Creating software to improve your own services business can be a great way to create a standalone SaaS business.

But some major pitfalls trip up most founders who are trying to make this services-to-software transition.

First, the good news:

•  Creating custom software for your own business can be a great investment for your services business, whether you spin it out or not. More profit and differentiation are always good.
•  Building for your own use and “eating your own dog food” is like having a great beta customer who will try anything and give you feedback.
•  You can often build a complete solution before you try to sell it to other customers. It’s much more than minimum and very viable. This takes time and tries, generally longer than you think it will, but that’s OK.
•  Building software for your own use gives you time to try things, fix them and keep improving. This slower pace and customer-focused iteration is the magic trick of building great software, not speed and big funding.
•  When you start selling it to others, you already speak as your best expert reference customer. “Here are the problems we had, here’s how we use it now, and here’s how our business got way better” in exactly your customer’s language.

Does this services-to-software business transition always work? Of course not.

Most services-to-SaaS entrepreneurs get stuck on at least one of these big challenges:

•  Underestimating the very different business DNA of a software business versus a services business. They are very, very different. (I’ll address the main differences in a post later this week).
•  Underestimating how darn hard it is to create great software that makes someone happy enough to keep paying for it. Especially when you aren’t talking to them and problem-solving with people like you do in your services business. The product bar is much higher in most cases.
•  Not realizing that you are an unusual services business owner in your industry.

If you succeeded enough in your services business, you are likely unusually sophisticated, change-oriented, and ambitious. If you make super-savvy, software that works for you, there may be few others like you. This happens a lot.

•  Selling and marketing your software is very different than selling services. It’s a really hard leap for custom consulting entrepreneurs to market and sell “no touch” software products. It’s an easier step for “productized” services entrepreneurs to sell software that comes with some standard services.
•  Underinvesting in the product business when you know you have a business there. All software startups take some support to get to self-sustainable levels.
•  Something built for your internal use always needs to be reworked to be used by other companies – new architecture, different features, higher quality.

What else have you experienced in this services biz to software biz transition?

#practicalfounders