Part 2 of 9
The first, and biggest, decision for any services company that is considering a repeatable IP business is how important it will be to them. Should it be opportunistic or strategic?
By opportunistic I mean that you have some repeatable IP, but don’t want to make a big investment or disrupt your current business. You put it up on a marketplace and if it sells, great, if not, it doesn’t really cost you much. It can be a good way to test out the market to see if you get enough traction to justify a bigger investment.
If it is strategic you will have to think through every part of your business that could be impacted – product development, marketing, sales, customer support – and the investment that is required, because it will represent a fundamental shift in your business.
There is no wrong answer, it is a matter of preference, but it does require a decision before you start. Where companies get into trouble is hoping that it will be strategic and starting to make incremental changes without having a good roadmap in place to make the big changes that are necessary for success. This slowly drains money and time from the organization without getting the benefit of the big pay-off, and you are left in No Man’s Land – you have spent too much for it to be opportunistic, but haven’t planned well enough for it to be strategic.
The decision will be driven, in part, by where you are on the IP Maturity Curve:
The first phase of the maturity curve is where many of you are today. You can design, build and deploy custom applications for your clients; or you have developed a repeatable process that makes your projects more productive; or your staff has deep domain expertise in a specific vertical, or a solution area such as security.
The next phase is selling and deploying the solution often enough that you can standardize some of the customization and build it into the product. This is how many of the Dynamics industry solutions evolved. A partner would install Dynamics NAV with a retail client, and make the necessary customizations for the customer. Then they would install Dynamics NAV with a second and a third client, and find that many of the customizations applied to those clients as well. After doing this three or four times the partner found themselves with a retail industry solution sitting on top of Dynamics NAV, something they could sell on a repeatable basis.
The first two phases represent an organic evolution of the business model, but the third phase becomes a key decision point. Do you a) package the solution so that it can be sold on a repeatable basis as a stand-alone product, either through your own sales force or an indirect channel; or b) keep it as an internal solution that makes it easier for you to sell your services to other retail customers? If it is a), you have to start making the investment and organizational changes to become a product company, including a formal go-to-market strategy to grow the customer base.
The fourth phase also represents a decision point. It is possible to grow sales by using your existing resources, but we have found that companies that really want to scale their product sales usually end up setting up a dedicated business unit. It becomes too chaotic trying bolt the product sales on top of a services organization – the website ends up being confusing; finding a compensation model that works for salespeople that are selling projects and products is very difficult; financial reporting and metrics are too different; allocating budget between the two business becomes a challenge; etc.
What’s the Right Decision for You?
As mentioned earlier, there is no wrong decision – you have to think through your objectives and make the decision that is right for you, but make a decision. The outcome should be binary – either you want to be a product company and make it strategic, or you don’t.
We often recommend that you starting the planning process with the assumption that you want this to be strategic, because it will force you to think through all the decisions and investments that will be needed to succeed. At that point you will know whether you have the budget, organization and ambition to make it work. If not, take the opportunistic approach, a soft launch that lets you test out the market and see if you get a response that justifies rethinking your decision later.
Previous blogs in this series
- Every SI should be an IP company
- Overcoming the cash flow chasm
- Managing customer acquisition costs
- Minimizing churn
- How marketing changes
- Building the right sales organization
- Sales compensation
- Customer support
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