Many companies start off with a group of talented people who create an innovative product that gains traction with a few key clients. But then they hit a wall. The company finds itself struggling to scale, bogged down by bespoke solutions and unable to transition to a true product-based model.

Switching to a product mindset involves more than just technical changes. It requires a fundamental shift in how the company operates and thinks about value creation. This starts with finance.

The financial flow through a company dictates what it is able to do and what individuals are incentivised to do. Budget restrictions dictate who HR can hire and what teams can achieve. It is the source from which every river flows.

Yet, in a bespoke model, development is essentially directly funded by customers’ needs. If that is how the finance department plans and works, the flow will push against any transition towards a product model, where development is funded by the company as an investment.

In a bespoke model, developers are also incentivised to serve individual customers, and the sales team is incentivised to sell customised solutions. In contrast, a product model requires them to consider the needs of the entire market and to promote a standardised product with configurable options.

This can be a difficult mental shift, especially for long-time employees accustomed to close customer relationships. Success metrics and incentives need to shift from customer-specific satisfaction to broader measures like user adoption rates, churn, and product market fit.

To successfully transform to a product solution model requires a complete shift of the financial flow to encourage the development of something completely new. The challenge is in creating this shift without completely undermining revenue, sales, and existing customer relationships.

Strategies for scale-up transformation

To overcome the scale-up transformation challenge, there are two main strategies to choose from: transforming the existing business model or developing something new. Each brings its own financial implications.

Financially, growing something new requires a significant shift in thinking. Instead of viewing each customer engagement as a direct revenue source, the company must be willing to invest in the long-term potential of the product.

This means redefining ROI, carefully managing cash flow, and balancing resources between the new product team and the existing business. For companies with external investors, clearly communicating this strategy and its long-term benefits is crucial to maintain support during the transition period.

Transforming the existing business model starts with clearly communicating the future product vision to existing customers and securing their buy-in for a two to three-year transition period from bespoke development to a standardised product.

During this time, the company invests heavily in restructuring its development processes and product architecture. As the company shifts away from bespoke solutions, it may experience a temporary decrease in revenue or even lose some old clients.

Whichever strategy is used, it is essential that everyone is working towards the same goal. This means that the plan needs to be communicated both externally to customers and internally to teams, as well as facilitating improved internal communication.

Managing expectations and delivering value

For companies transforming existing products, managing customer expectations becomes critical. Existing customers accustomed to bespoke solutions may resist the move to a standardised product. Balancing their needs with the broader market requirements in the product roadmap becomes a delicate dance.

When transitioning from a bespoke to a product-based model, a fundamental shift in how different departments operate and interact is necessary. Every team needs to understand the vision and their role in the transformation.

Regular cross-functional meetings and workshops can be invaluable, as well as getting teams to shadow one another to understand how ideas are put into practice. These practices provide opportunities for different teams to share their perspectives, challenges, and ideas, fostering a more collaborative and integrated approach to transformation.

Aligning your organisation for transformation

Embedding the transformation mindset into your business starts with finance. To embed these changes in mindset, finance and culture into the very structure of the organisation for long-lasting transformation, consider the following steps:

Engage Finance Early: Bring your CFO and finance team into the transformation process from the start. Help them understand the long-term benefits of the product-based approach.

Rethink Metrics: Develop new financial metrics that reflect the success of the product-based approach. These might include Customer Lifetime Value (CLV), churn rate, or ratio of customisation revenue to product revenue.

Adjust Incentives: Revise commission structures to reward sales of the standardised product rather than customisations.

Invest in Training: Provide training to help teams adapt to the new model. This might include teaching sales teams how to sell a product rather than a service, or helping developers think in terms of scalable features rather than custom solutions.

Restructure Teams: Consider reorganising your teams to better support the product-based model. This might involve creating cross-functional product teams or establishing a dedicated product management function.

By aligning your financial structure with your new product-based mindset, you create an organisational structure, culture and environment where transformation can take root and flourish.

Ian Miell is a partner at Container Solutions, and has been helping companies, across industries, move to cloud native ways of working for over ten years. Container Solutions develops a strategy, a clear plan and step by step implementation helping companies achieve a smooth digital transformation.