Are you creating a business built on hands-on customer relationships? If so, here are a few things to keep in mind.
Working with a variety of entrepreneurs and entrepreneurially minded executives has given us perspective about two distinct types of customer models: "high touch" and "low touch."
A high-touch business is one in which a customer places trust and partnership with a company, and in many cases, a specific individual or team at the company. This is more of a "person-centric" model in which the relationship between a salesperson or other individuals have a major impact on the sale and retention of the customer.
These businesses include consulting or advisory firms (like ours), wealth management and other financial services businesses, accounting and legal firms, and other specialty professional services such as public relations and insurance brokerage. Other "high touch" businesses include real estate brokerage and personal services such as hair salons or athletic training. In a broader sense, any trust-oriented or relationship-driven business is "high touch."
On the contrary, "low-touch" businesses involve selling a product or service that can be consumed on its own, without much "touch" from a salesperson or other employee. As a customer, you are buying the product or service, and don't place much value in the individual selling it to you. Manufacturing and standard service businesses fall into this category.
We have a high-touch business, so we understand both the benefits and challenges of building this type of business. On the plus side, high-touch businesses tend to be sticky, and therefore very profitable. Customers that rely on you as individuals to deliver a critical result aren't likely to shop around as much. They value the relationship and are willing to pay for it. There is a clear link between price and value, so paying less doesn't necessarily create a better result.
On the downside, high-touch businesses tend to be difficult to grow. A product or service can be replicated across multiple customer segments, geographies, and use cases. A high touch service, by comparison, is hard to grow because the value created tends to be specific to each customer and doesn't always translate as you add sales and service people.
For example, an expert hairstylist may be able to grow her business by adding more customers, but once her schedule is filled up, it's hard to justify to a customer that she will charge the same price and pass along the haircutting duties to an assistant. If she is successful at growing the business, she is likely giving up much of the incremental profits to her assistant stylists. If not, they will leave and take customers with them.
If you're considering building a high-touch business, here are the questions you should ask:
Is a high-touch business suited to my personal or organizational strengths?
Is my growth strategy consistent with the nature of the business?
Would I be better off building a quality product or service that is lower-touch, but scalable?
High-touch businesses can be more profitable than low-touch businesses, but it's important to build them intelligently and prepare for a very different growth path to ensure sustainability.
KARL STARK AND BILL STEWART are managing directors and co-founders of Avondale, a strategic advisory firm focused on growing companies. Avondale, based in Chicago, is a high-growth company itself and is a two-time Inc. 500 honoree. @karlstark