About 25% of bootstrapped SaaS founders I know with more than $5M ARR started their software business out of their services business.
But very few products created inside a services business make it that far.
Here are the 5 most common reasons that they don’t make it:
1) Most product experiments don’t turn into thriving businesses–regardless of how they are created and funded. Just because you have a successful service business and build a product that works doesn’t mean it will get very far.
You’ll face the usual demons all startup founders face:
- not being amazing enough for enough customers that stay and pay (PMF)
- trying to be too many mediocre things to a broad audience (ICP)
- struggling to actually build a sellable and useful software product
2) Underestimating how much time and effort it will take to build a software product. Software products are funded by your profits and the team of your services business, but you can’t fund them forever.
Building a great-enough software product is still hard but not impossible.
- How many “first dev teams” will you go through to get a working product?
- How many prototypes that you “know will sell” will you have to try before someone actually buys?
- How long can you fund your product startup experiments before it starts to pay for itself?
3) Do not treat your product design and your product business as completely different animals. The DNA of a high-touch custom services business is the total opposite of a low-touch product business.
Most successful service business owners don’t change their product, sales, and business model thinking enough to get their new product off the ground.
You have to do and be two different things at once on each side of your business. It’s schizophrenic to have two full-time jobs that are so different. Many can do this, but most don’t.
4) Thinking too far ahead, too soon. “I have this service business and I want to build a $5M SaaS business in three years so I can get out of services.” I get the intent and the direction, but that isn’t very helpful when you start.
Your first goal is to get 10 happy customers who use and will continue to pay for your software. It’s OK if they are your service customers who already trust you.
Getting to 10 happy customers means you sold other customers you couldn’t make happy. And you talked to 100+ potential customers who didn’t buy.
First, get to 10 happy customers, then get to 50.
5) Running out of steam in the services business that funds your product startup experiments.
It can be a major distraction and investment to start a new product, which takes the focus off your service business that pays the bills.
This is a common reason people think they want outside funding, but raising this funding is another full-time job that makes everything harder.
