With over a decade of experience building my own products and advising and consulting numerous digital agencies and SaaS companies that launched their own products, I’ve seen many crash and burn while others thrive. There are numerous errors that service companies make when transitioning into a product business, and having witnessed countless of them made over the years, I’ve compiled a list of most common mistakes service companies should avoid when launching their own products.
Mistake 1: Deciding to build a product for the wrong reasons.
A decision to build a product must be for the right reasons, such as trying to solve a big problem in the marketplace that you’ve uncovered. The biggest mistake is choosing to launch a product because you’re envious of product-based businesses, which can happen when you’re reading about them raising large amounts of funding in the press. Envy combined with the fear of missing out compels some service folks to develop and launch a new product so that they can also chase big financial rewards and the recognition products will bring.
Mistake 2: Using your services workforce for the product business.
In the beginning, using a few of your existing employees from the services organization to help with various aspects of your product business might make sense, as hiring dedicated team members for your SaaS company before you’ve found product-market fit is unwise. However, at some point, your product business will require dedicated employees with the right competencies. Using your existing workforce in the long term will create several major problems:
- A thinly spread workforce will hurt productivity: Having your employees split their time between your core services business and your startup SaaS business can be counterproductive, as you will get a fraction of their total time and effort across the two initiatives. As a result, your core business will suffer, and the product business will not receive the necessary attention it needs to stand on its own.
- Lack of necessary competencies: Building, marketing, selling, and providing customer success for products requires much different competencies than services for virtually all aspects of the business: marketing, sales, operations, product development and management, finance, and customer success.
- Lacking the necessary culture: Shifting to the product-business model also requires a cultural transformation, such as making a strong commitment to customer success, having an education mindset, and striving for continuous improvement. This is especially applicable if you’re using your services workforce to launch and grow your product business.
Mistake 3: Failing to embrace agile product development.
Even today, you still see products being developed using the traditional waterfall model. This is a highly structured and linear approach to software development, which doesn’t allow you to be flexible and quickly make iterations.
You have to embrace the agile software methodology and treat your product as a constantly evolving project. You also want to have the flexibility to change direction based on what you learn from users of the product. I always advise our clients to create an interactive (clickable) prototype, before writing any actual code, that they can first use to perform a usability test and run their product concept by potential users. Based on the feedback you receive from early adopters throughout various project phases, you will be able to make iterations, figure out whether features you’ve developed actually solve problems for your users, and prioritize the next set of features on your product roadmap.
Using agile development methodology, you will be able to deliver your product in small increments every two weeks (sprints) and be able to make the necessary adjustments in the scope as you plan the following sprint, thus improving feedback loops and minimizing the risk of failure.
Mistake 4: Trying to solve too many problems too early.
When launching a new product, you want to start off by focusing on solving one or two major problems and make sure that you’ve absolutely nailed it before addressing the other potential problems of your target market. What often happens is that companies start off with trying to tackle a single problem, and before they’ve actually solved the problem, they start trying to solve new problems. A better strategy is becoming known as the best, go-to solution that solves a very specific problem and building on top of it, instead of a mediocre solution that solves five problems right off the bat.
Mistake 5: Failing to find product-market fit.
Marc Andreessen, the founder of VC firm Andreessen Horowitz, defines product-market fit as “being in a good market with a product that can satisfy that market.” Before embarking on your product-development journey, make sure there is a:
- Big enough problem: The problem you’re solving needs to be big enough to warrant your solution, and you need to solve this problem in a way that’s scalable.
- Good market: If the market is too small (e.g. if your product is super niche), or you’re entering a very mature market with loads of available solutions for the problem you aim to solve, chances are that you’re going to fail no matter how good how your product is. The opposite can be true if you’re entering a very good market with a need for your product and very little competition addressing that problem. In this case, even if you have a mediocre product, you’ll likely find yourself overwhelmed by the initial demand you will be able to generate.
No market need, or “tackling problems that are interesting to solve rather than those that serve a market need,” is the biggest reason why startups fail, according to a study by CB Insights.
Mistake 6: Wrongly assuming you have product-market fit.
As a service company, what often happens is that you will go out and recruit a number of your existing customers to perform your initial research and validate your assumptions about the problem you aim to solve. These customers will become the sample group, who will be the beta users of your platform and heavily influence your product roadmap. While going to your existing customers and using them as a channel for feedback and initial sales is something we advise, you need to be honest with yourself and keep the following in mind:
- Existing relationships may give you a false sense of validation: Since you already have existing relationships, these prospective customers will, by default, have a much higher chance of buying from you than someone who has never heard of you before. The personal relationship you have with them may also hinder how objective their feedback will be. Which brings us to the next point…
- Early adopters may not represent the market: While early adopters may give you thumbs up for the product you’re building, they may represent just a small fraction of the market and not the market as a whole. Make sure the sample size you recruit for the initial research fits the ideal buyer persona of your ideal customer for the product you’re building, and that you recruit not just your existing customers, but also outsiders who fit the buyer persona and have never heard of you before.
Mistake 7: Premature scaling before nailing product-market fit.
One of the quickest ways to run out of cash is premature scaling, or spending too much money on growing the business before you have nailed product-market fit. This includes hiring too many employees, opening new offices in other countries, and investing heavily in sales and marketing channels. If you’re in a bad market, and/or the problem you’re solving is too small, then no matter how much money you invest into growing the business you will most likely fail, even if you have a good product and hire the best and brightest people to help you market and sell.
Mistake 8: Failing to get social proof from early adopters.
This one might seem obvious, but as an unknown brand, it will be very challenging for you to grow your sales without some social proof. You must become absolutely obsessed with customer success for your early adopters, and go above and beyond to solve their problems in order to receive strong testimonials and case studies that you will be able to use to effectively market your product. Being a service shop, you might not have the customer-success culture that product businesses have. You may struggle with this initially, as it might not be a part of your core DNA, but you must become conscious of this weakness as soon as possible and work tirelessly to improve the right success culture and the underlying processes.
Mistake 9: Saying “YES” to all feature requests from early adopters.
Early adopters tend to have a very heavy influence on your product roadmap and you must be careful when evaluating their feature requests. When evaluating a new feature request, make sure that it aligns with your product roadmap and also solves problems for most (or a good portion) of your other users.
Also, don’t forget that there is a gap between what customers want and what they will actually pay for. Just because someone asked you for features X, Y, and Z, that doesn’t mean they will actually be willing buy from you once you have those features available, and/or be willing to pay significantly more for those features on top of the current pricing.