In the book, Disciplines of Market Leaders, there are two business models relevant to Residential Home Service companies who aspire to become market leaders.
On the one hand is what’s known as Customer Intimacy, or what I call Experience Excellence, while the other is known as Operational Excellence. We refer to these two value-based business models as CORE Disciplines.
Experience Excellence companies’ number one priority is to deliver custom solutions that expertly meet the needs of each individual customer. Operational Excellence companies look to take the guesswork out of the selection process, delivering limited quantity, proven solutions at affordable prices with a high degree of efficiency and a low likelihood of failure.
What makes these business models the most relevant conversation to have regarding your residential home service business is their intent. While other business models speak about the business, these business models speak about the customer. While all your competitors are asking, “What’s in it for me?”, the companies with a laser-focused CORE Discipline are asking, “How can I deliver more value to my customers?”, knowing that when you help people win in a trustworthy and grateful manner, that the happiness, health, and wealth will come.
Many Residental Home Service companies look at these two options and decide they will simply be BOTH! This inevitably leads to an impressive level of mediocrity as the buying experience becomes pedestrian while no significant efficiencies are ever achieved. This means lower net profits, less impressed customers, and frustrated employees.
In this article, we will explore what each of these Value-based Disciplines means and how to get the very most out of your chosen school of thought. But first, let’s look at how buyers buy.
TRANSACTIONAL VS RELATIONAL CUSTOMERS
The value-based discipline you choose sets the stage for precisely how you will go about doing business. As with most things, when we reverse engineer it from the buying experience, we gain significant insight into which model bests suits your preferred business philosophy.
“The things that won’t change in the next ten years with consumers’ expectations include low pricing, rapid service, and a broad selection”, Amazon founder Jeff Bezos noted. This puts a lot of pressure on the Residential Home Service industry to figure out which is most essential to deliver because you can’t sustainably do all three well.
Residential Home Service shoppers approach value from one of two mindsets. The first kind of customer values the lowest overall price, while the other type of shopper is looking for the best overall solution. The first shopper we call a Transactional Shopper, and the second, we call a Relational Buyer.
Transactional Shoppers can be broken down further into two categories:
- Oxygen Thieves
- Birkenstock Professors
Relational Buyers can also be allocated into two buckets:
- The Joneses
- Daddy Warbucks
This matters a lot when you are trying to decide which customer you want to pursue and therefore, the business model that will provide the greatest value for your preferred clientele.
This group represents approximately 16% of the population in any given marketplace. This buying group will not or cannot put money toward the thing you sell. This doesn’t suggest that they are poor by any means, just unwilling to associate the value of your offering with the money they have in their perceptual pocket.
These lovely creatures are easily identified in the wild by their commitment to wearing socks with Birkenstocks. They likely drive a Subaru and carry around a clipboard to record every last stitch of value you’re willing to give up.
These beautiful specimens will gather endless amounts of quotes and patiently prey on the desperate and afraid. They very often have the money, they’re just unwilling to spend it. They will look for any opportunity, loophole, or mistake to keep their precious pennies in their trousers.
The Joneses are a busy family, tirelessly working, chasing kids, friends, and family obligations. They ain’t got no time for nonsense and games. They are willing to pay a reasonable premium for competent convenience. The Joneses, more than anything, want you to provide them with the right solution the first time, and then not have to deal with it again anytime in the foreseeable future.
Daddy Warbucks is looking for both the horse and the pony show. These are the elite (or aspirationally elite) who are happy to pay a premium for a genuine experience. These people will pay $22 for a martini at the posh bar in town. They buy what their perceived expert advises them to buy. Sometimes they buy it just to say they have the best, most exclusive, or special thing for their ostentatious home. When it feels right, sounds right, and looks right, they buy without hesitation or deep analysis of the price.
We know many people who don’t want the cheapest possible solution. That’s why big houses and fancy cars exist. This doesn’t suggest that money is no object, but it does confirm that people will pay for what they perceive as valuable.
TIME AND MONEY ARE INTERCHANGEABLE
The person who values their time more than the money will exchange their money for the time and expertise it would require to get the right solution. I love having a housekeeper because I have better things to do than to clean my dishes and laundry. Someone else can change my oil. Ideally, I will never think about changing a filter on anything ever again.
The person who values their money more than anything will do everything in their power to keep as much of their money as they think wise for the purchase they are forced to make. My dad will not spend a penny more than is absolutely necessary on a vehicle. To him, it is simply a tool, and if they sold cars at the Dollarama, he’d buy one there.
Now, I’m not stupid. I wouldn’t pay ANYTHING for a house cleaner, but I’d certainly pay a premium for someone I could trust to show up on time consistently, do the job that I felt important, and create a minimal disruption in my day. I’d pay a bit more for a solution that ticked more of the boxes I believed to be important. I’d take 0% financing to help with my cash flow on a large purchase. I’d do the things that needed to be done to have the solution last longer.
And so would about 50% of the population in any given market.
Depending on the thing you need to buy, you too, are either a transactional shopper or relational buyer by nature. That’s normal. What it tells us is that we have to choose how we are going to run our business, because companies who try to be all things to all people end up becoming mediocre with a watered-down, unpersuasive marketing message that inspires indifference over action.
Now that we know the choices of buyers we can pursue, we can more easily pick a value-based discipline that will dictate the business model we run.
Companies that dedicate themselves to Experience Excellence are making the very conscious decision to spend the necessary amount of time, energy, and money to deliver a world-class buying experience. Experience Excellence focuses on getting to the root problem, not just the surface symptoms felt by their customer.
These companies have spent the time and effort figuring out the pain points of their desired clientele and have curated a broad selection of robust solutions. They prefer to provide lasting solutions that fit perfectly to the individual’s need.
Experience Excellence companies tend not to dabble in cutting-edge technology over solutions that have been adopted by the majority. They keep up with trends and incorporate generally accepted solutions into their selection. This lowers their exposure to getting “stuck” with irrelevant or unappealing inventory.
Like Apple, it’s not about offering the lowest price and the latest features, but a more comprehensive, superior solution nonetheless. Building the right solution isn’t about delivering a revolutionary new product, rather a bundle of products and services meant to improve the overall situation.
The competitive advantage of the Experience Excellence Model comes from the people, not the rigid processes, tight selection, and rapid, no-frills delivery that we see in Operational Excellence. Therefore, this discipline requires a deeper understanding of the customer’s problems and how to resolve them effectively.
Sales professionals in these organizations are intelligent, creative, and dynamic in the way they assemble and present bundles, not just boxes. They analyze not just the system requirements, but that of the environment it will be placed in, and the sensibilities of the end-user.
Experience Excellent companies have a willingness to put their money where their mouth is. For example, they will take the risk of offering a loss leader (like a maintenance club membership) that they lose money on to get the opportunity to earn the maintenance, service, and new unit revenue over time.
Where Operationally Excellent companies can tell you a lot about the transaction, the Experience Excellent company can tell you a lot about the customer. This is especially important when your company has teams servicing any given client. The priority lies in not losing a client, rather than not losing money. Companies that wish to pursue Experience Excellence must have the courage and confidence to charge more for their competent convenient solutions.
CHALLENGES OF EXPERIENCE EXCELLENCE
This model will ONLY work on a single unified front. Therefore, Experience Excellence must be steeped in symbolism and mythology of the great lengths the company will go to to look after the customer. From the janitor to the owner, everyone has to be completely obsessed with delivering a world-class buying experience. And a world-class buying experience takes longer to deliver, with more complex solutions, and endless training and development.
The greatest human challenge is to find affable people with a mechanical aptitude to be able to expertly (and bravely) curate, present, and close exceptional bundles, not just boxes.
Experience Excellent companies will not appeal to the vast majority of Transactional Shoppers who only want to dicker on price and not recognize the value in an expertly-designed bundle solution. While some Transactional Shoppers are open to new information to make a new decision about your solution, the larger majority will shore up their defenses and be unwilling to budge.
Salespeople will struggle to manifest the necessary value to capture a premium dollar because the Transactional Shopper is unlikely to see any value beyond the lowest overall price (upfront + cost of ownership). Rarely will the Experience Excellent companies outperform the Operationally Excellent companies in this arena.
This is PRECISELY the moment when you have to have the courage to stick with your convictions on the value discipline you have chosen to champion. Given your operating expenses to deliver Experience Excellence, you cannot afford to compete with Operational Excellence on their home turf.
OPPORTUNITIES OF EXPERIENCE EXCELLENCE
Experience Excellence is by definition, in the business of advocating for the customer’s best interests. This starts at the perfect preventative maintenance call, is reinforced with expert service, and is crystallized with a new unit installation.
Profit is made by (over)delivering on the promise of competent convenience, best-in-class solutions, robust selection, and mile-high value stacks. The best Experience Excellent market leaders continue to deepen the customer’s reliance on them, year over year, making it near impossible to leave.
Experience Excellent companies are far from bloated profit hogs though. Their secret to success? Mass customization. When you start by addressing the basic needs with a foundation of suitable products, then add in unique bundled solutions that make you uniquely valuable to your preferred clientele, you win. Why? The compound power of incremental profit.
Can you build an empire with an Experience Excellence business model? Yes. Disney has. Home Depot has. IBM has. When you select the value that you feel is most appealing to the time, money, and energy of the client, you will speak most persuasively to your intended audience. You will sound like an overpriced lunatic to the people you are willing to repel. The real trick to total market domination is to be ready, willing, and able to lose someone.
When committing to the Experience Excellence value-based discipline, you will find your offer most appealing to the people who:
- Recognize a gap or deficiency in what other suppliers have to offer.
- Don’t know too much about how to best solve the problem.
- Busy clients with the financial means to purchase solutions and the perceived lack of time and energy to deal with the issue now or in the future.
Operational Excellence is an exercise in unadulterated efficiency. These companies are always looking for what they can take away, not add. Operationally Excellent companies offer a low-cost solution both in the purchase and ownership of the product. This doesn’t suggest that the Operationally Excellent are always the lowest price, but they are never the highest price.
Operational Excellence realizes profitability from a high volume of sales, and laser-focused processes, policies, and procedures to reduce expenses wherever they look. Operationally Excellent companies focus on the value of speed and low price, not selection and custom solutions.
Double-digit net profits come from an economy of scale, and market leaders that own 20%+ of their marketplace see healthy 20-25% net EBITDAs with these efficiencies. Operationally Excellent companies see raising prices only as a means of slowing growth and diminishing long-term goodwill, while Experience Excellent companies believe that the high the price, the better the experience they can afford to deliver.
Operationally Excellent companies furnish growth in three ways:
- High and ever-increasing lead flow from a reputation as a reliable, low-cost, speedy provider.
- Repurposing existing assets to squeeze every last drop of efficiency out of their capital expenditures.
- Replicating their Operationally Excellent formula in additional markets.
Operationally Excellent companies reject variety because it burdens the business with cost. Variety kills efficiency, and therefore options for clients are relegated to a limited selection of proven options.
Operationally Excellent companies are rigorous about efficiencies and cost controls. This means no-frills for customers or employees. The value proposition to their customers comes from delivering a higher ROI in time, energy, and money than the competition can provide, all in a bid to cut cost, wasted time, and customer hassle.
Success in Operational Excellent companies comes from continuous process improvements based on the principles of total quality management (TQM).
CHALLENGES OF OPERATIONAL EXCELLENCE
The most obvious challenge for Operational Excellence is the lower profit margins. The simple fact is, with less revenue, all inefficiencies have to be cut. Warranty work and callbacks must be limited aggressively. Training must be efficient and rigid, leaving little room for negotiation of the sales and installation process. Office staff must be kept to a bare minimum. Inventory must be received just in time, exposing you to the challenges of supply chain issues.
Selection must be limited to predetermined and highly efficient choices that cannot be overly modified or customized. Some less efficient to sell and install products and services must be abandoned completely. This requires Operationally Excellent companies to work hard at shaping the perception of their offering and make virtues of their limitations. Customers have to follow your process or your process doesn’t work.
Operationally Excellent companies also face the challenge of slacking demand. As fixed costs and tight margins remain, product flow stalls revenue. Steadily ever-growing demand is nearly impossible to control in residential home services, particularly the more seasonal the service is.
Promotions are the number one pitfall of desperate companies trying to smooth out shoulder seasons as it trains prospects to both wait for a sale and expect an unsustainably low price.
OPPORTUNITIES OF OPERATIONAL EXCELLENCE
The Operationally Excellent model is ideal for a less skilled labor force. This requires a highly proceduralized training system and management structure to follow the sales process without fail.
Operationally Excellent companies are looking for employees that are highly trainable and willing to follow a rigid process. This means abandoning lone wolf superstars and finding people who find their self-worth and identity from the organization. It’s not who they are for the organization, but what the organization will have them become.
The best team players are the people who are touted as the best employees. The greatest reward won’t be money, but praise, comradery, and recognition. These employees will need to be told what to do, and be very willing to do it repeatedly. You are looking for ordinary people who can rinse and repeat at a high frequency to produce extraordinary results.
Operationally Excellent Managers must have a highly repeatable process and follow it obsessively. Highly repetitive training is paramount paired with a deeply documented process for Operational Excellence to function efficiently.
Low prices mean Operational Excellent companies must adjust expectations in three fundamental ways:
- We provide a hassle-free, basic service with an unmatched value-for-money proposition.
- Our business model is designed to deliver an efficient, defect-free service.
- The use of technology and big data are used heavily to redesign and automate any task necessary for optimal efficiency.
THE MEDIOCRITY OF A HYBRID MODEL
Many business owners confuse Operational Excellence with building in and leveraging efficiencies in any business model. In this case, both business disciplines can be very profitable for different reasons. Whether you choose a highly efficient approach to customer value or a highly customized and robust solution to deliver value, there is equally as much net profit to be made.
Where the shortfall comes is when you attempt to combine both business models at a premium price point. Offering speed, limited selection, and precision work at a premium price is considered gouging by the general public. Offering customized bundle solutions from highly trained, deeply competent people for a medium to low price will make you bankrupt.
Therefore, based on a tsunami of research, if you hope to become and maintain market dominance, you need to pick your preferred CORE Discipline and commit to it.
Residential Home Service Companies will never achieve market dominance who sacrifice an exceptional buying experience for operational efficiency unless they are able to deliver high-demand products and services at consistently low prices on a perpetually positive growth curve, abandoning all slow-moving goods and services.
- Put unmatched value into a single business model
- Meet threshold value expectations established by the other value disciplines
- Make your value proposition better every year
- Build a superior selling system to deliver on your promises
- Focus on nothing else. Create a cult-like obsession toward the delivery of your chosen value discipline.
Failing to commit and stick to one value proposition discipline will only lead to mediocrity, or worse yet, bankruptcy.
Commitment takes courage.
No matter what discipline you choose to follow, the customer’s buying experience is king. For Operationally Excellent companies, it’s about delivering a tried and true solution efficiently with little to no room for post-delivery failure. For Experience Excellent companies, it’s about delivering the perfect custom solution conveniently, with loads of value.
Either one relies on an obsession to the CORE Discipline you choose and a customer-oriented relational experience (CORE). After 4 years of research on this subject, I would propose that the lynchpin of your success hinges on the following CORE Code.
Helping people win in a trustworthy and grateful manner.
When this code serves as the foundation of your business leaders become infinitely more persuasive and employees can be empowered to serve at the highest levels without delay.
The most successful companies have leaders that protect and defend the CORE Code with their life.
Choosing your CORE Discipline is a choice in clarity. Clarity of what is most important to defend, and what to abandon. Now here’s the rub. When you get really really good at marketing, like the Wizard of Ads™, we can make your company appear Experience Excellent, but actually, be practicing Operational Excellence as a business model.