To effectively execute discovery via Professional services, your PS team needs time. This means you would need to double the number of PS people overnight.
This would cut your margins in half, or perhaps eliminate them altogether, so that PS becomes a cost center.
You are overworking your PS people. Because the goal is revenue, you are trying to squeeze every ounce of revenue from their activities as possible. This requires a scheduled goal of 40+ hours of productive work. And a good PS person will try to meet that goal (it’s their nature to never let anyone down, no matter how ridiculous the ask) so they end up working 50-70 hours a week.
As the CEO or founder, you may think “well, that’s the nature of a startup.”
No, that’s the nature of a startup for a founder, who has literally millions in stock. And who has, at best, a 5 year plan with an exit strategy and a golden parachute.
Long after you leave, the PS engine you put in place is expected to continue to run at 120%. Continue. Indefinitely. And instead of winding down their workload, you are forced by the hollowing out effect and the scalability problem to **increase** the workload.
When revenue is the goal for PS:
– You design the services to maximize revenue. You claim it’s to maximize customer experience, but look at your metrics, KSOs and KPIs. You’re in the revenue org, remember?
– You are incentivized to keep customers dependent on the services, so that they renew. Let’s repeat that in a different way: you plan on keeping your customers dependent on your services. Not because that’s what’s best for them, but because it increases ARR.
– Proof of all of the above: your smb and commercial customers can’t afford services. The cost comes in well over 15% of license value for that group, and sometimes the service **eclipses** the cost of the licenses.
– Think of that. The main value of Services in most startups (and even mature companies) is that they cover product gaps. That means that some of your customers are essentially paying you more than the license cost, to compensate for the gaps in your product. They are paying **you** for your mistakes. **And you intend to keep that happening year after year.** Where’s your incentive to close those gaps, when you’re literally getting paid to keep them there?
– Each PS needs to take on as many customers as possible (margins)
– You hire “behind.” Don’t post until there’s a clear need (finance won’t approve hiring ahead because margins).
– 3-6 months from job post to hired, ramped (6-9 if EMEA).
– This puts you AT LEAST 6 months behind the needed capacity, where the capacity calculation is set at 100%. Perpetually.
– That means your existing staff somehow needs to pick up the “slack” so they’re now operating at 150% baseline capacity.
– That just for the billable work. Bugs, support, product, CS or sales assistance…none of that is in the 150% calculation.
– The result is a queue of work, or dropped plates. Customers either don’t get what they paid for, or it takes months to schedule an onboarding (example) or an integration.
– Those former rockstars that seemed willing and able to help with everything are now heads down, frustrated, have no time for extras, and are continuing to fall more and more behind.
– Customers start to complain and then not renew services.
– Your team gives you warnings. They talk about being overworked, about why they’re not meeting their bonus targets anymore; about how all the extras are just too much now.
– But they don’t understand how critical the revenue is. They’re speaking in terms of personal pain, not financial pain. You “listen” but the solution is almost always trying to trim”fat” from their daily schedule.
– This is the point where, objectively, you should double the size of your PS team. But finance is approving only half of the “behind” positions. Doubling immediately is absurd.
– They stop complaining. Not because the problem goes away. Because they know nothing will change it.
– A “belt” snaps – you have one key PSer quit. 6 months minimum to get a replacement (and you can’t replace 3 years experience), meanwhile their workload needs to be absorbed by the rest of the team.
– Also, finance fights you on the backfill, because PS renewals are down.
– Then, in succession, two, three or four belts snap, one right after the other. They’re highly intelligent people. They’ve been talking amongst themselves and they’re miserable, and they finally found another position because they’ve been interviewing for 3 months.
– Congratulations. You just hollowed out your PS organization. What was once an enormous strength and source of value is now an overpriced, under delivered, unpopular add on.
– And good luck with finance approving your backfills.
This is the hollowing out and subsequent implosion of services. Maybe it doesn’t look this dramatic, but however it manifests, the same reaction always occurs: “well, I guess Professional Services wasn’t as valuable as we thought.”
That’s the “lesson learned” when one is looking at PS through a revenue lens.
When product is the goal of PS:
– You design services to maximize discovery, and to accelerate the closing of gaps.
– You are incentivized to make each customer independent, so you can move your PS people to another customer as quickly as possible.
– We tend to hire “ahead” in product. And the cost to hire PS is the lowest in the org, because your customers are subsidizing their cost.
– If you look at the revenue PS brings in as a subsidy instead of a revenue stream, you can essentially hire as many PS as you want. They’re essentially “free” or may even offset other costs in the product org!
– You have also reduced the cost/time of traditional discovery. Yet more justification for hiring ahead in PS.
– Your KPIs for PS center on Product Discovery, Design, and Strategy. Instead of that aspect being a side hustle/nice to have, it’s a true KPI.
– The PS people themselves are very happy, because they are helping to solve the frustrations they encounter, and they’re developing product skills, providing a real career path. Nothing makes a good PS person happier than progression. Fixing frustrations, closing gaps, developing new features, and advancing their careers…it’s all forward, all progress, and they thrive in that kind of environment.
– Your product strategy improves, your product improves, and your Services mature to solve higher order problems.
– Congratulations, you’ve just created a flywheel. And that flywheel pays down your technical debt. Can you think of any other org or operation that does that?!
In the revenue org, Services are a slow downward spiral.
In the product org, they are a steady upward spiral (or flywheel).
It’s literally a matter of placement, of what value network surrounds it.
Put it in the right value network, reinforce it with the proper mechanisms and OKRs, and it will flourish, almost by itself. No special effort is needed. You’re pushing downhill.
Research
IBM
Consulting biggest issues
Slash and burn – using up consultants
Fast food has figured it out
Proserv is a _______ (cost center or source of revenue?)
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## SUMMARY
A critical analysis of Professional Services (PS) organizational positioning, contrasting revenue-driven and product-discovery approaches, and highlighting the transformative potential of reframing PS as a strategic product development engine.
Categories
- [Research]
- [Organizational Strategy]
- [Professional Services]
##
Key Points
- Revenue-focused PS leads to organizational burnout and high turnover
- Product-oriented PS can create a strategic innovation flywheel
- Incentive structures dramatically impact team performance and motivation
- Discovery and gap-closing should be primary PS objectives
- Organizational placement determines PS team’s potential impact
Action Items
- Redesign PS incentive structures
- Shift PS metrics toward product discovery
- Create career development paths for PS team members
- Implement sustainable workload management
- Align PS goals with product strategy
Connections
- Professional Services and Product Development
- Organizational Value Networks
- Innovation through Services
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