you. You start to stray away from the changes in the trends in the market because you're overly focused on the business in front of you and it's very natural. And then to have to course-correct at some point, because you've built competencies around things that aren't necessarily in market favor, you've got to have to go and rebuild and that's costly.
Are you dealing with one (or more) of those reasons?
Contact us to learn how Alveo can help fix it and get you back on track.