Business models are keys to the kingdom
By Carolyn Dibrell
Look on the Internet for business models and you could spend an entire week learning how to develop a BMC — business model canvas. You could spend months practicing what to do or getting up to speed with new trends in the “hip” business culture. You could spend years reading about historically well-modeled companies.
With so many options in business today, it is no wonder that the No. 1 undergraduate degree in the United States is a bachelor’s degree in business. According to the National Center for Education Statistics, of the 1,791,000 B.A. degrees conferred in 2011-‘12, the leading degree was in the field of business at 367,000 followed by 179,000 in social science. And during the same period, M.B.A.’s topped the list at 192,000, or 25 percent of all advanced degrees.
By comparison, in the ‘70s, business master’s degrees made up only 11 percent, while education, historically the most popular degree for undergraduate and graduate studies, dominated at 37 percent. In fact, it was only in 2011 that business degrees outnumbered degrees in education. It does not take a degree in business to know how popular the subject has become, so the real question to ask is why?
Is it easy? Probably, compared to a degree in engineering, which ranked the lowest at 40,300 in 2012. To be fair however, it appears to be less necessary to earn a Ph.D. in business yet for a research engineer, that doctorate is important enough that most institutions will support their candidates by paying for their education.
Is it useful? Well sure it is — just the way knowing how to speak another language is useful — but of the many topics covered in a business program, is there an indispensable skill?
Yes, and that skill is how to build your company’s business model. To prevent any potential confusion on the subject, it is prudent to point out right away that most people do not really know what a business model represents. It is often confused for a strategy or a beginner’s plan to get a company off the ground. But a sound business model is so much bigger. A good model describes the entire focus of the company and that focus is how the company succeeds.
For example, WalMart’s business model focus is on low prices. If anything does not fit with low prices then it is not included in any of WalMart’s practices or stores.
Commerce Bank’s model is based on customer service. This means they are open in the evening and on the weekends.
Starbuck’s model is top-of-the-line coffee shop ambiance. This means they don’t make people pay extra for Wi-Fi, the big cushy chair, and a person can linger as long as they like.
What these three highly successful companies have in common is a sound business model that carries over into all company departments in a cohesive and reliable structure. Although there is no one-size-fits-all in creating a business model, with service businesses, there are four key variables that are a must to creating a successful model:
What are you offering; how will you generate revenue; who you will hire; and how will you manage your customers.
Each of these items will be addressed in turn.
What are you offering?
Most business models begin with the subject of value creation. This is easily identified by product-driven companies as the product they are selling.
With service companies, the answer might not be so obvious. In the pool and spa service profession, the answer might be confused from the start by servicing both pools and spas or by maintaining residential as well as commercial accounts. Never mind all of the other extras a pool service company might offer such as painting, resurfacing or acid washing.
The key is to start with the main service the company can do well in providing and not provide those services in which it does not excel. It might sound strange to not do something that a customer will pay you to do, but with every opportunity there is a cost, and one company cannot be everything to everyone.
According to Frances Frei of the Harvard Business Review, “Service excellence can be defined as what a business chooses not to do well.”
Customers who value what you offer will become your customer base and those that prefer a different level of service will go elsewhere. It is important to remember that attempting to excel in all areas of service might lead to not excelling in any area.
“When managers understand that inferior performance in one dimension fuels superior performance in another, the design of excellent service is not far behind,” Frei has said
An entirely different approach to finding where you can create value is to figure out what your customers most need from you.
Do your customers value being taught how they can maintain their pool in the time between your weekly visits or would they value more weekly visits?
Do your customers care if you come at different times every week as long as you do a thorough job or would they value seeing you at the same time for every visit?
What about chemicals? Would it be better to include the price of all chemicals in your monthly bill or do people prefer an extra charge?
The point is to learn what the homeowner or commercial manager most needs and wants from you and strive for excellence in that area. This could require being a different service company for different customers. If you can manage a juggling act such as that, then that might be where you create value.
How will you generate revenue?
The trick is to create value and save on costs simultaneously.
Progressive Auto Insurance Company is a great example of creating value and saving on costs at the same time. When a customer is involved in an accident, Progressive immediately sends a van to the scene of the accident to assess the damages. To the customer this is simply great service. But what goes unnoticed is that Progressive has all of the true information about the accident in real time, which quickly prevents fraudulent claims that average roughly $15 out of every $100 in insurance premiums. Since deploying its vans, Progressive has seen costs in legal fees and fraud claims plummet and sending a representative to the scene pays for itself.
As a pool service professional, the formula for creating revenue may seem easy: simply assign a price to everything you offer.
For example, you could weekly service a 10,000-gallon residential pool, including chemicals, and charge a monthly fee of $100. If, however the pool is full of leaves from a weekend storm the additional time to clean the pool will be done for free. Ultimately, when pricing is bundled in this way, customers might enjoy some free services.
To cleverly carry all costs to the consumer, begin by thinking about “cost buckets.” According to Frei, “A good first place to look is anywhere that time is a large component of cost.”
In the pool service business time includes traveling to the pool, filling the pool, leaf raking and vacuuming. At least with filling the pool, you may require the homeowner to make sure the water level is always at the tile line. Perhaps you may also require that all pools are equipped with automatic cleaners. That leaves other services such as raking and traveling to be included in the monthly fee above the $100 amount.
This is a simplistic example, but savvy business people must create clever billing techniques that allow them to provide the value added service they offer.
Who will you hire?
The characteristics of your employees should directly correlate with the value of the service. Service businesses are grounded in the staff performing the value-added service.
According to Frei, two questions must be answered to create the best employee system: First, what makes your employees reasonably able to achieve excellence, and second, what makes your employees reasonably motivated to achieve excellence?
For example, if your value-added service is expert chemical knowledge then it is necessary to provide all employees who are on service calls with expert chemical training classes. Otherwise, how can you expect to charge for a service you cannot deliver?
In terms of motivation you are providing your employees with a skill to perform a job that they were hired to perform. Not only will you provide the requisite education, but also there is also funding. Paying your employees to gain a skill set is a motivational technique on its own in addition to paying a wage that merits the acquired skill that will provide a second level of motivation.
How will you manage your customers?
Consider a business model in which your value-added service is to never be late or simply, to provide reliable service.
Next, consider that your 10 a.m. client wishes to discuss installing a new heater.
While you want to provide the upgraded heater, discussing such matters is going to delay your 10:45 a.m. client who is exactly 10 minutes away without traffic.
What do you do? Instructing your service professional to spend 15 minutes per pool is easy, but telling your customers to not interrupt that same schedule will probably be viewed as bad customer service. Returning to your key value-added service is critical at this point.
This situation could have been avoided if part of your customer service agreement also involved regularly scheduled meetings with the homeowner about new equipment or concerns you might have regarding their existing equipment. Then, not only does your value of service shine but unless an emergency unfolds, your service crew should not be caught off guard.
With a scheduled meeting or meetings you have accomplished three goals: avoided discussions that jeopardize schedules — the very scheduling that you are maximizing; communicating the value your company places on being timely (both the 10 a.m. and 10:45 a.m. appointments are respected); and finally, setting aside a reasonable amount of scheduled time to discuss bigger levels of highly profitable service.
You win, and so do your customers.
Methods such as these must be in place and directly connected with how you intend to value add your services.
The key is to have a clear vision of the value of the services offered, while successfully managing both crew and client.
According to P.K. Data, as of 2014, there were 5,118,239 pools in the U.S, of which 322,178 were commercial. To be sure, a market this competitive requires pool & spa service technicians apply a service model that can keep up.
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