You offer home cleaning services and charge your customer Rs.1000 per month (approximately $14). You approach different households in an apartment complex and get new customers, each offering you Rs. 1000 per month for home cleaning.
If you want to earn more money, you provide additional services like gardening, cooking, etc.
This scenario is analogous to the IT services industry. You find a customer, solve their problems, and create a case study to show and tell other customers and find more work. More work means more money.
Imagine you are creating a product—for example, a dishwashing bar, like Vim. You need to have a large land to set up the machinery, pay your workers, package the product, do advertisements and sell it for Rs 10. (approximately $ 0.14).
The product space takes a different route to make money and more money.
Unlearning IT Services
Amit D. Mishra, Founder of iMocha, a skill assessment platform, gave the above analogy at NASSCOM Product Conclave 2019.
iMocha, previously Interview Mocha, is a startup from Upekkha's first cohort.
Having worked with India's IT services giants and then creating iMocha, one of the world's leading HR Tech software for skills assessment, Amit has come a long way in his entrepreneurial journey.
He inspires product entrepreneurs and shares some inevitable lessons for them to make the transformation.
"When I was in the services industry, I used to do $100K deals which often went to half a million dollars. When I started doing products, I got $49 per month. That's it. Even 100 or 200 customers in the product space won't excite you. So if you want to go ahead with products, you must unlearn IT services, which is the most challenging part."
Problem solver Vs. Problem finder
IT services and products sing different tunes altogether.
In the IT services business, your customer comes up with a problem they want you to solve.
You do not document the problems. You don't dig deeper into your customers' problems. Even when the customer narrates a problem, they are not very clear about their challenges. And the requirements to solve the problem keep changing because each problem is unique for that customer.
In the world of products, your customers will not share their challenges proactively like in the services industry. You need to identify one problem faced by many customers and solve it for them.
Amit quotes Vishal Sikka, the former CEO of Infosys:
"We are trained to solve problems, not trained to find problems."
Building on Vishal's perspective, Amit says as a services vendor,
"We have solutions readily available on many occasions as we have always listened to one customer explaining their problem."
When you solve problems for your customer as a services entrepreneur, the equity remains with your customer. But as a product entrepreneur, if you solve a problem for your customers, the equity vests with you!
Because Amit believes you have to build depth - "By solving a problem for nearly ten years, you get incrementally better at it over time and build a strong product."
How do you unlearn IT services?
There are no two main problems one product can solve. There can be 100 subsets of one mother problem.
Are you clear about the mother problem of your customer persona?
How well do you know your customer persona's top 3 or top 10 problems contributing to one mother problem? If you can solve one mother problem by solving all its subset problems, your product becomes very strong.
"In my case, I solve problems for hiring managers and recruiters who are different stakeholders of one mother problem- skill assessment. When the mother problem changes to upskilling, the segment changes, and the product changes. You need a new product for a new mother problem".
Take our dishwashing example. In India, while Vim is the best known dishwashing bar for all types of dishes, there is a specific product for a different niche segment - washing copper and brass dishes - Pitambari.
When there is a segment change, the winning product changes.
Okay, so you have found a mother problem now. What next?
You should be able to quantify and assign an economic value to the problem you solve.
When you create a product, you offer features and value to your customers. The customer does not immediately perceive the value provided. You need to showcase the value from the product.
"With iMocha, we reduce employee turnover by 40% annually. And the cost of turnover is 40% of an employee's annual CTC"
To summarize, first unlearn IT services to become a product entrepreneur:
- Are you clear about the mother problem of your customer persona?
- How well do you know the top 3 problems of your customer persona?
- What are the top 3 problems for your customer persona this year?
- What is the economic value of solving the mother problem of your customer persona?
Case studies Vs. MVP
In services, you complete one project, create a case study and get bigger purchase orders.
But in products, you need to have an MVP (Minimum Viable Product) that solves a real problem to make the first sale - even if it’s only $10.
The process is even longer. Build a product, generate inbound or outbound leads, onboard a customer, and convert them into paid customers. You need to wait patiently for bigger purchase orders.
While you wait, Amit asks you to ponder over the following questions:
- Can your product solve a specific small part of the mother problem without hand holding?
- Can your users use your product with zero training?
- Can you get an online sale with no manual sales process?
- Does your product require manual intervention to make the first sale?
Try to sell your product to companies that have home offices (1 to 10 employees), VSB (11 to 50 employees), and SMB (up to 500 employees) so that they can use it by themselves.
You might have a great product. But if you are selling to an enterprise with 5000 employees, they will require a well-trained salesperson to help them make the purchase. As a founder, you may choose to do it all by yourself for an enterprise customer.
Category leadership in Services and Products
In the services industry market, there is space for all the players. You do not have to emerge as a clear winner in your category to survive. But in the products market, you have to work hard for category leadership.
With 1.4 billion people, India has 4.75 million domestic helpers who use 3 or 4 dishwashing brands.
However on the product side if you do not have category leadership, your revenue will stagnate in the future, or you will be running your product company as a services company.
You will be serving the clients you already have and solve their problems instead of digging deeper into the mother problem your customer persona faces.
If you are not a category leader, your product business will soon die.
Let's reiterate. To become a category leader, you need to identify one mother problem and solve it for your ideal customer persona.
Amit recalls a mistake he made early on,
"Focusing on too many problems and trying to solve them all. Each problem is a different segment, and one product cannot solve more than one mother problem. When the segment changes, the product should change".
When you solve one mother problem for many years, you know the problem better than anyone else in the industry. Because you talk to many customers with the same problem. You become an expert, and your product becomes a category leader.
What will it take to be the first or second choice for your customers?
Keep asking yourself about your product's perceived value and what changes your product needs to solve the mother problem.
When your product is perceived to offer high value without any change required, you have a great product.
Think of making any changes to Google search. Would you? Don't fix something that is not faulty. But constantly look for product improvements to solve the mother problem.
In iMocha's case, Amit says,
"When we were transitioning from small business to midsize and enterprises, we saw all of our customers using an ATS (Applicant Tracking System). Recruitment is an eight-stage process handled by ATS, and our skill-assessment platform is only a point solution in the process. The change in behavior required was not to simplify the product but to integrate it with the ATS of customers' choice".
If both the perceived value and changes required are low, your product becomes like candy. Some might pick one up while exiting the store, and some may choose not to. You don't know what will happen.
If both the perceived value and changes required are high, you need to be patient and keep working on the changes.
If the perceived value is low and the required changes are high, you should rethink working further on the product.
What worked for iMocha?
"For me, Microsoft Accelerator, JioGenNxt Accelerator, and Upekkha have worked in my favor. Prasanna played an instrumental role in helping me unlearn IT services and, to a certain extent, teach me how to run a SaaS business".
In Amit's opinion, some of the key learnings about transitioning from IT services to products you should know are:
- Be clear about the customer segment and what needs you are catering to. It happens when you proactively talk to a lot of customers from your segment.
- Have plans, track and measure them. It helped iMocha improve daily, weekly, monthly, and quarterly. Have KRAs for every person and associate them with the mother problem you are solving for your customer.
- Be ready with the product roadmap and check if all the features are helping you to solve the mother problem.
- Get well-funded by our customers. Start talking to your customers before you write the first line of code. Build an MVP, solve a problem, have some affordable loss, get some money and repeat it. Your customer is the best source for funding.
- Don't be rigid. Listen to your customers from your segment and for whom you are solving the mother problem. Be open to change. After all, the definition of a startup is a temporary organization designed to search for a repeatable and scalable business model.
- As a B2B SaaS company, do not focus on the Indian market for the first couple of years unless you have a solid, valid reason. Even Indian IT services companies focused on the US market during their first 30 years of their existence.
"Indian IT services created millions of jobs and fueled the economy. I can tell you what IT services were for India is what SaaS is for India today. Thirty years back, a few Indian services giants became billion-dollar companies. Today Zoho and a few other companies are on their way to becoming a billion-dollar company, and there will be more in the future."
Want to join Upekkha’s Value SaaS Accelerator program, apply now.
Watch the full joint session by Amit Mishra and Prasanna Krishnamoorthy, Managing Partner at Upekkha at NASSCOM Product Conclave 2019.