280: Shawn Khorrami — The Business Is the Product

We're talking about the mistake of being overly product or service focused. The mistake of that what you should actually be focused on if you want to grow and scale your business. Hi, everyone. My name is Bill Gallagher. I'm your scaling coach, host of the Scaling Up Business podcast, one of the several hundred scaling up coaches around the world. Admittedly more awesome and fun than some of them because I'm here with my music. I'm very full of myself. Anyway, we bring shows like this to you every week. We have a great time doing it. We talk to entrepreneurs, gurus, experts, authors. We share tips and things like that. All to do with growing and scaling the business over time, 100x10x global domination, whatever it is that you want. Right. Like, we're all about that, not just the status quo. All that and more. @scalingcoach.com or wherever you get your podcast or video content, we're there. I'm joined now by Sean Karami and we're really talking about this business that we way too much focus on your particular product or service, not enough on the rest of the things. He'll share more about that. Sean is a serial entrepreneur. He works with other businesses on growth and scale. He's scaled companies from every stage up over $100 million. He's got a really diverse educational background, and he'll tell you more about all that. Sean's down in the Los Angeles area, where my original hometown, where I'm from, on the west side of la. Sean, welcome to the show.

Oh, thank you for having me, Bill. It's a pleasure to be here.

Thanks. Well, we're glad to have you come here and talk to us. So why don't we start off with just a little bit, maybe say a little bit more about your background that I. That I kind of didn't speak out or add a little color to it.

Happy to talk about myself. You know, I'm, as you. As you mentioned, I'm a serial entrepreneur. I've started over a dozen companies over my lifetime, all of them from zero employees and grown them up to even up to nine figures in eight and nine figures in revenues. I started very early, when I was still in high school, and it was more out of seeing my father falter in some things that I got started and seeing him in his own business sort of have some needs and seeing some of the needs that his friends had. And at the time, personal computers were just coming into homes. So I was very into that being a teenager. And so I built this little program to allow them to Manage their little businesses, which they couldn't really afford to go get all these different vendors and contractors for. And in the process, I made my first business. That's how I started making money from my father and his friends. In high school, I did go to college. I majored in mathematics, computers, which I was very interested at the time, and economics. I went on to get a law degree. And during that, this whole time, I've had formal training in marketing, sales and accounting. So that's really helped me out in forming a pretty broad set of businesses. And the reason part of it was as I was going through college, a lot of my friends were looking at how they make their resumes to get this job or the other job. And I was just really not that interested in that. I was looking at, well, what do I do? The entire time, it was the same concept. How do I help out? How do I identify a problem and fix it or help somebody get around it? That's how I started going. I never actually have done a resume for myself. I've done bios, but no resume. And I tell people, unlike many people that I meet, I've never actually received a W2 from a company that I haven't owned. Never, never, never received one. I've never had an honest job. There we go. So, you know, as I went along, the reason my experience became so broad was that I would get into one business and I would look at my competitors and different needs that. Yeah, and different needs that they had. And I would identify how to. What I call back office, their businesses, Meaning I would see something in the background that they were. That I could make into some sort of an assembly line, some sort of a specialty. And I would build a little company that would service my competitors. That's how I would make my businesses. And I would sell that particular service or product to them. And those I ended up having more success at than the businesses that I originally got in, how I got into the sector.

So give us some examples. What are some of these companies that you've done? Some color, too?

Yeah, we'll get into plenty of those examples. But, for example, in situations where there are documents or records that are needed in certain businesses. Right. And there are certain processes that they need to go through. So let's say they need medical records. Let's say they need these kinds of records. What I would do is, I would say, wait a minute, they are going through, and they're going through these processes that are generally just something you would. Assembly line. You could actually take them and make them really efficient and actually make money out of them. They are big money sucks inside of my competitors businesses. But I can offer that service to them of getting documents, simply getting documents at a lower cost that it would cost them. I would make myself a profit and I would actually provide them with a more comprehensive and better way of obtaining those documents than they were having. So that's one business that I actually put together was actually just getting documents and that's all they did. Through that there were businesses that I got into. For example, I started a small restaurant chain and part of what would come about in the restaurant business and that's one of the businesses that I actually wanted to talk about. A lot of people get into the restaurant business for the wrong reasons. And this is one of the things where you see, or I say, the product is not the business, the business is your product. Yes.

You're like, oh you love pizza. Oh you love falafel. Oh you love Chinese. Like whatever it is you're going to like. I'm going to create the best Mac and cheese restaurant.

That's right. I know how to make food. I'm very good at it. I like food. I know food. I have seen just mounds of failures and restaurants are famous for this because the person got into the business simply because they like that product that the food that it makes and not understanding that the entire business is really the product, the product doesn't make the business. Or when you go into a situation with professionals, I always bring that up as an example. Because if you go into a doctor's office, for example, and you ask a doctor what is your business? Practicing medicine is their business. They'll tell you that over and over and over. That's the product, that's the service they're providing. That is not their business. And that's not how they become successful by doing that thing. But unfortunately, too many people think just by doing that thing I will become successful. So the number one lesson is just because you have a great product doesn't mean you're going to have a great business. Yeah. And so for example, right now I.

Think that's the thing that like I hear that a lot. Oh, I'm a doctor or whatever. Well, well, that's what you do. Right. But not thinking about, well, I keep kids healthy or I restore sight or things like that.

Yeah.

Solution oriented. Who's the customer? What's the value being created?

Yeah. And the funny thing is, you look at right now, I'm working with a food products company and I have Several of these kinds of clients where they have a very successful line of products, it's in stores all over the place. So they have a direct connection to the consumer. Consumers love their products, but their business, the way they've formed it, is by wholesaling their products to stores. Now, what they did was they said, okay, now we want to be online. We want to go direct to consumers. And guess what? This is going to be easy. Why? Because consumers already, by the millions, are buying our products. They love our products. Well, when they got into it, first of all, they were not very strong online. Second of all, they did not understand what happens during that process. So what they did was they just put up a website, which they'd had for a number of years, but they started putting. They added a cart to it, and they did this and the other. But then when it came around to actually marketing to consumers, they were not able to generate any traffic on their website, so that traffic wasn't coming. And when the traffic was coming, the little bit that was coming, they would order something. And suddenly this is a company that's used to sending out less than truckloads or truckloads of product out to different wholesaler, different resellers all over the place. And they're shipping them every week and every month. But when the consumer comes and says, hey, I want one jar of this and I want one packet of that, and when does the consumer want it? Not next week, not two weeks from now. They want it today and they want it tomorrow. And so when you're looking at that, that was a huge failure for them. And so when we started looking at their products and how we get around all of these things and how we open up different sales channels for them, and they literally had to put in a different set of leaders, a different leadership group to actually manage that.

It's a different mindset, a different kind of company. We helped a food company. I haven't done a lot of them, but we helped a food company a few years ago that's now a bajillion dollars. But they started with two products, and they were very passionate about their products. It had originally been two different companies, two different product sets, and they shifted their focus from a couple of products to a whole category of products that solve a particular kind of thing, a certain grouping or type of product that people are interested now. They started buying other products up because they saw they were filling a larger need, not just trying to figure out how to sell two brands of the same product. And suddenly it started growing. Now Their issue came in two parts. One, that shift in how they saw the company. And then also we had two owners who had profoundly different views of the future. And we had to figure out where they intersected to get that company growing. But focus on building the company and getting aligned as a team was critical to that inflection point.

For them, that's a huge challenge. You have to make sure you're on the same page and you have to have a leadership team. That's another point that's, to me, very important, is you have founders that are there and they are all things to the business and they think that they're the best at every piece of that business. And when you start it, you may be extremely talented at all aspects of the business when you start, but as you grow that business and you have to become even sharper, even better at each little piece of that business, that's when you start as a founder or as a business owner. Not having all of the expertise you need, you start getting spread out too thin. You don't have the level of knowledge in specific areas that you really need as you're growing. So putting together the proper leadership team that is sitting there and putting together all of the plans that you need to put together is very, very important. And all too often you see a situation where the founder or the business owner is trying to be all things to the business and trying to control the business in every aspect, and that holds back the business. A lot of times, yeah, anytime if.

You think you're Superman or superwoman, you're hurting the business, you're keeping the team small, you're inhibiting the growth of the company. Right, we see that one again. Let's talk about some of these great examples that you've got. So you shared in getting ready a SaaS company. That's a hot category for us. We work with a lot of SaaS companies. We have a lot of listeners in different kinds of SaaS business. Talk about that a little bit.

Yeah, I worked with this SaaS company just recently and they came to me, they said, we have this great product and they're a platform. So businesses go to them and contract with them in order to get certain services from them. So E commerce businesses, they have thousands of E commerce customers. Okay. And they came in and said, we have this brand new product we're putting out on the market and it is customizable in every way. It's got, you know, it's faster than this and the other. It's got all these competitive advantages and I looked at the product and after about a month or two of really, really studying it, you know, I said to them, you know, there may be a sale for this. You may be able to sell it to somebody, a company that could use the technology, but you don't have a product that you can actually sell to customers. Because your customers are not going to want to sit here and put in code and change around this product that you have in order to end up with the competitive advantages that you want. Because the world has moved along since you started building this product, which was only a few years ago. And so what was happening was they had a product that you.

Early stage company without customers.

No, they had actually, they had a product that had a bunch of customers and they had thousands of customers. This was the next generation. This was V2. And they said, okay, what we can do is on V2 we have these huge. I mean, they had patented all this stuff and huge competitive advantages. But the problem was that the customer base and even the contractors to that customer base would not be willing to go through the pains that they needed to in order to get the product to a place where they could actually take advantage of those competitive advantages. What ended up happening was this was a situation where I said, unless you add in all of these components where you can actually sit there and your customer can click and play, much like you would do on a Shopify, for example, where you go in and you grab all the services you need as a business, you're not going to be able to actually sell this product to a customer base. It only has a market in terms of some other company that could take the technology and then complete it. So they might pay you for that, but no customer is going to come pay you for that. The challenge was really getting the owners and getting the founders to a place, and the investors, frankly, getting them to a place to understand that this is where you are and this is the fork you're in. You either have to go down one place and find a partner that you would actually bring in and they would purchase the technology from you, or you would have to do a whole lot of additions to this product through a whole different program in order to sell it to customers that you want to sell it to. So that was a situation where they had a great product, but no customer on earth is going to want that product. That's something that we come across a lot.

How did that change? What work went on there? Where is that today?

What we did with that was we came and put together a partnership Program. Instead of them actually sitting there and coding in all of the different components that they needed to do in order to have a viable product for a customer, we went out and we said, okay, what features do we need? And we went out and grabbed different partners, small companies, a lot of them that were providing services, they were providing shipping services, they were providing. They already had that stuff built. And we brought that in. And what we did was we integrated it into the product. And that was the only way that we could get it in a fast enough, cost effective enough way to get it in front of a customer, where we could develop a customer base, rather than where we saw the product going. So we essentially took the whole tech out of it. They had all these engineers sitting there, and we said, we don't need these engineers in this fashion. What we need is we need to plug in products. And where we needed engineers was the integrations to plug in those products, not to code in and make a whole new product. So that was the way that we solved the problem.

Another example you shared from our preparation was a service company. What kind of service company was that? They wanted to expand their clientele or the segments they were addressing?

Yeah, you know, yeah, that was actually an accounting firm. You mentioned, actually, that you have a lot of listeners that are SaaS companies or E commerce. On E commerce, I can really. This was another company that we actually worked with on the E commerce level. And what this company had was like you described the food company you worked with. They had a few product lines, right. And what they were doing was they were getting components on some of them and putting them together in order to make products. And on others, they were just white labeling, essentially. So they were selling humidifiers. Okay. This is one of their. One of their products, one of the handful of products that they had. They were selling a lot of humidifiers, I mean, to the tune of thousands of thousands a month. And with a very healthy profit margin, they had a very healthy revenue stream. Small business, but very healthy business. Covid hits. And what happened with them was that their supply chain became completely disruptive. They were bringing in these humidifiers from China and that just, you know, and they're a very small fish in a very big pond. And they just got, you know, in a mound of trouble. They had to change around their suppliers. And what that caused was a big customer experience problem, customer satisfaction problem. The new product that they were bringing in, they started getting some complaints about. They had, as they had scaled, because they had such a great product. They had never really put Together, that kind of customer experience team. So they started getting these bad reviews, they'll start dropping. They come to us and they said, we said to them, okay, hang on a second. First of all, we got to fix whatever your product is. Two, let us put in our customer satisfaction team, because you have none. We have to do something immediately because we have to deal with these customers that feel like they didn't get a good product. They are voicing legitimate issues and we have to deal with them straight on and help them get to be satisfied to satisfy them. And they. The other thing that we noticed, one of the questions I immediately asked was, what are you doing? Are you offering anything else with these humidifiers? Are you offering the essential oils, which a lot of times the essential oils that come along with these? They said, no, we don't sell those. We just sell humidifiers. I said, so you have a whole bunch of one off sales with some customers that are coming back and saying, we don't like this product and refund us. That is not the place you want to be. And the essential oils were a big deal to me where I was looking at their business because that's where they get their monthly recurring revenue, the mrrs. Right. Immediately I said, well, the first place we go is we got to get some of these up and start selling those and put them on a subscription. That'll help drive some good reviews. Number one, as we address these other customers and deal with your supply chain, we will bring in a better product. We will take care of your negative reviews because we're going to respond to these people and make them happy. We're going to offer them some of these subscriptions for free if we have to. Even if they went and bought another product, we're going to refund them for the humidifier and we're going to say, hey, take some of our essential oils for free and for a period of three months, six months, and we want to make you happy. That essential oils business, that monthly recurring revenue became a bigger revenue base for them than the humidifiers that they were selling thousands of. And so that's a situation.

Talking about COVID hitting a humidifier business. Right. First, the supply chain. But I think about, there's two categories of people I think about humidifiers and maybe bigger than I realize, because I don't know squat really about humidifiers. But use humidifiers occasionally when you get a cold or something like that, right?

Yes.

And use humidifiers if you're in a dry, like in the winter months when the air is being dried. By your heating systems or use it if you're in a dry area to improve the air quality. So there's the regular. There's seasonal users, there's the regular ongoing users, and then there's the real occasional users. Seems like there's kind of three class of users, but it's all about, like, air quality, being able to breathe comfortably and nice, like that kind of thing. Right.

They were actually surprised because they thought their sales would actually go up during COVID Right. People are staying home, they got a health getting cold. Yeah, but you have a health aspect to it, and people are staying home and hey, you know, okay. But what happened was because of a completely, you know, what they felt was unrelated thing, that sales channel got completely disrupted. We had to fix all of that up. And the funny thing is, we then went to their other products and did the very same thing, created what they didn't have. They had all these products. They were selling one off, you know, and they were not. They were not going back to their customers, to their current customers, who are your best source for, you know, new products to sell.

Cleaning oil, scents, complementary things. Second, humidifier for the other room, whole house, humidifier filtration systems.

And now you're thinking, yeah, yeah. These are exactly the thoughts that we're going through their mind as they were looking at the business. But it worked out fantastically for them once they started thinking about the business a little bit differently and not thinking of themselves as, oh, we sell humidifiers, you sell health, you sell wellness. And this is the perfect time for people to take advantage of this product. And by the way, these others, these accessories, I call them, are things that get used up by your customers and they like them. So it was a very.

Air filters and air, like replacement filter cartridges and air filters. They're all out the mouse with those things.

Yeah, you were sitting there and the first thing, see, me and you are sitting here and we're thinking, oh, yeah, you know, what else can I sell to those same customers? What does this product need? And frankly, you're doing things that'll keep them happier, too. Their profit margins, by the way, increase. Why? Because the marketing to their current customers is much less. Once you've got them on a. You know, what I was telling them is you essentially become a credit card machine, because every month these customers are buying these products from you, and they're on autopilot and you have to basically. And we worked with them to estimate how often customers were going to need these things. And so we made a subscription plan for various products that they would sell. And today they went through this process, and they're a much better company for it. So that was something that was related to Covid that I thought was interesting. That happened.

That's interesting. One of the lines of humidifier or something that's often listed as a humidifier is an oxygen concentrator. And these are $400 plus type boxes. Right. We bought three of them during the pandemic because they're really helpful if you get Covid and want to stay out of the hospital, Want to avoid getting on a ventilator, that kind of thing. They increase your oxygen levels. And so we bought three of these machines. One went to my mom, which she did use. We sent it to her after she got Covid.

Oh, wow.

One went to a family member's house. It ended up getting used by a friend who got Covid, and then one is still sitting in a box. You know, I'm waiting, hoping nobody needs it.

Yeah.

You know, hopefully all these things. Filtration, like, there was a lot of usage of this category in. But I didn't buy any more of this traditional type humidifier units, nor any of the other things that. That you would think to go in.

Yeah.

And last year, mostly nobody was getting colts. Right. That.

Yeah. And the thing is that when you look at Covid in that situation, this huge disruption happened. It's unprecedented. But all of us, I mean, me in particular, I'll just use myself as an example. I've had humongous failures, too, and very catastrophic crises that we've gone through. And so when you look at a situation like that, and I always tell people, and the funny thing is, we ended up writing a little ebook out of that, just how to deal with how to deal with COVID and how to thrive in the COVID era. By the time we were finished writing that book, Covid, you know, had largely passed. But we looked at the book and I said, well, this is just anything proofing your business. And right now I'm writing version two of that.

Change management.

Yeah, yeah. Right now I'm writing version two of it. But what we did was. So we came up with this book that we wrote, but it all is about these situations that happen, where you have a crisis situation that happens, a huge disruption that happens, something that you didn't anticipate. And I always tell people, you have to look at the opportunity there. Where is the opportunity? Because whenever I've been in any crisis situation, whenever I've seen anyone in a crisis situation, I've also seen opportunities there and you have to look for those opportunities. Now some people went and said, okay, I'm going to go sell masks for me. I don't know anything about masks. I could not get into that business. It's not my style to just say, oh, now people are buying masks, I'll go sell masks. That's not the way I can do things. But there are other opportunities that you look at. As we saw large companies and small companies taking advantage of those opportunities. And same thing with this humidifier company where they initially saw the opportunity, but because of all these things, they weren't able to take advantage of what they believed was one. And then what we did was we sort of focused in and took advantage of the climate, excuse the pun, but we took advantage of that situation in order to build a much healthier business for them. So that's something that is incredibly important that I think people have to look at and to take a holistic approach to their business. Don't just say, hey, I'm a seller of humidifiers. See where your customers are and actually try to help them.

Bigger picture. Yeah, yeah, yeah.

And a lot of times, you know, you see people like the SaaS company that I give an example of. One of the things I always say to people is if you're selling a product, you may have the best product in the world. I used to say if you put it on Mars, but that has become too much of a possibility now. If you put it on Saturn, if you put it on Saturn, no one's going to buy your product. That was the lesson from that SaaS company where I said, this is a fantastic product, I love it. And no customer is going to buy it because you're not meeting your customers where they are. That is not where their mindset is. These are things that come up over and over, especially when you talk to small businesses and medium sized businesses where there's places where people miss things that are relatively simple solutions. But again, you just sometimes need a fresh set of eyes on things.

So before we run out of time, talk to us about the accounting firm. What happened there? What was the situation? What'd you do?

So in that situation, what they were doing, they had a wonderful business, they had plenty of clients and they had been around for decades.

So lots of social proof, established accounting business.

Yeah. And so what they wanted to do was they wanted to then change around the customers that they were servicing. They were servicing certain individuals and these individuals actually were generally business people, but they wanted to get those business accounts and what they wanted to do was actually get certain auditing jobs that they were sure they could get. But what ended up happening when they would actually talk to people for that, that is not the image that they had. And so even the customers that they had that were business owners, that were actually businesses themselves, they didn't want them for auditing jobs because that's just not the brand that they had built. So in that situation, what they had was they were looking at these customers and they were saying, sure, we're already got a base of them, we want to develop a bunch more. But they were unable to get any and they couldn't figure out why. So part of it was branding and we had to change around the way they branded themselves as an accounting firm. They were being too much of a, a bargain brand. We take care of your individual needs, hand us this set fee and you're done for certain services. What we did was we actually turned around the way they did business by changing their brands to become more of a business accounting firm. They started, for example, they were not putting out simple things. We had them put out content to their clients about all the different things about how to run their businesses.

Educating.

Yeah. And it was just pure content. We were not asking them to be asking these, the readers to be retaining us or anything like that. What we were looking at is just showing them who we are without pressuring them because you're not going to pressure these people to buy from you. What we did was we just created a campaign of getting out there and helping out our business clients. And from there was where they were able to just through very simple things like that, relatively low cost marketing to then drag in a number of these businesses and start doing the work that they wanted, which was the really big ticket items. That's what they were looking for. And again, recurring items quarter after quarter. So they had the right idea on what they wanted to sell, they didn't know how to sell it. And so that was. It worked out really well for them because they started doing that well.

So a couple recap things to think about, look at the bigger picture of the business, pull way back, look wider and broader at the business that you're in, less focused on your primary product or service. And then start to think about the team, how you're organized and how you're working. I think these are the big things that I hear in your stories and examples that you share with us today. If you want to get in touch with Sean, you're going to find sean@connectwithshawn.com we'll put the link there in the crawl on the video.

And of course sometimes you have to spell the word the name Sean S H A W N.

We'll also put that in the show notes as well. So easy to find and connect with you again as you go here and want to see more about his work and like that maybe seems like the guy for you. Connectwithshawn.com Big thanks to Lucy Summers producing our show and getting us ready in and out every week. If you want more in something to do with the world of Scaling up growth, understanding about the Scaling Up Framework to read the show notes from Sean's show or from any of the other 400 plus shows that we've done on everything to do with people, strategy, execution, cash or the leadership required to get your company. You're going to find all that and more@scalingcoach.com if you want to drop us a note, send an email, get in touch with someone, give us some time feedback, ask for something. InfoCalCoach.com is how people get in touch with us. Big thanks to Vern Harnish, author and creator of the Scaling Up Framework. The people at podfi Productions who get our show ready and out the door each week Alby Burge who edits the audio Ayne Kudina who gets our show notes Ready Tim McGowan who proofreads everything. Thanks again everyone for listening for watching. Keep Scaling Up. We'll talk to you again next time that.