Unlock Value In Your Enterprise By Repositioning Your Tech Base As A Product
If you run a service business—anything from an ice cream shop to a plumbing company—you may have wondered how you could potentially expand into new areas and increase the value and revenue of your business.
Over time you’ve tried to make strides toward this goal. Perhaps you’ve built proprietary software to increase sales, streamlined your client management process, or otherwise improved the way your business runs.
Maybe you developed an algorithm that identifies a customer’s ideal ice cream flavor based on their previous orders. Your camera registers their face as soon as they walk in the door, and your computer notifies the cashier at checkout to provide a free sample of the customer’s favorite flavor in a take-home container, if they desire. After a few months, word spreads, and suddenly your ice cream shop is in possession of some software and a business model that has resulted in dramatically higher customer retention and higher reviews than competing ice cream shops in your area.
Have you maxed out your success? Absolutely not! That software you’ve just created is the ticket to a business value transformation that will catapult your company to a whole new level. You’ve already proven it works. Now you “just” have to build it and sell it.
This ice cream shop analogy is highly simplified and small-scale, of course, but that’s to prove a point. If a purveyor of frozen desserts is positioned to transform their business and start generating software revenue, then your business may be full of similar opportunities.
Why would you want to do this?
A traditional service-based business, even a successful one that has a steady, reliable cash flow, isn’t usually viewed as a business that will grow much over time. In contrast, a SaaS-based business or a business that focuses on selling and/or licensing their own software product is expected to grow in the future, because SaaS companies have been experiencing this kind of success for the past several years.
High growth expectation means that, on average, a similarly sized SaaS company will have a much higher value in the market’s perspective than a service company at the same level. By switching from service to SaaS, or even adopting a hybrid approach, you can potentially boost your value multiplier from three to eight times your earnings from service to seven to twelve times your earnings from sales.
You need to be sure that your software is truly unique and not just a reproduction of a product that already exists. If your proprietary software can be matched or outpaced by a third-party option, you should be cautious about releasing your “secret sauce” to your competition. But if you’re confident that nothing else exists that could match what you offer, then taking your software to market could be a huge success.
What does it look like to reposition your tech base as a product?
Let’s take a more realistic example of a plumbing company that has developed proprietary software around their business processes and client management. This hypothetical plumbing company has experienced overwhelming success after adding their software into the mix, so they already know the software is both viable and valuable.
They are suddenly at a crossroads. The owner’s mind is swirling with great ideas and a fair number of hesitations as well.
The plumbing company owner could continue to make incremental improvements in his existing service business, but there is a low ceiling to his potential success. After all, his workers’ time is finite so the revenue they generate is finite too. In comparison, SaaS sales are theoretically limitless, so that revenue ceiling is much higher if it exists at all.
Not only that, but as we’ve pointed out, this business would be worth more as a SaaS company. The plumbing company owner is not just receiving new revenue from software, he’s also benefiting from software valuations.
But the owner may worry that selling the company’s proprietary software—the very thing that gave the company an edge over competitors and generated a highly successful business—would place that competitive edge into the hands of other plumbing companies. Wouldn’t the company just be shooting itself in the foot? If you’re in a similar position, you may be having the same doubts.
The idea of selling your tech base as a generalized service to others is a mental hurdle you’ll have to overcome. The key is shifting your perspective from the owner of your current business to the owner of a SaaS business instead. Your service is no longer your sole product. Now, the software that makes your service easier and more streamlined is a completely new product that you can market separately or jointly with your existing business. And those other companies are now your clients too, not just your competitors.
Think of it a bit like digital franchising. You are enabling other businesses in your industry to operate as yours currently does, creating a chain of companies that all operate under the umbrella of your software. Better yet, each of those franchise branches pays you monthly to continue to use your software.
The next hurdle you’ll need to overcome is the intimidation factor. How can you (and our hypothetical plumbing company owner, by extension) be certain that you can successfully bring a product to market and find success?
You’ve already got a working software product, and you’ve already proven that product’s market fit by using it successfully in your own business. Those are two stages that typically take software startups years to complete, if they ever make it at all, and you’re almost to the finish line already. All that’s left (and it is still a great deal of work) is to develop your product for a wider application, test it within your own company, market it, and find customers to buy it.
If you’ve been running a company that’s already more successful than your competitors because of your software, your competitors are likely already very interested in gaining that same technology. It will also be attractive to your competitors because you’re no longer competing directly with them. Instead you’re helping them find their own success with your product.
Successful franchise companies may choose to run a handful of company-owned stores alongside their franchised branches as a way to keep their fingers on the pulse of the market. Would those company stores compete with the franchises? Yes and no. The company would have to be careful not to infringe on any franchisee’s geographical territory, but, in truth, the success of one would positively influence the success of the others. Similarly, if your clients experience great success because of your software, you still retain the rights to and the revenue for that software.
The third hurdle is figuring out how your current software, which is custom-built and tailored to your business, can be adapted to fit the businesses of other companies in your industry. It’s probable that your product won’t be the same as the software you use today. Unlocking the value of your internal tech platform will require customer research to find out what you need to change to be successful (skipping this step is a sure path to failure), and additional development. You will need to invest time, resources, and funds.
However, remember that your first customer is yourself. You have a unique opportunity to test your new software features in your own business. That means that even if it takes a while to bring a final product to market, you’re still spending that time improving your current business.
Ultimately, however, the path forward may yet have more hurdles. Your business is unique, and the challenges and advantages you have are also unique. Before you can launch a new product and get an entirely new startup off the ground, you will require help to make this endeavor successful. Running one successful business means you’ve already got a full plate; don’t be afraid to delegate some management tasks as you focus your efforts on building a new technology-based business.
Consider your software startup as a separate entity from your existing business. You don’t have to abandon your existing business to create a new one based on software. You can avoid the risks and negative aspects you’ve been worried about. And, launching an entirely new startup based on your expert knowledge in your field means you can partner with investors to hire startup specialists, a development team, and product marketers to fill in your own knowledge gaps.
Looking for a professional “business value remodeler” might prove difficult, because if it were easy, everyone would be doing it. Your best option is to engage a value transformation coach who helps companies switch tactics midstream. Frank Zinghini, CEO of Applied Visions, wants to help you do exactly that. If your goal is to license and sell software you’ve developed for your own company, book a meeting with Frank to formulate your game plan.