What It Really Takes to Go from Services to SaaS

Speaker A: M welcome to the latest episode of Go To Market Coffee Talks, where your hosts, Marc Jacobs and Rob Kriiner are digging into the full GTM pipeline. From sparking demand to closing the deal and everything in between. Mark and Rob serve up real talk smart strategies and the Go To Market pitfalls you'll want to dodge. On today's episode, Mark and Rob talk about what it takes for service companies to reinvent themselves as product companies. What are the major differences between being a service company and a product company? Why would a company want to make this change? What are the benefits and what needs to be done to succeed? Subscribe and follow to stay up to date on when the next coffee Talk is coming your way.

Speaker B: Hey, everybody. Welcome to episode two of Go to Market Coffee Talks. I am, um, Rob Kreiner, and I am here, as always, with M, Mr. Marc Jacobs. Mark, how are we?

Speaker C: Good morning, Rob. How are you doing on this wonderful summer day?

Speaker B: I am doing fantastic, although I did not have pie for breakfast. I believe you had pie for breakfast.

Speaker C: I certainly did. I had a lovely slice of strawberry rhubarb pie with a nice hazelnut iced coffee. Some people might find that not, uh, to be the best way to start the day, but I am a happy boy, so I'm ready to roll. What are we talking about today?

Speaker B: Oh, we are. We are talking about a very philosophical question. Uh, in my opinion, can a service company become a product company?

Speaker C: Oh, you jumped right into it, didn't you?

Speaker B: I did. I jumped right into it. Right. And I. So I think we have to make it clear that what we're talking about here is not your local plumber looking to become a product company. Right. This is if we set the stage with a little bit of a visual. Right. This is the situation where you have a company who primarily is involved with a managed service offering, let's call it that, Right. And they may have a technology in the background, some piece of technology that they use internally to help them provide these managed services. What we want to explore today is can that company, who is used to offering subject matter expertise to their clients, now pivot and sell their technology to the market as a SaaS offering? It's a loaded question, and it may sound maybe easier than I think it actually is, because there's a lot of things to think about. Right. And it has been done. Right. So as an example, I just want to kind of give everyone an example of a company that has done this. Right. Mailchimp. We're all familiar with the company. Um, that helps you with Your emails and sending out, um, really nice newsletters via email and stuff like that. Mailchimp started as a marketing agency, I love that. And then they pivoted to selling a SaaS product. Right. That's exactly what we're talking about today. So that's what we want to dig into. Right. And this is a philosophical sort of moment where um, the company needs to decide what it wants to be. Right. Why would it want to make this change? What are the benefits?

Speaker C: It's good, good question. So, you know, you know, I think of two things. I think of 2s words, Rob, when it comes to why would a company want to make this change? Scalability and squeezed. Those are my two words. Okay, so, okay, when I say scalability, we think of it this way. You have a service company, it's limited by people and time. You can only grow as fast as you can get your people on board and up to speed and deliver the expertise. So with a SaaS product, you're no longer constrained by that paradigm. You have more headroom to grow without the added people cost. Getting squeezed, uh, is a business play as relentless as a summer thunderstorm, and I'll tell you why. So you get your service based pricing, it inevitably will get squeezed by technology. So you're going to have these emerging tech savvy competitors that are going to appear on your doorstep and they're going to automate and they're going to undercut your pricing. So shifting to a SaaS business model helps preserve your margins.

Speaker B: Yeah, and I thought of it this way, right? Services scale with people, SaaS scales with code.

Speaker C: Yeah, very true.

Speaker B: Very, very different sort of scenario. Um, and there's so many things too that just, just the benefits aside, right. And this, if you think about the, the companies who, you know, ARR is, is uh, everything when it comes to investment and when it comes to the health of the business, everyone wants the renewable model, everyone wants the subscription revenue rolling in. Even if. Right. And this is a fundamental difference between the two. Right. Even if you're offering a service based subscription, to your point, you can only scale as quickly as the people you can bring on board. So at the end of the day when you look at that subscription model, it is not going to be as profitable as it could be with just a product.

Speaker C: Absolutely. Yeah. So I mean obviously the benefit of a SaaS model is it is prescription, you know, predictable subscription based income, you know, that you can renew and that you can upsell, which is, you know, talk about, but I think to what you're Talking about, you know, service based subscriptions versus product based subscriptions, that has a lot to do with the valuation of your company too. And I'm not saying everybody's looking to sell, but if you want to sell SaaS, product companies are valued at a, uh, much better multiple than service firms. And one of the reasons of what you just said, the ability to, you know, scale those subscription revenues at a better pace.

Speaker B: Yeah, exactly. So when you think about uh, the benefits of doing this right, are I don't think we need to exhaust this, but moving your company to a more SaaS subscription model, it just makes sense. It just makes sense. Especially in today's super competitive world where uh, with the advent of AI, right. Everything is just moving so quickly with technology that it almost seems like if you're still using people to do things right. I hate to say this, but you're almost becoming a dinosaur, right? It's this situation where there's now so many avenues you can go down to quickly build technology or in the case in the scenario that we're talking about, take an internal tool and flip it to an outside tool. It's not that hard. Um, but there's a few fundamental changes that need to happen within the organization before all of that can happen, right? I mean if, if the CEO wakes up one day and says, you know what, we're going to change all of this, we're going to become a product company. Right? That's great. Now what? Right? And there's certain steps that I think and um, we've seen over the last several years, you know, um, ways where people may fall flat in trying to do this, right? And one of them is thinking that you can take your same go to market strategy that you're using as a service company and just sway that into becoming a product company. It's two very different things, right? You need an entire new go to marketplace where the first service based offering is all about talking about your people, right? It's all about, here's what our people do for you, here's why we're the best in the game, right? And you know, professional service companies do this to the, do this so. So well, it's all about the people. When you become a product company, it's less about the people and it's more about the problems, right? And I think that becomes, and that's not to say that when you are talking about your people, you're not also trying to focus on the problems that these companies have that your people are solving, but it's more so putting the expertise first, whereas with a product you're putting the problems first.

Speaker C: Right, well said.

Speaker B: Then it goes into your whole segmentation strategy. Right. And everything else that goes into a go to market motion. When you have a product company, um, and you know, thinking about it from, from the sales side of things, free trials, not something that you can offer when you have people doing the work, right. You can do test work potentially, but things like free trials, Right. The whole sales motion becomes very um, different in this scenario.

Speaker C: Absolutely. It's a whole new playbook, baby. Out with the old, in with the new. Um, I mean services. You're basically selling people and their ability to solve problems. Like you said, it's very much about expertise and it's also very much about customization. You know, that sales process has a lot of very deep discovery calls, you know, to understand the businesses, the business challenge or a prospect. Your proposals are very customized. The methodology, the offering itself, the timelines. Um, prospects want to see org charts, they want to see backgrounds of people because it is about the person's expertise and you know, past relationships, past work that you may have done with a client can be very important because it's the foundation of trust that is the service based model. Um, when you do get into a SaaS product model, that focus, like you said, kind of moves away from people solving problems to technology seeing the problem and offering the solution. You're no longer convincing someone, hey, my people are super smart. And it's just technology that's proving that they can solve a problem better, faster in a less expensive way. So it, it really does put your sales team if you're coming, if your sales team is the service based sales team. And to your, to your example, the CEO wakes up one day and says we're going product based. You know, that puts your sales team and totally terra incognita now unknown lands because like you said, you're doing demonstrations of a platform for the first time. You've never done that, that uh, you know, you're not leading necessarily with a PowerPoint deck. You're leading with demonstrations and maybe videos. They may be live, but they're demonstrations. You've got the free trials that you mentioned. You know, the proposals themselves are that, that very customized methodology that is a service based company does less, lot less custom. You know, the pricing is more off the shelf, usually tiered by some module that's based upon functionality or the data you're accessing. So, so it's a lot less customized, much more normalized. Uh, and then once you win business. How you service that client, your account management part of the sales organization changes dramatically. The account management experience moves from just delivering the service like when you're service based to maintaining and growing the client's dental. When you're a Ah, SaaS product model. I mean that's, that's a very big difference between product models and the service based models is the renewals and the upsells. It's probably the reason or one of the reasons you moved into product based business in the first place. You know that turn that one time service revenue into a reoccurring revenue that you can, you can sell new products. So you know the cons, different concepts come into play. You know One metric that SaaS based companies use is, is, is net revenue retention NRR which really looks at uh, how much revenue you're making without adding any new clients, not even one new client. Um, that becomes a very attractive part of that SaaS product model. So you know, it really does change the mentality of sales and sales management, new business and account management. Um, it's like I said, a whole new playbook for new business and account management. And one, you know, one final observation on this. In my experience doing this change a couple times, some commercial teams just won't make the adjustment. It's a change that's a bridge too far. They feel it takes the art away and devalues the personal experience. They built a career and their customer interaction and now this thing, this product, this machine agency is doing the interacting with the client. So when your product is good and delivering useful insights to your clients, that change is um, a palpable threat. So a lot of folks won't be able to do it. But that leads to the whole concept to change management and why that's important.

Speaker B: Yeah, absolutely. And it's not all those changes that you've mentioned are extremely relevant, but it also goes, you know, shoot up to the top of the funnel. Right? The way that the marketing teams are talking about this thing in the market has to change, right? You're no longer um, you know, you're pushing a value based message now that is where in the other scenario where you're selling services, I think that has to do a lot with relationships, right? You meet people, um, you, you get referrals and that's how you build the business, right? That's not to say that you can't do outbound marketing, but when you be, when you have a product and you're a SaaS company, the outbound to inbound ratio Becomes super important. Because creating demo videos and showing what the product can do, right? Related to the problems that it solves should be the engine that keeps your leads coming in. Right? And a lot of teams won't change, right? They'll still try to sell it the same way, or they won't try new avenues to try and get all of this out. Your whole ICP and your whole Persona that you were using to market against or your buyer Personas, they all change, right? Because when you start buying, when you're selling services, you may have a buying committee. I mean, it's not something that happens often, but if it's a large deal and there's a lot of professional services, you may have multiple stakeholders involved who need to get to know you and need to get to know what you're doing. When you get into technology, there's a whole new box of people you're opening up your process to technology people at the company who want to vet your technology and make sure it's secure, legal, who want to review your terms and conditions and make sure that you guys are putting all the things in there that make sense gdpr, right? And all that good stuff. That's not something that you deal with when you're selling time. Right? Uh, that whole thing changes, right? And that goes to what you were talking about with change management. The whole way that the organization looks at, you know, from the top of the funnel to the bottom of the funnel, all of these things need to be taken into account because you're not used to doing it. And if you don't try to change and if you don't have strong leadership at the top, who is pushing this and saying, here's all the things, all right, we're learning, right? We understand that these are the things that we need to do. Let's try it. Let's push in a different direction. Let's put some people in some different spots, right? Roles we may need to change. You may have people who are doing one job in, uh, the other scenario that now need to shift and do something completely different in this new model. The change management of this is so important and I think, overlooked. I don't know what you think, but I think it's overlooked a lot of the times.

Speaker C: Yeah. How change management is absolutely, you know, overlooked. And, you know, there's, there's a, there's a reason a lot of companies fail at this and, and there's a reason, you know, others succeed. You know, most of the failures come to underestimating the change. Honestly, it's like, you know, leaders assume that they can productize their service like that, you know, and the market will embrace it. But the reality is you're not just changing what you sell, you're changing the whole company culture. You know, to me, going through this, two big takeaways. One is you can't run a SaaS company with the services mindset. And that sounds intuitive, but I've seen senior members of leadership reluctant to leave the old way to embrace the new way. You know, they, they cling to that service mindset. And if your senior leadership is not aligned, you're cooked before it starts. You know, change starts at the top. And I just don't mean the board and the CEO level. It's the entire management team and it cascades down from there until it becomes the, you know, the mantra of the whole organization. You can't over communicate the change of that mindset. And the second thing is, you know, you have to build a new culture. You know, once you get rid of the old culture, you have to build this new culture that's based on product development. And it's a transition. It isn't an overnight win. Takes time to build the right product. Um, it's not an easy, it's not a given. You need the right vision, you need the right buy in, you need the right skill sets, you need money and you need client support to make it work. So if you're not clear and focused on those steps, it's easy to divert from the path. And I'll give you one example. Um, I've worked at firms and probably you have two about that. You know, they are productizing traditional services and they fall into a common trap, which is they, they start building unique functionality to appease all different sorts of clients.

Speaker A: Mhm.

Speaker C: So one client wants a special buzzer so they can spend up all their time and treasure making that buzzer. And that's a mistake. You know, it's a Frankenstein platform that becomes unwieldy and overbuilt and then no, you're not delivering on roi and there's all that bad stuff that comes with it. It's that Frankenstein effect is a common and ugly, uh, byproduct I think of not really building a product development culture, but still keeping that service culture mentality.

Speaker B: That is a great point. And I think the other struggle that I know, I've seen product teams have is, especially in this scenario where you're trying to take something that worked so well internally and just flip it to work externally, is the, the balance between the priorities of what your internal stakeholders want and what your clients want.

Speaker A: Yeah.

Speaker B: Uh, because there will be times where they will not be aligned and the internal users will say, oh, this new feature is going to make so much sense. Do it. And the clients disagree and you're going to have the reverse where somebody who's paying for the system want something that your internal stakeholders don't.

Speaker C: Yep.

Speaker B: Uh, ah, you will have this constant friction between the two if you don't have strong product vision and a strong product team that can prioritize both and you know, look at the requirements and really understand the value to, you know, the value of the features that are being requested. Right. And to what you were talking about. A lot of the times teams will, I think, end up in this downward spiral where it gets, I think you call it a Frankenstein sort of product, but they've just done so much without any cohesion that, you know, the client's confused, the internal users are confused. Everyone is confused now about what this thing is supposed to be doing.

Speaker C: Absolutely. And there's always a trade off too. So you know, you've built stuff that confusing everybody, but there's other things that you have not built and you know, they get pushed back. So it has this, this domino effect which, you know, it's very detrimental. But it's, it's, it goes back to that clarity. It goes back to really having a product based vision and a product based culture that allows you to develop that clarity.

Speaker B: Yeah. And I think it starts right with the whole leadership team focusing in on we are a product company. Right. And that it, it cannot be understated or undervalued. How important it is for that vision to consistently be every town hall meeting, every, every situation that a member of the team, whether it's the CRO, the cmo, the CEO, the chief Product officer, everyone needs to have that we are a product company mentality. If, if one person doesn't, if one person's not in, then no one is it.

Speaker C: It's, that's a rich vein to discuss. No, I feel like that's a podcast in of itself, you know, building cohesion and alignment, um, with a management team as they, you know, embark on this journey from service based to product based. Because it is really basic. It's the most critical thing it really is for, for a small company trying to make that transition. And it is, in my experience and in my observation, one of the more difficult things too.

Speaker B: Yeah, absolutely. So it can be done. Right. But I think from what everything Mark and I are uh, uh, kind of outlining here. This isn't just a pivot. It's not just a wake up one day and decide we're going to be a product company. It's, it's a reinvention. Right. You're reinventing yourself as a completely different organization. And you need clarity, you need vision, you need discipline. And I think most importantly, you need the guts to say, we're not doing it like we used to anymore.

Speaker C: Yeah.

Speaker B: And those are all things that you have to think about when you go on this journey.

Speaker A: Right.

Speaker B: Uh, I love it. I love that you called it a journey because it certainly is a journey. But when you start out on this journey, those are all the things that you need to have in the back of your mind in order to be successful. Because it's not just a flip the switch scenario.

Speaker C: I think we covered a lot of good ground there.

Speaker B: I think we did too. Yeah. Uh, of course, as always, Mark and I are available if anyone wants to talk about this. If you're in this situation right now where you're thinking of moving from service to products or you are in the middle of it and you're starting to get to this situation where you need some, some guidance, Mark and I have been through this and we can definitely chat and uh, give a, give you at least your, you know, our thoughts on, on what to do next. So, Mark, pie for breakfast. What are the pie plans this weekend?

Speaker C: I don't look that far apart, that far, that far, far into the future. But you know, I was very happy with this, this farm strawberry rhubarb pie that I picked up. I think I will be polishing that off slowly but surely. And then we will look to continue our pie journey and see where that takes us this weekend. But I will, I guarantee you, Rob, uh, keep you up to date on where I land.

Speaker B: Thank you. I need to know what's going on in the land of pie. So everyone, thank you so much for joining us as Mark continues on his pie journey and all of you continue on your service to product company journeys, tune in to the go to market coffee talks. Subscribe and let us know what you want us to talk about. If there's any topics that you feel would be good for the show. If you want to be a guest, if you want to come on and talk about something, Mark and I are always looking for thoughtful people to join us on, on the show and, and talk through the issues as far as, uh, go to market strategy, sales strategy, marketing strategy, all that fun, fun stuff. So let us know. And thanks for listening.