On the surface, starting a service-based business like public relations, consulting, writing or coaching seems easy enough. You have the skills to deliver high-quality work and results, so you set up a nice website and spread the word among your network contacts that you're looking for clients.
But running any type of business, especially a service company, is never "easy." There will be long hours, difficult clients, frustrating projects and many other obstacles along the way. But for those who have what it takes to persevere, the rewards of turning your passion and skill set into a viable business far outweigh the challenges you'll face.
So, what is it really like to start and run a service business? Entrepreneurs who have done it weighed in on the challenges and advantages, as well as the best practices for getting your company off the ground.
Why start a service business?
Developing and selling a physical product takes a lot of time, money and energy. Even if you run an e-commerce business, you still have to deal with packaging, shipping and returns. In a service-based business, your product is you. There are little to no start-up, overhead or production costs — all you need to do is build your reputation and get the word out.
"I started [my] business with very little start-up investment," said Kathryn Snellen, owner of communications and PR firm Kathryn Elise Studio. "I created my own website, designed business cards and already had a laptop and office equipment. For me, word-of-mouth recommendations through networking have been and continue to be my biggest lead for potential clients and I have not had to invest in advertising or marketing for my business."
"We didn't need to take on any investors or take a bank loan to launch ASTRSK, as we had no products to order," added Elliot Tomaeno, founder of ASTRSK public relations agency. "This allowed me to scale the business as we grew from my apartment, to a co-working space, to our own floor in a really cool landmark SoHo building."
In many cases, a service business is also much more flexible and adaptable than a product-based business. In addition to being able to work whenever and wherever you want, you can also easily make adjustments and tailor your service to suit an individual client's needs.
"If a client isn't happy with how a campaign or website is developing, you can make changes according to their feedback in real time," said Brian Whigham, managing director of digital marketing agency Venn Digital. "This is much more difficult to do for products, which may need testing, licensing and remanufacturing."
The challenges of the service industry
While there are plenty of advantages to a service-based business, there are also a few challenges unique to this type of venture.
Pricing. How do you strike the balance between offering competitive rates and charging what your time is actually worth? That's the question service-based companies are constantly trying to answer, and the solution isn't always an easy one to find. Most service entrepreneurs, especially freelancers, severely undervalue themselves at first, and charge too little in the name of winning customers. This is particularly common among entrepreneurs with a time-based pricing model.
"In the beginning, I often underestimated the amount of time and budget we'd need to serve clients well," said Becky Robinson, founder and CEO of author publicity firm Weaving Influence. "One potential client asked me to cut her budget in half. I wanted the project, so I cut the hours allocated to serving her in order to cut the budget. It turned out, my original instincts were correct. We ended up serving her with the hours I initially scoped — at half the pay."
Robinson said she overcame this issue by establishing a time-tracking system that allowed her and her team to understand what it actually takes to deliver the company's services to its customers.
"We have gotten better ... at estimating time required to serve our clients," Robinson said. "We also use data from projects to help us in determining hour allocations when our clients renew a contract after an initial engagement."
If you're offering a few different types of services, Snellen recommended a price "menu" to break down your costs and core service packages, as well as set an hourly rate. Depending on your specific industry and business, you may also want to consider a retainer pricing model.
Reputation. Service-based businesses face the difficult task of asking clients to trust them and take their word that they can deliver what they promise. Even with testimonials and referrals, you'll need to prove your worth to prospective clients by establishing a strong track record.
In order to build credibility and maintain long-term client relationships, you might think it's a good idea to accommodate all requests for customized packages and services. This was the approach Emily LaRusch took when she founded her virtual receptionist service Back Office Betties. While it did help her company's reputation, the growth that followed made it difficult to continue on that path.
"In the beginning, we tried to accommodate all of our clients," LaRusch told Business News Daily. "We've since grown so much that we can't add features as quickly as the requests come in, so we've had to prioritize and put some enhancements on the back burner. At the same time, we still need our clients to know we hear them and take every request into consideration. We ask: Is this good for our clients? Is this good for our team members? Is this good for the business? If we can't answer yes across the board, we nix the idea."
Selling yourself. Most service-based entrepreneurs agree that selling themselves as their "product" is one of the most difficult things they had to learn when they started their business. Physical products are relatively easy to market, but a service is abstract, and, as mentioned above, it all comes down to your reputation and the level of trust you have with your clients.
"The difficulty in opening a service-led business lies in the inability to show potential clients your product," Whigham said. "I knew the talent of my designer, my developer, my marketer, but with no tangible product to sell and no proven track record with previous work, I had to ... [sell] prospects into a dream that was no more than an idea in my head."
"With a product, a customer typically understands what he or she is receiving," added Pat Petitti, CEO and co-founder of business consultant marketplace HourlyNerd. "You see it, feel it and you can even try it out. Service-based solutions are quite different, and in our world a customer may not understand the quality of the solution until months after it's delivered."
Snellen said the most effective way she has learned to market her business is by developing a strong online brand presence, particularly on visual social media platforms like Instagram, Facebook and YouTube.
"On social media, I share educational and inspirational tips about the industry, behind-the-scenes work with my clients and tidbits about the services I offer — always paired with compelling images and relevant hashtags," Snellen said. "This is a great way for me to grow my following, connect with my ideal clients and create an organic portfolio of my work that reflects my personality and business."
Steep competition. One of the greatest upsides to a service business is that it's so easy to get started. However, this can also be one of its greatest disadvantages. Just about anyone with your skill set can offer the same types of services you do, so making yourself stand out above the competition might feel like a constant battle.
"There is a very low barrier to entry for service businesses," said Crystal Kendrick, president of professional services firm The Voice of Your Customer. "As a result, competitors pop up with every opportunity. [These] often include part-time entrepreneurs, employed persons seeking additional income, unemployed persons who work as contractors until permanent employment is confirmed and volunteers seeking experience or engagement."
One way a service entrepreneur can set him- or herself apart is by offering a tangible product, such as an e-book or guide, to provide extra value and boost credibility. For example, Lisa Baker-King, children's author and certified Kolbe coach, found that publishing a book gave her a product that was consistent with her brand message, and it could also be sold at speaking events as a way to further connect with her audience.
Tips for success
Think you're ready to launch? Here are a few tips to help you out when you present your new business to the world.
Make sure there's a place in the market for your service. With few exceptions, there are probably a lot of other service businesses doing something similar to what you do. What makes you different from your competitors, and how will that influence your marketing efforts?
"Conduct a thorough market assessment to determine your audience's readiness for [your services]," said Toffer Grant, founder and CEO of PEX Card, a prepaid expense card for businesses. "If you are copying an existing service, you can build a case for why yours is better and create an educational program about your benefits. That's a whole different ballgame than a service-based business that has created a new category, where its key messaging will entail education about a problem it is solving."
Get your finances in order. Just because a service business has lower overhead costs doesn't mean you won't have any at all. Baker-King urged potential entrepreneurs to consider their cash flow before starting up and ensuring that they have enough to live on with all their anticipated expenses, especially if they're leaving a full-time job.
"Most business plans I see are 'survive' cash flow analyses," Baker-King said. "You want 'thrive' cash flow. You might have the best idea on the planet, but if you don't have money to invest to get off the ground, money coming in to fund the business and enough from ... savings or another income source to pay the family bills, then you might need to revisit your business plan."
Accept outside help so you can grow. Because of the nature of some service businesses, some entrepreneurs feel like they can run it as a one-person operation. You might be capable of handling every business task yourself, such as invoicing, accounting, marketing, etc., but outsourcing certain administrative tasks can free you up to really work on growing your business and providing the best work you can.
"Do the work you're great at and outsource the rest," LaRusch said. "If you aren't an accountant, don't waste time trying to crunch numbers. I spent three hours trying to reconcile one monthly bank statement only to give up, frustrated. I hired a bookkeeper and she had three months reconciled in less than two hours."
Eventually, you may find that you'll need to expand your business and hire full-time staff members. Chad Bronstein, CEO of sales rep hiring service Time to Hire, was hesitant to hire at first, but soon realized that he wasn't able to do everything himself as his business evolved. He warned other entrepreneurs not to get to the point where they're so overwhelmed that they need to make a rushed — and potentially poor — hiring decision.
"Building a team is important," Bronstein said. "I waited too long and was in a situation where I had to hire someone immediately. [I needed] better planning and more time. Try to replicate yourself — don't work in your business but on it."
Hired staff members can also help you offer more consistent service to your clients and give you a professional edge, Robinson said. Until recently, she only operated as a team of freelance subcontractors instead of employees. Now that she has a full-time staff, she says she can decrease her risk and increase her confidence as a business owner.
Stay focused on quality. Service businesses are very easy to scale, but you won't earn any new opportunities if your current client base isn't fully satisfied. Petitti said the key to success in the service industry is ensuring quality, especially as you grow and take on more business.
"Every customer — from one to 100,000 — [should be] absolutely delighted," Petitti said. "As a service you'll need to rely on referrals ... meaning you'll only grow if your customers are referential and delighted in the value you are delivering. We have a maniacal devotion to delighting our customers, and it’s paid off with ... growth driven almost exclusively via word of mouth."