IT Services Companies: Combining Services and Products for a Stronger Business — and What’s in It for You

• Sukanya Bharati
• October 17, 2024
• Blog
• #servicestoproduct
• 0 Comments

Introduction

Have you ever felt the pressure to innovate and keep up with the market and your customers with new tech coming in the market everyday especially if you are leading an IT Services Company. Do you feel the need to have better margins than your peers and better customer retention and stronger loyalty? 

But the bigger question is : How do you get there? 

The answer for this lies in transitioning from a traditional service-based model to service + products – developing scalable products, platforms, or accelerators. First let’s talk about what are the common problems founders like you face while trying to scale, how this shift can benefit you and what you can stand to gain from making this change.

The Challenges IT Services Leaders Face

As a leader of an IT services company, are these the key challenges you are dealing with? 

1. Limited Revenue Growth

• Service-based models as you know often mean revenue is tied directly to hours worked. No matter how efficient your team is, you can only grow by hiring more people, isn’t it? It limits scalability and increases costs.

2. Pressure on Margins

• Have you ever faced situations where your clients constantly pushed for lower prices, and competitors undercut your rates? Maintaining healthy profit margins is a constant battle and as automation continues to improve, manual IT services are becoming increasingly commoditized. 

3. Lack of Differentiation

• A lot of the  IT services companies offer similar solutions. In a crowded marketplace, standing out and convincing clients to choose your company over the competition is incredibly challenging.

4.Break away from linearity 

• Do you agree that scaling an IT services business is often tied to adding headcount? Each new project that you take in requires additional resources, meaning that your growth may not be as sustainable or scalable as you need.

Do these sound familiar to you? These are challenges many IT services leaders face when they try to grow in a competitive market. However, this change can help solve many of these issues—and unlock significant growth.

What You Can Get by Transitioning from only Services to Services + Products

By moving from a service-based model to a product-based approach, your company stands to gain several significant advantages that address the problems you’re facing today:

1. Unlock New Revenue Streams

• What this means for you: Instead of trading hours for dollars, building products allows you to generate revenue on a recurring basis. This means you can scale without needing to hire more people.
• Why it matters: You can grow your business exponentially, without the constant need to chase new clients or projects. A well-built product will generate additional revenue helping you build a more sustainable business.

2. Achieve Better Profit Margins

• What this means for you: Unlike services, where your costs scale with the number of projects, products offer high margins because you only need to build them once, then sell multiple times.
• Why it matters: Improved margins mean more cash flow for your business to invest in innovation, marketing, or expanding your team. Plus, higher margins make your business more resilient in tough market conditions.

3. Differentiate Yourself from Competitors

• What this means for you: Offering a proprietary product or platform gives you a unique selling point in the market. You’re no longer just another services company; but you also have your product as an advantage. 
• Why it matters: You’ll stand out in a crowded market, making it easier to win over clients who are looking for innovative solutions that go beyond basic services.

4. Achieve Scalable Growth with Customer Retention

• What this means for you: Products allow you to grow without being limited by manpower. Once the product is developed, you can scale it without needing to expand your team at the same rate. Services companies might be having a good retention, but products help you achieve scalable growth by not only getting higher and newer customers but by retaining them.
• Why it matters: You can grow faster, reduce operational complexity, and keep your overhead lower—all while increasing your market presence.

Common Problems You May Face (and How to Overcome Them)

While the benefits of productization are clear, the road to success is not without its challenges. Here are some common issues IT services companies face when making the shift—and how you can avoid them:

1. Not Knowing What Product to Build

• The Problem: You have a great team, but you’re unsure about what product to create or where to start.
• The Solution: Start by identifying the most common pain points your clients face. What problems are they asking you to solve repeatedly? These pain points can serve as the foundation for your product ideas.

2. Underestimating the Time and Effort

• The Problem: Building a product takes longer than anticipated, and many companies abandon their efforts mid-way due to a lack of planning.
• The Solution: Start small. Create a Minimum Viable Product (MVP) that solves a core problem, and then iterate based on customer feedback. Set realistic timelines and milestones for development.

3. Fear of Failing

• The Problem: Developing a product is risky, and the fear of investing resources into something that might not work can be paralyzing.
• The Solution: Test your product ideas with existing clients before you invest in full development. Pilot programs and beta testing can provide invaluable insights and help reduce risk.

4. Shifting Focus 

• The Problem: You’re concerned about neglecting your current service clients while developing the product.
• The Solution: Strike a balance by dedicating a small, focused team to product development while maintaining your service operations. Over time, as your product generates revenue, you can allocate more resources toward product growth.

Conclusion: It’s Time to Reimagine Growth

If your IT services company is struggling with limited growth, shrinking profit margins, or challenges with client retention, now is the time to consider building products/accelerators/platforms. By building scalable products, you can unlock new revenue streams, increase margins, improve customer loyalty, and differentiate yourself in a crowded market.

Your business doesn’t have to be tied to service projects forever. Take the step to reimagine growth and explore how productizing your offering can help you build a more scalable, profitable, and resilient future.