Ask HN: How do consultancies transition from client work to own products?
5 comments
GoFundMe did this. The original version was for a client. Then they found another client and reused some of the code. Then another and reused more of the code. Etc.
When they went to go raise money the cofounders decided to just sell the whole thing. IIRC it went for $20m, but with zero dilution and a small team those were some BIG slices of a medium sized pie.
I’d recommend: 1. Identify a solution that you’ve implemented in the past that you can simplify and sell. 2. Only do customizations to that solution for a high multiple (e.g. 5x your normal rate). Ideally if you’re disciplined, do not do customizations at all.
#2 is the most important part. If you falter here though, the worst case scenario is you’ve made way more margin for way less work.
When they went to go raise money the cofounders decided to just sell the whole thing. IIRC it went for $20m, but with zero dilution and a small team those were some BIG slices of a medium sized pie.
I’d recommend: 1. Identify a solution that you’ve implemented in the past that you can simplify and sell. 2. Only do customizations to that solution for a high multiple (e.g. 5x your normal rate). Ideally if you’re disciplined, do not do customizations at all.
#2 is the most important part. If you falter here though, the worst case scenario is you’ve made way more margin for way less work.
Carefully or not at all. I was involved in one that failed. The reason was probably trying to sell a new product to new customers rather than make a product that could be used by existing clients. These days it would be a smoother transition to sell hosted services that can blend the consulting and product rather than it being either/or.
Consultancies are guaranteed profit. Your clients have to deal with all the trouble of getting the business off the ground including profitably on-boarding customers to pay your bills. You first have to do product market fit. Then sales market fit. Then market it and get customers. This can all be in a time horizon of 1 year to stretched out over multiple years.
Most consultancies grow profitably over time while many of their clients (at least in SaaS businesses may cease to exist).
Some eventually do spin off side businesses but that is quite rare.
Good luck!
Most consultancies grow profitably over time while many of their clients (at least in SaaS businesses may cease to exist).
Some eventually do spin off side businesses but that is quite rare.
Good luck!
In my experience, this is something a lot of “consultancies” (really, software outsourcing and staff augmentation firms) want to do, mostly as a way of absorbing bench time. It rarely works, because it gets treated as a second-class priority. Client work is easy money with obvious returns; product work requires long-term investment with uncertain returns.
(The advantage of product work, of course, being that you’re no longer selling time for money, which is a volatile, highly competitive market with limited margins.)
I’ve seen a lot of companies try this, but not seen any succeed. I’m guessing it’s because account management and sales is so different from product management and sales, and because the products are rarely staffed full time. I’d start by looking at those two elements.
(The advantage of product work, of course, being that you’re no longer selling time for money, which is a volatile, highly competitive market with limited margins.)
I’ve seen a lot of companies try this, but not seen any succeed. I’m guessing it’s because account management and sales is so different from product management and sales, and because the products are rarely staffed full time. I’d start by looking at those two elements.
> mostly as a way of absorbing bench time
Good point. We've had our fair share of bench time projects in the past. But now we operate at full capacity and we are actually ready to pull people away from paid client work.
Good point. We've had our fair share of bench time projects in the past. But now we operate at full capacity and we are actually ready to pull people away from paid client work.
We went through this and failed with Quepid (http://quepid.com).
Here's the problem. The business models are radically different. They're even, IMO, at odds with themselves and can put you in an ethical dilemna.
Products you have a set, upfront cost of product development, you hope to acquire enough customers at scale, to make up for those costs and turn them into a profit. Any investment in product you want to be matched on the other side by either retention of existing customers or acquisition of a new segment of customers.
The market analysis and product leadership work needed to do that looks very little like what it takes to run a consulting company.
Consultancies are about buying / selling expertise to help customers _make better decisions_ IMO. Your there as advisor, coach, mentor, and sometimes implementor. You're like a therapist or lawyer. Just like those positions, I feel you want to have a somewhat neutral demeanor helping clients evaluate a solution (commercial, open source, otherwise). If you feel pressure to hock your product, that turns you from a consultant into a sales engineer. I feel fairly strongly that compromises your position to offer the client ethical advice free of conflicts of interest.
From a business perspective, doing consulting work well looks different than product dev. You do much less upfront, fixed-cost work, and the costs directly scale with the client load. Even acquiring a new client, which is costly, can be predicted somewhat, letting you incorporate those costs into the services that follow. The good thing about the consulting model is that if you keep consultants busy, you stay on top of sales costs and getting paid, profit is nearly guaranteed. The downside is scale - your income is always tied to your technical team's time.
-- Two business models, one company...
It's not inherently bad to have two business models in one company. But at the scale you're probably asking (small consulting company) it makes very little sense. You need focus your limited time on one model, and executing it. Most small companies can barely keep up with doing one business model well.
Consulting takes _a lot_ of focus to do right. You need to come up with good offerings, you need to know how you'll deal with payment risk and complex contracting. It's a huge split of focus trying to do _two models right_. I'd say nearly impossible in fact.
In the end, in our story, we decided to 100% focus on being the best consultancy we could in our domain and dramatically increased our rates until 50% of our customers were blushing at the price. If they blushed at the price, that was a sign they weren't serious about going down the path we wanted to take them down to help them with their fundamental prodblems.
Here's the problem. The business models are radically different. They're even, IMO, at odds with themselves and can put you in an ethical dilemna.
Products you have a set, upfront cost of product development, you hope to acquire enough customers at scale, to make up for those costs and turn them into a profit. Any investment in product you want to be matched on the other side by either retention of existing customers or acquisition of a new segment of customers.
The market analysis and product leadership work needed to do that looks very little like what it takes to run a consulting company.
Consultancies are about buying / selling expertise to help customers _make better decisions_ IMO. Your there as advisor, coach, mentor, and sometimes implementor. You're like a therapist or lawyer. Just like those positions, I feel you want to have a somewhat neutral demeanor helping clients evaluate a solution (commercial, open source, otherwise). If you feel pressure to hock your product, that turns you from a consultant into a sales engineer. I feel fairly strongly that compromises your position to offer the client ethical advice free of conflicts of interest.
From a business perspective, doing consulting work well looks different than product dev. You do much less upfront, fixed-cost work, and the costs directly scale with the client load. Even acquiring a new client, which is costly, can be predicted somewhat, letting you incorporate those costs into the services that follow. The good thing about the consulting model is that if you keep consultants busy, you stay on top of sales costs and getting paid, profit is nearly guaranteed. The downside is scale - your income is always tied to your technical team's time.
-- Two business models, one company...
It's not inherently bad to have two business models in one company. But at the scale you're probably asking (small consulting company) it makes very little sense. You need focus your limited time on one model, and executing it. Most small companies can barely keep up with doing one business model well.
Consulting takes _a lot_ of focus to do right. You need to come up with good offerings, you need to know how you'll deal with payment risk and complex contracting. It's a huge split of focus trying to do _two models right_. I'd say nearly impossible in fact.
In the end, in our story, we decided to 100% focus on being the best consultancy we could in our domain and dramatically increased our rates until 50% of our customers were blushing at the price. If they blushed at the price, that was a sign they weren't serious about going down the path we wanted to take them down to help them with their fundamental prodblems.
We’re a small software consultancy (https://featurist.co.uk/). We have been very successful writing web software for our clients for some 10 years now. However, we want to gradually transition to working on our own products. It’s more fun and hopefully more profitable too.
This is of course easier said than done. We did some research and figured that before anything else we need to speak to potential customers and understand their real pain points and where new products could help. We have then tried to engage with people directly (via twitter dm and reddit posts) but to no avail so far. It now feels like we’re doing something wrong and we should probably look for some help.
So here are my questions:
- How do consultancies make that hop in general? What are the key insights?
- In our particular case, who are the people that could help and where do we find them?
Thanks!
Artem