How New Haircut Grew its Profits 1,353%

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In 2017, New Haircut was a 35-person, seven-year-old digital agency that struggled to turn a profit.

By 2021 it was a three-person strategic consultancy using digital products to drive sales of its high-ticket services and unlock profit growth of 1,353%.

Welcome to our very first deep dive!

Today we’re featuring my own company, New Haircut. Starting here is my way of leading by example. Of showing you that I practice what I preach.

P.S. Here’s a bit more of my backstory that led me to start this newsletter.

By the end of today’s post, you’ll have a complete breakdown of how New Haircut:

• Grew profits 1,353% by productizing one service

• Launched its first digital product in <8 weeks and $500

• Generated $3,435/mo in passive profits

Then continue on to this 4-part mini-series to learn how to prepare, build, and launch your first digital product.

Onward!

New Haircut Deep Dive: From digital agency with paper-thin margins to tiny team driving 4-digit profits

New Haircut kicked off in 2010 as a 4-person tech consultancy, AKA a dev shop. The company made its money developing technology (websites and mobile apps) for other businesses. As a people-powered business, 100% of income came from selling technology services.

Naturally, we had dreams of growing the business. To do that, we iterated our our way through four growth levers.

We’ll start with growth lever #1: increasing the number of people we employed.

Growth lever #1: Increase headcount

My early attempts to grow New Haircut came by working long hours. If you're a consultant, that probably sounds like par for the course.

But there comes a point where there are no more hours to work in the day. And even before you reach that limit, your health and personal life begin to suffer.

And so the first growth lever I used to scale the company came by hiring. Hiring provided two benefits:

1. Freed me up for strategic work like business development & marketing

2. More staff = more billable hours = more revenue

Growth by hiring is linear. For each extra person, your sum total of billable work increases by one unit.

This type of growth is proven, but comes with risk. For each person you hire, you need proportionately more work. If you're lucky or smart, you break even. If you're both, you turn a profit.

But let’s also not overlook how hard it is to hire A players, especially as a small company. We were competing against high-growth tech startups and service titans like IBM.

Over time, we grew to a 35-person company. Given the pace and challenges of hiring, we looked for growth elsewhere.

Growth lever #2: Increase rates

Even as we hired, I continued to work around the clock. Asking my team to do the same came with the added risk of employee churn. So when you can't squeeze out another billable hour, the next option is increasing your rates.

In a blue ocean, where competition is low, you have lots of leeway with your pricing. That was not the case for us. Technology consulting was and is a deep red ocean. We could only raise our rates so high before our customers looked for cheaper options.

We routinely lost opportunities to offshore outsourcing companies charging one-third our rates. But hiring cheaper talent was not a viable option for us. We knew that tactic would jeopardize quality.

Instead, we raised our rates. That enabled us to reinvest in hiring the best and winning more lucrative projects. The strategy worked, but had clear limitations.

As a result, growth by increasing people and rates during our first six years was slow and painful. In time, it felt like I had become a slave to my own business.

I could have closed up shop, I suppose. Gotten a job making 2-3x, and eliminated all the stress of building a company. And while I ruled that out, something needed to change.

Growth lever #3: Productization

In 2016, we productized one of our services.

In growth lever #4, I’m going to talk about digitizing. Productizing and digitizing are related but different.

To productize, we packaged one our core services: Design Sprint facilitation. The service was valuable but sales cycles were long. They required a heavy investment of my team’s time. And coordination with our customer’s team was complicated.

These factors not only ate away at the service’s profitability, but made it harder for our customers to buy.

At the same time, we had new and existing customers that wanted to learn how to run design sprints. They were looking for a DIY option, versus hiring us to do it for them.

Reading the tea leaves, we packaged our design sprint knowledge into 2-day training workshops.

We had three hypotheses about training that all pointed to increased profitability:

1. We’d use fewer people in less time to generate the same (or more) revenue

2. It would be easier for our customers to buy and so we’d sell more

3. It created new revenue streams by attracting new DIY customers

Compared to our core facilitation services, the numbers on training were immediately attractive.

At the time, we were billing $75 per hour for our facilitation services. A 4-person project team would generate ~$36,000 per month. On our best months, we had 80% utilization of our billable staff. That meant we grossed approximately $75,000 per month, with an EBIDTA (profits) of ~$10,000.

But we also had lower utilization months and sales challenges. As a result, all profits were routinely siphoned to plug our leaky ship.

Training, though, was a whole new ballgame.

Sure, there was an upfront cost to build each curriculum. But even with our first cohorts, a team of 1-3 trainers generated $10,000 - $40,000 per 2-day training.

Our hourly rate jumped from $75 to $1,250. That’s a 1,175% increase!

We triple-downed on training. In less than 12 months, 50% of our revenue was coming from training.

Today, New Haircut still relies on training as a major source of high-profit revenue.

Below is a snapshot of an actual pricing slide with several training packages. It’s from one of the corporate training programs we landed in 2023 that.

That’s one employee generating a minimum of $100k. That goes up for every additional cohort.

• Total approximate time commitment: 70 hours

• Hourly rate: $1,428

• Profit increase from original services: 1,353%

Training has created new, more profitable revenue streams. Still, it remains a people-powered, time-intensive service.

Let's say New Haircut pivoted to an all-training model. Growth would remain constrained by our headcount and rates.

How could we grow without such constraints?

Cracking the code on passive profits as a service business

By packaging training, we experienced an aha moment…

We had uncovered new frontiers of business growth. That stark realization reminds me of the infamous story of Roger Bannister.

Dating back to the 1800s, it had long been assumed impossible to run the mile in less than 4 minutes. Decades passed and no runner could crack it.

Then on May 6, 1954, Roger Bannister ran the mile in 3 minutes, 59 seconds (3:59). Droves of runners followed suit; each set out to do what Bannister had achieved. And only 46 days later, John Landy ran the mile in 3:58.

Today, while challenging, a sub 4-minute mile is an everyday occurrence. That’s the magic of a story like Bannister’s…

Every now and then, a person or event forces a pattern interrupt. A mountain you considered to be immovable, budges. A blind spot appears clear as day.

For New Haircut, we had spent five years toiling with growth levers that were slow, linear, and risky. Then, one day, we ran a training workshop that generated 1,000%+ profits. And within days from that breakthrough, we were building more training.

More importantly, we were asking ourselves, “What else is possible?”

Growth lever #4: Our first digital product

Between 2015-2019 New Haircut ran many trainings. Over time, we noticed a pattern emerging during each training. Without fail, someone would ask, “Will we get a copy of the slides?”

Similarly, they’d ask for other materials we used to run the training.

My answer was always, “No, sorry. These materials are part of our training IP.”

Then during a training in October, 2019, I decided to get curious. I was teaching another of our product discovery frameworks: Problem Framing.

When I heard the inevitable request for our materials, I responded with, “We get that question a lot. Do you mind if I ask, what will use the materials to do?”

The answer was more obvious than I had imagined:

We spent four years training thousands of people. And the whole time, the answer to increased profits (and reduced need to travel) was right under my nose.

I was simply too caught up with our existing solution to see the bigger opportunity.

I was also fearful of what others might do with our materials. Would they resell it? Would they claim it was theirs? Would our sales channels evaporate?

These things happen. They’re also not a reason to keep from trying.

As I listened to the real needs of my customers, I was able to discover the next wave of our training offers: An online, self-directed digital product with all of our training materials and ready-to-use templates.

Without any prior experience, in 6 weeks and a budget of <$500, our very first toolkit was born.

Looking back, it all seemed so obvious for the this to be the natural progression of our training.

That first toolkit:

1. Created a low-ticket offer that got new customers into our funnel

2. Won us high-ticket deals from toolkit customers

3. Generated a new passive income stream

Most importantly, it dispelled our fears and misbeliefs that our customers would never buy a training product that wasn’t live and in-person.

Initial toolkit results

The first iteration of our toolkit took approximately 100 hours to build and launch. For all intents and purposes, a one-time investment.

In the first 90 days post-launch, the toolkit generated $10,306. Keep in mind, not only was this a prototype, but we barely promoted it.

Let’s look at those numbers:

• Time commitment (post-build) : 10 hours

• Hourly rate: $1,030

• Profit increase from original services: 955%

And now here’s the inconceivable truth that too many consultants turn a blind eye to...

With enough testing and tuning, your digital product will reach product-market-fit and your time commitment will drop to roughly zero. That leaves you with a sales channel earning nearly pure, zero-cost profits.

That’s the stuff of legend.

Ready to recreate this for your business?

I hope my story has inspired you to want to build your own growth loops with digital products. If so…

In the very next issue, I’m helping you get set to build your first digital product.

See ya there,

♻️ P.S. Did you appreciate today’s story?

Consider sharing it so the next aspiring consultant can discover it.