3 things you need to pivot to a product business
Transforming from a services organization into one that is product centric is a huge challenge for many consultancies. There are three things you can do to pivot successfully.
1. Understand your investments and margins
Firstly, you need to understand the investment you need to make and the pricing differences between being a product and a service business. As a product organization, you spend a lot of time investing heavily upfront, before you even have a customer. Services organizations typically do quite the opposite. They will invest in a customer to build a solution, but they're always earning money and solving problems as they go.
Historically, consultancies have been very reticent to do any investment until they have a paying customer. As a product business, you have to invest people time to understand the problem domain and map it out. You then have to envisage a product and build that product. That's a lot of investment upfront.
As a product organization, you also have to be prepared to take a much longer term view of your revenue and price your product over a long period of time. This involves a change in mindset from charging by the hour to making a margin on a product. The way in which you price projects and think about selling needs to change quite radically. That is probably the biggest hurdle for system integrators to make. You need to go from margin being about how many people you have going out to a customer, to needing far less people but making more money on your product.
You may well make a loss on your first year's customer engagement, but you have to look at the total contract value which may be three or five years. Shifting to a subscription-based product business will give you revenue on an ongoing basis. This does take time but after the first few deals you’ll see the long tail that it creates. When things do go poorly, the bottom line is that your business doesn’t come crashing down.
Getting your head around the economics of this, means you need to sell and keep your customers on an ongoing basis. This requires a whole different business model and customer success. You have to constantly improve your product and remain committed to it over the life of the contract.
2. Be prepared to make a transformational shift
Consultancies need to shift from a solution mindset to a product mindset and that means you have to fundamentally transform your business and take a leap into the unknown. To make this shift, particularly with the way the market is, will take a huge amount of confidence.
You’re going to have to take a deep breath and change how you do business. Whilst they might be very good at helping other organizations do that transformational change, consultancies may not be so good at doing it themselves. Like any organization, to really look at your own business and be impartial is very difficult.
To do this, you need to really understand the entire product journey. You have to understand what to invest in, where to invest, where to take it to market and how to service a customer on an ongoing basis. From an analytics perspective, moving from a service to a product solution means that you build something that you can replicate from one customer to another. Your focus as a product business is around refining and improving the product based upon the experience of your customers. This is very different from a solution mindset where you start from scratch and build it uniquely every time. Ultimately, I think making this shift is what holds consultancies back.
3. Partner with a product organization
One of the best ways consultancies can pivot to a product business is to partner with product organizations. You can work with them to understand how to bring a product to market and use your customer base and domain expertise to generate and build products rapidly that add value to your customers. This involves understanding how you can build a proof of concept that you can take to your customer base to validate that a market exists for that product.
At Yellowfin, we’ve worked with consultancies to help them understand the problems their customers have and how they can package up a solution that they can take to market. By addressing each of these 3 things, consultancies can become a product business.
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