Episode 44:Risky Business
What is risk? What’s the definition? How does that factor into client objections? How do you overcome these objections?
Summary
Nick and Kai work through what risk means in a consulting engagement, from the buyer’s side and the seller’s side. Nick frames risk as spending money when the return is unclear or distant, with examples ranging from a $12,000 Mac Pro to a $450 plugin he bought without hesitation because $20k was already in hand. Both argue that case studies, outcome-focused positioning, and asking ‘how does your business make money?’ before any engagement are what move a consultant from risky bet to trusted advisor.
Highlights
- Nick defines business risk as spending money without a predictable return. The $12,000 Mac Pro is only a sound purchase if client work is already waiting, not if you’re buying it hoping work will follow.
- Nick bought a $450 WordPress plugin with no hesitation because clients had already paid him $20,000 for the project it served. Risk drops when revenue is already in hand.
- Nick’s A/B Testing Manual has no refund policy because buyers implement it themselves. Bad implementation is not his fault, and he draws a clean line between selling a book and selling a consulting engagement.
- Kai says testimonials and case studies reduce buyer anxiety more honestly than a blanket money-back guarantee. They signal what to expect from work quality without promising outcomes outside anyone’s control.
- Nick’s New Music USA grant application system drove a 5x increase in signups. He says almost no designer would put that number in a portfolio. They’d show a wireframe screenshot and call it done.
- When a designer leads with portfolio screenshots and no outcomes, Nick says they have lost control of the conversation and read as a higher risk to the economic buyer.
- Kai’s first question to every prospect is ‘How does your business make money?’ He won’t discuss outreach or campaign strategy until he and the client share a clear understanding of how the business generates revenue.
Read the transcript
What do you see as risk within a consulting engagement?
I’m going to talk about risk within a business first because we’re working with businesses. So consulting. is a business, so I’ll generalize it quite a bit here. A business is an entity that should make more money than it spends. That’s pretty much it. If your bank account balance for the business is above zero dollars, congratulations, you have fleetingly succeeded in some capacity at the art of business. That’s it. If it’s one cent, you’re kind of sucking and I’m worried about you, but you’re still succeeding. So there’s that, right? Risk A business has to be spending money, right? That’s kind of one thing. Usually it’s spending money in order to make more money. Makes sense. Now how much money you spend defines what the risk is, right? And it affects what the margins are. So let’s talk about my business for a little bit because it’s consultancy, and I’ll directly answer your question. My margins are Mostly personal expenses, if you think about it. It is my payroll. It is my mortgage. It is a few SaaS tools that help me do my business correctly. It might be like my computer, but let’s face it, I would already be owning a computer. So, you know, now I just get to put that in as a business expense. And because I’m using it for solely my business, I’m using it for recording this podcast, et cetera. Maybe I want to buy an especially nice computer. Let’s say I have a you know, I have a Mac Mini that I’m recording this on right now. But I’m more professional than a Mac Mini. I’m way better than that, right? I want a Mac Pro. And I want the best Mac Pro you got. So I go on apple. com slash Mac Pro and I configure the world’s greatest Mac Pro. And I think if you do that, it’s something like $12,000. My Mac Mini is $600. I have presented in front of me the $600 Mac Mini and the $12,000 Mac Pro. There should be a clear goal for me getting the Mac Pro other than to fulfill my ego the size of a small state, right? If I’m going to be spending $12,000 on a Mac Pro, either I made a crap ton of profit and can set that money on fire Or I have a specific business goal for the Mac Pro. Maybe I’m editing video or doing 3D rendering that actually mandates something that crazy nice. And I’m buying it for that particular reason, and that will allow my business to function more effectively. No matter what, the more money that you’re spending on something, if there’s a A lower chance of reward from it as a direct consequence of it. I view that as risky, right? So let’s turn it around, Sam, the client. I don’t know who you are, Kai. I need to actually juice the traffic on my business. How do you help me get traffic? Well, you help me get on podcasts and guest blog posts and get more traffic that way and get qualified links back. And I know I’m being heinously reductive about your business right now, but Yeah, right. Sobbing. Now, you’re really expensive because you’re fucking awesome. So automatically, I think, well, this might be risky. What do I mean by this might be risky? I don’t know whether I’m going to get back a return on my investment, and I don’t know how quickly I’m going to get a return back on my investment. So if I’m buying the $12,000 Mac Pro. I still need to get in client work to actually use that Mac Pro, right? So that could take a while, right? Or I could be having client work that is like contingent on paying me upon the successful compilation of these videos, and I have a ton of them. Well, then I’ll get paid back a lot faster, right? So there’s lower risk in doing it because I’m clearly buying it to be solving a need. I’ll cite one more example about this. I bought a $450 WordPress plugin the other day, which is crazy. It’s so much money for what amounts to a plugin for a proprietary system. And you probably think that I’m completely bonkers for that, but it was for the A-B testing manuals like proprietary video hosting site that I’m putting together. People had already paid me $20,000 for this site. There was no risk in spending $450 on this because I had already made the money, you know? The only risk was in it not working, and they have a 30-day money-back guarantee, so I can demand a refund. So the terms and conditions of the engagement might be a form of risk, right? If somebody hires you. There’s no refunds after you’ve performed the work because you’ve already performed the work, and we have a certain number of heartbeats, etc. So that’s it. You know, maybe it didn’t pay off for you. So a risk is like the potential of it failing. And people are always, I mean, everyone is acting out of desperate fear of failure and not Working from a more abundance mindset, I feel. And part of why we’re recording this episode is that, like, I see a lot of people buying. Things that might potentially be risky and saying, well, I’m investing in the business. And they view it in a more positive way. I’m blowing the twelve grand on the really nice Mac Pro in the hopes that eventually it will pay off in some capacity. It’s like the equivalent of going to an art supply store and seeing a nice notebook and thinking about all of the amazing things you’ll fill the notebook with, right? And how many blank notebooks have you bought that like never get filled?
Oh, Merlin Mann has a wonderful joke tweet about it. Something similar to the line you’re going down. Joining a Facebook group about creative productivity is like buying a chair about jogging, simply buying the thing. Doesn’t guarantee the outcome you’re shooting for. If we flip the order around and you’re like, I really want the A-B testing manual to be a success I’m going to go out and buy this plugin and hope it adds to me selling $12,000 worth or $20,000 worth of product. Well, it doesn’t, the order of operations doesn’t function that way. You can’t. Invest in this resource for your business under the assumption that it’s going to increase revenue, help you have a more profitable business. Until you have that clear direction and that clear indication that, okay, this actually does provide a return on investment. And when you’re looking at the $12,000 Mac Pro, well, You’re absolutely right. How do you know this is going to generate revenue for you? You really don’t, unless you have a stack of work and like Hey, clients are knocking on the door. They really want their videos edited. I better buy a computer so I could do it. Simply buying the tool doesn’t guarantee you’re going to get that return. Simply investing in a consulting engagement. Doesn’t guarantee you’re going to get that return unless your business is situated in such a way that it’s able to take advantage of that resource.
Yeah, so I’ll outline another. More drastic example. In most contracts, you see what’s called the force majeure clause. And it’s like that, it’s in America called the Act of God provision or something like that. And what that basically says is: if The Chicago Cubs win the World Series and the entire city burns to the ground. You probably won’t have internet and thus won’t be able to actually discharge the The precepts of this engagement. So, and then insert provision: is there a refund? Does the project end without a refund, etc. , etc. And that exists as a hedge on risk in case like an earthquake strikes the oldest land in the planet in the Midwest or Um, Godzilla comes in, or I don’t know, whatever have you, right? Like some weird extenuating circumstance happens where the National Guard gets called into Wrigleyville for two weeks. And that is a hedge on risk. You are de-risking that by instituting it in your contracts or your upfront engagements, right? Like I have a money-back guarantee for cadence and slang. I don’t for the A-B testing manual. Why? Because A-B testing manual, A-B testing is one of those things where you can implement it really horribly and then blame me for it. And that’s not my fault. It’s that you implemented it horribly. And, you know, I’ll do the best I can to make sure you don’t implement it horribly. But ultimately, I’m selling a book and not a consulting engagement. Right.
Right. Yeah. It’s like if I buy a cookbook, I’m not going to come to the author’s house and be like, you know, I made the eggs on page 43 and then I burned them for three hours.
And then I vomited. And it was your f<unk>. Fault and no, it completely wasn’t your fault, right? Yeah, so understanding like risk is also a way, especially in consulting, of like identifying responsibility, right. So, when you’re hiring me for draft revised engagement, A-B testing is then my responsibility, right? Finding revenue-generating design decisions on every one of your marketing pages is my responsibility. And I own that. And you have removed the risk in making those changes yourself by offloading it to a weird curly-haired dude who sits in his office every day and yells at people.
I didn’t realize I did A-B testing. Risk. No, you’re absolutely right. And I think it’s fascinating when we think about the removal of risk. Or, not the removal of risk, but the removal of something like a money-back guarantee. And I think a money-back guarantee fits into a specific slot when we think about selling a product or a service. It’s to overcome an objection. And a money-back guarantee is, I almost think of it as a trope. That you see it so often, it’s almost overused when there are other means to De-emphasize or remove the risk that a client or a buyer or a customer might see about the service. Testimonials are a great example of this. Hey, I’m thinking about hiring you for this multi-thousand dollar engagement. I’m a little nervous. Well, the client feels nervous because of risk. How could you deflate that risk? Hey, here’s a case study from somebody similar to you who hired me and had a great outcome from it. Can we guarantee your outcome is going to be as great? No, because there’s so many variables we can’t control. But if you’re worried that I can’t perform my job, well, hey, here’s a case study, and here’s a testimonial, and here’s a work sample, so you could see. The quality of my work and understand what to expect. Not necessarily the outcomes, because those are outside of complete control, but Signs that you are somebody who is not a risky bet. Signs that you are somebody who, more often than not, can deliver value to the business.
Yeah, absolutely. And like. I see this happening with my engagements all the time. I just launched a test and called it and it made Ah, five-figure increase in monthly recurring revenue for my client. And they’re going to become a case study pretty quickly. They want to hire me for the next year and a half. Which is amazing and an enormous business win. And I’m super proud of it. And I have no idea if that will work for you. Believe me, I would love to know whether or not I will do the same thing for you. I don’t own a time machine, and it’s contingent on a lot of things that happen in your business, right? This win happened for this particular client because I took ownership of the entire design process for their entire conversion funnel. And that is scary as hell and involves a lot of moving parts with all of your designers and developers. And that’s risky. That’s what it is. Because all of a sudden, not only are you. Not only are you spending however many thousands of dollars on a really awesome consultant, but you’re then giving him a ton of responsibility. I don’t think people talk about responsibility enough when they think about the way that they’re providing a good relationship when consulting engagement.
No, and to a T, every client that I’ve worked with who I’ve had a positive Relationship with, it’s come down to them feeling like they can delegate that responsibility, delegate that ownership, delegate honestly, the risk management of some part of the project to me. Oh, I trust Kai to handle this. Well, that means Kai’s responsible enough, Nick’s responsible enough, and that there’s not that fear of, oh, what’s going to happen? Something’s going to go wrong. It’s an honorable place to get to. I mean, when we think about the concept of a trusted advisor in a consulting business, I think that’s what Both you and I strive to be for our clients. Somebody who is the trusted voice who could say, hey, we’re headed the wrong direction, and somebody who’s also that trusted person who they could hand ownership of a large portion of their business to and see wins like the one you just shared.
Yeah. Yeah. And I mean, I’m collecting wins and becoming more and more of a safe bet. But yeah, I think about People want safe bets. We talked in a previous Make Money Online episode about celebrity chefs being safe bets, right? getting recommendations from locals is a way of derisking your interaction with a city. And then getting recommendations from other people in a client setting is a way of derisking your A B testing strategies. or your outreach strategy, or whatever it is, you know they want to know that they’re getting a solid ROI from it. And this is I think this is a particularly acute issue for me because I’m in a field where people still in 2016 ask me, how do you get a good return on investment from design? Well, it involves sitting in Google Analytics a lot.
You mean you just you don’t you don’t use the the the make money brush in Photoshop to make more money with design? Oh, is that in there? I think you install it. Oh. Yeah.
Yeah. Where do I get it?
Left. Right there. Click there. There. Now we found it.
Oh. Oh, oh, Kai.
I’m so sorry you didn’t know about this.
Why didn’t you let me know about that?
I assumed.
I mean, Photoshop is complicated. It’s really complicated. I never use Photoshop guy. Oh my god. But yeah, like, I think that, like, you know, people. I think I’m going to spend the next 10 years talking about design’s economic impact. And at that point, people might vaguely start trusting me. Because every major high end design firm is doing corporate theater for Fortune 500 companies who have use it or lose it budgets and they have no incentive to track the economic impact of their work. They’re all the captains of industry. I’m a punk who swears a lot.
You hit on an interesting point there with tracking the economic impacts of your work. I think that’s something that’s important to do, even if you’re working in a field that can be seen as squishy or more qualitative. I mean, Design, in my mind at least, and you know, hit me when I’m if I’m wrong on this, but design is often seen as a squishy qualitative. We can’t really attach an ROI to it. But when you get over into a much more quantitative approach to it, hey, we’re in Google Analytics, we’re monitoring this, we’re making intelligent database decisions. Well, then you really do get to track the economic impact of it. How has this made the business better, more profitable? How has it fulfilled the business’s mission? You only get to that point when you’re able to plug the analytics into it, when you’re able to plug that perspective into it. Even in my own business. I do a terrible job of tracking the ROI that my engagements bring my clients, but I could think in the last two months, outreach campaigns that have netted Five figures for two separate clients. And when most people think outreach, they don’t think, oh, it’s going to, you know, 10x my monthly investment. But oftentimes, we’ll work on a campaign that does end up producing a result like that because we understand the business’s purpose and we understand how outreach can help us. Achieve that purpose. But tracking the economic impact that we have, I think, is essential and something that’s overlooked by a lot of the consultants I work with, a lot of the consultants I’m peers with.
Yeah, yeah, I agree. I mean, it’s not even just consultants, but I think it’s acute with designers. Like, when I talk about tracking the economic impact, designers just their buttholes pucker. Like they can’t deal. And I think they can’t deal in particular because they There’s a lot of hero worship and project worship in design, but there’s not an understanding of what the process is. and what the politics are. But like design ships because there’s a decent process and decent politics in place, right? I even mentioned this on I have like a fact page now where I answer a bunch of questions. that people ask me one of them is what are your favorite designs. And it is if you think about Successful design, you think about mostly white, mostly dudes like I don’t know, Charles Eames or Paul Rand or Steve Jobs or Dita Rams. And you think about like maybe the IBM logo or the UPS logo or something like that. But you only really see the output. Like there might be sketches that you can see, but nobody gives a shit about that. You just look at it and then you worship the IBM logo because Paul Rand made it question mark or because it’s Popular or something like that, I don’t know because it’s been around for 50 years, but I don’t know. I think that When you get into the realm of art and emotion, like everybody just assumes that you’re trafficking in art and emotion and that you’re doing some sort of dark magic. But I tell you, man, if you launch a new logo and track revenue on Google Analytics, all of a sudden you’re going to see a step function, and it’s going to go up or it’s going to go down. And you can’t go on telling me that there’s no economic impact to design after seeing that happen. That’s the only thing you’re changing, let’s assume. And what? What are you getting out of it? And I think that to bring it back to the question of risk. Then you think about, well, I have ugly design and my business is doing fine. Do I need good design? Well, the numbers are telling me no. But my customers are telling me maybe, and I don’t know what to think. And a designer comes in and is like, well, here’s my portfolio. You’ve automatically lost control of the conversation. And they still view you as a risk. I think that’s why I’m so hung up on this question.
Yeah. Now I think this is a good, good, good question. I don’t know what the answer is. Hmm. Tell me more about losing the conversation when the designer comes in and shares the portfolio. Go deeper on that with me.
The portfolio is screenshots and it’s never the results. With good designers, they talk about the outcome, but I rarely see that, right? A client that I had in 2012, 13, New Music USA. They’re an amazing, amazing company. They are a nonprofit foundation for modern classical musicians in the United States. They’re wonderful. And I built a whole like grant application system for them. And they launched it, and signups increased by 5x. Towards that end, they are able to fulfill the mission of the organization. Like it used to be paper-based, and now it’s not. And they did it. Like they had a huge, amazing outcome. It was not even necessarily an economic impact. In fact, it was an adverse economic impact because now they’re able to give away more money because they’re a music foundation. But You look at the KPI, which is people applying, and it goes up by 500%. Under what planet is that not a win, right? And what fucking designer puts that in their portfolio? You know what they would do? They would say, I worked for New Music USA. Here’s a screenshot of the wireframe. I did wireframes for them. Here’s a screenshot of the final site. Doesn’t it look great? Hire me. No. Right. Right. No. What does that mean for what does that mean for me as a client? Am I also running a nonprofit and modern classical foundation? Well, great. You found your positioning. But what that tells me is there’s no focus. Yep. Yeah.
Sorry I didn’t write. No, no, no, no, no. I just was jumping back to the previous point about Ugly design, should I improve? My customers are telling me, question mark. I mean, it’s so easy to slap new design onto a project like it’s a coat of paint in a room and see what happens. But that doesn’t really that’s not an informed, intelligent decision. What we see as an ugly design, well, is it converting well? What I think you’re Incredibly on point by pointing out that you need to know what these key metrics are. And if you don’t know what the key performance indicators or metrics are, Behind a business or behind a business’s decision, what the business is looking to affect by investing in a consulting service, a plug-in, a project, whatever it is, you don’t know what to track to see if. This has succeeded, and you want it to succeed, but until you know what number should be moving to show that we’re moving towards success. All you could do is throw up your hands and say, maybe, we don’t know. And I know a lot of people who have purchased design and just wholesale applied it to Their website or their project, and waited for some increase to happen. But it was exactly the process you described. A designer came in, shared their portfolio. They said, Oh, this looks nice. Let’s do some design at the project. And shrug stuff happened, but it didn’t really affect those key indicators because going into it, nobody knew what those were. Coming out of it, nobody knew what those were and was able to track them. And all the project was left with was a shiny new coat of paint and aspirations for maybe it being better next time.
And revenue flatlines.
Revenue flatlines.
But, like, you know, it’s I’m going to make one final point. How do I put this? When a designer comes in. and does not focus on the palpable outcome for the specific problem that they are solving, they have lost control of the conversation. right? You should be providing a laser focus on the actual problem the business is facing. We need a new design. Why? Well, we want it to look pretty. Why? Did your mom tell you that you needed it to look pretty? Are you losing customers to the better designed alternative? Are you Bissell and all of a sudden Dyson is eating your lunch? You know, like. I don’t know. And then you need to start figuring out what the business ramifications are of the design. That will help you create a better design that actually meets customer needs and helps out the business. Otherwise, you’re doing the whole profession a disservice. And you’re coming off worse for yourself, you’re coming off as a bigger risk. Every time I come in and start talking about the person’s business needs, I Flag is somebody who actually knows what he’s talking about, understands what they’re doing, and is capable of solving it. And that comes off as way less risky to the economic buyer of the work.
Do you know what the number one question I ask every single prospect who even considers working with me is?
How did you get so awesome? I don’t know. How does it tie?
How does your business make money? Before we talk about outreach, before we talk about the campaign, before we talk about the project. I want to have that conversation to understand how their business makes money. Because, like you said at the top of the episode, a business’s function is to, I can’t remember it exactly, but a business’s function is to make more money than it spends. For me to come in on a project and assist, I need to understand how they make money. I need to understand how the business functions as a business entity. And then we could start talking about how I could help. But it’s pointless to talk about how I could help until we, the client and I, have a shared understanding of how their business generates revenue, how their business profits. And until that’s set, what could we do but throw darts in the dark?
Yeah, yeah, absolutely.