Originating as a project company
Many software companies have started out as project companies specialized in a specific field of information technology or a business vertical. Even Oracle.
In order to keep their operational costs low they try to re-use their software code for different projects just developing the necessary specific additional code for each project.
Eventually the software becomes more fully fledged, mature and having almost all possible functions and features for a certain target market.
The step from a project company to a product company seems evident and simple, but that isn’t.
Less is more
The first hurdle is to decide what functions and features from the large set of available subroutines and applications to include. What does the market really want and what has been developed on demand for a certain customer. The more functions and features that are included into the product(s), the more maintenance and support costs.
The sales cycle differences
A project company is in the typical cycle of:
- Finding a deal
- Winning the deal
- Developing the necessary additional code
- Partial invoicing throughout the project – and getting paid during the project
- Delivering the project
- Keeping a revenue stream for additional services for each customer
Whereas a product company has a sales cycle of:
- Maintenance invoices
The changes in organization
The morphing from a project company to a product company requires many changes:
- Marketing needs to promote products instead of services, which is a change of mind
- The website needs to market and explain the products instead of a vague capability description
- Marketing and sales team needs to generate much more leads
- Sales cycles will be shorter
- Sales will need to adapt to the fact customer changes are no longer possible
- Sales will need to close more deals as prices are lower
- Development needs to maintain the product over many years
- Product architects need to design for growing the product and keep it maintainable
- Product management is new and needs to develop the product plan
- Product marketing is required too for specific promotion of the product
- Accounting needs to change their revenue recognition too: less complicated
- Maintenance revenue is lower and fixed
- No or little revenue from system engineers on site
Dealing with the change?
The questions are:
- Can top-management cope with these changes?
- Can middle-management live with the different attitude?
- Can the company bear the weight of the additional functions that are created?
- Can marketing management steer product marketing?
- Can marketing generate enough leads?
- Can salesmen close enough deals?
- Can salesmen adapt to the different sales attitude or should a different type of salesmen be hired?
This and many more problems emerge while morphing from a project to a product company.
How well did your project company deal with the change into a product company?