The transition from product to product-as-a-service calls for an individual approach

Anyone wanting to start a disruptive business by offering products such as (scalable) services, must first consider certain things and adapt their approach. A good guide is the way in which start-ups work.

An increasing number of companies are switching from pure product sales to service provision, either in addition to, or instead of, their existing offering. For example, the provision of air instead of, or as well as, the sale of compressors; or the provision of lumen instead of, or as well as, the sale of lighting systems. Many companies find out sooner or later this is not always straightforward. Companies often turn to software and ICT to help them make the transition from product to product-as-a-service. For example, by equipping machines with sensors and IoT to permit services such as predictive maintenance.

This article focuses on the digital aspect of the transition to product-as-a-service: what to do if you are thinking of offering digital services in combination with your existing products.

A different business model

If you are thinking about making the transition from product to product-as-a-service, you are actually considering a change of business model. It is advisable to consider a number of questions: will your future customers be the same as your current ones or do you have a new target audience in mind? How well do you know this new customer? What part of your offering is important to this customer? What exactly is your offering?

These kinds of questions are essential to getting a new business off the ground. They are typically the point of departure for start-ups.

What is a start-up and how does its approach differ from that of mature companies? "A start-up is a temporary organization in search of a scalable, repeatable, profitable business model”. (Steve Blank)

When searching for a business model, many start-ups take the same approach as that used in scientific research: they start by experiment, which leads to a model. This model is then tested and adjusted if necessary.

This is how you look for an answer to some fundamental questions:

  • Your customer: who is buying?
  • Unique value position: why is it worth the effort of buying from you? What makes you different from the others?
  • Channels: how will you reach your customers?
  • Income: how will you earn money?

You want the answers to these questions right from the outset. They are the basis on which your whole new business is built.

Life cycle of a start-up

Like a start-up, you should preferably work incrementally: you start with an idea and use it to create value. The first milestone is to arrive at a 'problem/solution fit': have you identified a problem that is worth solving? This means that you have identified an urgent problem within a (niche) market, that the solution you propose is recognised as a solution within that market, and that you have validated the extent to which that market is prepared to pay for your solution. It is not necessary to invest in building the solution at this stage but insight is essential, and this can be obtained through interviews.

Using the knowledge you have acquired, you can capture the value of your service on your way to a second milestone: the 'product/market fit'. You now get to work on building the initial version of your solution. The product/market fit has been achieved when you can successfully serve a number of early adopters.

Are you there yet? Then you have proved that if you attract the right type of customer, you can successfully serve that customer. The next big challenge is to cost-effectively attract more of this type of customer. Then it's time to make the value sustainable and go for 'scaling'. The main question that needs to be answered at this point is: are there more such customers and can we attract them in a cost-effective manner? At this point we have to be careful: many (software) companies fall into the trap of continuing to focus on adding new features during this phase, counting on growth and scale to follow, but the big challenge for scaling up lies in attracting the type of customers who are satisfied with your current offering.

Avoid featuritis - minimum viable product

During this process it is important to keep your 'minimum viable product' (MVP) in mind at all times. It is often fairly easy to dream up dozens of possible functionalities for your digital service such as dashboards, automatic alarms, a mobile app, etc. The question is, whether your future customer will appreciate all this. To reduce the risk of investing in the development of functionality that nobody wants, it is best to keep the functionality of your product as limited as possible with just enough reliability and user-friendliness. Ideally, this limited version will already have a certain 'cuteness factor' (emotional design). You should focus on the essentials and organise yourself so that you can respond quickly to feedback where necessary. In start-up circles this is known as the 'minimal viable product'.

A common problem is that a lot of companies are mainly experienced in building a physical product: this is very different from software, where changes follow on from one another in rapid succession. In software, frequent – sometimes even daily – small changes can be made in order to respond as quickly as possible to feedback. This characteristic of software is the basis of the whole idea of testing new ideas quickly, incrementally and iteratively.

The way software is built today has fundamentally changed compared to the past: the cloud and open source provide an increasing number of building blocks that are available to everyone and allow anyone to build successful applications.

What competencies do you need to do all this?

To increase the chance of success when rolling out a digital service, it is best to have three profiles in house:

  • a product manager to find out who the customer is and what they need, and transfer these 'requirements' to the technology department.
  • a CTO to ensure that you use existing building blocks where possible, rather than doing too much of the building yourself.
  • a growth hacker/digital marketer to take care of the development of the business and also the B2B relationships to allow your business to grow.

What you need to remember?

  • It’s often a big leap from 'product' to 'product-as-a-service'. So it's better to do this in a number of small steps, by acting like a start-up.
  • MVP philosophy: don't go for the 'big bang', take baby steps and gather feedback from your users and customers. Proceed incrementally and iteratively (clarify?)
  • Don't do too much of the building yourself: use the cloud and open source, and only implement things that are unique to your business.
  • You are building a service, not software or another product: focus on user experience, not features.
  • Put together your own dream team made up of a product manager, CTO and growth hacker/digital marketer.
  • Keep to the 'start-up life cycle': don't build anything that you are not sure customers want. 
Hyperscale and Microcare. The Digital Business Cookbook will be released this month, but you can already place a pre-order here.

 

Sources

(Source picture above: Omar Mohout)