Switching from a service agency with a product to a product company providing services - advice needed

This post is seeking advice on whether to combine our CMS product and web design agency under one company and switch from a service agency with a product to a software company that also provides services that compliment the business. Or, keep the services and product separate and possibly set up a separate company for the product.

The full details

I'm looking for some advice on the next stage of my business. I own a small website design/development agency called Aptuitiv. We also develop a hosted website content management system for building and maintaining custom websites called BranchCMS.

We've been in business for 16 years and have been working on the CMS for a number of years. It originally started as our own product for our own clients because we found other CMS lacking for the custom websites that we build. Orignally the CMS was called Aptuitiv Studio. A few years back we spun it off under a different name as BranchCMS and set up a website for it (I know, it's not an awesome website for a design agency - too much time spent on client work).

At this point BranchCMS has grown to 19K MRR, 170 clients and 600+ websites running on our platform. Other than the website, we haven't actively marketed it. We now have a few design agency partners that us our software to build websites for their clients.

As the founder, my greatest job fulfillment is in creating solutions to problems with software. Our product is where I want our focus as a company to be. However, we don't have outside funding and there isn't enough revenue yet to switch our small team (4) to only doing product.

I've given a lot of thought about our future and see two viable options:

  1. Continue to keep Aptuitiv and BranchCMS (the services and the product) separate. This could involve setting up a separate company for the product.
  2. Combine the two under one company (probably Aptuitiv) and transition from a services company with a product to a product company that offers services that compliment our product.

We don't have enough partners to fully give up designing and building websites. Plus, by doing the service work we have to use our own software that that has prompted a lot of feature growth and improvements.

With option 1, we wouldn't mention our services on the BranchCMS site, which may help alleviate any concerns with potential partners that we'd be competing with them. But given the size of the web design market, I'm not sure if that's a viable concern. The downfall to this is that we're continuing to be split between running two types of businesses. While they compliment each other, they are different and require different strategies for growth.

I'm leaning towards option 2 and putting our services and product under one name, Aptuitiv. The focus of our site would be our software and we'd have a services section where customers could hire us to design and build the site for them. But, we'd also be actively trying to grow our partner base of other agencies that would use our product for their clients.

With option 2, our initial plans for growth would be to promote our product as a solution in certain market verticals and actively offer our services. With enough traction we plan to eventually lower the attention on our services and promote our partners (assuming we gather more) and their services that are related to our product.

If you've reached it this far, thank you for reading this long post. :)

Has anyone been in a similar situation? Any advice or thoughts are greatly appreciated.

  1. 1

    How many of your 170 BranchCMS customers paying $19k/month (average of ~$9/mo, half of your published lowest-tier price) are:

    1. Current clients of Aptuitiv?
    2. Former clients of Aptuitiv? -or-
    3. Bad fits for Aptuitiv (e.g ICP variance)?
    1. 1

      Our lowest monthly price is $19 / month. We average closer to $30 / month per website.

      1. At least 1/3 - 1/2 of BranchCMS customers are Aptuitiv customers. These are companies that Aptuitiv designed and built the website for, or one of our agency partners hired Aptuitiv to build the site. The other BranchCMS customers are direct clients of our partners that build the websites themselves, or are direct clients with BranchCMS and use another marketing agency to manage the site or they manage it themselves.

      2. With Aptuitiv, if a client leaves us they tend to be working with a different marketing company and are building on a different platform. That, however, honestly is rare. Our Aptuitiv customers tend to stay with us for a long time (5+ years on average).

      3. I'm not sure what you mean by "ICP varience", but they would only be a bad fit for Aptuitiv (service company) if they are a customer of one of our partners.

      After a lot of thinking our plan is to keep them separate and start to treat them as separate businesses with separate teams. Initially the teams will be small, but the plan is to have the team focus on that specific business (service or product).

      1. 1

        Oof sorry for the math error (divided 170 by 19 rather than 19,000 by 170). Thanks for sharing the end-of-story!

  2. 1

    Hi Eric, not sure how qualified I am to respond, but I have a few thoughts. Mainly--what do you mean by "company"?

    1. If you mean "brand", it seems to me that these are separate customer bases that have separate kinds of offerings (product vs service). Are you considering renaming your product to use the old name of your consultancy? I'm not clear on the benefit of that.

    2. If you mean "group of people", I think it's a matter of asking what each of these projects requires, and who you need to staff that effort.

    3. If you mean "legal entity", that's a pros/cons question for a lawyer.

    These may be independent. You could, for ex, have different teams working under the same legal entity on the same brand, or have two brands with the same team supporting them, or be invested in two entirely different companies (one of whom you hire a CEO for). Or have a legacy consultancy brand Aptuitiv, and a separate hybrid product/consultancy brand under BranchCMS that shares some eng resources. Etc etc.

    My big question: do you want to run a services company, or do you want to run a product company? Depends on your personality, interests, etc. Some of the simplest best advice I've gotten starts with "...well, what do you actually want to do?"

    1. 1

      Thank you for your reply Sam.

      The customer bases are quite similar right now. 95% of our service customers also use our product. Our consultancy is website design/development and our product is a hosted CMS for building custom websites. They are closely related.

      Yes, I'm considering renaming our product (BranchCMS) by our company name "Aptuitiv". This would bring our service and product under the same name.

      The reasoning for that in the end, I want our company to be a software provider. That's the answer to "what do you actually want to do?". I enjoy creating solutions in software, and that's what our product does.

      However, I know that we'll need to continue to offer services (web design/development) that complement our software. In the short term we plan to grow by targeting specific market verticals and provide the services and product to them. Eventually, though, I'd like us to be more partner based where we have a number of other agencies that use our software to build websites for their clients. We have a few already, but need to grow that more.

      1. 1

        Hm interesting.

        95% of our service customers also use our product

        But how many of your product’s customers are also your consulting clients? I would guess fairly few.

        In my view the purpose of a product is to charge far less than consultants, but scale past much farther (hunting many mice vs few elephants). I guess reading this, it’s hard for me to tell if you want to have a product and some clients on the side who happen to use it (product company that does dogfooding) or a service company that has a special tech that’s part of the consulting offering. Super different sales and pricing right? Even customers—CMS would be bought by other agencies, not necessarily your clients?

        If you don’t pick one of these, it seems like you’d have the price of a self-serve product (low) and the scale of a consulting agency (low)—worst of both worlds?

        Idk just spitballin here :)

        1. 1

          I would say that close to half of our product's customers are also our service customers.

          After a lot of thinking our plan is to keep them separate and start to treat them as separate businesses with separate teams. Initially the teams will be small, but the plan is to have the team focus on that specific business (service or product).

          Our service business will always add new product customers and sometime vice-versa.

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