If you are an IT company, you are typically not used to this question. You sell services, IT services. Either pure software development or stuff that comes with services.
But what are you selling in reality? Product? Service? Or resources? And why would it matter? Why put in even five minutes of your time to define what you sell? Especially when you read that everything is now service, and service is the new product? That doesn’t make sense. Keep reading on, and I hope by the end of this post, you’ll know why it’s crucial and how to put this new knowledge to good use. More profit that is.
Well, in our opinion, no. Various definitions are mixing up and driving the sales strategy into wrong directions.
With customer experience and service design (or UX design for digital stuff) spearheading the service-oriented revolution, it has become increasingly hard to see anything as a product. Software as a service model, outsourcing, nearshoring, even service level agreements - all these terminologies are about services explicitly.
Let's try to simplify things. A future product or solution from our experience has to meet three key criteria:
If you have at least the first two items, it can be a product, regardless of the delivery and business model type. Anything that doesn’t meet these criteria is not a product. Why make this distinction?
Products can create 100x growth but services or body-shops can’t
And it will become a fully-fledged product when it is sold to at least three customers where:
How do you define service? And what is the distinction between selling a service and selling a resource?
Service means the customer is buying your expertise. Expertise in the field, business domain, some internal processes or tools, certifications. Either in an objective or subjective way, but the client has a list of priorities that help them differentiate between service providers. A service agreement might or might not have a scope, budget, deadline. The key determinant is that the client has a set of priorities and is willing to use it during the evaluation process.
Selling resources is when you believe the knowledge, expertise, and certifications matter, but it turns out the client doesn’t care.
You believe that the client is buying your expertise and values the knowledge because that’s why you were selected in the first place.
Then, all of a sudden, a new competitor without any knowledge shows up and forces you to reduce prices to keep the client, and the cycle doesn’t stop here. It’s just the start of the new business flow.
The hardest challenge is to spot when an ongoing service-based relationship is turning into a resource-only contract.
Selling resources is only about availability, price, and scale of “bodies.”
Everything else is just a conversation starter and will quickly become irrelevant during the sales period, or during your customer retention efforts.
Understanding where you are and what you sell might help you get to the next level. It helps in solving the right problems, asking the right questions. If you feel the slide from service to resource, ask yourself: how can I establish the sense and perception of expertise? how can I make this clear to the decision-makers? How can I communicate the knowledge needed to make this work?
If you are in the service business and want to move on, again ask yourself: did we develop something that could be useful somewhere else? Do we have specialized knowledge that can be repackaged and be valuable to other companies?
Why would you want to step up on the resource-service-product ladder?
Resource was a great business, but the rate cards are where they were 10-15 years ago, it’s getting harder and harder to raise prices. At the same time, the developers are more and more expensive, especially senior ones. Hiring becomes difficult, and developers are less and less interested in lousy enterprise projects.
In services, the situation is better, but it’s still about one-off projects all the time. The key to profitability is how long you can keep the customer and how you can defend your position as a service provider before eventually getting downgraded to a resource pool.
It’s less sexy at the beginning as you will invest more time and money to ignite, but it can be a rocket conquering the galaxy and serving millions of users and businesses. The revenue is not closely related to the number of developers participating in the project. It’s easier to find new markets, enter new markets, and to exit or sell the company. Product-based companies are getting acquired all the time by companies either already listed on the stock exchange or on their way to their IPO.
If you are in any of the above situations or have an innovation that could do better, we’d be happy to assist you. We help you find the best products, find the right markets for it, and make the first steps for you to get clients all around the world. With our offices in Vienna, London, and Toronto, you can tap into local knowledge and support anywhere you go.
Can we help you? AbilityMatrix mentors are regularly available for free StartUp Office Hours. Our mentoring sessions provide you the opportunity to introduce and discuss your project in about an hour. Would you need an honest, independent and sometimes harsh viewpoint - just book a session! Schedule a session: https://abilitymatrix.com/contact
Contact: info@abilitymatrix.com
