This is one of the posts i wrote for Money control’s SME Mentor section! View Original Post.
I have been interacting with many startup founding teams. Some of who have been building their product and are running a services outfit along side. Their point-of-view is that the services arm of their company will fund the product part of their venture.
Now, I am not against the idea of running a services company. I also buy the logic of startups bootstrapping & doing small-time consulting gigs or taking up short term projects to earn some revenues. Though, what bothers me is, product startups getting sucked into the services rut.
Let me list a few scenarios that I have come across to bring forth my point:
1. Two people come together to build a web-product. They brainstorm the vision for their product company. Figure out what they want to build initially and realize that they need some working capital to build a team, do marketing, etc. Also, they find out, what they have saved for this venture will not be enough to do all the above. The result – they decide on taking up services as a part-time effort. But eventually, the pressures of external commitment & delivery take major focus. Finally, product is sidelined & they continue to live-up to the services commitment.
2. Two people come together to build a web-product. They figure out what the initial plan of action should be. They realize they need more working capital, one guy opts to running the services part of the venture. The other guy begins to build the product. Eventually, the guy doing the services feels more important as he’s bringing the money in. The Product guy has a different point-of-view. The result: Either things fall apart and they part ways or the product guy is forced to shut shop and join the services part of the venture.
3. Two people come together to build a web-product. They calculate the amount of money they have for this venture. They work backwards to figuring out what they can achieve with the resources they have. They plan on building a minimum viable product and get as much usage as possible before they run out of money. They also plan on reaching out to friends and family to raise more money, once their product is launched, as they do not want to distract themselves right now. As Plan B, they will take on freelance projects for a few hours, if need be to make some money.
All the above scenarios are what I have come across during my interactions with startups. My advice to them is always: Focus is very important for a startup. Any distraction that has a tendency of slowing down your progress or distracting you from achieving what you want to do or are passionate about is best avoided.
Running a services arm is the most obvious thing to do, as it suddenly makes you profitable. But this path needs to be taken carefully. There is a danger of getting sucked into what you don’t want to do.
Scenario 3 is what I advocate. I have seen startups tread this path and have managed to either start making revenues from their product or have managed to infuse some money from friends and family based on version 1 of the product. Now, the choice is for you to make!