LTV Applied to Services?

By Steven Pearson

I will shortly be joining a 20-person tech startup and look forward to applying what I’ve learned in LTV to the real world.  But there’s a twist: the company is only sort of a technology company.  It lives in the social media space, and while it does do some custom software development for clients, a lot of the company’s business really looks more an ad agency.  How do core LTV concepts translate to a services business?  Please comment and add your advice for me!

Minimum Viable Product.  It’s difficult to persuade a prospective client to let your business perform important tasks for them if you can’t really do the whole job well.  Do services businesses have to give up the idea of MVP?  Perhaps to a certain extent.  A half-baked job simply will not fly in a B2B services business like it might in the consumer-facing internet world.  But hiring the best minds and trying to do it all from day 1 is expensive and likely equally doomed to failure.  Services businesses should look at filling a ‘minimum viable niche.’  What small piece can I do for clients better than they can do themselves, and how can I work together with 3rd parties or with the client to complete the processes and steps that I am not yet able to do really well?

Product-Market Fit.  In a services business, some might argue that your product is simply doing whatever your clients will pay you to do.  Since ‘the customer is always right,’ your business will naturally find product-market fit since clients will only pay you to do the things that fit their needs.  But I disagree with this approach.  Just as scaling up with a buggy software product will cause all sorts of problems, scaling up prematurely in a services business will have unpleasant ramifications.  You may end up with extraordinarily demanding clients who are barely (or not at all?) profitable.  Your original idea, which may have been well-suited for a great market, could be derailed by the demands of your early customers, who may not match the profile of the customers you eventually want to serve.  Your employees may not be well-suited for the tasks your initial clients ask of you, and thus the company evolves into something you never wanted it to be.  Services businesses need to have a vision of who they are and what they do, and they need to continually test and refine that vision with both current and target clients.  It’s easy to get pushed off track by the lure of early and easy revenue, but pushing for true product-market fit (perhaps with services it’s more of ‘brand-market fit’?) is just as important here as in a software business.

Scaling.  Services businesses generally will not scale as well as pure technology businesses, as variable labor costs are much of what you do.  However, this may be a two-edged sword: you can survive profitably at a smaller scale than many pure technology businesses.  Markets are less likely to be platform or other winner-takes-all scenarios.  When the time is right to really push growth, you can likely do so profitably, more slowly and without the same needs for outside funding, if you choose.


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