Shifting from Service to Product in Information Services
If you’re in the information service industry, you’ve probably felt the tug-of-war between service and product.
The current trend? Shifting towards creating standardized SaaS products for clients, aiming to minimize customization. It's all about transforming an internal service delivery platform into a self-serve product.But let's be real – this transformation is no walk in the park. In many cases, clients may not even log into the platform, preferring to get insights and data directly from their account managers instead.
Information service companies exhibit a unique blend of characteristics from both product and service companies, somewhat like SaaS companies, but with distinct differences.
For instance, unlike typical SaaS companies, information service firms encounter significant information acquisition costs. In many markets, these fixed costs can exceed even salary expenses. Moreover, these companies remain service-oriented. Their value proposition heavily relies on personalized support, providing insights and analysis services often included in the base subscription. Lastly, technology in these firms isn’t just for product development. It plays a crucial role in enhancing service delivery and operational efficiency.
Several factors drive this strategic shift in the information service industry.
Firstly, it might be a deliberate growth strategy aimed at capturing revenue from small and medium-sized businesses. By creating standardized offerings, we can cater to smaller clients with limited budgets. These clients, who once felt customized services were out of reach, now find value in a turnkey solution.
Secondly, investor pressure could be steering the company towards a product-centric approach. Venture capitalists and other investors value pure license annual recurring revenue at 6x to 10x or more, while service revenue is valued at only 0.4x to 0.8x. This pursuit is akin to the Holy Grail: achieving no-touch, high-velocity license sales with a fully packaged offering and minimal human effort required after the sale.
Finally, internally, this strategy might be intended to mitigate strategic tensions at the executive level. Customer Success or Professional Services teams often push for more customization, while engineering or operations advocate for unique versions, less single-user customization, and shorter implementation times.
The execution and success of these strategies are far from guaranteed. The shift from a service-oriented business to a product-focused one requires different capabilities.
Technology transitions from being a support function to becoming the core offering. It necessitates acquiring expertise in software development, cloud infrastructure, and ongoing support. It’s no longer just a consultant tool for delivering customer value; it must now accommodate a growing user base and handle increased loads.
Client relationships also change, moving from long-term, trust-based interactions to more transactional, product-focused ones. This requires robust customer support to help clients transition smoothly. And let’s be honest, AI-driven solutions like chatbots still haven’t fully solved customer satisfaction issues.
Moreover, this strategy means shifting the mindset from short-term profitability to long-term investment. Services provide quick rewards and are instantly profitable, but it takes years for B2B SaaS startups to become profitable. Remember, this is an investment. The cost structure evolves too, with increased investments in software development, cloud infrastructure, and continuous R&D, all while maintaining high-quality service delivery.
Lastly, marketing a product is different from marketing a service. It involves experimenting with content marketing and paid advertising, implementing sales automation tools, offering various pricing tiers, and continuously analyzing and refining our marketing strategies.
Therefore, what are the potential approaches to make the shift from Service to Product successful ?
1. Overcoming Funding Challenges
Funding is the primary challenge when transitioning to a product model. One approach is to develop your product as a side project, much like Twitter and Uber did. You can leverage your service team's resources to build the product, minimizing the need for extra funding. Start small and avoid overly ambitious goals initially. If the project doesn't succeed, your existing service business remains unaffected.
Alternatively, you could market an internal service delivery tool. Even though these tools may be customized for your company's specific needs, bringing them to market might require only limited additional funding.
2. Ensuring Product Validation:
It's extremely important to conduct thorough product validation to ensure your product has a viable market. Talk to your clients, listen carefully (don’t try to sell them anything yet!), and make sure your product truly addresses a market gap. You're going to invest a lot of energy in creating this product and bringing it to market, so you want to make sure it's worth the effort.
3. Utilizing Early Adopters:
Utilize early adopters for a customer-financing model: Identify one or two companies that face the problem your product aims to solve. Collaborate closely with these early adopters to develop the solution, assisting with onboarding and rollout. This approach secures customers and validates your product from the outset.
It's extremely important to conduct thorough product validation to ensure your product has a viable market. Talk to your clients, listen carefully (don’t try to sell them anything yet!), and make sure your product truly addresses a market gap. You're going to invest a lot of energy in creating this product and bringing it to market, so you want to make sure it's worth the effort.
4. Optimizing Pricing Strategies:
Test and optimize your pricing plan to maximize the revenue per client. Explore various pricing options like seat-based or volume-based models. Product-led companies often focus on building and engaging their user base before monetizing it. Strategies such as freemium models allow users to sign up for free, maximizing the initial audience and creating opportunities for future revenue.Transition from direct service involvement by bundling your services into premium product versions. This not only streamlines your offerings but also adds value for clients willing to pay for enhanced features.
5. Creating Clear Organizational Divisions:
Reallocate team members from the service division to the product division, establishing a distinct separation between service delivery and product delivery. It's crucial not to underfund customer care and support services that accompany a great product. Even if your target segment is SMBs, exceptional customer support is essential. This likely means building a separate support team for the product, as product support requires a different skill set than service support. Your current customer success team, trained to cater to all client requests, may not be ideally suited for this new role.
6. CEO-Led Transformation:
If the side project product proves successful, a company-wide shift to a product model will likely be necessary. This transformation must be spearheaded by the CEO, with full executive-level commitment to ensure its success. The executive team must thoroughly understand the implications of becoming a product-focused company. This transition demands the courage and alignment to turn down deals that no longer fit the product-centric model.
The transition process may extend longer than anticipated, as product development is inherently time-consuming. Expect inevitable tensions and challenges. Effective change management is crucial, involving frequent communication about the changes and the anticipated outcomes of the transition. Additionally, it's essential to retain key customer success staff by offering new opportunities within the evolving structure, particularly as the service area diminishes.
Conclusion
The journey from a service-oriented to a product-focused company in the information service industry is complex and fraught with challenges. There are a lot of companies that stop halfway through the transformation and face tension between teams with diametrically opposed objectifs, such as clashes between the sales teams and the product team over new features, or tension between customer success and operation over customization.
Information service companies are unique in that they deal with complex data, requiring insight and analysis to unlock its true value. While the evolution of AI might eventually enable insights to be integrated directly into the product, we still rely on skilled professionals to deliver these insights and maintain customer loyalty. It's tempting to "productionize" services for premium clients by defining them as building blocks and deliverables. However, this raises an important question: how do you continue to ensure customer satisfaction in an industry where strong customer relationships are essential for retention and revenue growth?
Finally, can you do both? Can you operate as both a service company, providing analysis, insights, and customization, and as a product company for clients who prefer self-service? This is possible, but only if you are prepared to manage the tension that arises from maintaining two fundamentally different approaches within your organization.
