From Custom Solutions to Scalable Products: The Service Mindset Traps in Software Companies

When a company that primarily focuses on software services attempts to add products to its portfolio or to transition into product development, several mindset issues can arise that often lead to the product's failure.

In this article I’ll explore some of the deep-rooted mindset differences between service delivery organizations and product development companies, and why addressing them is crucial for long-term success in productization.

First, let’s define what software service and software product mean, in the context of this article. The definition is not perfect, but it will help us with a reference system.

By service I understand a specific action or set of actions provided to meet the needs or solve the problems of a customer. It typically involves ongoing support, maintenance, or expertise, most of the times tailored to individual client needs. So, I define software service as a set of software, development, maintenance and operations actions or as a set of technology consulting actions. With this definition, custom solution development, cloud migration, application re-engineering, infrastructure operations, AI readiness assessments, technology modernization, are all software services.

A product is a tangible or intangible item that is created once and sold multiple times to a wide audience. Products are typically standardized and designed for mass consumption, addressing general user needs rather than being customized for individual clients.

Confusing a service with a product happens quite often. For example, many people think software as a service (SaaS) is just a service, but it’s a product delivered through a service model. A pure service would be a team offering to run your servers, while a SaaS product offers a fully automated server solution. Or some think that a website-building tool like Wix is a service because it helps build websites, but Wix is a product that offers self-service tools, not a customized web design service.

These being said, let’s go through a non-exhaustive list of beliefs and approaches which are correct and mandatory when delivering services, but which become real road blockers when trying to build products.

Short-Term Results vs. Long-Term Vision

When delivering services, the focus is usually on short-term results to meet client deadlines and win future contracts. In the end, the customer has a problem now and wants it fixed yesterday.

Building a successful product often takes many months, sometimes years of iteration and requires a long-term vision. Companies that are overly focused on short-term gains might push for quick fixes or features that satisfy immediate market trends but sacrifice the long-term viability or usability of the product.

Focusing on short-term feature delivery to appease stakeholders rather than developing a long-term product roadmap that anticipates future user needs and market shifts is a sign of the service mindset at work that could massively contribute to the failure of the product.

Financial Success Metrics

Services companies are used to generating revenue through hourly billing, custom engagements, or long-term contracts. Financial success is measured through revenue growth (QoQ, YoY) and the cashflow is king. This mindset can lead to focusing on immediate financial returns rather than long-term product success.

Product success often requires upfront investment in development, research, and marketing without immediate returns. The cashflow looks really bad when building the product and worse when starting to get market traction (as there is additional investment when going to the market). Companies with a service-oriented mindset might become impatient with the product’s slower revenue cycle, cutting resources or giving up too soon. The pressure to monetize quickly can lead to prematurely launching a product or pushing aggressive sales before the product is mature, resulting in a poor market reception.

Rushing to monetize a product before it has achieved product-market fit, leads to poor user adoption or negative reviews and transforms into a failure.

A successful product is repeatable, scalable and profitable, so, more important than cashflow become metrics like net new ARR, customer acquisition cost (CAC) compared to lifetime value transaction (LVT), churn, user adoption, and bookings evolution. Growth rate is important, but in correlation with operating profit.

Keeping the service-centric financial indicators and tracking products with them will hinder the successful introduction of products in the company’s portfolio.

Client-Centric vs. User-Centric Mindset

In software services, the focus is on satisfying specific client requirements and often involves customizing solutions for each client. This can lead to a mindset where every client’s demand is treated as urgent and worthy of attention.

Impact on Product: Product development, however, requires focus on scalability and user needs across a broader audience. If a company applies the same "client is always right" mentality to products, they will end up with bloated, feature-heavy products that try to please everyone but serve no one effectively. This results in poor user experience, lack of focus, and a product that feels disjointed or overly complex.

A service mindset would lead to constantly adding features to please individual customers without considering the product's overall user base and long-term vision.

The Feedback Paradox

This is a quite similar trap to the previous one. Users provide valuable feedback, but they often don’t know what they want until they see it. In products, while user feedback is crucial, relying too heavily on what users explicitly ask for can lead to overly conservative or incremental improvements.

Users may not always envision the possibilities of a product or know how it could best solve their problems. Henry Ford’s famous quote, "If I had asked people what they wanted, they would have said faster horses," highlights this paradox.

Sometimes, innovative products anticipate needs that users themselves haven’t articulated.

Reactive vs. Proactive Development

Services exist to solve a problem that was usually framed by the customer, so the service delivery organizations are often reactive, responding to client needs, change requests, and feedback on a project-by-project basis.

On the other hand, successful product companies must be proactive, anticipating market needs, innovating ahead of competitors, and investing in features that users may not even know what they want yet. A reactive service mindset can lead to products that are only responsive to current customer requests but fail to innovate or set new industry standards.

A service mindset is visible when the product roadmap is built solely based on user complaints (bugs or new features).

Feature Maximization versus Minimization

In services clients want all the features they ask for, as the project tends to be defined by a contract that seeks to satisfy all the "must-haves." On top of this, the more features are built, the higher the revenue is. That’s why convincing clients that they need additional features is a discipline.

But in product development, counterintuitively, it's about minimizing features to the absolute essentials. The more features, the harder it is to maintain, scale, and ensure usability. It's about solving core problems effectively rather than delivering a broad set of mediocre features. Product engineering thrives when less is more, by enforcing a rigorous prioritization process.

Customization vs. Standardization / (In)applicability of the Law of Innovation Diffusion

Service companies are used to delivering highly customized solutions for clients, tailoring software to meet unique business needs. In services, the goal is to deliver what the client specifically asks for, often leading to one-off solutions.

In product development, the goal is to find product-market fit, which means solving problems for a broad audience in a repeatable, scalable way. Companies that don’t understand this difference might misinterpret a few positive responses from early adopters as validation for the entire market. They may continue iterating based on specific feedback from a small set of users, which can prevent them from reaching a broader market fit.

Products must be designed to meet the needs of a broader market, which requires a focus on standardization and scalability. When service companies attempt to make a product but still think in terms of customization, they end up with a product that is difficult to maintain, hard to scale, and full of configuration options that confuse users.

Building a product that allows for too much customization leads to maintenance challenges, inconsistent user experiences, and lack of clear product identity.

Everett Rogers’ Law of innovation diffusion explains how innovations are adopted by different groups of people over time. When building and launching software products, it is a helpful tool that can help you create different go-to market strategies and value propositions, depending where your product adoption is/who adopts it at a certain time: innovators (2.5% of the target market), early adopters (13.5%), early majority (34%), late majority (34%) or laggards (16%) – who may never adopt it.

So, no matter what your product is, most probably 2.5% of your target market will adopt it almost instantly. These are the innovators, tech enthusiasts who seek out cutting-edge solutions. They are willing to take risks, often tolerate product imperfections, and are usually first adopters of new technology. While they are crucial for initial testing and feedback, helping you to identify early issues, they are a very small part of the overall market. So, letting the service mindset implement customizations based on their feedback alone will not increase your market penetration.

Custom Workflows vs. Repeatable Processes

Services companies are often accustomed to custom workflows tailored for each client engagement. Each project is treated as a unique entity with specific processes, resources, and deliverables.

Product development requires repeatable processes, such as continuous integration, automated testing, and scalable support systems. The lack of standardized workflows can lead to inefficient product development, slower release cycles, and a lack of focus on automation, resulting in slower scaling and increased costs.

Over-Focus on Technology vs. Understanding the Market

Services companies often have highly skilled technical teams that pride themselves on their technical capabilities, which are the core of their custom solutions for clients. Technical capabilities are the bread and butter of services companies, they sell thanks to them, they deliver thanks to them.

With products, while technical excellence is important to deliver, success (sales) comes from the deep understanding of market needs and user experience. A company that focuses too much on technical prowess may build a technically sophisticated product that doesn’t align with market needs or delivers the right value to users. Instead of solving real user problems, they may over-engineer features or build things users don’t need.

Building features based on the initial segment of users (innovators) without testing whether the broader market needs or wants those features is a common trap.

Project Mindset vs. Product Mindset

Services companies often operate with a project mindset, where each engagement has a start and end, and the goal is to complete the project on time and within budget.

Product development requires a long-term investment mindset. It’s not about completing a project but about iterating, improving, and evolving the product over time. A project-based mentality can lead to underinvestment in maintenance, support, and ongoing innovation. Once the "product launch" is considered done, the team may move on to the next big initiative, failing to give the necessary attention to post-launch feedback, bug fixes, and user experience improvements.

Treating the product launch as the final step instead of the beginning of an ongoing development process is a costly mistake.

Many of these mindset problems stem from the difference between delivering customized, short-term solutions for clients in a service model versus building scalable, long-term solutions for a broad market in a product model. To succeed in product development, companies must shift from thinking in terms of client-specific needs and short-term gains to a mindset that prioritizes scalability, user-centric design, and long-term product vision.