Product or Services, not both!

Why software services and products don't go together?

Harrier was started in 2004 as a software product company with 'Harrier Stockpile', our flagship product for computing and maintaining market indices. We painfully transformed ourselves as a software services company focused on solutions for global financial services industry, to be afloat after financial meltdown in 2008 though the product bug refuses to go away.

Wise-men and elders have always said that it is extremely difficult to run products and services businesses together at the same time as it requires different 'mindset'; though I always felt that we can develop products with people on 'bench' (team members sitting idle) while offering services for quick cash flow. I feel sorry for myself that it took me 10 long years to be convinced that these are two different ballgames though the reasons I have are more than mindset. Below is my learning.

First assumption is that any business is to make profit and grow.

That said, if one has 'bench' in a services business, one should be worried for making them productive in services, or reducing cost by rationalizing the team size, than 'investing' in developing a product! It is counter intuitive for a services company to invest when they have bench, which means sales are down! Services is a run-rate business and one has to keep scoring sales every month to grow. So instead of worrying about increasing services sales or reducing cost, how can one invest in developing products, even if the bench seems temporary? Moreover, the people on bench are typically the ones who are immediately 'sub-optimal' for any service offering. Which means the people working on products are likely to be less-than-smart where product development actually requires smart team with imagination and attention to details for the product to be competitive in the market. What is the point in investing your less-than-smart team members to develop a low quality product, when your sale is down? Such product can at best get you an opportunity for a demo to a potential customer to get a foot-in-the-door and then actually offer services than selling the product itself. And, if you get an order for services, the product development goes on back burner to deliver the order.

On the other hand, while developing a product if you are thinking of offering services, either you have ran out of cash while developing the product, which means you need funding; or the product is not doing well, in that case you need to either improve it further or dump it.

Another aspect, software-as-a-service is more of a revenue model where a product is sold to customers on monthly subscription for using the product. This helps provide regular and predictable cash flow for developing newer versions of a product.

So it is best to create a separate company with a smart team for developing a world class product with either your own investment or with funding from yourself, friends and family than trying to mix oil with water! :-)

Thank you for reading. Thoughts and feedback and very welcome!