“How I successfully switched from services to products”
The services industry is hardly scaleable, and in these times obsessed with scaling, that sounds like a disease, like you’re doing something wrong as an entrepreneur. Why are you not scaling more efficiently? Everybody knows that this is what makes a successful business.
So I’m sure there’s a lot of entrepreneurs out there that want to make the switch from consultancy to selling products. Belgian entrepreneur Inge Geerdens did exactly that: she pivoted successfully from providing services to selling a product.
Six years ago, she spun out CVWarehouse, a recruitment platform that can be integrated with corporate websites, from here executive search company. She eventually sold the services company to Acerta, and continued developing CV Warehouse.
“I developed the tool because at my executive search company, I had 24 people on the payroll. Trying to manage the recruitment process in a spreadsheet drove me crazy. I went looking for a good tool, but I didn’t find any that offered what I was looking for. So I developed one myself in the end. That just ended up leading its own life.”
CVWarehouse is a CRM solution for recruitment: candidates can apply via a company’s website and automatically they are entred into a database, where the HR department can easily manage the entire process of selection and recruitment.
CVWarehouse now employs 15 people. Geerdens estimates the number of clients at about 250, with 1500 HR people using it in 8 countries. Among her clients are corporations like Sanoma, Cap Gemini and Q8. Inge is also a thought leader on LinkedIn, where her blogs are read by more than 11 000 followers. To achieve all this in six years time is not bad.
‘As an entrepreneur, you’re in love with your product: of course it will work’
But, she says, “it’s a good thing I didn’t have a crystal ball, or I wouldn’t have done it.”
Geerdens: “When I started out, in 2005, the sky was the limit. It’s hard to explain this today, but nobody was thinking about risk mitigation. The idea that there could be a period of no growth was almost unthinkable – I had never seen it, anyway. And of course, as an entrepreneur, you’re in love with your product. Of course this will work! I love it! And I had all this experience of running my other company! I was convinced it would be somehow easier to manage a product than services. It wasn’t.”
1. Running a professional services company is easy
Professional services firms may scale badly, she says, but in the end, they are easier to manage. Geerdens: “In hindsight, managing it was pretty easy: if all your people are 80 percent billable, you know you’re ready for a next hire. And if there’s no work, you fire people. I know it sounds harsh, but that’s the truth.”
2. Fixed costs associated with products are hard or impossible to cut
Geerdens: “A product is entirely different. You have costs that you can’t cut. In a service company, you can downsize everyone if you want, and run it at basically zero cost. It’s impossible to do that with a product. There’s hosting, development, upgrades, bug fixes, support: those are costs that you can’t flatten in any way. Your developers need new PC’s a lot sooner than consultants.”
3. It’s hard to decide how much resources you can allocate for something
Geerdens: “If a consultant works an hour on something, you can generally bill that hour. Deciding how long your consultant can work on a project is simply a matter of calculating how much budget you have available. When you’re making a product, it’s a lot harder to decide how long someone can work on this or that feature, because there is no real way to decide how much that feature will improve your revenue.”
4. Sales cycles are loooong
Geerdens: “What I had definitely underestimated is how long the sales cycle is. I was used to companies signing off on 5000 € recruitment listings without a second thought. But when you sell a solution, you have to pass procurement, get a PO number, that takes ages. Getting them to renew it after a year is easier, but again it takes time. “
5. Going global also means that the globe competes with YOU
Geerdens: “Another major factor is competition. When you’re a service, you’re not global, and that might be a limitation, but it also offers protection. Your prices won’t differ so much from your immediate competitors. Now, I’m competing with Indian and American products that are produced at significantly lower cost, because wages and benefits are so much more expensive here in Belgium.”
6. The wage handicap? It exists
Geerdens: “I see the discussion about the so called ‘wage handicap’ in Belgium and it really depresses me: I have 10 people working for me. If I would work in another country, I could hire double as many developers. That’s the reason why so few European really take of: it’s just too expensive and risky to hire a lot of people. A young developer costs 5 or 6 000 € per month for the company. They get 20 days of paid holidays. In the US, that’s 10 days.”
“Please don’t get me wrong: it’s not that I complain about their wages. It’s just that there is an obvious difference in wages. And unfortunately, I’ve never encountered a Belgian customer who told me, you know what, since you’re based in Belgium, I’m going to pay you 1,5 times your rate. On the contrary – I’ve had a few companies tell me plainly that they preferred to work with an offshore product, because they felt it was cheaper.”
7. Developers develop – don’t ask them to write a brochure
Geerdens: “What takes time getting used to is that in a product oriented company, the roles are much stricter than at a services company. In a consultancy firm, I could ask someone who would do selections to do an intake session, or even write a brochure. Don’t ask developers to write brochures, because they just can’t do it.”
Her most important advice for entrepreneurs who want to make the switch from services to products is to listen to people who’ve been there, she says.
Geerdens: “I was probably stubborn as well, but I often notice a tendency to not really listen when people give feedback or advice: Yes, but we’re different from you. Or: Oh, but I already have customers asking about the product. Sure, but you don’t build a company on 5 customers.”
“This advice also goes for your relationship with your customers. If they want to integrate your solution with other solutions, like testing solutions, performance monitoring systems – make sure you offer that integration, through an API or otherwise. You can’t try to grab the entire value chain – customers simply won’t accept that. You have to find a place in the chain, and for that you have to make sure you fit somewhere in the chain.”
9. Be tenacious
Geerdens: “Working on a product is day and night. Literally – the Singapore customers call at 5 AM, the US customers call around midnight. But the good thing is: if you persevere, you will harvest the fruits, because so few people actually go out and DO it. You should find strength in that knowledge.”
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Photo: “no service”, jblyberg, Flickr
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