The Definitive Road to Transitioning from Service to Product

Running a consulting business but want to transition into a product company? You’re not alone. There are many like you who’re running a consulting business for various reasons: sustaining a livelihood, building a kick-start into entrepreneurship, building their starting capital, and more.

But, living a dream and chasing one are two very different things. There’s respite though in knowing that many of the successful product companies you see today started as consulting businesses, such as MailChimp, Moz and 37signals (Basecamp).

I’ve built three product companies before launching my consulting business, and have realized that there’s no easy way to transition once you’ve started on the services path. But, there certainly are models that you can adopt to make that transition smoother.

Should you Transition?

Before you even begin to tread on this path, assess the reason why you want to transition from a services business to a product. In a lot of cases, it’s the product business envy emanating from reading too much of TechCrunch or the likes about product businesses being funded or sold at mind-numbing valuations.

Is there a problem that you can’t imagine not solving or is it the idea of running a product business that excites you?

Consulting businesses are perfectly legitimate and they act as a backbone to product businesses. They are also the least likely to be funded (most often they don’t require any outside funding), and therefore you’d retain full control in your business.

On the other hand, product businesses are extremely hard to build and get traction for. They require capital and investments upfront and usually don’t even meet operating expenses for a long period of time. You have to stay invested and be persistent for at least 3-5 years before you can see any success.

You need to do that bit of soul searching and get into it for the right reasons. If there’s an idea that excites you to the point where you start to have sleepless nights, that’s probably your cue.

Preparation Defines Success or Failure

This isn’t about how hard a product business is to run, as we just addressed that above, but more about managing the transition itself.

Building one arm or business is tough and is simply about how much focus you put into it. And then, taking on the challenge of sailing in two boats at the same time can test you psychologically and at times physically as well.

Being mentally prepared for this journey will allow you to manage the stress well when thrown with challenges and failures. Now maybe a good time to integrate relaxation methods like meditation and exercise to prepare yourself mentally and physically, if you’re not doing it already.

Build a Side Project

Did you know that Uber, Twitter, Gmail and Craigslist were all side projects? All of these products were developed by the founders or their team on the side. The entry barrier for building a side product is much lower as you won't need to depend on it for income. Even if you fail, you still have your existing business to continue.

Your product as a side project wouldn’t necessarily need additional funding; instead, you can dip into your existing pool of resources to fund the side project. These don’t have to be overtly ambitious in the beginning: Uber was started as a side project only to solve San Francisco's taxi problem with a limousine service. $6.1 million funded Product Hunt started as an email list.

Build and Promote Internal Tools

Not very different from a side project as the fundamentals are the same - but technically, tools are created for different reasons, such as a marketing channel or to solve an internal problem.

Gmail was built as a product for internal consumption. And Moz, which started as a consulting business had built tools for internal consumption. They decided to make them public so others could check them out for a small fee, which eventually led to funding for the product side of the business.

Similarly, for the challenge of managing projects efficiently within their consulting business, 37signals built Basecamp for managing their client business. Their clients realized the simplicity of the product and the value it added that they soon wanted to buy into it. A year later, Basecamp was more profitable than their existing web design business, which they eventually shut down.

Split the Focus with your Team

Even with a side project or an internal tool, you need to have a dedicated amount of time and a team that focuses on that project. The focus will help you to build something of value. If you have a co-founder, a prudent decision would be to split the roles where one manages the services business and the other products.

There are people who suggest getting a professional to run the services business, but in my experience, that model has failed for everyone I’ve known, and is a bigger risk to take early on.

Along with the founder focus, you need a team to work on the project. Leverage your existing team’s time on a daily basis (couple of hours) or setup a small team that will work exclusively on the development until the product is ready.

Use a Customer-Financing Model

Mark Suster, an angel investor and investment partner at Upfront Ventures, suggests using a customer-financing model, which is also a common approach for many businesses that have transitioned.

In this model, you identify a company or two and build a product to solve their problem and help them with the onboarding and rollout. While you may build it for free for them (though retain the IP yourself), you can bill them for support services or in other creative ways. This will get you customers with product validation from the get go.

Whatever be your mode or method, the earlier you set off on the path, the better. The best part about already being in business is that you can continue to experiment until you discover one product experiment that works and that’s your ticket to the transition.