Top 3 Early-Stage Product Design Mistakes Startups Make: Building Services Instead of Products

TL;DR

Every company has two primary ways of providing value to its clients. It can be a product or a service company (sometimes both). When building a startup, you have to really think about whether you are building a product-focused or a service-focused business. Without this clarity, you will waste time and precious resources and build companies that won't scale.

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Preamble

Ackcio is over seven years old now, and the products we sell have matured and hardened over time, thanks to the feedback we received from our clients in over 45 countries. We currently mass-produce our devices in batches of 1,000s. However, it took us a long time to get to that stage due to several mistakes we made when we first designed and built our products at the beginning of our journey.

In this series of blog posts, I will walk you through the journey of building a brand-new product and explain how to avoid some mistakes in the process. This will also allow you to go to market in a shorter timeframe. You can find the other posts of this series through the links below:

• Episode #1: Not understanding market requirements

• Episode #2: Over-reacting to market feedback

• Episode #3: Building services instead of products (this post)

Episode 3 - Building Services Instead of Products

Revenue, Revenue, and Revenue

After starting Ackcio and getting our first round of funding in 2018, things became serious. We were no longer a 2-founder startup. We had a team, investors, money in the bank, and expectations to meet. One such expectation was (and still is!) revenue, which I would argue is the most important metric that shows whether you have a business or not. So we were constantly looking to make more and more revenue as fast as possible.

While my co-founder, Mobashir, was busy building our product lineup, I got busy finding clients who would buy our products. Our products are designed for companies that do geotechnical monitoring as their core business. In very simple terms, this involves installing various sensors in challenging construction, mining, and infrastructure projects and monitoring their readings periodically (could be every 5 minutes to daily). So my job those days was to find as many monitoring companies as possible and to convince them to buy and use our products.

Some visitors and I at the very first conference where we showcased Ackcio products in 2018

Increasing Client Outreach

While speaking with potential clients about introducing our products, one thing became apparent. Monitoring companies must first buy sensors from sensor manufacturers before they can connect those sensors with our products to monitor them. This conversation pattern was quite evident and repetitive, going like "Do your products support X company's sensors?" "Have you spoken with sensor manufacturer Y?" etc.

This got us thinking about a promising strategy to increase our client outreach - partner with all geotechnical sensor manufacturers to sell our products whenever they sell sensors. Sensor manufacturers have served the same market for decades that we were starting to serve. So we believed that this would be a solid strategy to reach 100s and 1,000s of clients faster rather than us finding the same clients one by one.

A Seemingly Great Way to Increase Revenue

Following this idea, I got to work to setup meetings with geotechnical sensor manufacturers that were interested in partnering with us. The feedback was positive and one of the manufacturers we spoke with proposed an idea that lit up big fat $ signs in the eyes of everyone in our team.

Any monitoring company interested in monitoring a sensor using our wireless products have to connect the two with a wire. So one particular manufacturer (let's call them Manufacturer X) proposed that we miniaturise one of our products and sell it to them in a Printed Circuit Board (PCB) format that they can internalise in their traditional sensors to make their own wireless sensors.

An illustration of the proposal Manufacturer X made

We thought this is a brilliant idea, especially because Manufacturer X said they can easily sell 1,000s of these every year to begin with and scale up to 10,000 in no time. Revenue wise, this would provide us with an order book worth over a million dollars. I was already thinking of expansion plans for Ackcio that we could finance with such a large chunk of revenue.

So we immediately got down to work to build a custom miniaturised Ackcio Node in PCB format following the dimensions Manufacturer X provided along with the technical specifications they required. In about 2-3 weeks, we had the first prototype up and running and ready for integration with Manufacturer X's sensors.

The miniaturised Ackcio Node we built for Manufacturer X

Where Things Went Wrong

Spoiler alert—We scrapped this venture after about 6 months of starting it. It was a terrible idea. Here's why.

1. The promised scale wasn't there. Although Manufacturer X promised us large volumes, that never became a reality. They ordered 100 units and that was about it. We realised that we were taken for a ride and blinded by the $ signs that lit up in our eyes at first.

   
   

2. Maintenance and support workload increased. The engineering team now had another custom product to maintain and support whenever we made upgrades and improvements to our core product line. And this additional workload for a single customer didn't make sense at all.

   
   

3. We couldn't sell it elsewhere. Given the custom dimensions and specifications, we found it challenging to sell this product to other clients.

   
   

4. Confused brand story. We didn't have a clear and simple brand story because we were selling both our own products together with custom-built products.

In hindsight, we should have never gone this route because we went from a product company to a service company that built custom products. We found the hard way that the latter is incredibly difficult to scale because we have to keep looking for more and more Manufacturer Xs and take custom projects to increase our revenue. Such an approach requires a different organisation structure as well with multiple project teams to handle different projects in the pipeline. This becomes another bottleneck for scaling.

So in the end, after learning these lessons, we decided that we will not sell any of our products in PCB format or take up customisations. We instead focussed all our energy on increasing market share for our core products, and that helped us grow our revenues 2-3x in the years that followed.

Mistakes Made

1. Not differentiating product and service businesses and assuming both can be done in parallel by a resource-constrained startup.

   
   

2. Not thinking through about the commercial, maintenance, support, and scaling overheads of building custom products as a service.

Lessons Learned

1. At the early days of your startup, think hard about whether your company should be product-based or service-based. I would argue that most tech startups should be product-based.

   
   

2. Stay focussed on the core products your startup builds and find market opportunities for those, rather than building random products and services to go after opportunistic revenues that will hurt the company in the long term.

   
   

Conclusion

Revenue is the most important metric for every startup. Your product plays a major role in driving revenue. Stay focussed on building and improving your product to drive revenue rather than taking up service-type business opportunities that won't scale, distract you and your team, and utilise your limited resources.

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Onwards and upwards...