# The Boutique  ## Metadata - Author: [[Greg Alexander]] - Full Title: The Boutique - Category: #books ## Highlights - According to the government, a professional services firm is in industry code NAICS 54. Examples are firms in consulting, accounting, law, marketing and advertising, architecture, engineering, and so on. Basically, anyone who sells their expertise. There are approximately 1.47 million firms like this in the United States. 4,100 have reached scale, which is defined as those with more than 250 employees. This is one-quarter of 1 percent. These are called market leaders. The other 1,465,900, or 99.75 percent, have between 1 and 249 employees. These are called boutiques. ([Location 178](https://readwise.io/to_kindle?action=open&asin=B08J5DB4CM&location=178)) - Tags: [[blue]] - The idea you have for your firm is valid if you can do the following: State the problem you solve for clients. Determine that the problem is pervasive. Confirm that clients will be willing to pay to solve it. Prove that the problem is urgent. ([Location 200](https://readwise.io/to_kindle?action=open&asin=B08J5DB4CM&location=200)) - Tags: [[blue]] - You know who your client is if you can produce two things: A demographic profile A psychographic profile ([Location 250](https://readwise.io/to_kindle?action=open&asin=B08J5DB4CM&location=250)) - Tags: [[blue]] - A demographic profile includes items such as the following: Race Ethnicity Gender Age Education Industry Title Role Income level Location And more ([Location 252](https://readwise.io/to_kindle?action=open&asin=B08J5DB4CM&location=252)) - Tags: [[blue]] - A psychographic profile includes items such as the following: Wants Needs Desires Goals Emotions Values Attitudes Interests Challenges Priorities And others ([Location 258](https://readwise.io/to_kindle?action=open&asin=B08J5DB4CM&location=258)) - Tags: [[blue]] - There are five types of competitors for all boutiques. They are as follows: Do nothing Internal resources Boutiques Market leaders Other ([Location 301](https://readwise.io/to_kindle?action=open&asin=B08J5DB4CM&location=301)) - Tags: [[blue]] - The way to defeat “do nothing” is to calculate the cost of inaction. You need to prove to the client that your project deserves their full attention. It is the priority. As they say, “Money talks and BS walks.” Put a hard dollar on their inaction, and you will defeat this competitor. ([Location 308](https://readwise.io/to_kindle?action=open&asin=B08J5DB4CM&location=308)) - Tags: [[blue]] - The way to defeat internal resources is to establish a deadline. Explain to the client that completing the project inside of this deadline is very difficult. It is too risky for them to try to do so on their own. Share with the client the true workload. Make it obvious that they need help. ([Location 313](https://readwise.io/to_kindle?action=open&asin=B08J5DB4CM&location=313)) - Tags: [[blue]] - The way to defeat boutique competitors is to guarantee the work. Boutiques have limited resources, and this makes them risk averse. The idea of a guarantee frightens them, as they may not get paid. By guaranteeing your work, you separate yourself from the boutique competitors. ([Location 318](https://readwise.io/to_kindle?action=open&asin=B08J5DB4CM&location=318)) - Tags: [[blue]] - Charging clients an hourly rate has the benefit of being easy to implement. However, it limits the amount of revenue you can generate. There is a fixed number of hours. There is an upper limit on how much you can charge for each hour. ([Location 369](https://readwise.io/to_kindle?action=open&asin=B08J5DB4CM&location=369)) - Tags: [[blue]] - A retainer is when a client pays you up front to secure your services when needed. This has the benefit of getting paid in advance and of predictable cash flow. However, there are only so many retainers that a boutique can handle at one time. ([Location 370](https://readwise.io/to_kindle?action=open&asin=B08J5DB4CM&location=370)) - Tags: [[blue]] - A fixed-bid project is using a flat amount regardless of the number of hours worked. This is profitable work for boutiques if they can scope projects correctly. Clients are buying a deliverable, not the boutique’s time. If the boutique can… ([Location 372](https://readwise.io/to_kindle?action=open&asin=B08J5DB4CM&location=372)) - Tags: [[blue]] - A performance-based contract aligns the client’s and the boutique’s interests. If the boutique produces a result, they get paid. If they fail, they do not get paid. Boutiques can capture a lot of upside revenue with performance-based contracts. They are usually uncapped.… ([Location 375](https://readwise.io/to_kindle?action=open&asin=B08J5DB4CM&location=375)) - Tags: [[blue]] - A client pays a boutique a membership fee if they want to belong to a group. The annual dues grant a client access to a group of like-minded peers. Some boutiques include access to… ([Location 377](https://readwise.io/to_kindle?action=open&asin=B08J5DB4CM&location=377)) - Tags: [[blue]] - A licensing fee is paid by a client to a boutique for use of intellectual property. Many boutiques have methodologies and tools that clients want unlimited access to. They pay a… ([Location 379](https://readwise.io/to_kindle?action=open&asin=B08J5DB4CM&location=379)) - Tags: [[blue]] - A subscription is paid by a client to a boutique to gain access to an asset. For example, many boutiques have proprietary data. Clients want access to this… ([Location 381](https://readwise.io/to_kindle?action=open&asin=B08J5DB4CM&location=381)) - Tags: [[blue]] - Some boutiques are paid royalties from other boutiques. This happens when a boutique wants to use someone else’s intellectual property but pay on performance. For instance, a sales training firm allows a distributor to use their training material. When the… ([Location 384](https://readwise.io/to_kindle?action=open&asin=B08J5DB4CM&location=384)) - Tags: [[blue]] - Not knowing any better, early on, my boutique generated revenue with hourly billings. As I grew, I bumped into the limitations of this revenue approach. I added fixed bids to the mix. I lost my shirt the first few times. I was inexperienced in defining scope. Clients took advantage of us. As we got better, we shifted more work to fixed bids. Profitability increased. Clients would pay us for a list of deliverables. As we became efficient at producing them, costs went down while prices stayed fixed. Things got interesting when we added performance-based fees to the mix. In our market, project success was measured by revenue per sales head. Clients would hire us to improve this metric. This meant generating more revenue for clients while not adding sales reps. We stopped charging clients fees but asked for a percentage of the gain. These projects became the home runs. We had to… ([Location 386](https://readwise.io/to_kindle?action=open&asin=B08J5DB4CM&location=386)) - Tags: [[blue]] - Note: If the projects are repeatable and you can get very efficient at doing them, fixed bid is better than hourly. As you get better, you’ll get paid the same for the same deliverable but invest fewer hours, increasing profitability If impacts on profits are clearly attributable to your project and potentially large, performance based contracts may be best Retainers help to keep consistent cash flow with intermittent work commitments - be imaginative as to how you deliver your service. Many boutiques are conventional in their approach. They convert their expertise into a methodology and train staff members how to use it. At times, more often than not, they use expensive labor and very little automation. As a result, their service is expensive and tough to sell. This constrains their growth. ([Location 425](https://readwise.io/to_kindle?action=open&asin=B08J5DB4CM&location=425)) - Tags: [[blue]] - commodity services are ripe for disruption. ([Location 428](https://readwise.io/to_kindle?action=open&asin=B08J5DB4CM&location=428)) - Tags: [[blue]] - clients hire boutiques for one of three reasons. First, you can do what they can do better. Second, you can do what they can do faster. Third, you can do what they can do cheaper. Ideally, you combine better, faster, and cheaper into a single value proposition. And when I say better/faster/cheaper, I mean in relation to the alternatives. ([Location 431](https://readwise.io/to_kindle?action=open&asin=B08J5DB4CM&location=431)) - Tags: [[blue]] - Marketing and selling services are entirely different from products. Why? Products are sold and consumed. Services are bought and experienced. Big difference. For instance, a commercial runs for the latest Lady Gaga song. I buy it on Spotify and listen to it. It was sold to me, I consumed it, and I never met Lady Gaga. In contrast, if I need an estate plan, I hire an attorney. I find one, we meet, they work with me to produce the estate plan. The service and the person delivering it cannot be separated. The service is experienced, not consumed. This is a subtle distinction, but it makes all the difference. ([Location 472](https://readwise.io/to_kindle?action=open&asin=B08J5DB4CM&location=472)) - Tags: [[blue]] - Engagements are largely classified by how long they take to complete. In general, the longer they are, the larger they are. ([Location 525](https://readwise.io/to_kindle?action=open&asin=B08J5DB4CM&location=525)) - Tags: [[blue]] - The type of engagement you sell and deliver has many implications. It determines who you market to. It determines how you charge and how you staff. It impacts the number of clients you can serve. The list goes on and on. ([Location 531](https://readwise.io/to_kindle?action=open&asin=B08J5DB4CM&location=531)) - Tags: [[blue]] - the levers to pull are engagement size and number of clients. Most client markets will have thousands of potential clients to pursue. Therefore, increasing the number of targets is not helpful. However, increasing the penetration rate is. And increasing the average engagement size is as well. ([Location 567](https://readwise.io/to_kindle?action=open&asin=B08J5DB4CM&location=567)) - Tags: [[blue]] - This reduced our target market to the early-adopter community. Early adopters for us meant those willing to apply the science of benchmarking to the art of sales. We began publishing content and allowing the early adopters to self-identify by subscribing to it. This started with a book, followed by a blog, podcast, online video, and print magazine. This resulted in a subscriber base of about 250,000 self-identified early adopters. Our average engagement size in those early days was approximately $100,000. Therefore, our available market was $25 billion. ([Location 578](https://readwise.io/to_kindle?action=open&asin=B08J5DB4CM&location=578)) - Tags: [[blue]] - Boutiques are best started by teams. It is a myth that great firms are started by a single brilliant person. The ideal team size is three. One person who is great at bringing in clients. One person who is great at servicing the clients. And one person who is great at developing service offerings. At launch, you do not need the overhead functions (HR, IT, legal, finance, etc.). You can outsource all that. ([Location 608](https://readwise.io/to_kindle?action=open&asin=B08J5DB4CM&location=608)) - Tags: [[blue]] - Over time, the biggest department will be the service team. Therefore, this founding partner should be capable of managing a large organization. The service offering development department will stay small. The founder partner here should be an excellent individual contributor. The marketing and sales team will be made up of rainmakers. They will be few, relatively speaking. But they are a pain in the butt. The founding partner here should be a master of managing egos. ([Location 618](https://readwise.io/to_kindle?action=open&asin=B08J5DB4CM&location=618)) - Tags: [[blue]]