Unlocking Growth Through Innovative Business Models with Caroline Johnson

00:00 - Caroline (Guest)
What game do you want to be in? Do you still want to be doing creative assets marketing, that sort of low-level, campaign-based marketing services? I would say you're going to really struggle if that is your only front door and all the dominoes are in service to that activity. That's why you need three front doors.

00:21 - Mike (Host)
My name's Mike Lander and you're listening to Higgle the B2B Sales Club podcast, where we bring you actionable insights about sales, RFPs, negotiations and difficult procurement discussions from sales leaders, brand leaders and procurement leaders. Please subscribe to get updates when new episodes are released. Caroline, thanks ever so much for joining me on Higgle, the B2B Sales Club podcast.

00:49 - Caroline (Guest)
Thank you very much for inviting me.

00:50 - Mike (Host)
And I've seen you obviously on various platforms, at conferences. I think we've been in the same kind of venues together and you've got a really interesting take on, especially the marketing agency business world and lots of experience in case studies about changing the business model. So let's get into the audience. Who are you, what do you do and something unusual about yourself.

01:18 - Caroline (Guest)
I'm Caroline Johnson. I'm the co-founder of the Business Model Company, which was formed nine years ago to do one very simple thing, which is to design and then help operationalize business model change across the whole global marketing services industry, across all disciplines and capabilities. Prior to that, I was doing a very similar role, but within corporate advisory, and we were repackaging scaled independent businesses that were looking for some form of transaction or event. We are repackaging them from services to either product or program or consulting or advisory or platform, mainly because the multiples are double or triple in that repackaged business if you do it with the right KPI, financial indicators and the right authentic operating model, etc. So I've been doing business model change programs for about 18 years.

02:19 - Mike (Host)
Okay, very good, and something unusual about yourself.

02:22 - Caroline (Guest)
I've got a few things that are unusual about me actually, and just thinking about them there's quite a few Some I probably shouldn't mention.

02:32 - Mike (Host)
Oh, no, you should. I've had all sorts. I've had one person who was a butler in the buff. That was his job before he got into sales and general management. Oh, really. He was a naked butler.

02:43 - Caroline (Guest)
Yeah, I will not tell you the name of his job. There's plenty there. Did he tie me up to you? No, I think it's probably a bridge too far at the beginning of this podcast, but anyway, at least it gets people curious and thinking oh, I wonder what it can be.

02:58 - Mike (Host)
Well, if you want to find out what they are why they are.

03:06 - Caroline (Guest)
why don't you contact Caroline on LinkedIn? Yes, yeah, that's better. I don't mind doing it when we're off air, but probably not in front of your audience. Exactly, I got my yachting license when I was extremely young is one which is fairly boring. I'm double jointed and hyper mobile and I'm left-handed. There's some really unusual physical quirks there, definitely.

03:29 - Mike (Host)
There are Excellent, right, let's get into the questions. So let's start with some definitions, because there's lots of talk and little substance often certainly on LinkedIn about business models, operating models, productization. So if we just start with some definitions, what do you really mean by business model, operating model and productization?

03:49 - Caroline (Guest)
Fantastic question and I'm really glad you asked that, because we're starting where we need to start, which is let's get the foundations right Exactly. Let me start with the definition of a business model. So a business model, if you think of it as a triangle with three corners, you have create value at the top, which is your go-to-market story, your positioning, how you package up and talk about the services or the capability that you need to sell. So positioning, proposition, go-to-market story, and how you package up, what you do. That's create value. The two bottom corners of the triangle are what supports that You've got. How you deliver value, which is your operating system, your delivery model, your talent model. So that's the whole process system, operating model. And then how you capture value, which is how you understand your costs, how you understand your pricing methodology, your pricing model and your commercial model. So how you create value, how you deliver value and how you capture value. That is a business model, perfect. And if you change one point of the triangle, it has to be reflective in all three to be sustainable.

05:13 - Mike (Host)
Yep Makes sense.

05:14 - Caroline (Guest)
Yep. So those are the simple rules around a business model, perfect Operating model.

05:18 - Mike (Host)
So how is that different to an operating model? So how is that different to an operating model?

05:22 - Caroline (Guest)
So your operating model is how you deliver, it's how you deliver your services, it's the processes you use, it's the behaviors as well that fit around that.

05:38
And most of our industry is in a service culture.

05:42
We are running a business model which I call the goodwill service model, where real value is given away, mostly for free or in pitches, or it's not monetized properly to ensure that the bucket of goodwill in that service culture, if we say yes to everything, if we give away an awful lot of our ideas and our value, then we will be rewarded with more work from our clients, more pitches, more briefs, more opportunities. That's the goodwill service model. We have a very lazy operating model in that type of service culture Because the way we monetize is to justify as many hours as possible and as much expensive specialist talent as possible. So our operating system is there to defend that pricing model and the way we monetize. So that's the operating system. As you move into different models, business models, whether they're product program, consulting, tech platform, whatever it might be you have to have a complete relaunch of that operating system in every possible way, including cultural and behavioral in terms of rewards, incentives, what you invest in, how people are promoted. So that's the operating system.

07:10 - Mike (Host)
And the last one was productization, because there's lots of talk about this and lots of confusion. I think we could do a podcast just on that, Just on this.

07:18 - Caroline (Guest)
It is my biggest bugbear. So as an industry, we tend to think of products as productized services, Right. So in that business model triangle, what we are doing is we are changing some of the language on a service to be a product. So we talk about it as a product, but it is still a service because if you actually look at the language being used, it is talking about the methodology, the process, the effort, and that's a productized service. Turning a service into a productized service is a bit of repackaging and a bit of premium pricing. It doesn't really work. Procurement don't like it, clients don't like it. You're still a goodwill service agency. You're still a service culture, but to protect your value, you're turning services into productized services and you're really doing a bit of value pricing or premium pricing.

08:21 - Mike (Host)
And possibly a bit of standardization. So you're taking something that's a craft and you're maybe turning it into something that's a bit more repeatable.

08:30 - Caroline (Guest)
Exactly, and that's why the industry thinks productization doesn't really work. That's absolute rubbish. There are, I mean, countless successful product businesses that earn great margins, are highly scalable, highly valuable, highly relevant. If you productize a service, you're likely still to be talking about your process. So check. The way to check is are there any we words? Are there any? We do this, we do that. Are you talking about audits, strategies, mapping, insights, reports? These are all empty delivery vehicles. They're processes. So the first rule around real productization is learn a different language. And product language starts when the doing has been done, when the product has left your care, your building, your people. It's when it's left the factory and it's in the hands of the client and you're talking about utility, value and experience. And when it's in the market and you're talking about business realization, business outcomes. It's a product. But anything that talks pre that is actually a productized service. And that's why, as an industry, we're so nervous about productization, because most people have experienced it not working.

09:48 - Mike (Host)
So what's an example just take a simple example in the marketing agency world of a well-packaged product as opposed to a productized service. What would one look like?

10:00 - Caroline (Guest)
The difference between delivering cultural equity and a cultural audit. So if you are doing a productized service around, we will do a cultural audit. We will do this X, y and Z. We will find these insights. We might talk to some people. We'll do some competitor mapping, we'll do some cultural mapping, we'll do a review of what's out there in culture and we'll find some ideas for you. That's a cultural audit. It's all you doing stuff.

10:30
A cultural equity product might be a system or a platform or a program of work that looks at a four times multiple on the same investment that you might put into a traditional comms model. So you might put a bucket of money into brand growth. In a traditional comms model it needs topping up all the time. It's not as commercially viable as it used to be. People don't like it, but you could still put a bucket of cash into an old-fashioned comms model. Or you could look at how you enhance and elevate your cultural equity in the market. And cultural equity is cultural permission for your brand to be relevant, to provide great experiences, to make a difference to society, to help change the world, to make humans better people. You earn cultural equity. It is given back to you. You don't invest in it, in a brand model and hope. Suddenly cultural relevance and cultural value appears On a balance sheet. Cultural equity at enterprise value level is 10 times the value as it is in terms of brand equity.

11:46
So you've got a cultural audit which might take six weeks. Maybe it costs 110,000 pounds and it's we'll do this and we'll do that and at the end of it we might have some ideas for you. Or you could develop an always on program led, commercially extremely transformative program of how you start embedding cultural equity into your brands. You can then create a maturity index, seven foundational pillars for cultural equity. Let us review where you are. Oh look, pillar number four. You're only a two out of 10. These are our program packages. Let's get all of our clients as culturally rich as they can, because it's cultural equity in the future that will sustain your brand, that will allow you to pivot, push away competitors, innovate and make a difference to society. So they're very similar in the background, the factory settings are the same, but the difference in those two stories I didn't mention any doing. All I used of the language was you will have, you will feel, you will experience. But the factory settings are the same.

12:58 - Mike (Host)
So is the agency doing the same work or is it doing different work?

13:02 - Caroline (Guest)
It's using the same capability, it's using the same talent, but it's completely blown the lid off the value it can create. So it's gone much, much higher, much, much further. Because we've got that chokehold of services. We only think in services and I call them the colored dots on the dominoes. We've bought our domino set and we've got all these dominoes with different colored dots on the dominoes. We've bought our domino set and we've got all these dominoes with different colored dots and different configurations. We think we've got to sell those dominoes in terms of time. But the stark reality is no one told you, or you haven't really woken up to the fact everyone has the same domino set, everyone's got the same dominoes. So that first example I gave you is how do we keep the domino dots all busy and how many dominoes and how many dots can we justify? In the second example I gave you, we're still using the dominoes, but we've gone much, much higher and the dominoes are now to create value for the client, not to justify how busy they are.

14:03 - Mike (Host)
The domino set is the same, so outputs and outcomes no activity.

14:08 - Caroline (Guest)
Sort of inputs and then outputs and outcomes. Yeah, exactly, and no rewords, no doing, no empty processes.

14:16 - Mike (Host)
Okay, so why are those terms so important to agencies right now and what's involved in that kind of cultural transformation from services to a kind of product and solutions mindset?

14:28 - Caroline (Guest)
Great question. Mindset, great question. So I think what clients people listening to this are likely to be experiencing is that the traditional revenue model is shrinking and declining. So the traditional revenue model is bucket shaped and it means that you need big clients every year. This idea of agency of record, the idea that you need to pitch for a big client and you'll win it and keep it for three years and it will grow. What we're finding across the board is the shape of that revenue model is changing fast. So your top four or five big clients if they haven't already gone, they are likely to be shrinking fast.

15:10
And the engagement model we're used to running, which is pitch like crazy, grab every tiny project, try and go after lots of work closely with the intermediaries doing RFPs that engagement model which you're not in control of. You've actually given your engagement model to the external market. In that scenario. That is not providing you with enough top up to be able to stay at a sort of an even keel. So the shape of revenue models and the shape of client investment is changing considerably and you're likely to be in a revenue model shape that has now gone. So that's the first visible symptom. So, knowing how you transition from what we call value shaped or traditional shaped, which is it's all about a few big clients every year providing most of the revenue value, into what we call a hybrid model, which is divided into three thirds, which gives you really great quick, fast product solutions. Then it gives you sort of some fantastic program solutions and then some space for bigger clients as well. So it's a blend that is really important. So if you're trapped in a declining revenue model, you need to move it. The market won't move it for you.

16:33
I think the second thing is, if they have low net margins already, if you're sub 10% net margin, how you invest in maybe a different leadership model, technology automation, technology automation platform, even products. When you're on such skinny margins, you're trying to keep pumping the lifeboat. You're in, up with air and your foot is just pumping the air into the lifeboat. Trying to spend time jumping out of that lifeboat into a bigger lifeboat is quite scary when the lifeboat you're in needs air fast and I really appreciate what that feels like. So that lack of knowing how to jump, when to jump, is it safe to jump? But we know we need to jump because the feet are getting very tired. It's hard and then, I think, no visibility If they are going into a significantly different market. I don't think the answer is suddenly to become. I don't think the answer is suddenly to become. I don't think the answer is to go from being a creative business to a tech business. You still need to be a creative business.

17:40 - Mike (Host)
But also, caroline, having worked in quite a lot of tech companies before and services companies, my experience was they're completely different culturally. You cannot take 50 services people and say tomorrow morning we're going to become a tech company. They won't know what you're talking about. Apart from the words will make sense. And the same happens if you go from a tech company to a services company. It's why a lot of SaaS companies, as you know, don't like having their professional services bit. They often try and get rid of as they scale because it's not culturally the right fit and also it's got the wrong multiple on exit. So they often have ecosystems and services partners. So, yeah, I think agencies can't just go. Oh well, I know what I'll take enable it all and that'll solve all the problems, because it won't. So that leads us on to the next question, because I'm conscious of time as well, caroline, which I was really interested to see how you respond to this.

18:32 - Caroline (Guest)
What is it? Is it a surprise one?

18:35 - Mike (Host)
No, no, no, no. This is the question that we had sent you, but it's very real. So, given all that context, if you'd just been appointed as the CEO of a mid-size creative agency with a 20-year history, built by a highly creative-driven founder making circa 7% 8% EBITDA margin, what are the kind of top three biggest strategic commercial challenges on your mind? What would you do about them? So it's hypothetical, but a lot of agencies are feeling this right now. It's like, well, what do I do Commercially not writing bit, or the cultural bit, or the roles bit, or what would I do about the commercial model? What are my top three commercial priorities?

19:17 - Caroline (Guest)
So I would repackage the business really fast behind three new front doors. I would take the legacy service business where we still need to keep the air in the lifeboat and keep that door open and sort of optimize it and protect it as much as possible. I would place that behind front door number one. I would then create two other front doors front door number two, front door number three and I would look at where the value creation really is. So not the comms activity, not the communications processes, but where do we, in a completely defendable, scalable, repeatable and market sort of validated, where are the areas that we really create value? Create value for our clients or for us, for our clients, right? So all of these front doors are client facing and I would separate as fast as possible the areas that fit that criteria that probably haven't been monetized are muddled up in the Goodwill Service Agency, given away for free, and I would pull those out. So a lot of the ideas at the back of the deck, here's some free ideas. Those are really valuable but they're freebies at the back of the deck. To show goodwill, I would really think about how you equip your clients, not just in the sort of the traditional marketing model, but actually how you lead clients into being more experience-led, how you equip them with real intelligence in an always-on way. I would look at how you make your clients more culturally relevant. It's not enough just to package up those front doors as strategy or consulting. Those are empty delivery vehicles. They mean nothing. Really think about your clients' challenges. And the reason I'm giving that answer to a commercial question is because in door two and door three you will be able to then package the propositions and the delivery of those two front doors with longer term program solutions and products. Then you can scale the right delivery model and talent model in both of them and also take your net margin at the beginning.

21:38
So the business is likely to need to be repackaged. You need to differentiate value creation and use client facing language. So these are gateways for growth into your business for your clients. They're not service portals or service side doors and that will allow you to scale from the right models. Protect what you've already built, but learn how to scale, productize and monetize at higher value where you really see your value creation. And then over time and this is what we've seen happen with our clients door two and three take over really quickly because door one is likely to be in decline. But just think, if door one is in decline which is likely then you've got to take from that the real value and protect it and place it into different models quite quickly. So I wouldn't do any productization until you've done that separation, because it's still touching the service model and therefore it's really difficult for you to monetize and protect it if it's too close to the Goodwill service model.

22:48 - Mike (Host)
And are we talking about in terms of the way that we price services, which is obviously is part of that, and door one, two and three will have different pricing models. They have different pricing models yeah. So are we talking about? Door one may well have used to have been projects and retainers based around activity models, the traditional model maybe. Door three is ARR, so you've got some kind of annual recurring revenue product you've sold to the client that's renewable every year. What are we talking about in terms of pricing models, and why is that?

23:20 - Caroline (Guest)
important, it's really important. You have to be able to understand your pricing models. But pricing models will only be effective if they are attached to credible business models. So you've got to be in that front door. You have to be authentic as a productized business or a platform business or a program business. So if your clients and procurement see you as authentic, then you play in a different game anyway. So the pricing model that you apply, you need the operating system to secure the margin. You need the pricing model that is authentic to that, the business model that you're scaling. And you can't do that all within the whole sort of soup of the legacy model. It has to be separated. So, depending on your capability and where you feel your higher level value is that you could scale. That will determine whether you move into product, program, platform or sort of more of a creative advisory pricing model.

24:24 - Mike (Host)
So if I was listening, I'd be thinking okay, I'm still on the train, I still get it, I'm going on the journey. But, bluntly, it isn't always up to us, the client, and I think part of the challenge has been clients have a certain model about the way their budgets are structured, the way their own KPIs are set, the way their targets and goals are aligned with corporate. If they're used to running in a certain way, which is I need some extra capacity with capability, I don't really want to invest in myself. Ie a marketing agency doing marketing services work, running campaigns, and I've got a budget for that. How do you shift their mindset from well, I've got a budget and that broadly looks like your kind of services and it's just easy because I've always bought it that way. How do you get them to change the way they think and the way that they pay for value? That's quite a challenging thing to do for most agencies that have sold services for years. I'm not expecting a perfect answer. It's an interesting thought going through my head.

25:30 - Caroline (Guest)
That's why you need three front doors. So the first question is do you still want to be in that game? What game do you want to be in? Do you still want to be doing creative assets marketing, that sort of low level, campaign based marketing services? I would say you're going to really struggle if that is your only front door and that is you know, all the dominoes are in service to that activity. So that's the first thing is what game do you want to be in?

25:57
The reason you have to have the separation of the front doors is to be authentic. If your clients let's talk about existing clients if your existing clients have always brought you in one way and want to work with you as a marketing agency, that is what door one is there to do, because it can be very hard to shift their model. It want to. Then existing clients have got a beautiful, new, more sort of refurbished front door. Number one, because you've got to keep the lights on whilst you change. So that takes care of that.

26:40
Door two and three need to be authentic business models in the way that we've described, which means a change of language, so creating a program-led front door, the thought that you would do that on the same pricing model as door one is insane, and there's never time or resource plans or hours or any of that old pricing model in door two and three. They need to be pure product, pure platform license. If they are separate and they are authentic, then clients will buy them as product program advisory. It's when you are doing these and putting them. They are right on the all you can eat buffet. So the trap that most of the industry falls into, which is the one you've just expressed, is you do all this repackaging and productization and clients still want to buy you in the old way. Well, that's because you've added it to an all-you-can-eat buffet. You've put some extra trestle tables on and you've said oh, by the way, the smoked salmon and the Prosecco is now more expensive on the all-you-can-eat buffet. It's not going to work. You're still not valuing yourself and you're exactly right. It's not enough.

27:57
So think we're not going to be adding more premium-priced items to an all-you-can-eat buffet. We're actually going to build a new hotel over on that in that better neighborhood and we're going to be known as a hotel group and we're going to have our budget hotel which keeps all the you know a lot of the travelers happy, which we're known for. But we're going to have a boutique hotel up on that ridge and it's going to be for travelers that want a more premium or a more whatever, and then we're going to have a whatever. The separation is essential and that's what the front doors are for, so that you are giving your existing clients options and flexibility. But if they still want to buy you in door one, they can still buy you in door one. So door one will go and you will leave door one behind and door one. So door one will go and you will leave door one behind. But you will never have a future if you don't start establishing door two and door three. Brilliant.

28:54 - Mike (Host)
So we're over time, in fact. So, caroline.

28:57 - Caroline (Guest)
Did that make sense? That makes sense.

28:59 - Mike (Host)
No, it makes sense and I think it is. And if I took a hundred clients that agencies talk to, I think part of it is also. I mean, another bugbear of mine a lot of agency leaders aren't taught to sell, and if you say sales to a marketing agency, they often throw you out the door. And I came from a sales background. We both worked in KPMG. I was trained how to sell and that was a high-end professional services firm. So quite why marketing agencies think it's not selling.

29:27
Exactly. We were trained in a very similar way, and so I think part of the challenge also is in 100 clients. If you've repackaged the organization, the business, in the way you described, which I think makes a lot of sense, but you still effectively engage with the client in the same sales model, well you'll just keep on selling what's in door one. You'll never sell door two and three because you won't know how to, because you won't know how to enter the discussion and affect the client's mindset and how to say no. We don't actually provide that service anymore for new clients Existing we do, but net new we don't. Having that conversation agencies find it comfortable.

30:06 - Caroline (Guest)
Yeah, our clients are the best advocates for doing this. It's not about me, it's about look what they've achieved. There are some wrong assumptions around business model change that are holding us back, one of which is our clients won't let us. It's not true. Productization doesn't work. It's not true. Productized services doesn't work. Productization does work. There's some basic assumptions that are embedded and keep us fearful and anxious, so those assumptions can be appropriately challenged. Exactly, you can change, it's just you've got to know how to do it. There's a small line between success and failure.

30:47 - Mike (Host)
There is Like most things in life. There is exactly so, caroline. It's been fascinating. Thank you ever so much for joining me. Top three takeaways what would you basically say to any marketing agency, mid-market kind of 30 to 200 people listening to the show? What would you say your kind of top three takeaways?

31:06 - Caroline (Guest)
Well, first of all, come and talk to us, because we can help and we're also extremely generous in giving advice anyway and look on our website, because there's quite a lot of podcasts and white papers and materials on our website. I think you need to have leadership alignment around change before you start anything would be. My second one, which is what are you prepared to do? What are you not prepared to do? I think that's really important. And the third is you need action. These businesses need to be repackaged, relaunched and set up for the future by the end of this year. So look for resources that can help you, which is number one. Really, really make sure you're as aligned on a leadership team so many businesses we talk to. Don't then get started because the leadership haven't done that important alignment at the beginning. And the third is action.

32:00 - Mike (Host)
You have to do something. You have to do something yes.

32:05 - Caroline (Guest)
And don't be scared. It can be extremely enjoyable, energizing and liberating. Don't be scared.

32:13 - Mike (Host)
I used to say to my board we need to experiment, we need to try new models out. This is going back wow, 10 years. But I said the one golden rule for me was any experiment can't kill us. So you have to take it seriously enough and invest enough. But if it doesn't work, it can't kill us. So you have to take it seriously enough and invest enough, but if it doesn't work, it can't kill the business, because that's a binary, one-way door and those are dangerous. But you're not saying that. You're saying this is an evolution, but it's a rapid evolution.

32:40 - Caroline (Guest)
Exactly, that's beautifully summarized. Yes, it is.

32:43 - Mike (Host)
Caroline, it's been amazing. Thank you ever so much for joining me.

32:48 - Caroline (Guest)
Where can people find out more about you? Thebusinessmodelcocom and I'm on LinkedIn. Caroline Johnson, Message me on LinkedIn. Have a look at thebusinessmodelcocom website and I'd love to talk to any listeners that are embarking on this journey Brilliant.

33:05 - Mike (Host)
Caroline. Thanks ever so much indeed. Thank you very much. Thanks for listening to Higgle the B2B Sales Club podcast series with your host, mike Lander. Please subscribe so that you'll catch all the next episodes.