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How to Make Billions Selling Nothing – The Story of Red Hat

The following story is a preview from an upcoming book about how commercial service contractors can earn “money for nothing” by rethinking the way that they present and deliver the services that they provide their customers.

I left IBM to join Red Hat in late November of 1998.  Red Hat would record five million in revenue in 1998 selling a software collection on compact discs (CDs) to computer science enthusiasts in retail outlets like Fry’s, CompUSA, Egghead, and Best Buy.  All of the software on the CDs was also available for free online, but in those days the Internet was still a bit slow for most people, so the CDs were more convenient because installing the software from CDs was faster and easier. The collection also included useful user manuals to help with installation and setup.  Fast forward twenty years to today and almost all of the software that Red Hat provides to its customers is still available for free on the Internet, but somehow Red Hat is a worldwide enterprise worth more than twenty billion dollars with annual sales of about three billion dollars.  How is that possible?  How can Red Hat make so much money for something that is available for free?  Because Red Hat is a “money for nothing” premium brand.

One of my first tasks, after I joined Red Hat, was to determine why all of these computer geeks liked Red Hat so much, and what, if anything, the company might sell to them or their employers that was worth more than the fifty to sixty bucks they were spending on a CD collection at Best Buy.  Shelley Bainter, who works with me here at ServiceTrade, alongside Hilary Stokes and Marty Wesley began setting up “customer Friday” events every week to quiz Red Hat customers and users on their experience with the technology and the company.  Our goal was to understand what was important to them, and how Red Hat might use that information to make a more valuable product.  The company had an initial public offering of stock on the NASDAQ exchange in August of 1999, and the shares jumped from about $20 per share to about $150 per share in a few short weeks. With huge expectations and a monster market capitalization of about twenty billion dollars, it was critical that we figure out a premium product strategy.  The company still had no clue what to sell potential customers, and we certainly did not want the shareholders to figure out that we didn’t know what we were doing.

Well, we weren’t fast enough.  The share price plummeted from one hundred fifty dollars to about three dollars over the course of the next few months.  But in the midst of incredible employee anxiety and shareholder lawsuits, we discovered something that proved to be very, very valuable.  We discovered from our research that the more experience a customer had with Linux (the name of the software collection that Red Hat distributed), the more they valued easy and quick access to the maintenance package downloads provided by Red Hat.  These highly experienced Linux users were keen to keep their server systems in top working condition.  They did not want their critical servers to be susceptible to security flaws or operating errors that might disrupt their business.  They readily indicated that they were willing to pay Red Hat a premium to be certain that nothing ever happened to their systems.

With validated information about why Red Hat was valuable to its most knowledgeable and experienced customers, my product marketing team set about defining a premium program that would allow customers to pay for a subscription to the maintenance packages delivered by Red Hat engineering.  Coincident with our efforts to formulate a scalable product plan, the press became involved in describing Red Hat’s business model (we couldn’t yet describe it, so someone was going to fill the gap). Red Hat was a high flying stock (before the crash), and journalist and technology pundits were keen to weigh in with their opinions of whether or not any business model would actually emerge to sustain the shareholder value.

The press told the world that Red Hat sold “support” for free software.  Unfortunately, our customer prospects took this to mean that if your free software “broke” you could call Red Hat to fix it.  Nothing was further from the truth.  Our most valuable users told us that AVOIDING system failures was most important, not fixing problems after they happen!  But the “break/fix” story was a simple message that was widely promoted in the technology press.  A “break/fix” business model is a miserable model. You engage with your customers when they are under extreme stress and every revenue opportunity is an emergency.  By definition, the relationship will be stressful and challenging.  But it was easy for the salespeople to talk about it, so that’s what they began trying to sell.

No matter the musings of the popular press, my product marketing team knew what Red Hat needed to deliver to be valuable to customers.  We released two products in 2001 that, taken together, represented a premium subscription program.  Red Hat Network was a management console that helped customers update and patch systems, and Red Hat Enterprise Linux was a well-defined set of free software packages for which Red Hat promised to deliver prompt and quality maintenance.  We priced these based on the number of computer systems under maintenance and the type of application workload these systems supported for the customer.  This pricing scheme aligned the value of the systems and their consistent operating performance with the amount the customer paid.  Perfect alignment, right?  Not exactly, because the press has poisoned the market with their “break/fix” news story, which resulted in a lot of uncomfortable conversations with large potential customers.

I got to lead most of those conversations because I was promoted to run sales for the company after I negotiated the first seven-figure deal the company had ever signed.  The sales team was not yet comfortable with all of this new messaging around maintenance instead of “break/fix.”  So I nominated myself to go show them how it was done, and I got my first opportunity when Cisco Systems of San Jose, California reached out to Red Hat for suggestions on how they might simplify and streamline their Linux technology systems and applications.  The biggest deal the sales team had closed to that point was in the low six figures. When Cisco signed a multi-year seven-figure deal, the formula that I had used to sell them became extremely interesting to the rest of the company, especially the sales team.  I happily accepted my promotion to run sales, and off I went to have a bunch of uncomfortable conversations with high profile customer prospects.

One of the first calls that I fielded was from someone that worked directly for the Chief Information Officer for BankOne in Ohio.  BankOne was one of the ten largest banks in the country, and it was run by the visionary executive Jamie Dimon.  They would later merge with JPMorgan Chase in a deal orchestrated by Dimon, and today the combined JPMorgan Chase, headed by Jamie, is one of the largest and most admired banking and financial services conglomerates in the world.  Clearly, this was an important prospect for Red Hat, and they had approached us about helping them with their Linux strategy.  The person responsible for Linux made it very clear to me that they were not interested in our maintenance product strategy, but they would sign an agreement to call us when they needed technical support.  He wanted me to come to Ohio for a meeting.  I told him there was no point in me coming to Ohio because we did not offer what he was looking to buy.  I referred him to our competition and told him to call me back if he ever had a change of heart.  The CEO of Red Hat was beginning to wonder if promoting me to run sales was such a great idea.  BankOne was gone.

Fortunately for both me and Red Hat, I was having other conversations that were going quite well.  One of them was with Rich Breunich, then the global head of technology for Citigroup, which was actually the largest financial institution in the world at the time.  In a meeting with Rich and his team, I explained our maintenance business model to them.  “A break/fix model means we are incentivized to provide customers with technology that breaks all the time in order for us to grow our revenue.  This model delivers the highest revenue when things break.  But we don’t want to collaborate on technology with you only when things are broken.  We want to have a more thoughtful relationship where we collaborate continuously to give you great technology that never breaks and exceeds your expectations.”

Rich’s staff was having none of it.  They pounded the table and puked on my grand vision.  They explained to me that every major technology publication asserted in article after article that Red Hat sells support for Linux, and by God that is what they intended to buy from us.  Rich, however, was in my corner, and he settled the matter quickly by siding with me.  Citigroup did not want to incentivize their vendors to deliver shoddy products in order to increase revenue from break/fix support, he explained to his staff.  They would happily pay a premium for great technology that performs without aggravation.  Certainly, Red Hat was available when things go wrong, but that should not be the basis of the relationship.  It should be the exception, not the rule.  Like Cisco, Citigroup signed a multi-year, seven-figure deal with Red Hat.  Now my sales team was off to the races.  They had a premium formula, and they had a leader that would back them up as they engaged in uncomfortable conversations with high profile market prospects, even if that meant walking away when a large prospect like BankOne did not agree.

Does any of the Red Hat story feel familiar?  Do you find yourself selling service features that are defined by your customer and by low-end competition? Break/Fix? Price? Labor Rate? Parts?  Do the sales people race to the lowest common denominator to declare a win?  And then dump it into the lap of the service department and move on?  All of these things were true for Red Hat as well, and yet they managed to break out of this mold of break/fix misery and create a multi-billion dollar brand by collecting “money for nothing.”  

When Red Hat turned the corner financially with a scalable model, I was often dispatched to investor and press meetings to explain how we were making so much money selling free software. My message was simple.  Red Hat offered customers “a predictable outcome for a predictable price.”  Sure, they could download a bunch of free technology off the Internet and cobble it together, and in some cases that might work out OK. In the most important cases, however, not having a reliable vendor for critical systems was not acceptable.  Putting the hardware vendor in charge was also generally a bad idea because all they want to do is sell more hardware, not optimize outcomes.  Hardware vendors get paid more when systems have marginal performance and the customer requires more hardware to support the load.  Red Hat was perfectly positioned to help them get the most from their hardware and systems through a managed technology maintenance program.

There are several important lessons in the Red Hat “money for nothing” story for the commercial service contractor:

  1. Break/fix support is a terrible business model.  Your brand becomes associated with stress and chaos at the customer.  Earning more revenue means the customer is experiencing more trouble. This model does not end well for the vendor.
  2. Selling what the market is buying is often not a good idea.  All of Red Hat’s competitors simply said “yes” to the customer’s break/fix support request because that was easy.  They got exactly what they deserved.  Almost all of them went out of business after the Linux frenzy subsided.  Be willing to have the hard conversation with the customer to get a better outcome for both you and them.
  3. Know who you are and the value of your service model.  It is not enough to say “no” to something that is obviously bad.  You have to offer the customer an alternative plan.  You need to sell a premium program.
  4. Say “no” to the customers that do not buy into your vision.  Better still, offer them the contact information for your competitor.  Let the competition sully their brand with miserable customer experiences while you strengthen yours with long lasting and scalable relationships.
  5. A subscription revenue model for a technology maintenance program is an extremely lucrative business model.  Service contracting is not incredibly different than Red Hat’s model.  Red Hat found a position of authority relative to the system vendors (Dell, HP, IBM, etc.) by offering a branded, third-party system maintenance capability.  Customers could turn to Red Hat for advice on which technology subsystems were most scalable and reliable.  As the manufacturers in your segment seek to exert more control on the customer maintenance program, you need a strategy to push back and become the technology expert that the customer trusts to deliver optimum system performance.
  6. Don’t let the manufacturers of the hardware take your seat at the table with the customer. System vendors are generally terrible at customer service, and they are incentivized to sell more systems.  Be certain you build skills and collect data across a broad swath of hardware brands to offer the customer the insights and outcomes that they are seeking.
  7. Focus on engineering and innovation.  The only way you will get to set the agenda (as opposed to a hardware vendor or another contractor) with the customer is if you have the expertise to optimize their outcomes through your premium service program.  It is better to get paid for what you know instead of getting paid for where you go.

Red Hat is a terrific example of how a “money for nothing” strategy can be used to deliver incredible customer loyalty and superior business results.  A premium system maintenance program gives the customer the “nothing” that they want – no breakdowns, no budget surprises, optimal performance – while providing your business with a predictable, high margin, subscription revenue stream.

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Snakes on the Roof!

Every popular book or movie generally hues to a typical formula.  A hero faces a daunting challenge and makes a big effort to overcome trouble.  The reason this formula works is because humans are captivated by trouble and drama.  Jonathan Gottschall, the keynote speaker for the Digital Wrap Conference, documents in great detail the human attraction to dramatic story in his book The Storytelling Animal.   

Here are a couple of the money quotes from the book:

“Human minds yield helplessly to the suction of story.  No matter how hard we concentrate, no matter how deep we dig in our heels, we just can’t resist the gravity of alternate worlds.”

“Stories the world over are almost always about people . . . with problems.  The people want something badly – to survive, to win the girl or boy, to find a lost child. But big obstacles loom between the protagonists and what they want.  Just about any story – comic, tragic, romantic – is about a protagonist’s efforts to secure, usually at some cost, what he or she desires.”

If you want to keep the attention of your customers and get paid a premium for your services, you need to give the customer some trouble.  That sounds crazy, doesn’t it?  “The customer doesn’t want trouble!” you retort indignantly.  “Quite the opposite, in fact.  The customer really just wants nothing!  No breakdowns, no disruptions, no aggravation, no hassles.”  

And I couldn’t agree more.  But the problem with delivering nothing is that your service is taken for granted, and you will get unplugged from the account by “one truck Chuck” when he promises a lower price.  You can almost hear the customer now responding to Chuck’s low price pitch:

Nothing ever happens around here!  Why am I paying these other guys so much?  Chuck, thanks for saving me some money!  You won the business with your low price!

Of course, Chuck will screw it all up, and pretty soon the “nothingness” that was taken for granted will become a series of disruptions, breakdowns, hassles, and aggravation.  It doesn’t have to be this way.

 

You can give the customer what they want, which is nothing, as long as you are regularly finding snakes on the roof, snakes in the riser room, snakes in the ductwork, snakes in every nook and cranny of their critical equipment.  Of course, these are figurative snakes, not literal snakes.  The snakes are the equipment deficiencies that your technicians are recording with photos, audio, and video for the customer to review online via your Service Link. The deficiency snakes are clickbait that constantly reminds the customer how your diligence keeps them from getting bitten by disruptions and breakdowns which inevitably lead to hassles and aggravation.

The customers are only human.  They can’t resist clickbait.  Clickbait is a good story that shows how you have charmed and corralled the threatening snakes to save them from trouble.  When they open your online quotes offering all manner of snake traps and snake killing repairs and upgrades (mind you, no snake oil for the customer!), they are practically gleeful that the hero of the story (that would be you) has again prevailed over the devious equipment snakes that were plotting to harm them.  Approved! If you want to keep your customers for the long term, give ‘em some trouble by finding some snakes on the roof!

Also read:

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Get Busy Growing

“It comes down to a simple choice, really . . .  Get busy living or get busy dying.”  

            —  Tim Robbins as Andy Dufresne in The Shawshank Redemption

Growing your business is a simple choice.  And if you are not growing, the business is in decline, whether you realize it or not.  Equilibrium is dangerous, and it is also difficult to maintain.  The slightest perturbation will knock the system out of balance and cascade it toward its natural inclination.  If that natural inclination is growth, growth will continue.  If that natural inclination is a decline, the decline will hasten.  Growing is the better of the two choices, and it is actually easier and more fun than the alternative – grinding away just to keep what you have already.

Why do I say that growing is easy?  It is easy for many reasons, but foremost among them is because talented people gravitate to growth.  And the opposite is true as well.  If your business is growing, talented people will come aboard and stick around to advance their interests, while using their talent to build your brand.  If you are not growing, you will find yourself surrounded by dead weight on the payroll that you must lug around to achieve the results you desire.  You will work harder and achieve less, and that is no fun.  Less work for more pay is a better alternative.

So, how are you going to grow?  So that you can attract better talent, work less, and earn more pay?  A good place to start is simply committing the organization to growth.  Say it out loud to everyone.  “We are going to grow!”  Then set targets and build a plan, because it won’t happen just because you say it (although saying it helps). Here is a simple set of ingredients that I find work well in a growth recipe.  You can modify and add others, but these make a good start.

Choose Your Customers – It is difficult to grow when customers are a source of aggravation and heartache in the business.  Who wants more of that?  Choose customers that you actually enjoy serving, and who appreciate what you do for them.  Fire the others as quickly as you can, or raise their prices until they are forced to fire you.  The simple act of choosing good customers will give you miles and miles of credibility during your organization’s journey to consistent growth.

Keep the Customers You Choose – Great service businesses are built upon long lasting customer relationships.  Set up your service programs to maximize the outcomes for your best customers.  If you can eliminate customer churn, your growth every year will simply be the additional customers you add through the sales cycle.

Add New Customers – If you know the type of customers you want, and you also know how to serve them well, and you have a sales team that you pay to go sell to them, you should grow every year.  Simple logic, right?  If you cannot add customers, then you need to determine if your salespeople are ineffective or if your service program somehow is not attractive.  If you have already been successful in the first two principles above, you might need to replace your salespeople.

Commit to an Apprenticeship Program – If you know you are going to grow, you will need skilled labor to service the customers.  In case you have not noticed, there is a skilled labor shortage. It can be very difficult to hire quality trades people to deliver the service in the manner that keeps the customers you choose.  Go ahead and commit the resources to hiring, training, and developing talent to support your endless growth cycle. Always be hiring. The pressure of the growing payroll will add urgency to the sales efforts of the organization.

Offer a Branded Service Program – It is far easier to rally an organization around your branded service program than around platitudes like “integrity, honesty, hard work, motherhood, apple pie.”  Be specific in the creation of service programs and features that define your brand.  Commit to technology innovations that establish the bedrock of how you deliver service so that the organization can actually enjoy growth instead of being crushed by it.  “Work harder and care more” is NOT a sustainable growth strategy.

It may feel risky to you to strap on a bunch of ambition and commit to growing your company year after year after year.  It is far riskier, in my opinion, to grind away with mediocre people just to keep what you have already earned. Go ahead and be ambitious.  Get busy growing and enjoy the best things in life.

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Build a Services Brand that is Worth Something

ServiceTrade talks a lot about using technology and great customer service to increase the value of a service contractor’s brand. It is worth exploring what we mean when we talk about a brand.

What do we mean when we say brand?

As your personality makes you different from everyone around you, your company’s brand is a collection of characteristics that make it unique. Your brand is the truth about your company and what makes it special. 

ServiceTrade’s mission

I used to work at a branding and marketing agency that helped companies define and communicate their brand. Brands are the fabric of the business – what it does, what it values, and how it engages with the world around it. A genuine brand should reflect what’s happening in the business during normal operations —  not the aspirations of what anyone thinks should be happening now or in the future.

At the agency, we used an employee survey to help discover the truth of a company’s brand. One of the questions is “If <your company> was a car, what kind of car would it be?” I know it sounds like a silly question but it revealed so much. It wasn’t uncommon for owners and executives to claim high-end, high-cost luxury vehicles while people in the trenches in the lower reaches of the organizational chart identified with affordable, four-door family sedans. It was one of the strongest indicators of consensus or uncertainty across the company about the brand. For a fun exercise, ask this question of your employees and look at the range of responses.

Why is branding important?

A clear, engaging brand is as important as a person’s winning personality. Your brand sets expectations for what it’s like to work with you. Your brand is your reputation. It is what you are known as or known for. Your brand reputation should be protected as a valuable asset.

Besides establishing who you are, your brand defines what makes you different from your competition when someone cares to compare. Your brand helps people feel a connection to your company by understanding what it stands for and how it can help them. Your brand’s mission also directs your company’s initiatives and your employees in their work.  The next time you face a tough decision or a rough patch, take a look at your brand promises and see where they direct you.

Elements of your brand.

Hopefully, it’s clear that your brand is more than marketing, it is how you work every day. But there are some tools in your marketing toolbox that help you communicate your brand:

  • Logo
    • There are countless logo styles. Putting your brand into words can help a talented designer create a logo that reflects your brand.
  • Color palette
    • Choose a suite of colors to use on all of your materials and use them consistently. Creation of a brand color palette is usually part of a logo design project.
  • Imagery
    • Here we’re mainly talking about the style of photos, videos, or illustrations that you use on your website and in your sales and marketing. Do you have a cartoon character or set of iconography that you rely on? Do you prefer photos of environments over photos of people? Give this some thought, and use these elements consistently.
  • Tone of voice
    • If you were in a law firm instead of a services company your tone would be formal business language. But in services, you can be more casual and talk in direct, simple language to your audience. Be thoughtful about how you write on your website and in your proposals. If you’re easy to talk to (or read), maybe they’ll also think you are easy to work with.
  • Mission statement
    • Mission statements are usually for internal use to make sure that everyone agrees with what kind of car the company is (going back to my favorite branding survey question.) Craft a short mission statement. Share it. Repeat it. Let your mission drive everything you do. ServiceTrade’s mission is in the image at the top of this post.
  • Elevator message and key messages
    • Your elevator message is used externally when someone asks “What does your company do?” If you ask any employee in the company, you should get a similar response that could be delivered in the short amount of time of an elevator ride.

Who cares about your brand?

Everyone who has a relationship with your company.

  • Employees – Employees know what is expected of them as they deliver on your brand promises in their work.
  • Customers – Customers reap the benefits of your brand promise in every interaction with you.
  • Prospects – Your brand tells prospects if the things that matter to them matter to you.
  • Community – The communities where you do your work should also see you living your values in visible ways.

Live your brand.

I have four tips for you for living your brand to keep your company focused on the things that matter.

  1. Be genuine about your brand and your mission.
  2. Use your mission as a touchstone for your daily decisions.
  3. Talk with your customers to learn if their perception of your brand matches yours.
  4. Don’t stop building up your brand. It should evolve as your business grows and moves forward.

Increase the value of your brand.

Let’s be clear – adding to the value of your brand means adding to your bottom line. Here are three things you can do to increase the value of your service contracting brand:

  1. Stop competing on price and sell a premium program that provides better outcomes to customers.
  2. Give your customers a modern, online customer service experience that reduces their risk and aggravation and makes them want to work with you forever.
  3. Enable and encourage your employees to make decisions that support the mission and the brand so they can embody it fully.

Here are some resources that can help you increase the value of your service contracting brand.

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Are your services significant?

Significant objects are worth more than regular objects.  At least that is the conclusion arrived upon by the significant objects project and its team of researchers.  Joshua Glenn and Rob Walker, a writer and a journalist respectively, set out to prove that stories can increase the value of objects.  While it is tempting to view the goal of the exercise as justifying the existence of the writing class, the results of the experiment are unequivocal. Humans value stories, and they become invested in the life objects that reinforce the stories they enjoy.

Joshua and Rob purchased one hundred pieces of stuff from garage sales, thrift stores, and related trinket outlets for a grand sum of $129.  They then enlisted professional writers to conjure stories related to each piece of stuff to accompany the auction of said stuff on eBay.  The auction value of the storied stuff as measured by sales price on eBay was $3,612 – a return of 2,700%.  Pretty good margin, huh?

So what is the return on your services?  How much are you able to charge above what it costs you to deliver?  Somewhere between 30% and 50%?  Maybe your services would be more significant, and therefore more valuable if you delivered your services with the story describing what happened.  I don’t mean an invoice.  The story is what you saw, what you did, why you did it, and what likely trouble the customer avoided because of you.  It is also the photo essay of images that reinforce your story.  And I am not suggesting you type it all out.  Record it as a video or audio memo.  It will take all of 2 to 4 minutes extra, and it could be worth a lot over the course of the relationship with the customer.

Humans learn from images, story, rhythm, and rhyme.  It is programmed into us since the days of the cavemen and the campfires.  Since you are not going to insist the technicians become poets or rappers, you should at least insist that they relay their good work to the customer in the form of images and stories.  When you teach the customer something about their facility, it reinforces the good decision they made in contracting with you. Over time, the accumulated review of your work will imprint your brand in a manner that is not easily supplanted by the “one truck Chuck” competitor that is always willing to go lower on the invoice.   You will be able to raise prices because your services have become significant through the power of story.

We have seen this phenomenon time and again at ServiceTrade as our customers are surprised and delighted by how easy it is to get customers to approve online quotes when the photos demonstrating the reason for repair are literally viewed inline with the quote.  They are likewise surprised at how much customers value the Service Link feature that presents the “story” of the services delivered online with a gallery of photos, video, and audio for review.  They shouldn’t be.  Humans sharing photos and stories is the basic power behind the growth of Facebook into a company valued at $500 billion in a little over 13 years.  Maybe some of that Facebook photo and story magic will work for your brand.  Can you think of a better way to make your services more significant?

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Amazon Prime Lessons for Service Contractors

Everyone knows Amazon has been on a tear lately.  Here is their stock performance over the last 5 years as compared to the broader S&P 500.  Wow!  A big part of that success has been the Prime subscription program.  

Amazon customers who subscribe to Prime to receive the following benefits:

  • Priority shipping.  It varies by area and items from FREE 2-day shipping to FREE 2-hour shipping.
  • Prime videos, music, and books.  Certain titles are available to stream or borrow for FREE.
  • Photo storage.  Amazon will store your photos so you don’t have to worry about losing them on a device.

And there is a long laundry list of other Prime benefits that you can review here.  Most folks probably only care about one or two of the benefits, but which parts of the bundle are valuable to which customers probably varies considerably.  So Amazon just includes a bunch of stuff to cast the widest net into the market.  They are committed to the costs of most of these things anyway, so why not maximize the revenues across their most attractive customers while getting the glow of a great customer service reputation?  It also leads folks to spend more time and money with Amazon products.

So, what are you doing in your service contracting business to get more by doing more for your best customers?  Do you have a Prime program?  Is there a tier of service that includes the basic preventative maintenance program PLUS a bunch of extras that get them to pay upfront?  

Here are some suggestions for how to form a program that pays you similarly to how Amazon is paid.

  1. Give it a name.  Sales people cannot talk about your program and customers cannot reference it if it doesn’t have a name.  Amazon chose “Prime,” whose root is from the Latin word prim or primo, meaning first, as in first in line.  This is a good name because it conveys some meaning while also being easy to remember.  You should do likewise.  Obvious choices are names like “Premium” or “Platinum” or “Gold,” which are unimaginative, but at least connote value easily.  Ideally, you can name your program in a way that has both meaning and rhythm and rhyme so it is easy to say and easy to remember.
  2. Charge a subscription fee.  You should collect a monthly or quarterly or annual fee in exchange for the program.  Angle for annual for the obvious reasons, but offer other options that might appeal to different customers.  Try to price it where the average customer would happily pay for the benefits and you would make a decent margin on average.  Some customers will be more profitable than others, but maximizing profit is not the angle for the program fees.  Locking the customer into your services as the preferred vendor is the goal.
  3. Offer expedited service response.  Everyone likes the idea that they will get priority (hence the “Prime” name) service relative to others.  If you are committed to great service, go ahead and make the promise to your best customers that you will respond with skilled technicians to any problem within 1 or 2 hours.  Maybe there is also a promise to return a call or web inquiry within 15 minutes.  You are probably committed to it anyway, so why not get credit for it?
  4. Include basic maintenance services. If there is a PM protocol for the equipment that will be under your care, and you are committed to delivering the work, go ahead and build it into the program.  It makes it easier to schedule the maintenance when it is included (you don’t have to ask or wonder if they will pay), and you will get opportunities to upsell based upon the maintenance reviews.
  5. Offer a lower rate on all planned services. It is good for both you and the customer for all services to be planned instead of emergencies due to failures.  When you quote repairs and upgrades that can be scheduled instead of emergency, the rates will be cheaper.  The more customers you get into proactive mode instead of reactive emergency mode, the more efficient you can be with your scarce technician resources.
  6. Offer an online account. Give your customers a reason to come to your website.  Show them online details of their plan, history, equipment, quotes, etc.  It lowers your cost and makes your company stickier and more memorable.
  7. Offer a performance guarantee. After you get their equipment into good order AND you have a regular maintenance routine or remote monitoring to expose any risk, offer emergency service response at the subscriber program rates.  It shows your confidence in your plan, and it incentivizes the customer to approve your quotes for planned repairs so that the equipment stays in the program.  Any equipment exhibiting failure symptoms that are noted and quoted by you comes off the plan if the quote for planned repair is rejected or ignored.

When customers feel that you have been thoughtful in meeting their needs with a premium customer service program, they will happily pay a program fee to claim their membership.  You can use the steady cash flow and predictable schedules to hire and grow and expand the program.  Then you can put the Amazon python squeeze on all of your competitors and laugh as they wiggle and squirm in the grip of your escalating capability and brand value.

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Service Repair Funnel

As a commercial/industrial service contractor, what is your ratio of repair to recurring service revenue? 1 to 1? 2 to 1? 5 to 1? If you don’t know, you could be missing out on a gold mine of high-margin work. If you do, you probably know that there’s room for improvement. And, when skilled labor is so hard to find, you know that you’ve got to drive as much repair revenue as possible to maximize the revenue potential of each tech.

So, what’s holding you back? Funnel friction. In other words, how easy it is to move from the top to the bottom of the repair funnel. Now, before we talk about the friction, let’s define where the funnel begins and ends. Too often, service contractors think that all the magic happens once the deficiency or repair report gets back to the office. As I wrote in another blog post, it actually starts WAY before you ever find a problem to quote. To keep this post simple, we’ll be talking about a funnel that starts with reporting problems in the field and ending with customer approval:

Now, ask yourself: “How much friction is in each task?” Or, simply put: “How easy is each step?” The easier it is, the more money you’ll make.

Report problems from the field

How easy is it for your techs to send the office all of the information necessary to generate a quote? How is that information communicated? Phone calls, paperwork, and email attachments? Does that data have to be manually entered into your database that manages repair sales?

…Do you have a database to manage repair sales? ServiceTrade does this, and if you’re not using ServiceTrade, a good CRM is your next best bet.

It should be as simple as taking a couple quick pictures, videos, and audio notes that automatically get added to a database for your office staff to start working from. The easier it is, the more reports your techs will create.

Create quotes

How easy is it to take a report from the field and create a quote that’s ready for the customer? Do you have to read chicken-scratch handwriting on reports, call the tech for more details, and retype everything into a Word document?

It should be as simple as clicking a couple buttons to turn a digital report from the field into a quote ready for the customer. The easier it is, the more quotes your company will create.

Follow up on quotes

Does your team manage this whole process out of their email inbox/outbox? Is it obvious which quotes need a follow-up? Is that chain of communication effectively managed and easily shared across the team?

It should be as simple as viewing a list of quotes that are due for a follow-up, no matter which of your team members created and sent the quote. The easier it is, the more follow-ups your company will perform.

Approve quotes

Once your customer receives your quote, how easy it for them to say “yes?” Do they have convenient access to the pictures, videos, and audio notes that will help them make the best decision quickly? After they decide, do they have to print, sign, and fax the quote?

It should be as simple as viewing an interactive quote online with rich media collected in the field that can be approved with the click of a button. The easier it is, the more quotes your customers will approve.

 

The easier all of these steps are, the more repair revenue you will drive and the more you will get out of each of your techs. Spend an hour assessing your processes. You’ll probably be surprised what you find.

Another blog post you might be interested in: 6 key metrics that that boost repair revenue

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Give the people what they really want

If you asked people in the 1890s about personal transportation, they’d say “Give me a cheaper, faster horse.” Instead, they got cars and they happily spent more.  If you asked people of the 1990s about entertainment, they’d say “Give me more selection and cheaper rentals at Blockbuster.” Instead, they got Netflix and they happily spent more. If you asked people about retail in the 2000s, they’d say “Give me more selection and cheaper options at big-box stores.” Instead, they got Amazon Prime and happily spent more. If you asked folks about their pizza in the early part of this decade, they’d say “Give me better, cheaper pizza.” Instead, they got the Domino’s mobile app and they happily spent more. If you’re scratching your head about the last one, check out Domino’s stock growth since the introduction of their mobile app in 2011:

Domino’s stock growth of 644% since they introduced their mobile app

If you’ve been reading my blog posts, you know that Domino’s is using their customer mobile app to dominate the pizza wars. Every time I write about them, I have to pull a new stock graph to show just how much they’ve grown. Their success boils down to one word:

Convenience

 

That’s all customers really want. They’ll bark about price and quality right up until someone innovates and makes their life easier. At that point, they’ll happily fork over more money. When cars were introduced, they cost far more than a horse, but they didn’t have to be maintained on a daily basis. When Netflix hit the scene, it had a small selection, subscription services were unheard of, and it seemed to cost more than the occasional Blockbuster rental. But, Netflix didn’t require multiple trips to Blockbuster to watch a single movie. Amazon has shipping delays and costs more than big-box stores, but customers don’t even have to leave the comfort of their own home.

In this era, you don’t have to be a technology company like Netflix, Amazon, and Uber to be a game changer. Domino’s shows that you just have to think like one. Use scalable technology to give your customer a convenient experience and they’ll happily give you more money. It’s that simple.

What does this mean for B2B service contractors? Make customers’ lives easy with technology. Give them better information so they can make better decisions by providing convenient online:

  • Visibility throughout the service process
  • Access to detailed historical records
  • Quotes for issues that need repair

This may not seem like much, but neither does an app that makes it a little easier to buy pizza and track deliveries.

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Whole Foods Whole World

I bet the grocers that had a bad day when Walmart got into groceries about fifteen years ago are having a really bad week now that Amazon has announced their intention to buy Whole Foods. The innovations Amazon is going to bring to grocery buying go well beyond low price and internal operational tweaks. Amazon is going to use technology to transform the grocery buying experience, and the old competitors focused on their tired, old, internal metrics will be toast.

 

Marc Andreesen, a famous internet entrepreneur and venture capitalist, once said: “Software is eating the world.”  You can read his editorial in the Wall Street Journal here.  It’s true.  Customer service innovations driven by software are transforming every industry.  Netflix to Blockbuster.  Uber to taxis.  Amazon to booksellers, hosting companies, and now grocers.  When will it be your turn?  Which side of the statement will your company be?  The eater? or the eaten?

Do you suppose the first innovation Amazon is going focus upon is how Whole Foods does accounting?  Is that where they are going to put their innovation muscle?  I ask the question because it seems that accounting remains the first priority of service contractors when they think about how to apply technology to their business.  But it sounds really silly in the context of the Amazon acquisition of Whole Foods, doesn’t it?  As I have said before, your perfect accounting process is perfectly irrelevant to your customer.  You should have a good one, but it will not save you from an innovative, customer-focused competitor.

I am not going out on a limb when I say that Amazon understands that accounting is irrelevant, and their focus with Whole Foods will be transforming how customers buy groceries.  They will eliminate aggravation and uncertainty for the customer through technology.  I bet there will be an awesome mobile app for pricing your groceries in the aisle and eliminating the checkout line.  I bet you will use that app to find the groceries you seek without wandering up and down the aisles.  I bet you will get interesting recipe ideas based on the ingredients you buy often.  I bet your buying preferences will lead to deliveries to your house via drone for the items you buy on a regular basis.  I bet the best customers with the most money to spend on groceries will gravitate to Amazon and their innovations. I bet I cannot even imagine the things they will do to make grocery shopping more convenient, and none of it will relate to how they do accounting.

So when will it be your turn?  Will you be the eater, or the eaten?  Are you considering how to upgrade your customer’s buying experience with your services?  Or are you piddling around with how to extend your accounting to wring a small bit of extra margin from your internal processes?  Are you building an innovative and growing brand that attracts customers to you?  With an experience that they cannot easily trade for the low price guy? Think about it.  Who do you want to be in your market?  Amazon, Uber, Netflix?  Or the other guy?

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Fill the Stadium for Your Customer Service Features

So now what?

You’ve completed a big project to add new capabilities or value for your customers – something like implementing ServiceTrade or adding the Service Portal to your website. How do you get the word out so your customers start using and appreciating it?

If you have asked those questions, you aren’t alone. I’ve heard them half a dozen times so far this year.  While you’re basking in a successful implementation, it doesn’t take long to realize that implementation was just the beginning. So what’s next? Driving adoption is the next project – and you’ll want to jump on it fast.

Feed Adoption with Customer Marketing

Every time we talk about marketing with service contractors, I feel like the response is something like “I got 99 problems and marketing is #99.” But marketing communications will help your customers understand and use your great customer service features.

Billy said this in chapter 7 of The Digital Wrap: “The strongest benefit of the digital wrap approach to marketing is that your marketing and sales impressions are actually valuable to the customer instead of being an aggravation or interruption.”  He was writing about the marketing impressions that should be built into your service cycle, but it’s a pretty good rule for every marketing impression.

Marketing outreach is a good way to educate your customers about what you’re offering and why it’s good for them. You don’t want to send your first Service Link (online after-service report) and get a call from the customer asking, “What is this and why did I get it?” But your marketing must be seen as helpful, not annoying.  Here’s how.

Invite Your Customers to Play Ball

Since a few people have asked for our advice for bringing awareness to their new customer service features, we have assembled examples, templates, and first-draft copy that you can use. Some of the materials available in our marketing resource center are:

  • Example websites from our customers
  • Bannerstand for trade shows or conferences that you can borrow
  • Powerpoint slides
  • Example email, invoice insert letter, and handout or postcard
  • Screenshots of customer service features, and more.

Take a look at those marketing resources and use them as a starting point for your own programs. You can run a marketing communications program without dedicating a ton of time or financial resources – doing a little is more effective than doing nothing at all.

Bring Them on Home

With a little bit of thoughtful outreach and follow up, you can:

  • Get your customers to adopt all your customer service features.
  • Help your customers understand how the program they bought from you continues to be good for them.
  • Keep the stream of communication open and ongoing.

Your account managers could do this work 1-to-1, but marketing can do the same 1-to-many. Make marketing communications do the heavy lifting, and have account managers follow up with their accounts.

There was a quote in the movie A Field of Dreams, “If you build it, they will come.” Why that may be true for lost baseball legends on a farm in Iowa, it is most decidedly not true for service contractors who want customers to take advantage of their new, modern, online customer experience. Like with modern baseball, you’ve got to do some work to get butts in the seats.

The Digital Wrap

 

 

Read Chapter 7 of the Digital Wrap for free!  You’ll gain an understanding of how many valuable marketing impressions you can earn with your customers (and sometimes with prospects) during your service cycle.