Why Your Professional Services Company Needs a Software Product

by Sean Boyce

Professional services firms have a tremendous opportunity right in front of them but most of them don’t realize it.  The challenges associated with building and growing a successful professional services firm are relatively well known by those in the industry.  I have first hand experience with these challenges myself in my effort to grow NxtStep.

However, there is an opportunity to effectively combat many of these frustrating challenges by adding a software product to the available tools at the disposal of your internal team and then selling this product on the open market to generate a new revenue stream.

I’m here to tell you more about this opportunity and why you should consider investing in a project like this for your professional services firm.


I’ve spent a lot of time building both product and services companies.  My expertise is in product, but my company offers this expertise as a service through my firm NxtStep, so I have experience with both.  As such, I’m well aware of the pros and cons to each approach and I’ve helped numerous professional services firms add a product to their list of offerings with great success.  Before we dive in, I want to share the exciting news with you that, whether you know it or not, you are already ahead of the game.

Why Starting with Service First Is An Advantage

Many people incorrectly assume that building a product business is easier than building a service business.  This isn’t true for a few relatively obvious reasons when we think about the difference between the two in greater detail.

A big advantage the selling services approach has is that services are relatively flexible and by comparison, products are relatively rigid.  This means that services can often be more easily modified to match the current demands of the market, which inevitably change overtime, as opposed to the potentially expensive process of modifying a software product that doesn’t have good product-market fit.

Selling services also encourages you to naturally perform one of the most critical steps of the process of building a product business – discovery.  You should already be constantly interacting with your clients to better understand their needs and challenges.  This is a key element to getting started in product.  As such, starting with a services company is actually an excellent way to get into product.  You may already have some of the data we need to make you successful along this journey.

Now, let’s talk about some of those common challenges we wish to solve.

Challenges Facing Professional Services Firms

The elements of running a successful professional services firm that don’t work well and proceed to create some of the most significant challenges along the way are the fact that services are expensive to deliver and typically don’t scale very well.  You’ll hear this from almost anyone who has been involved with attempting to scale a services organization.

There are challenges related to building procedures, hiring, onboarding, training, turnover, enforcing quality standards and that list goes on forever.  To put it more simply, people don’t scale very well, but a well thought out process can.  However, you may or may not have fully battle tested processes ready at each phase that you want to grow.  That’s when these challenges rear their ugly head and force you to take two steps back.  It’s a frustrating, repetitive cycle.

The margins of services firms are also typically predictably lower.  This is because the overhead at growing professional services firms is typically high.  That is because you will need more and more people as you grow.  Payroll will always be the most expensive item on your balance sheet by far.

The good news is there’s a lot of potential to offset some of these challenges by introducing a product into the mix, but first, let’s talk about the benefits of doing so.

The Benefits of Adding a Product to Your List of Offerings

You’ve been running your professional services organization long enough to know where the weak points and bottlenecks are located.  They keep you up at night because you are just waiting for them to break (again).  From a macro level these failure points slow you down and that stunts your growth as a firm.

A product is an excellent tool of choice to solve some of these challenges.  The bigger the problem you choose to solve, the bigger the value and ROI your team will experience once you solve it with a product.  This product can help your professional services firm improve their operational efficiency by a significant magnitude.  If you want to reduce overhead considerably for a task or a team, this is the place where you can do it.

Solving for these bottlenecks has an added benefit of what I call the ROI multiplier effect.  What this means is that if you are able to solve for a critical bottleneck in your business, then chances are that other businesses like yours will pay you to gain access to that solution.  This means you now have an opportunity to further leverage the product you just built to create another revenue stream by offering it as a solution to the open market.  This multiplies the amount of ROI you will receive from investing in building this product.  Those returns will pay dividends indefinitely.

Another area of missed opportunity for professional services firms is with their current clients.  In particular, the challenges experienced regularly by their clients.  What problem does your client need to solve yesterday??  Better yet, where are you spending the most in salary and overhead to solve common client problems??  If the procedure is consistent and the problems are repetitive, you should start thinking about solving these problems with a product instead of a service (people).  Your product will scale infinitely better than your services and cost significantly less to operate, the result is much higher profits for your firm.

Let’s talk about the exciting things you can do with a product that simplifies your solutions and dramatically reduces your overhead.

Expand Into New Markets

Radically simplifying the process of solving client problems while reducing your overhead considerably opens up a lot of exciting possibilities that were not previously available to your professional services firm.  For example, now you have the opportunity to expand into new markets.

For example, if your services are currently designed for Fortune 500 companies, then they most likely are too pricey for businesses that compete in the mid-market.  However, this doesn’t mean that smaller firms don’t experience similar challenges or that they don’t want your solutions.  The problem is that they can’t afford them…yet.

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However, now that your solution is simpler and your costs have been reduced, you can offer the product at a lower price point than your services which makes it available to a whole world of potential new clients for your professional services firm.  Don’t forget, a well designed product requires very little overhead to manage and as such, scales almost infinitely.  This means that as your revenue grows your cost remains relatively flat so your profit can increase exponentially.

Pretty exciting right?  Now let’s talk about another major benefit you’ll receive from making an investment in building a product for your professional services firm.

Better Qualified Prospects for Your High Ticket Services

Now that you can expand into new markets, you’ll have access to clients even earlier than you did before.  Meaning that you can get on their radar as they’re growing.  This gives you an advantage over your competitors.  While they are waiting for those firms to grow up and reach a level where they can afford high ticket services, you will already be receiving revenue from them, offering them a ton of value through your product and, most importantly, start building a strong relationship making it unlikely they will want to go anywhere else.

What this ultimately means for your professional services firm is that you will wind up with the best kind of qualified prospects for your professional services – clients that are already your customers.  You may have them as a product customer for months or years before they are ready for your services, but make no mistake, someday they will be and when they need custom solutions where do you think they will go?  They will be ready and waiting to take advantage of the services you offer because they already know and trust you.  You have already provided them with tremendous value through your product so they know your services will ony increase the value they receive and further strengthen your partnership.  Now that’s a win-win.

Your Firm Receives Benefit First

By solving your own challenges, your firm will be the first to receive these benefits from your product.  You’ll also have the opportunity to refine your solution before it gets to the open market.  This will prepare you to build the solution that mature customers in your target market are expecting.  This is a concept that’s well known from one of my favorite books called Crossing the Chasm by Geoffrey Moore.  This concept is better known as the whole product solution.

Building a product for your own professional services firm is a great exercise to complete as a team.  You already have a great number of people with an intimate understanding of the problems associated with what you intend to solve with your product.  This helps you complete the discovery necessary to make sure you get it right.  From there, the ROI will only increase as you take the additional steps necessary to receive the benefits through each additional phase of the process I mentioned above.

You can choose to make it work well for you first then expand into the open market.  However, don’t go too far too quickly, we don’t want to build a fully custom solution only around your firm, we want a solution that scales to every firm like yours as well.  This way, it will work for them as well as it works for you.

Let’s talk a little bit about why what you’re planning to build is likely to work for them as well.

Why Other Professional Services Firms will (also) Need Your Product

You know the common challenges associated with building and growing your professional services firm well.  Chances are that other firms like yours will have a similar variation of those challenges as well.  Why am I so convinced?  It’s because other firms in your space are highly likely to be experiencing the same challenges because they are focused on solving the same problems.  This is happening everywhere – all the time.

This pattern is so common in fact that there’s a product strategy I often recommend to others looking for success in product.  How it works is we often leverage a product strategy that worked well in one industry and simply apply that same strategy to another.  This works because different industries don’t move at the same pace.  For example, the medical industry typically trails well behind the tech industry.  This is why we see the medical industry borrowing from the technology industry constantly.

You see the profile of your professional services firm and the others in your industry is very similar.  As such, their problems are typically your problems and vice versa.  Which means to an extent that it’s a race between you and them to see who invests in this product strategy first.  The one who does will receive all of the benefits and ROI.  In fact, this strategy can change the entire shape or even type of company you ultimately become in the future.  Read more about the story of Basecamp to learn more about how dramatically the results of this process can impact an organization like yours in a positive way.

Getting Started with Your Future Product

If you’re excited about receiving the benefits and bought into the reasons to invest in a product for your professional services company, then let’s talk for a moment about how to best get started.  The first step in the process is called discovery.  In discovery, you are going to identify what we refer to at NxtStep as problems worth solving.  Identifying problems worth solving is a process where we make sure that you are about to invest in solving the top problem currently causing the most pain.  If you get this exercise correct, you will maximize your potential for success and future ROI from your investment.

Internal Discovery

Another benefit you’ll experience just by having your professional services firm is that we have access to all the people we need to speak with to identify some of these top problems worth solving.  They are the members of your current team.  However, you still need someone to lead the charge in performing discovery with them in the form of qualitative one on one interviews to unlock these top problems and confidently identify the right problem to solve.

External Discovery

Once you’ve learned these details from your internal team, it’s time to take the show on the road.  At an earlier or later stage, you have the ability to perform a similar discovery exercise or sprint with members at external organizations (similar to yours).  This investment will produce the data necessary to greatly reduce your risk of simply building a product that is too customized to your needs and doesn’t apply as well to the open market.

Hire Help

This process is exciting, but you need the leadership and team to make sure it is done well because building a product organization alongside your professional services organization is quite challenging.  However, if you do it right, you will have changed your organization for the better, forever.

Make sure this process goes smoothly by hiring the right help.  At NxtStep, we are product strategy experts and can build a product path to success for your professional services organization.

To learn more about what we can do to help you achieve these goals for your professional services organization, book a call with us at NxtStep.

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