From Service to Product: How to Build a SaaS From Your Service Offering

August 30, 2014

8:00 pm

As entrepreneurs, we have this “thing” that makes us seek out the impossible and then thrive on innovating until it is possible. It’s driven by the desire to create something new, while fulfilling our professional dreams in an environment we create for ourselves and our team.

This “thing” is what drove my company, Optimove, to make the move from a service-based company to a SaaS. We founded Optimove in 2009 and marketed our professional services to large companies looking to better understand how to improve customer retention and other customer metrics, using data science.

From day one, we knew that we’d eventually shift to a product-based business. I’ve found that the level of creativity and innovation is much greater in product-based businesses where you are actually building something that is packaged “in a box.” When you’re selling time and expertise, you are much more limited by the constraints of each particular client. So, during the later years of our service-based offering, we worked toward the development and release of our SaaS offering, which initially launched in 2011.

From a business perspective, SaaS is a better model. There is much greater scalability and revenue potential in the SaaS model — that is, after you’ve been able to get enough funding elsewhere to develop the product. We began in bootstrap mode and looked to the revenues generated from our services to fund the software development of our SaaS product.

In order to make the pivot, we learned the ropes and honed our methodologies and technologies during years of providing services. I cannot emphasize this enough: your product will be much more likely to address critical pain points and solve your customers’ real-world problems if you’ve first struggled with — and overcome — those same challenges while providing your services in the trenches.

It was a gradual process; we built pieces of the product while continuing to offer services. The sales and marketing team was the first to undergo a complete change: leading up to the release of the product, sales and marketing became totally focused on the product, and ceased selling our services to new customers. We kept the fires burning for our services clients, but quickly began lighting new fires for our product customers. Over time, the balance of our customers shifted almost completely to the product business. Today, only 10 percent of our revenues come from services.

That’s our story in a nutshell. If you’re looking to make the jump, here are a few things we learned along the way that may help you:

Leverage your service customers

We found that our service clients became excellent test beds for our initial software product, and we had an opportunity to upsell them to the product. So even if you don’t plan on staying in services, utilize your clients while you have them.

Identify one or two service customers with a very serious and successful — even fanatical — team. In my experience, there is perhaps one company in 20 that performs at the highest standards in any particular area. This is generally the case because that company puts an unusually strong emphasis on that area within their business and they are prepared to allocate relatively large amounts of resources there.

That customer’s fanatical and successful approach will often become the standard used by most successful companies ten years down the line. Therefore, it is very important to identify these special customers and learn as much as you can from them – and then build in as much of their methodology as you can into your forward-thinking product.

Focus on the bigger picture

You need to stay focused on the services that will be embodied in your future product, so don’t chase after every possible services avenue (even when you see appealing revenue opportunities). Additionally, structure the service business on retainers even before you introduce the SaaS model. This will help to align your financial and strategic management to how it will eventually be.

You know it all…until you don’t

Much of your accumulated savviness and know-how in a services business will not be relevant after pivoting to a SaaS product. This will ultimately affect hiring, marketing, selling, and other areas of the business. Be aware of this, learn from others, and always remain agile.

You may also be hit with some culture shock. Services tend to be local, whereas SaaS products are sold in many different geographies and countries. This means you will have to deal with different culture and language challenges that didn’t necessarily exist before.

The business DNA shift

One of the biggest things you should prepare for is the dramatic change in business DNA from what the startup was built on. Therefore, even during the services-only stage of the business, try your best to ensure that there is some product-oriented culture happening as well. One way to do this is to focus the theme of all the services toward what the product will eventually be.

If you are an entrepreneur who seeks out the impossible and innovates until it is possible, make sure you do so with a complete understanding of where the true value lies within your business. Making the move from a service-based software company to a SaaS presents a lot of challenges, but also a lot of opportunities. If you decide to make the move, I urge you to learn from our lessons and fully prepare yourself in order to ensure a successful next chapter for your business.

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Pini Yakuel is the CEO and cofounder of Optimove, a retention automation platform powered by predictive micro-segmentation technology.

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