Does it make sense for a SaaS company to also do consulting work?


7

As a SaaS company we have an entire team in place to do web and application development. Effectively, we have one client: ourselves. Would it make sense for us to take on consulting clients as an additional revenue stream? How would this impact our business?

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asked May 16 '11 at 12:27
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Kenneth Vogt
2,917 points
Top digital marketing agency for SEO, content marketing, and PR: Demand Roll
  • Rather than add another answer, what's your exit strategy? One of my partners worked at a fairly successful product company (both packaged and SaaS at the tail end of the first internet bubble). When the bubble burst, they started picking up consulting work in order to float payroll. After a couple years they lost a really big client and the owners got bored. The company is down to just the owner who limps it along with contractors as needed. A slow death is a painful death. – Sean 9 years ago
  • @Sean, the topic of exit strategy is a whole 'nother kettle of fish. I predict you will see a new question on that topic here soon... – Kenneth Vogt 9 years ago

4 Answers


4

There are two different markets of consulting that you could consider as a SaaS company. There is the one that you alluded to -- which is the conversion of your internal technology team to be a job shop for potentially multiple of external clients to supplement the revenue from the primary venture.

There is a second -- which is the adding consulting as a value-added resource to your current SaaS offering.

Converting your Tech Team into a job shop Congratulations to you and your team for launching the software. And it sounds as though you like each other and want to keep working with each other. Another accomplishment!

After you have completed the initial development of your SaaS platform you may find yourself with a highly functioning team that has gotten to know each other and has built the operational systems which would make it very valuable in the marketplace. This is now a company asset -- and exploring ways to capitalize on this asset makes a lot of sense.

I would identify three "red flags" and three recommendations for moving forward in this model:

Red Flags Distraction : Your primary business is the start-up of your SaaS, and you do not want to take your eyes of the ball. If you shift the conceptualization of the relationship with the project from "the thing" to our "lead client" and you install a deep commitment to client success then this transition can be made without distraction.

Business Model : Move to leverage the IT capacity as a "job shop" is a different business model. You go from the business sector/space/market of your SaaS to the very crowded market space of technology job shops. While you may have a competitive advantage on projects which overlap the SaaS's market, you will need to quickly secure "testimonial-ready" clients who are not yourself.

Conflicting channels : The brand of your SaaS will probably not effectively communicate the core value proposition of your technology team. It is important to take into consideration to development of a unique brand for the tech team, and protocols to ensure proper communication channels (like email addresses, branding, phone, etc.).

Recommendations

  1. Re-brand : Brand the tech-team separately from the SaaS service.
  2. Treat as a start-up launch : Develop a business plan with an aggressive marketing and sales campaign to build the initial needed customers.
  3. Find Synergy : Identify initial projects that have the opportunity to add value to your existing SaaS -- or where your existing SaaS will add value to theirs.
Leveraging your Intellectual Property in the SaaS Market Space While this might not have been what you asked -- there is also the opportunity for you, and your team, to add tremendous additional value to your SaaS customers by providing high-touch in-depth consulting as an up-sell from the basic service packages that your software provides.

We all know that having a great software solution is only part of solving the underlying problem or realizing the promised opportunity. It takes adoption. Designing and delivering effective adoption campaigns takes the direct involvement of a the team that knows the subject and the software. In other words: you.

To that ends there is a compelling consulting business of selling your knowledge and expertise on the launch of the service solution surrounding your SaaS. Not only will this provide you a relatively high margin revenue stream, it will also provide you direct user contact in and around the adoption of your software. This will ensure that your ongoing development is better, your new features more integrated with the actual customer need (and often paid for as part of a consulting contract) and a more dynamic understanding by your team of the market.

Additionally your marketing and advertising in support of the IT consulting is directly synergistic with your primary SaaS business.

And of course, most importantly the two options above are not mutually exclusive -- do them both

answered May 17 '11 at 00:28
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Joseph Barisonzi
12,141 points
  • the business model red flag is the one that would most keep me up at night. While I like the idea of rebranding the team separate from the SaaS product, that is a marketing issue. What does it mean to the team itself? They are not committed to any particular idea to be developed so much as to a development philosophy. – Kenneth Vogt 9 years ago

3

It does when your not full time developing "for yourself".

It makes sense:

  • Your people are now domain experts in your field. If you can teach a computer what it should do successfully then your miles ahead of other people who haven't. This is very valuable when sold properly.
  • Your Saas offering becomes "part of" the overall offering. Both feed off each other from a marketing perspective
  • We find that when one is going well the other one is going slow. This is due to a range of factors including seasonal buying trends ... budget time is March, purchase time is july/ August, nothing happens in september. Installs are put off until "quiet points" for the clients etc.

The impacts

  • Your resources will be tied up on clients projects which may slow your Saas development, this is a balancing act you just have to work out.
  • Your people will learn so much more from their consulting clients it will improve your Saas offering massively through having so many different perseptives.
  • Your consulting clients will know you really well and will likely be your biggest advocates for selling both your consulting and Saas offerings
  • It is high consistant income once esablished.
  • You can afford to keep a bigger pool of talent as the consulting is paying for the mouths to be fed.
  • Your business model will have to change and your project management will have to handle scheduling of not just 1 team (this is a big negative to make sure you get right early).
  • Clients will end up paying for new features and additions to your Saas model. Get the contracts right upfront and it is a fantastic thing.

Suggestion:

If your "Sunset goal" or exit is a trade sale then have 2 companies with a trading name. One for consulatancy and one for product.

There are very different reasons for someone buying each type of business and if you grow you will start to diverge the internal operation / cashflow model etc. They can have both if it suits but they will normally want one or other because it fits their own model.

answered May 16 '11 at 12:48
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Robin Vessey
8,394 points
  • a very solid answer. I especially appreciate the impacts bullets. – Kenneth Vogt 9 years ago
  • Yeah, I wish I had known those a good 8-10 years ago ... Would have changed the approach somewhat. Allowing the business model to change, knowing the two are different and to let them be different. Plus how to sell new features. – Robin Vessey 9 years ago

4

The number one problem with consulting? It's like heroin. The first taste is awesome, but then you need more and more.

The beautiful thing about your SaaS product is that you keep the lights on and people keep paying. You might fix a bug or two or work on some new features, but your income horizon potentially is pretty long (especially if you have contracts).

Consulting? Not so much. You're constantly trying to find work. You've got a ton of unbillable hours spent working with and selling clients. Collections, etc.

Long term, scaling a pure consulting company is extremely tough. Eventually you'll saturate either your area or your ability to find talent to perform the work. And then you're on the grind to keep all those people busy.

Now... if you do consulting to support your product that's just gravy!

answered May 16 '11 at 15:03
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Sean
1,149 points
  • the question is not about why SaaS is better than consulting or vice versa. I have done pure consulting before and it sounds like we are in agreement about the preferability of the SaaS environment. I am asking about a way to more fully utilize a "championship" team by branching into consulting. Can you comment on that? – Kenneth Vogt 9 years ago
  • I think another response talked about defocusing your company and I agree with that. I think that a team of people that want to work on a product will not be happy working on project work for other clients. As well the skillsets involved are typically different. I remember reading an article sometime this year about the difference in developer skillsets between a product developer and a good consultant. The core is similar, but the overall picture is different. – Sean 9 years ago

0

Paul Graham:

It's ok to do a little consulting-type work at first...Probably the biggest danger is that it [ramen profitability ] might turn you into a consulting firm.

answered May 17 '11 at 05:09
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Simpatico
198 points
  • as noted in the question, the SaaS development already came first. I have had the experience of creating a pure consulting company so your warning rings true. I much prefer the SaaS world. That being said, I see some synergies between the two. Are you implying you would only do consulting as a ramp up to SaaS and then you would stop consulting? – Kenneth Vogt 9 years ago
  • @Vogt: Yes, if most profitable long-run. Since the belief is that implemented SaaS ideas will create more value (read, profit) in the long-run, think of consulting as cash cows in the BGC matrix and SaaS as the ? mark (again, which u believe will be a star w investment). This implies that once w SaaS stars it should be less profitable for you to divert resources to consulting. If you have excess capacity, welcome all revenue streams (obvious?). – Simpatico 9 years ago

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