Professional Services: The Secret Weapon for Enterprise Software Companies
Startup Mental Models, Rituals for Hypergrowth
[Offering another passage from One To Ten: Finding Your Way from Startup to Scaleup. The manuscript is in copyediting now with a mid to late September publishing date.]
Professional Services (PS) is one of the most misunderstood, and undervalued, functions in an enterprise technology startup*. Here’s how the story usually plays out:
Founders think, “Providing services is messy, low margin work. Why do that when we have APIs and SDKs that our customers or their dev shops can use to integrate our product? And having lots of services revenues will kill our valuation.”
Fast-forward a few months. They sign their first customers. Inevitably, they underestimate the integration involved. Their APIs weren’t mature, the documentation wasn’t up to snuff. Whatever the case, the company needs to pull out the stops to make these first customers reference-able. So, the engineering team gets pulled in, having to get on calls, do remote support, or, God forbid, go on site.
This wasn’t baked into the roadmap so velocity stalls, customers are unhappy and the sales team distracted. Several board meetings later, the founder relents and stands up a PS team.
You want your engineers to be doing the first installs. This helps them understand the customer experience and develops customer empathy. It’s also a forcing function to build robust customer integration points. But after your first few customers, you need to protect the core engineering team from customer integration work. That’s where PS comes in.
Our PS team at Videoplaza, led by the formidable Oscar Wall, was our secret weapon. They saved a number of large accounts that threatened to churn to the competition, all while helping us go on offense to win new accounts and generating incremental revenues. Below are some principles that worked well for us:
Besides post-sales work integration projects, our PS team also performed pre-sales engineering. There was the benefit of continuity with the same team that scoped out a solution being responsible for its delivery. We also had a pool of resources for more flexibility across accounts and customer life cycle.
PS projects should use existing product integration points. PS should NOT be building new integration points or developing new core functionality. That can lead to PS developing a competing product. I’ve seen that movie and it didn’t end well.
PS should be priced profitably but not overly so. At Videoplaza, we deliberately ran PS at breakeven. We assumed we’d need to give away PS hours to win deals or keep existing accounts happy—easy to justify given our margins and customer lifetime values. This impacted that group’s margin, but they understood their strategic role. Had we tried to maximize profitability, they’d have run themselves more like an agency, leading to misalignment.
View PS engagements as permission to learn more from the customer. We had two instances where custom work for one customer went on to become productized in the core platform, becoming seven-figure businesses within a year.
Consider rotating PS staff with Engineering. It’s helpful for engineers to be “at the coalface” for a while, and, vice versa, having PS engineers in the shoes of their platform colleagues can build empathy and relationships that will stand you in good stead.
So, embrace PS. You’ll find that customers that engage PS are happier and larger than those that don’t.
*In fact, PS revenues are often a big percentage of revenues and scale with your revenues. Benchmark Capital General Partner Chetan Puttagunta tweeted about PS making up ~ 46 percent of revenues for Veeva and Workday at $60 million in revenues, going down to ~ 20 percent of revenues at $800 million. He went on to tweet: “[PS] is absolutely underrated. Professional services in order to deeply engage large enterprise customers are often necessary.”
Other reading: Some awesome posts of late.
NFX: Startup Mental Models Part 1 & Part 2
Rituals of Hypergrowth: An Inside Look at How Youtube Scaled