Products vs Services. Product or Services. Product and Services.
The event – PASHA ICT Awards Conference – Karachi – 15th November 2014.
The product versus services debate has been raging in the local technology industry for as long as we remember. Pakistan’s largest technology companies today started off as services companies and there is strong anecdotal evidence to suggest that for a young startup it is far easier to walk the services path, than the product highway. The debate has now evolved from using “versus” to “or” and “and”.
The panelists for this discussion walked on both paths. Zafar Khan from Sofizar and Constellation CKP started Sofizar as a services business that quickly grew into an amazing product shop; Shahzad Shahid from TPS has been on the product highway since TPS’s early days; A local tech fund lead investor with investments in both services as well as product ideas and a local product and services company. Asif Peer from Systems Ltd runs the largest technology company in Pakistan that balances a product portfolio with a services offering and finally Imran Moinudeen runs NextDegree a services shop that recently retooled itself for the product world.
Here are some bites from the panel discussion and the continuing follow on debates that happened during the day.
Is there really a choice? Product versus/and/or Services? What does building a product cost in Pakistan? What is a startup to do? Do all services company want to be a product company when they grow up?
The Panel: Zafar Khan – Sofizar, Constellation CKP. Shahzad Shahid – TPS. Asif Peer – Systems Ltd. Imran Moinudeen – NextDegree.
Moderator: Jawwad Farid – Alchemy Technologies, FinanceTrainingCourse.com
Products are hard, products are difficult. But products are perceived to be significantly sexier than services.
For a startup the risk profile offered by services is far more suitable compared to the one offered by products. Despite popular opinion that it takes less than US$ 10,000 to launch a product in Pakistan, the reality is a little different. Product launch cycles are iterative and it is rare that a new team would get their product strategy or vision right on their first shot. Zafar Khan spoke about incubating seven different product ideas over a period of 3 years in the US and getting only one right – though that one right became a ten bagger and paid off for every other misstep. Afaque Ahmed from the floor quoted local examples of PakWheels and Groopic and the years of iterative IP development, market testing, customer validation required to get these company to the point that they are at today.
The two things that a services company retooling for the product world needs to do is to take a hard look at its product vision and its resource pool. A services resource may not necessarily be the right person for a product shop. A services resource is focused on making sure that the customer is happy, that his feedback is incorporated and that instructions specified by the client are followed to a T. A product tech resource unlike a services team member is a real cow boy (or cow girl). He likes ambiguity, experiments, risky bets and walking on the edge. Where initiative, creativity and risk seeking behavior would possibly get a services team in trouble, without it a product team would fail to launch.
But the product market is also a significantly more difficult market to crack. If you can’t bring a gun to a knife fight, your likelihood of succeeding is very low. Whether its user experience, product features, market segment, positioning, pricing or a combination of all the above, you really need to stand out for you to be noticed. Sometimes it is easier to walk this path on a customer’s dime. On many occasions product ideas germinate through services business, where you are paid to learn the domain at a client’s expense. Putting that knowledge to work allows you to experiment with concepts that may someday transform into a successful product idea.
Do all services company want to grow up and become product companies? No. The dynamics of the two segments are very different. And so are the cycles. Just because you are riding a product wave today does not exclude the possibility that you would be a services shop tomorrow. The services business is a mathematical model and need to be tuned and retuned based on two simple equations. Your marginal charge out rate and your resource utilization. If either of these two component is out of alignment, the likelihood of your services business dying on you is quite high. Marginal rates start slipping if you start competing and bidding on costs. The lowest cost model is a slippery slope that locks entrepreneurs in a vicious cycle that leads to failure.
The same holds true for product companies. Product cycles are notoriously fickle. What is hot today may not be hot tomorrow. The mobile gaming industry is a great example where a great title with a million downloads is impossibly difficult to build but once you build it, you are lucky if your shelf life exceeds 12 months.
So should you opt for one path or the other. The right answer is that it depends. Examine who you are and where you want to be? Take a look at your resource pool? If you hate clients, client services or customer interaction; if you have a sever anger management problem; if you like iterations and can handle multiple cycles of failure; if you can do standing pivots and can stay married to a great idea you may be better suited for the product world.
If you like large organization, stable margins and are ok with switching themes, focus and segments quickly; if you like de-risking your business bets and building a steady stream of cash flows quickly, you may be looking at the services world.