In one of the tech community groups I’m part of, there was an interesting discussion going on about making India a software product nation.
The discussion point was if it is possible to change the Indian Software Services industry to Software Product Industry!
Having worked in both – Software Services and Software Product Industries, I have specific views based on my experiences and observation about how things typically work. Below is the glimpse of what I shared and I’m posting it as blog here thining it might give you some insights on the topic:
Many founders/owners of Software Services companies, especially the relatively small companies, think that they must change to a Product software company from their services company.
Not necessary. In many cases, it is counter-productive because Software Service biz mindset is different (finishing things fast) from what usually gives success in Software Product biz (making things relevant to the market demands).
Service biz and Product biz – both are different ballgames, and both the business activities solve a different problem.
Typically, software service companies offer expertise to carry out certain activities such as programming, designing, analysis, testing, etc. If the activities are performed as per the client expectations (scope, met or exceeded), they have done a successful job, and they will get their profits.
Whereas a product software company works to solve a typical business problem (or entertainment problem if the niche is gaming/lifestyle), with whatever they have pre-produced and works to find a profitable niche where they can supply their product.
If you are running a software service company, you are like a Tailor who stitches the outfits to suit the needs of the clients, but if you are running a software product company, then you are a Suitmaker company who sells the outfits to the customers who need them!
Tailor company needs tailors, and Suitmaker company also needs tailors (tailor = tech professional in our context) – but both works to chase a different goal.
The Tailor wants to finish the work as soon as possible because they can take the next order. So a tailor’s focus is on finishing the job fast with accurate measurements!
The Suitmaker wants to make the suit better so it can impact the wider audience and with minimal alteration. They work to cater to major generic measurements because they don’t have any specific measure to chase!
Similarly, a Service biz owner wants to sell the man-hours and intends to finish the work fast as per the scope. It is a success for him where a Product biz owner wants to make the product better (read: relevant to the market demands). Profitably achieving product-market fit is a success for him.
While the Service biz owner has his skin in the game (he won’t get paid if he does not provide expected Service), the Product biz owner has not only his skin but his blood beneath his skin in the game! (If he is not able to achieve the product-market fit by the time his funds last, he is out of business!)
So, I’d agree with Saket that in most cases, there is no need to move from services to product although it is a personal choice and if one understands the distinction between the two and wants to shift from Tailor mindset to Suitmaker mindset, they can!
Now the ecosystem question and if an ecosystem can help software product companies or not – typically, an ecosystem can help service companies more because they can exchange tailors, offer discounted rates and all, but an ecosystem is less likely to help the product companies because each product companies can be unique with its unique set of challenge (product-market fit) although there might be specific exceptions!
PS: these are straight thoughts, but businesses are not straight so, take my thoughts with a pinch of salt. Your unique context may be different! I have done both – product and services and blend of them, including investment from service biz to some products, and I was fortunate enough to make both of them profitable! But yes, product biz returned better profits after a significant wait period.