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I recently read Richard Banfield’s article “The Myth of the Design Studio Turned Product Company.” The five-sentence version of Richard’s article is this…
Years ago, 37Signals inspired Richard Banfield to push his web consultancy, FreshTilledSoil, into building a SAAS product on the side in the hope of becoming a product company. Creating a SAAS product distracted Richard and his team from client services. The design, marketing and development cost his company a crap ton of money, plus opportunity costs. Now years later, Richard has not reached the place that 37Signals originally inspired him to seek.
Disclosure: I don’t know Richard or his life goals but I think that summarizes the article. I don’t know how he runs his company, or anything about his product. But I can do some myth busting of my own.
Like Richard, Steve and I have a similar story albeit slightly different. Like Richard, we started reading 37Signals writings in 2005 and were blown away. It cut to our core beliefs. Finally, someone had the same feelings about products and business as we did. OMG! In late 2006, Steve and I started working on LessAccounting, and over the next five years we SLOWLY crept in and out of being a consultancy. I say “in and out” because we’d take a client project periodically to gain a cash infusion. As it stands today, we’re not rich and certainly don’t feel “massively successful,” but we’re a product company.
Myth: It’s easy to go from client services to products.
Reality: It’s really really really hard. As you’re selling client services you’re also marketing and building a product, so you’re basically working two jobs. You’re promoting two company offerings, the product and the consultancy. In your brain you’re working through two problem spaces, juggling and assessing opportunities for two company, all without going insane or broke first.
Myth: The change to products, and revenue from those products, happens quickly.
Reality: It takes years to get a “noticeable” amount of revenue from a SAAS app. You’ll work for years to get your first 100 paying customers. Some products never even get to 100 paying customers before it’s game over. The truth is patience sometimes wins. Numerous applications that compete with LessAccounting have blown through millions of dollars in funding while we’re still here and profitable. We’re the cockroach of the accounting software industry.
Myth: It’s feels awesome to build a product.
Reality: Mentally you’ll feel like everyone is kicking your ass. Funded startups will be spending the shit out of their money, while you’ll have no marketing budget. You’ll look at people focused on their consultancy and they’ll seem to be growing and getting awesome clients. You’ll look at your work and company and feel like you’re barely hanging on to all the moving pieces.
Myth: It’s easier to build a product company because you have a large consultancy.
Reality: The larger your monthly expenditures, the harder it is for your web shop to make the transition into products full-time because “the bar of success” is lower for a small team. It’s easier to make $10,000 a month in SAAS revenue than the $200,000 per month a larger company needs. A larger consultancy takes more time to manage, thus it is a bigger distraction from the product you’re trying to grow.
Myth: You have money to spend, and you have to spend money to make money, right?
Reality: Not true. Rarely does a feature, large marketing push, etc. bring critical mass in traffic and thus revenue. The money you spend on dev and design doesn’t translate to dollars next month.
Myth: All I have to do is get TechCrunch. That’s marketing.
Reality: You’ll have 2,000 unique visitors today and zero tomorrow. Spend five hours on the HackerNews front page and get a few thousand uniques from the most cynical, judgmental visitors you can imagine. Traffic from press outlets and link aggregation sites are NOT primed to buy your product and thus come and leave.
Myth: Getting traction on a SAAS product brings less stress in your life and work.
Reality: Imagine making $3,000 a month on a SAAS product. Awesome right? Realize to have $3,000 in monthly revenue, that’s anywhere from 100 to 600 paying customers. With these paying customers you’re getting support tickets, feature requests, request for demos, tweets, Facebook mentions and sales emails with questions. So where do you spend that $3,000 in revenue? Now you have a new set of problems. One is fighting to get dev/design/support time on a product and still finding the time to keep billing clients. You’re still robbing Peter to pay Paul. But now you have the expectations of hundreds of customers in your app.
Myth: If 37Signals can do it, anyone can do it.
Reality: 37Signals is an outlier. So is Amazon.com and Wal-Mart. That level of success is only attained by outliers. If “doing it” means that anyone can start a one or two-man product company where they earn enough to live comfortable lives and enjoy being their own boss, then no, not anyone can do it. But many can.
There is some hope. If you focus on a small product, and build recurring revenue with a small team or solo, this gauntlet of change can be navigated. Notice that most “success” stories have a common thread…the team/founder released “things” constantly to stay on top of mind in their market.
Personally, our story is fueled by talking about what we’re learning, the victories and the embarrassing, sad failures. We’ve rewritten over 600 blog posts, been on Twitter for years, traveled to hundreds of industry events, hosted events, published ebooks and been helpful to others for the past 6.5 years.
Unlike Richard Banfield, I don’t believe 37Signals “sold us” a myth. Did 37Signals leave out the hard parts and only tell us the stuff we wanted to hear? Maybe, but we still admire and appreciate them for sharing what they learned. Just remember you can move from client services to products as a self-funded company, it’s just really really really really really OMG so hard.
Shameless Plug: Buy our ebooks and learn from our mistakes in bootstrapping. Yes stop right now and buy our entrepreneur guides.