Services-Led Growth
How to run a *profitable* software company
Hi all —
This week ties together a lot of different threads I’ve written about in the past.
The word “services” is a dirty word in software.
Software founders don’t want to become services companies because “services don’t scale.” Instead, we make it clear that we are PRODUCT people.
We’re building a product. We’re selling a product. We’re product-led!
A Slight Problem: Nobody Wants to Buy Software Products
It’s true - nobody wants to buy software products.
Don’t believe me?
Consider two things:
When was the last time you looked forward to buying new software? (… never?)
How much do you spend on employees, freelancers, or agencies vs. software? (…10x more?)
It all comes back to the Jobs to be Done theory: I don’t want a drill, I want a hole in the wall. The problem with “product-led everything” that you’re focused on the drill.
Think of the set of realizations people go through on their path to buying software:
Oh sh*t, I need to accomplish X or fix Y
Here’s how I’m going to approach accomplishing X / fixing Y
Which means these are the things I need - people, processes, software
And therefore, I should investigate Z software category as a piece of accomplishing X / fixing Y
This is what I call “descending the demand ladder” —>
Each step down the ladder requires a lot of thinking. And thinking is hard. Trust me, I tried it once.
When you’re focused at the bottom of the demand ladder, a few things happen:
Would-be customers find other ways to accomplish their goals, and you never get to talk with them
You wind up in a feature dogfight with other software tools to win $100/month subscriptions
Consultants and agencies higher up on the demand ladder make lots of money by saying, “Want to accomplish X? We’ll do that for you.”
This is why it’s hard to *just* sell software. Buyers have to think hard to get to the point where they realize they need a certain kind of software. Then, there’s a lot of competition. And when you’re perceived as *just software*, buyers’ willingness to pay is pretty damn low.
Hence: Indie Hackers struggle to get to $10k MRR, big software companies are unprofitable, and software is really freakin’ hard.
Solution: Services-Led Growth
To ascend the demand ladder, sell services and bundle your product.
More broadly: Sell what buyers want to buy, bundle what you want to sell.
Here’s a cool example from messaging testing company Wynter:
On their subscription pricing page, they have a services offer that hits higher on the demand ladder:
I don’t just want to do message testing (I have to think hard about that), I want to be guided through a 45-day messaging makeover:
Wynter sells this as a service… and bundles their product.
I’ve seen this with other companies too - MuukTest sells a QA Automation software. They’ve started bundling their software with services to “Get QA Automated and Off Your Plate.” Which is *actually* what buyers want to buy.
Benefits: Profitability???
Two secrets about services:
You can charge a lot more for things that are perceived as services
You can automate a lot of things that are sold as services
This is the idea behind “productized” services, where you deliver a relatively standardized service that doesn’t require a ton of customization. And you charge what a consulting firm would charge.
Services won’t have 90%+ gross margins like software. But services enable you to do three really important things:
Make money *from your sales process* (treat your services as a way to sell & deploy your product)
Get profitable earlier thanks to services revenue (so you don’t have to raise as much)
Take pressure off your product - *especially* all the tricks you need to get users / buyers successful - because you’re bundling services that help users become successful with your product.
Even better? Because you already have a product, it’s pretty easy to layer on a service. Going in the other direction - from services to products - seems to be more difficult.
No, this isn’t for everybody, and yes, there are downsides to this approach.
BUT - when venture funding is harder and everyone’s looking for ways to get profitable, services-led growth will come to the rescue.
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Got GTM questions? Reply to this email. I can help you think through:
Boosting meetings via demand-gen
Increasing conversions on sales demos
Pricing, positioning, and packaging that reflect what your buyer wants to buy