The Journey from Delivering Custom Software Solutions to Building Scalable Products: How to Make the Leap

Many software services / consulting companies aspire of building software products at some point in their journey. They are often drawn by the allure of scalability and growth. However, only a few successfully make the switch or are able to make products any considerable portion of their income. If you're someone trying to take the leap, this write-up might offer you some valuable insights.

In our world, there's often a blur between custom software solutions and software products. A fellow founder once said, "Aren’t we all just building software products anyway?" On the surface, it feels true. After all, if you have a skilled team, strong client relationships, and deep technical knowledge, the leap to scalable products should be simple, right?

More often it's not. Moving from services to products is a lot more than a new business model. It's a shift in how you think, plan, and measure success. The mindset that works for custom software won’t automatically work for scalable products.

Here are four key challenges companies must overcome when making that shift.

1. Mindset Difference

When delivering services, your job is to keep each client happy to the best of your ability. While building products, though, you have to accept that there’s no way to meet the needs of all your customers. The goal is to identify and prioritize the most important needs of a broader audience.

With a "services mindset", the focus is on meeting each client’s unique needs. Success is defined by delivering customized solutions that fit the client's vision, on time and within budget. Once a project is done, the team moves on to the next.

In contrast, product mindset requires you to focus on building solutions for a broader market. The goal is scalability, requiring a shift from a "services mindset" where success depends on serving many customers with a single, evolving solution.

2. Client Interactions

In the services world, every client interaction revolves around customization. Solutions are tailored to each client’s unique needs, with immediate feedback shaping the development.

for products, you aim for a broader audience. Feedback comes post-release from diverse users, and the challenge is prioritizing it without customizing for every request to keep the product scalable.

3. Team Composition, Skill Sets, Leadership, Incentives, and Risk Appetite

Transitioning from a services to a products demands a major shift in team composition, skill sets, leadership approach, and incentives. Service companies often try to make the switch with the same team that drove their success in custom solutions, assuming that once product-market fit is achieved, they can bring in specialized roles. However, this approach often proves more challenging than expected.

In service companies, the team is trained to prioritize client satisfaction. Their focus is on delivering what the client wants, when they want it, and within set timelines. While this client-centric mindset is critical for service work, it can become a stumbling block in product development.

The skills that make service teams excel at client relations—being reactive, flexible, and highly customized—don't translate easily into the standardized, scalable processes needed for successful product creation. Moving from customization to long-term strategy can be disorienting for a team used to tailoring solutions for each client.

In contrast, product-based companies prioritize scalability and long-term growth. Teams are smaller, specialized, and focused on refining the core product. Incentives are often structured around equity, tying employee success to the product's performance and fostering a culture of ownership. Roles are highly specialized, from developers focused on architecture to UX designers ensuring user satisfaction, with everyone driven by metrics like recurring revenue and customer retention. Early employees are usually generalists, comfortable wearing multiple hats and navigating uncertainty.

Leadership in product companies must embrace ambiguity and growth, constantly iterating on scalable solutions. Unlike service companies, where larger teams shift focus between client projects, product-based firms have a streamlined structure with performance-based incentives, often linked to the product’s success rather than project completion.

4. Revenue & Cost Structures

Understanding the revenue and cost structures is crucial for a service company considering a transition into the software product space. The financial dynamics between custom software services and software products are fundamentally different, and recognizing these distinctions is key to a successful shift.

In custom software solutions, revenue is tied to client projects, typically based on time and materials or fixed-price contracts. Cash flow depends on client acquisition and project completion, with payments received at specific milestones. This creates a relatively predictable revenue stream, closely aligned with immediate costs like labor and overhead.

In contrast, the software product model relies on recurring revenue through subscriptions. While this offers long-term cash flow potential, it requires a significant upfront investment with delayed returns. Software product companies often operate at a loss in the early stages as they scale, needing to reach an inflection point where revenue outpaces costs. Achieving this requires careful planning around scalability—both in technology and go-to-market strategies—so the business can grow efficiently without a proportional increase in resources. If scalability isn't built in from the start, retrofitting it later can be a costly and risky endeavor.

5. Sales & Marketing

For many software services companies, early growth is often driven by word-of-mouth and client referrals. While this organic growth is cost-effective, it can lead to complacency when it comes to building a strong sales and marketing engine—something essential for software products, where reach and scale are critical.

In the software product space, reaching a broad audience is not just desirable but crucial. To capture this audience, companies must master digital marketing techniques like SEO, A/B testing, performance marketing, and content marketing. These efforts require significant upfront investment and a shift towards automated sales processes, allowing customers to explore products through demos and trials. While some SaaS companies have succeeded with minimal sales and marketing, most thrive by balancing product development with strategic marketing efforts.

6. Resource Allocation & Budgeting

Founders of service companies often assume that the primary expense in developing a software product lies in its creation, based on their experience with custom solutions where development costs dominate. However, this assumption doesn't hold true for software products. In a highly competitive market, visibility and customer acquisition become crucial, shifting the focus to sales and marketing.

In fact, many successful software product companies allocate a significant portion of their budget—up to 50% or more—towards sales and marketing in the early stages. This aggressive investment helps capture market share and build a strong customer base. As the company matures, customer acquisition costs typically decrease, but continuous investment in sales and marketing remains essential for driving product adoption and sustaining growth.

For service company founders, this shift in resource allocation is vital to understand. Prioritizing sales and marketing alongside development ensures a balanced approach that supports both the product’s creation and its entry into the market. Focusing solely on development without sufficient attention to customer acquisition can result in a great product that fails to gain traction.

Conclusion

Transitioning from a services to products is a challenging but rewarding journey. It requires more than just technical expertise; it demands a shift in mindset, team dynamics, resource allocation, and a deep understanding of the new business model. Success hinges not only on building a great product but also on effectively reaching and acquiring customers at scale. By recognizing the importance of a balanced approach—investing in both development and robust sales and marketing efforts—service companies can position themselves for long-term growth in the product space. With the right strategy and foresight, the leap from custom solutions to scalable products can unlock significant new opportunities and revenue streams.