Software Services Vs. Software Product

A few days ago in a tech community, I participated in an interesting discussion about making India a software product nation.

India as a Software Product Nation

One of the main discussion points was if it is possible to change the Indian Software Services industry to the Software Product Industry!

Having worked in both the Industries, I have a specific observation about how things work. Below is the glimpse of what I shared:

Many founders/owners of Software Services companies, especially the smaller companies, think that they must change the business model to a Product software company from their services company.

Not necessary. In many cases, it is counter-effective because the 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).

Services 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.

Tailor Vs. Suit maker

If you are running a software service company, you are like a Tailor who stitches the outfits to suit the needs of the clients. Still, if you are running a software product company, then you are a Suit maker company that sells the costumes to the customers who need them!

Tailor company needs tailors, and Suit maker company also needs tailors (tailor = tech professional) – but they work to achieve 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 Suit maker wants to make the suit better/relevant, so it can attract 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 focuses 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. because 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!

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!

The Ecosystem Question

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.

Now, an ecosystem is less likely to help the product companies because each product company can be unique with its unique set of challenges (product-market fit) although there might be specific exceptions!

PS: these are simple thoughts, but businesses are not so simple…so, take my thoughts with a pinch of salt. Your unique context may be different! I have done both – products and services and blend of them, including investment from service biz to some products, and I was fortunate enough to make them profitable! But yes, product biz returned better profits after a significant wait period.

Wisdom Vs. Gold

If you exchange gold for dollars, you receive dollars, but your gold is gone.

But if you share your wisdom even without any expectations then:

  • Your intelligence sharpens;
  • Your understanding multiples;
  • Your perception expands;
  • The listener gets enriched.

A service business, no matter if you are a practicing doctor, engineer, or a consultant, is like gold-trade. You (or your people) sell time for dollars.

While a product business is like wisdom-exchange, you sell a reusable unit of your visualization married with your risk-taking abilities. You get dollars, but it costs you a fraction of time, and hence, it can be exponentially grown!

Often, a service business is more exciting and tends to attract employees and customers, whereas a product business is usually dull and requires continuous learners and hustlers to be in the grind (and get unimagined benefits in many cases).

Investors want to invest in businesses that have the potential to grow exponentially. It is not about their liking, but it is about the design of how the investment business works no matter the mode of investment.

  • As a founder, you decide you want to do what? Trade of wisdom or gold?
  • As an employee or professional, you decide with which company you want to work? Where you can learn to be wise, or you can learn how to trade gold?

Know that the investors are not in the gold-trade. Although it is possible to “productize” a service business!

Think for yourself!