44) ICP Waltz

Behind-the-scenes building Vambrace AI, a company on a mission to figure out its mission. Please pardon the stream-of-consciousness style. Subscribe to follow along or visit the site here:

(typos are to make sure you’re paying attention)

Introductory Remarks

Dear Vambracers —

In last week’s post, Foliaro, I pseudo-announced the launch of my second incubation effort, Foliaro. I haven’t officially launched the service yet, but it’s in the works. And, at least in part, the goal of last week’s post was to help hold myself accountable to that eventual full-scale production launch (ideally in the next several weeks). So hopefully more on that general effort coming soon.

My Ideal Customer

Within the world of startups, there is the concept of an ICP—an Ideal Customer Profile, i.e., what are the characteristics, qualities, and attributes [redundant?] of the perfect customer for my products or services? You likely don’t remember, but my AI Chief of Staff, Walter Vambrace, released an album called Signal in the Noise last July—which featured the song ICP Waltz.

Within the context of my consulting efforts, I’ve explored many different ICPs, and truthfully none of them have stuck yet—they were just CPs. But I’ve shifted efforts again recently given some positive market signals, which has inspired me to more critically assess what puts the “I” in ICP. That’s what I aim to do in this post.

What I Offer

In order to identify the ideal customer for any product or service, one must explicitly define the product or service being offered. I’ve had difficulty doing that. In the beginning, I positioned around helping “old-school” physical services businesses adopt and leverage AI. But really that hasn’t been the case throughout my first two engagements. Instead, I’m leveraging AI to get things done more quickly and more cost-effectively than would be possible in the past.

So now I think of my service and value proposition as high-level digital transformation and strategic consulting at a relatively affordable price for companies who might not have otherwise pursued such initiatives or who are somewhat cost-constrained. I also aim to position myself as the thought partner and builder for these interstitial automation and intelligence systems that connect with existing systems of record to help facilitate the transformation of data across the company, throughout its lifecycle.

And maybe that brings us to one last thing: I’ve started to focus principally on the transformation of data throughout the company, and how AI and/or automation can accelerate that transformation. Really, a company is just a massive amount of data, stored in disparate software boxes throughout an organization. And as the company conducts its business, really it just leverages humans and bots to transform that data—usually in lockstep with some physical activity in the world.

So my goal is to understand that entire data transformation journey, mapped to core business functions, and then I tie it to underlying economic goals like profitability and more revenue, and then help apply AI or other automations to improve the velocity and quality of the organization’s data transformation efforts to drive improved business outcomes. And really the only improved business outcome that matters is more profit.

Now, the companies I would like to work with.

Business Category

The categories in which the customer operates matter enormously. I semi-automatically filter out a lot of categories that just don’t appeal to me or where I think there might be immense competition. Those categories include: professional services, fintech, insurtech, martech, legaltech, software, etc., so categories where the core economic value is attributable to bits and bites (which is my clever way of saying software and relationship management).

Historically, I’ve been drawn to more industrial / physical categories like manufacturing, physical services, energy, consumer products and those types of things. I enjoy the tangibility of those categories, and I also think that it will be beneficial to work with companies where the core economic value is attributable to something physical that happens in the world. I also think that technological adoption tends to lag here, which is an added layer of difficulty and complexity that I enjoy, because also I think that means you can drive more competitive leverage when you do adopt technology.

This general bifurcation of the universe of addressable categories drove me to pursue work with physical services businesses. This is how I ended up working with lawn care companies as my first two clients—and I’ve since been hitting outbound hard on other physical services categories, like HVAC, pest control, painting, cleaning, etc. But so far no bites there. The thing is, I still really do believe that these general physical services businesses are suitable and ripe customers for digital transformation efforts and improvements in data transformation processes.

I also think healthcare clinics might be an interesting category, given that people will always have to breathe and pump blood through our bodies, etc., at least for the foreseeable future. But these are the general categories in which I’ve arrived at for now.

Financial Profile

I also underestimated how important the financial profile of the business matters to how they think about enlisting the services of a firm like mine. After some market discovery, I’ve now arrived at working with companies generating anywhere from $5mm-$50mm-ish in revenue—and I think the sweet spot really is in the $10mm-$25mm range.

I think at this size, there likely are some internal processes that have helped the business reach 10-digit revenue, but there likely hasn’t been enough investment in digital efficiencies to help the business be as profitable as it could be. At this size, there are also probably high-six-to-seven-figure cost centers that are ripe for digital transformation and improvement. If I can remove 25% of the cost associated with a $2mm expense in a company’s P&L then I can justify my fee pretty immediately.

I also think companies of this size can benefit from more rigorous top-of-funnel customer acquisition initiatives. We can also amplify these initiatives using all prior data that the business has in order to identify highest LTV customers and more proactively target more of those customers. We can also identify geographic clusters, if relevant, and figure out how to structure marketing efforts accordingly.

Lastly, I think in these revenue ranges, companies still might not have enough bandwidth or internal capability to take on higher-touch digital transformation initiatives or take a step back and think critically about how to improve processes. To get anything to $10mm+ in revenue, something has to be working well—and in most cases many things are probably working well—but I think it can also be overwhelming to be met with real demand and that business processes can suffer during periods of intense growth. That’s where the opportunity is.

So the main point here, I think, is that in the $5mm-$50mm revenue range, there are an abundance of opportunities to either accelerate revenue and/or reduce costs and/or boost overall efficiency and information access across the organization, which can all drive real bottom-line impact (hopefully).

Psychological Disposition

The last consideration I’ll mention is the psychological disposition of the customer. A $10mm business ran by the 65 year old founder for 35 years might not be as growth-oriented as the same business in the hands of a 40 year-old founder with some PE support. In other words, the organization’s mindset, as dictated by ownership and management, is intensely important—it might be the most important thing.

My general belief is that we’re in a period of massive and unprecedented technological, social, and cultural disruption. With great disruption comes great opportunity—and I want to work with people and organizations that want to wade fearlessly into this unknown future and figure out how to take advantage of this moment to level-up their organization, out-compete peer organizations, and supercharge the business. That is my general attitude, and I want to work with people who share the attitude.

It’s not enough to find a great candidate for digital transformation from a category, technology, and operations perspective if you don’t also have a willing and motivated human-partner for that process. I now understand why word-of-mouth distribution and referrals matter so much for consulting businesses, since this trust and motivation aspect is so critical.

Looking Forward

I haven’t yet found my ICP, but I keep collecting data that helps inform that discovery process. And that’s all I really can do at this point. Have a great week!

Sincerely,

Luke