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Why Transition to Product Company

product company, new product

How to make your nearshore company future proof?

We all see the writing on the wall: software development as a profession is getting “democratized” all around the world. This also results in a widening gap between top quality developers and rookies. The development profession is on its way to commoditization, even if it remains a scarce commodity. Nearshore and offshore development companies face the same fundamental challenges when thinking about their future — how to manage talents.

Beware: Investors are already bidding against you

Hiring is becoming increasingly difficult, and so is retaining talent. To counter this trend RPA companies and low-code platforms pop out of thin air. RPA or robotic process automation is the latest trend to close the gap between supply and demand. Low code solutions again shift capabilities in business consultants’ hands to create solutions that only developers were able to address before.

Investors are increasingly lining up behind these “gap solving” companies as their concern is the same: can we hire enough developers? If we can’t, chances are others can’t as well and any technology reacting to this problem is going to be big. Lots of money is invested, and the trend is just getting stronger. This is not something that will go away overnight. So get prepared.

The code you write today is legacy code tomorrow

The following tale is not company-specific: you close a deal with a Fortune 500 company on a T&M basis, and they select 5 of your people. You tell your people about the project, the client and they say: no. They are not going to work on technologies that they think is outdated. You have to go back to the Fortune 500 client and tell them their project sucks. Good for you that they already know it’s impossible to hire for Cobol or anything similarly old tech.

Startups have better cards in the early phase regarding technologies, but as they grow the challenge becomes quite similar to them. Still, hiring as a tech startup is way easier.

Which raises again the key questions: how can we cope with this situation? Is there a way to easily hire top talents and keep them? What are startups doing differently?

A view from the stars

Our view in the matter is that there is a yet relatively unexplored way of attracting and keeping talents. The critical difference is that startups work on products based on technologies that are contemporary and challenging. On a professional level, more satisfying. You might think that these two factors are not bound to go together, but in reality, it’s hard to have one without the other.

You can try to pick only the projects that your team finds challenging, but that will increase the sales cost. This will also raise the costs as every new technology has a learning curve that is only partly paid for by your clients.

By creating products, you invest in the future and can also make a giant step in keeping top talents. “Programmers wish to be tiny gods” is a wonderful phrase to reflect developers’ unique attitude. Creating something new is always inspiring, and you also have the option to pick the tech you want to work with. It can be top, a new technology that developers will line up to work with. Or even experimental. The product can become a success, and developers can get international recognition. They can contribute to open source code bases and earn the recognition of their peers. Everything a developer finds important and challenging.

For you, as a business owner, product focus will result in scalability. Business scalability. Organizational constraints limit the potential of nearshore and offshore development. Usually, no team can be larger than 50–70 people, beyond that you have to create an organization that supports scaling. When you reach 50 developers, your overhead will increase significantly (CFO, HR, processes, and such functions kick in). You can counter this cost by adding new projects to the pipeline, but these projects will need developers, and we are back again at the hiring problem. The 30–50 range of developers can be achieved with outstanding culture and referrals from existing workers, but anything above that size requires recruiting and hiring processes plus constant management efforts in place.

A product company, on the other hand, can start as small as 3–5 developers, and even in year two, you might need only 20 developers. 50–70 developers on the deck means your product is doing exceptionally well, and the fame of the product and the company will significantly help in hiring.

Summary

Product companies start building a different organization quite early, so scaling the organization should become less problematic. Not to mention the business scalability side. Selling a product will distance the revenue from actual hours worked and billed. You are not billing hours anymore, but the value of the product. You are less dependent on people leaving the company, as users and clients don’t directly work with people anymore, but are tied to your product.

That’s what you can get with the transition from nearshoring to product. There are other ways to reduce the risk of developer scarcity. Building an RPA division yourself, or working with low code tools, trying to sell full scope projects instead of development projects are some of the embracing options. Any of these can work well, but if you want to make a dent in the universe, creating a product is the way to go.

Are you in for the future?

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AbilityMatrix

AbilityMatrix

Customer experience strategy resulting in new or improved products and services. We measure customer experience and create strategies.