Does your service business want to become a software business?
If so, you’re not alone.
We recently hosted an innovation session for a company whose key offering is a premium service to brick-and-mortar retailers. This company sees its industry changing, and it sees an opportunity to provide a software product to serve customers as well.
This isn’t uncommon. A simple web search shows how outlets from Forbes to Entrepreneur Magazine to the Harvard Business Review talk about every business will soon become a software business.
Here’s how Microsoft CEO Satya Nadella put it in 2015: “Your drive to transform business is setting the technology agenda. What you want to achieve in business is fundamentally changing technology.”
There are good reasons why a service company would want to transform into a software company. Let’s talk about a few.
WHY WOULD A COMPANY WANT TO BE A SOFTWARE BUSINESS?
1. Lower Overhead
Once you build software, the costs to keep it running are generally lower than the costs of providing a service. The ongoing costs for software—things like hosting, bug fixes, and version and security updates—aren’t steep. We usually tell our customers to expect to spend about 10-20% of their initial software development cost each year on an ongoing basis. You can increase your investment if you want to add features, but even that is far cheaper than the cost of paying employees, keeping equipment up to date, and the like.
Now, the overhead in year one may be significantly greater, because innovation and building the kind of software that can run a business takes time, effort, and money. But a true transformation will allow your business to flip the lever in year two or year three, which will set your business up for the long term.
2. Better Growth Rate
When you’re delivering a service, you can only grow so fast. It takes time to find, onboard, and train new employees. It takes time to update delivery routes and upgrade or add needed equipment. The investment it takes to grow is pretty substantial—and if you don’t get the speed right, the cost of growth could endanger your business.
A software business can grow without the major overhead costs or the speed limitations just described. Whatever costs you do have for adding new customers are far slower and far smaller than they would be for a service business. This means you can ratchet up the growth curve to be much steeper without risking your business.
3. Future Possibilities
The growth rate we just talked about opens a wealth of possibilities for your new software business. This is the real reason service businesses want to innovate and transform. They know that the way to exponential, unicorn-style growth is most likely to come through software.
All this sounds great—but it doesn’t mean that your business is ready to start this transformation. To help you get there, here are four key prerequisites your business needs to have in place to unlock the possibilities of booming a software business.
PREREQUISITES TO BECOMING A SOFTWARE BUSINESS
1. Standardized Procedures
If you want to turn your service business into a software business, the first step is to understand and document how you run your business. This is vital, because software works by following rules. This means you must know the rules you want to follow in order to build really good software.
Now, you may decide that the rules your service business currently follows aren’t the ones that you want your software to follow. That’s fine. But it’s only when you can clearly explain the rules of the current state that you can identify the specific places where you need to deviate. So whether you want to build software that matches your current process or not, knowing the standard procedures is an important first step.
2. Polished Software
Your internal software may work for your business right now, but that doesn’t mean it’s ready for the outside world. You need to make sure that it is polished before you sell it to customers or even use it as part of a larger product offering.
This polish means everything from design to user experience to architecture to page load speed. Your future customers will expect your software to work as well as the apps they use on a daily basis, and so you need to make sure that your new software does just that.
You pay your employees, and so they have to deal with the nagging little problems in your software system. But customers aren’t obligated to do so. Remove these issues so that you can actually serve your customers moving forward.
3. Scalable Databases
Once you start selling a software project, you’ll need to be ready for a rapid increase of users and data. This means your database needs to be scalable, so it can grow with your business.
This means you need to understand what the limits on your database are. Do you have to pay seat licenses to use SQL? Do you have data limits in SQL Express? Or are you set up to grow with few limits? You need to know the answer to these questions to avoid unpleasant surprises and unexpected costs in the future.
Other things need to be scalable as well—especially your hosting environment. So make sure you understand the impacts of growth, so you can be prepared.
4. Verified Market
The first three keys have to do with your software, and the reality is that it will take money to get these things in place. You need a clear view of whether the market is there to justify the software investment.
Obviously, there are many steps to this—so many that it would take an entire post, or even several, to explain. Suffice it to say for now that you need to do an ROI calculation on your software innovation investment and build a business case that makes sense before moving full speed ahead.
Software businesses offer wonderful opportunities, so it’s well worth looking into how your business can use innovation to spark transformation. But as you see, there is work to do to get there.
If the market is there, and your software is ready, you’ll be primed to embrace the opportunity that innovation can bring. You’ll be ready to start a new era of your service business thanks to the power of software.
The possibilities are exciting. So get to work and uncover which possibilities will work for your business.
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