I have been in the service based business for ages. And whilst I do less consulting than before, I think the road to productized services is out in the open and provides a lot more upside than a traditional model.
Newer generations might think Designjoy are pioneers but really, I have seen this model back in the early 2000s.
The difference? It was packaged and framed differently.
Let’s just say: There were attempts in many verticals offering XYZ as a service 2 decades ago but it just never took off.
I believe the buy side was not ready yet. We were still too much adopting to traditional SaaS models.
But we’re not 1999 anymore and the tech boom has been slowly but surely became a new normal.
And that’s pretty much the same for SaaS models and subscription based pricing.
The term productized service is too new. It’s hard for seasoned and new businesses to grasp the concept.
But they understand XYZ as a service. The difference lies in the subtle change of tone and Subscription As A Service became a new standard.
So I do feel that XYZ as a service will have the temporary edge in educating your audience, these types of businesses need to slowly make transits in new terminology so more businesses will understand the concept.
It’s not because we or you talk about it, that the rest of the world understands what you’re saying.
Very similar to the global tech industry.
I used to visit Samsung City (yes, that’s a real city) every year and witnessed tech that was prepped for the next 20 years.
Except, our cortex – brain cannot process that much change and transition in one go.
If you look at some failed tech products in the past, they are so back today. Except, the timing and market conditions (aka our human brain) could not accept the pace of evolution.
Going back to productized services: It’s practically the same.
It will require some adoption from an existing and new audience. But I am betting on this model more than a traditional project based route.
What I See In Upsides:
From either a buy or sell perspective, here’s the list:
- I cannot stress enough: Predictability changes. MRR changes the game for future growth projections and predictability for the people running the business. Primarily for management and lesser variance.
- Productized services have the option to build a more balanced portfolio. Not only seeking whales, but rather a fine balance between small monthly recurring payments (e.g. weekly maintenance, dev QAs etc) and larger clients needing constant changes with no limits. (In either industry) In a traditional model, you have a harder time selling that.
- It’s predictable for clients and offers more peace of mind. Gone are the days where one week people would charge 10 hours vs 100 hours the next week. Businesses like to predict their runway and financial burn more accurate and helps to stay on track.
- It’s easier to retain clients —— I wrote a blog post about adding a pause button and there is no difference here.
- It’s actually a timesaver for the buy and sell side. If you ever were in the agency space or contracting space, you know that each potential lead soaks up so much time. In a productized service based model: The offering is far more clear and buyers have an easier decision to make. The sell side, has an easier model to pitch.
- It’s retainer / prepaid based. Just like you pay your other subscriptions, you pay by card. No more going back and forth with emails, billing and accounting from the service side. But simply automatic subscriptions.
- It works like a SaaS model as in: You can decide to hire them on the spot by just selecting the right plan. Less friction, especially lower tier priced models.
- Valuation models: Lots of bigger agencies are on the lookout to buy smaller ones. Or at least their client portfolios. With a productized service model, the valuation is very similar as a traditional SaaS, making it lesser tough in negotiations but based on recurring revenue. And I do believe this is one of the major reasons why we are going for this.
Valuation – Resell
Lots of agencies or services are seeking a way out. And with only one-off payments or traditional approaches it’s either kill the business and inform the clients or find a buyer willingly to take more risks.
But this deffo will solve bottlenecks here. I see more solo entrepreneurs or duos starting a productized service based business to bankroll themselves before going 100% startup. It’s deffo a way to fund/bootstrap their own aspirations. And I believe more efficiently than rolling out 100s of projects hoping they would sell for a few bucks on secondary markets.
This model has been going on in many verticals and one of the most obvious ones is web hosting. Go to Webhosting Talk Forums and you’ll find smaller hosting companies placing their business on the market and bigger ones buying up the smaller brands.
There is no difference here.
In 15 years from now, this model will be a golden standard for many tier 2 and tier 3 firms. Unless your name is Bain or Mckinsey for example. But productized services bring clarity to buyers. You pay X, you get Y.
The SLAs will be better defined and new businesses can rely on more specific services that still cover enough ground for bootstrapped or VC backed businesses.
Which I believe is also a blessing for VCs. Since they are throwing money at a startup that most likely are overcomplicating their financial sheets in early stage and still going more with assumptions than actual numbers.
Productized services will solve that problem for the startup and the VC side being more accurate in funding needed. Just because startups can window shop in advance and calculate the exact burn rate for service X, Y and Z. Or all combined.
So who’s winning here? 3 sides. Really.
My biggest fear is that just like those new SaaS models, they will start knocking down prices devaluing the space of productized services in the hopes they attract enough buyers. And that will lead to the same misery as before. Just like so many are stuck with a $9 dollar per month syndrome in SaaS.
Let’s hope they are not going to bottom chase in this model and actually display true value x skill.