Software Start-Up Evolution - or How to Stop Leaving Money on the Table

Key Considerations for a Software Vendor Dreaming of Becoming a Solution Provider

Most Software Providers reach a point where the original product isn't enough to sustain growth. Whether you are a traditional licensed provider or pure SaaS, at some point, you feel like you were the first one to the party, but latecomers are getting more of the cake. Maybe it's time to re-evaluate, reimagine, and reinvent yourself. Like Steve Ballmer says, find new ways to make money.

5 years ago, you had a great idea. With a small group of talented engineers, you created a compelling software platform. You launched it in the market and closed deals with early adopters who recognized the genius of your platform. Cash started flowing, but costs accelerated. Faith in your product and grit kept you going – you could see the promised land of start-up riches on the horizon. 5 years later, you are still attracting customers, and even larger players are showing interest. But some unplanned impacts are postponing your multi-million-dollar payday:

1.  Your early customers are asking for new capabilities that are not exactly aligned with your “out-of-the-box” platform, but you must pull these requests into your roadmap, or your customers will start shopping.

2.  Your current and target customers have integration and operational support expectations that go beyond your resource plan and financial model; you provide services that were not contemplated in the original contract, for free.

3.  As you move up-market, your product is included as a component in larger programs, which gives you exposure and revenue. But the programs are sold and managed by large software providers or SIs. You have limited customer contact, no control over the program's ultimate success, and are frequently blamed for broader program issues.

One strategy to achieve sustained growth and relevance is to offer new services. Whether these are professional services/consulting, support offerings, value-added features, or entirely new product lines, the decision to expand your portfolio is complex and laden with potential rewards and risks.

The CEO of a small software company with a great product once told me, “I never wanted to offer services, I only ever wanted to create a great product and sell it off the shelf. But the reality is I am pulled into providing services I don’t have a mechanism to charge for or watching SI’s take money that I could be earning.”

This is a common sentiment.  It is often the natural evolution of tech start-ups. The pioneer and poster child for SaaS platforms, Salesforce.com was famously built on the idea of simply delivering software through an Amazon-like website. Anyone could easily subscribe to and download their product. Today, Salesforce Professional Services employs more than 10,000 consultants, and there is an entire industry of third-party firms that provide SFDC implementation and integration services.

While not everyone aims to become Salesforce, every ISV start-up eventually faces a pivotal decision:  

• Stay true to your vision of being a pure-play product vendor and choose to limit your growth, or

• Transform your vision and capabilities to become a SOLUTION provider. But that means a fundamental change in corporate culture.

This article explores the critical considerations that software providers should evaluate before adding new services.

1. Strategic Alignment

Every new service should align with the provider’s long-term objectives. Strategic alignment ensures that new offerings reinforce rather than dilute the company’s brand and purpose.

• Vision and Mission: Ensure the services support overarching business goals and values. Will the new services support corporate growth strategies?

• Market Positioning: Consider how the new service fits within your current market position. Will it enhance your positioning or create confusion?

• Synergy with Existing Offerings: Assess whether the additional service complements or competes with existing solutions. Will the new services leverage existing strengths and/or create new demand for the current product portfolio?

• Demand and Loyalty Generation: Evaluate which services will make customers see you as more reliable and easier to do business with. Will the new services – such as professional services, system integration, managed services, or BPO make it easier for customers to buy, implement, and retain your total solution?

• Business Objective Focus: Avoid chasing shiny and trendy for the sake of being cool. The siren-song of the latest tech trend has led many noble entrepreneurs to the rocky shoals of the technology Sirenum Scopuli.

2. Market Analysis and Customer Needs

Customers hire you to achieve a business goal, not because your code is the coolest. Understanding the market landscape and genuine customer needs is central to designing services that are relevant and valuable.

As a Solution Provider, shift to outcome orientation over features.  Buyers of solutions care about results—cost reduction, risk mitigation, growth, not a long feature list. What are your customers asking you to do now? What are they paying someone else to do with your platform? What are their internal IT resources not particularly good at? You may find you are already providing some extra-curricular services, but are you being paid for them? When analyzing the opportunity to launch AND MONETIZE new services, consider:

• Market Demand: Conduct market research to verify the need for the service as an extension of your core value proposition.

• Competitive Analysis: Review competitors’ offerings to determine differentiation opportunities. Is someone making money by implementing your product as part of a broader solution today?

• Target Audience: Identify the customer roles that would benefit from the new service. What services will provide greater assurance that the solution will achieve the business objectives used to justify the investment? Often, these are not defined by IT.

•  Customer Feedback: Gather input from existing clients to find pain points related to the ease or difficulty of implementing, integrating, supporting, and enhancing your products.

• Value Proposition: Once the focus has narrowed to a specific service, take the time to clearly define the unique value the service will provide to your customers.

3. Technical Feasibility and Infrastructure

A brilliant idea can falter without robust technical foundations. Assess your ability to deliver the desired service reliably and securely.

• Integration: Examine whether the new service can be seamlessly integrated into current platforms and workflows. What new skills/knowledge will your delivery team need? Consider how to integrate your product portfolio with legacy and third parties.

• Scalability: Plan for growth by ensuring the underlying infrastructure and services teams can scale with demand. Consider high-demand scenarios – how many engagements can you take on simultaneously before you break?

• Technology Stack: Evaluate the compatibility of current technologies with what the new service requires.

• Security: Consider cybersecurity implications and compliance requirements for all clients (in all pertinent geographies) and yourself, especially if handling sensitive data.

• Development Resources: Ensure the availability of skilled personnel and development bandwidth. Create a flexible and dynamic sourcing plan that includes on-shore, off-shore, contractors, and third-party resources. Develop an effective onboarding method.

4. Financial Implications

No service expansion is complete without a thorough financial analysis. Sometimes, aggressive sales or account management team members can get excited by an idea from a customer, or they heard about on a TED Talk, and they position the idea as “strategic”. Some ideas and customers are, but often strategic means “don’t look too closely at the financials, if we build it, they will come”.

• Cost Analysis: Estimate development, deployment, support, enablement, and marketing costs.

• Pricing Strategy: Develop a sustainable pricing model, considering market standards and customer willingness to pay. Part of this includes considering how much share of wallet your customer is willing to give to you versus someone else in their stack.

• Revenue Projections: Set realistic revenue targets and model different scenarios both for stand-alone contracts and bundled with product sales. Avoid the temptation to give the services as a loss leader. It can devalue the customer’s perception of the services and set a precedent for future service work

• Financial Risks: Estimate when the new service will become profitable. How much patience do you have in the context of the investment required?

• Funding Sources: Determine whether current cash flows can support the investment or if additional funding is/could be needed.

• Internal Impacts: Consider how the service's financial model impacts existing processes and policies such as general accounting, revenue attribution, and commission calculation.

5. Regulatory and Legal Considerations

Software providers must operate within a growing maze of legal and regulatory frameworks.

• Compliance Requirements: Identify relevant industry regulations (e.g., GDPR, HIPAA) that may affect the new service.

• Contractual Obligations: Update terms of service and agreements to boilerplate documentation and review current customer MSAs to reflect new offerings.

•  Intellectual Property: Secure patents, trademarks, or copyrights as needed.

• Data Protection: Implement measures for handling and storing data in compliance with legal standards.

• Risk Management: Prepare contingencies for liability or breach. The risk profile changes dramatically if you are new to post-deployment operations.

6. Operational Readiness

Operationalizing a new service is more than technical deployment. Solutions are delivered, not just installed. Customers will always have their current favorite SI in the wings, do you want to report to them or your customer? If you aspire to take greater control and monetize the work you are doing anyway, create a robust professional services arm and customer success organization.

• Standardized Methodologies and Tools: If you plan to provide Professional Services, you must have a documented methodology for Program Governance, Program Management, System Integration, and Testing to demonstrate credibility and increase customer confidence. Customers select products based on technical capabilities, but they select service providers based on whether they believe you can deliver.

• Process Adaptation: Modify internal workflows to accommodate new services (e.g., sales, support, billing). How will you charge for the service? Do your receivables and accounting teams know how to bill for and categorize the new costs and revenues?

• Training: Provide comprehensive training for staff specific to their functions on the new service’s technical and business aspects. If you are launching a professional services offering, you cannot wave a magic wand at software engineers and transform them into customer-facing consultants overnight.

• Resource Allocation: Ensure adequate allocation of human, technical, and financial resources. Create resourcing plans for worst-case, most-likely, and best-case scenarios. Have a plan in case you are phenomenally successful in selling, but find your cupboard is bare.

• Service Level Agreements: Define SLAs and ensure you can uphold promised service quality. Negotiate grace periods, especially if you are new to providing this service.

• Supply Chain and Partnerships: Assess whether external vendors or partners are needed. Many firms wait until there is an imminent engagement and then start looking for partners to fill the gaps. This results in inadequate vetting and weak partner oversight. Instead, create a partner management discipline around how to select and engage partners independently.

7. Go-to-Market Strategy

A well-orchestrated go-to-market strategy can be the difference between success and failure.

• Marketing Plan: Craft clear messaging and campaigns to communicate value and drive adoption. Do you start with a greenfield customer? Do you start with existing customers? Do you segment by company size?

• Sales Enablement: Equip the sales team with training, collateral, and tools for effective selling. Services are often sold to different buyers than those your sales team works with.

• Launch Plan: Organize a phased rollout to manage risks and gather feedback for the new service. What elements of the operational readiness must be complete before you launch?

• Channel Strategy: Evaluate direct versus indirect channels for delivery and support.

• Customer Onboarding: Develop materials and programs to ensure a smooth customer transition. Especially true if the new service is augmenting or re-badging work currently performed by the customer.

8. Customer Experience and Support

Customer Success > Customer Support. Adding services is not solely about features; it’s about delivering value and satisfaction. Solution providers are accountable for ongoing value delivery, not just keeping the software running.

• Account Engagement: Implement proactive customer success teams with usage analytics and business outcome tracking.

• Support Infrastructure: Prepare to offer multi-channel support with appropriate governance and escalation paths. Post-deployment services are articulated in the contract. If you are new to the service, make sure you have a reasonable grace period in the contract before the SLAs become binding and you incur unpleasant penalties.

• Feedback Loops: Establish mechanisms for continuous customer feedback and improvement with robust account management.

• Documentation: Create thorough, user-friendly guides and help resources. Develop user training curricula and SELL training the trainer/train the user services.

• Community Building: Foster a user community through forums, events, or online groups.

• User Experience (UX): Prioritize intuitive design and usability in all customer interactions. Consider your program management artefacts and deliverables, operational reports, performance dashboards, etc.

9. Change Management

Organizations must be prepared for both internal and external change as they evolve.

• Communication: Communicate status and changes transparently across the organization and with customers. If you are prime, consider both customer legacy and third-party vendors. Much time is wasted on programs when the players find themselves at the Tower of Babel for the first six months. Choosing one methodology and vocabulary is more important than arguing about who has the best PowerPoint template.

• Stakeholder Buy-In: Involve all stakeholders—leadership, employees, customers—early and often.

• Risk Mitigation: Identify resistance points and prepare strategies to address them.

• Continuous Learning: Invest in ongoing education and adaptability for staff and leadership alike.

Conclusion

To be, or not to be, a full solution provider. Hamlet’s dilemma can apply to ISVs grappling with an identity crisis: Is it nobler to suffer the slings and arrows of a pure off-the-shelf software provider? Or, opposing a sea of troubles, perchance dream of the undiscovered country that promises new revenue streams, market expansion, and greater control by becoming a full Solution Provider.

Success lies in thorough preparation: aligning with strategy, understanding the market, guaranteeing technical robustness, preparing financially, and ensuring readiness across legal, operational, and customer domains. Thoughtful execution—bolstered by a compelling value proposition and unwavering commitment to customer satisfaction—can elevate a software provider’s reputation, revenue, and long-term prospects in an ever-changing digital landscape.

About the Author

Mike Michie is a seasoned Telecom and IT leader with over 30 years of experience solving complex business challenges through technology. Known for his ability to see both the big picture and the practical path forward, his strategic approach consistently delivers measurable business outcomes—from improved margins and automation to stronger teams and better customer experience.

If you would like to explore these topics further, or are thinking of broadening your portfolio with new services please contact Mike at: https://mbmcommconsult.com/