How we build products for ourselves and others

The secret to managing both products and services

Published in

The Startup

6 min readJul 7, 2016

My friend Rob likes to say, “Every services company wants to be a product company.” He’s right. Product companies are alluring, and they’re often described as the word every entrepreneur, investor, and advisor loves to hear — scalable.

Services companies often operate on billable hours or value-based pricing, but product companies aren’t directly reliant on compensation from manpower. Product companies are the ones getting hundreds of millions in funding and nods of approval from the press and investors. They’re perceived to be more exciting and impactful at a far larger scale.

Anyway, so Rob is right. But my answer to him was, “Why can’t you do both?”

It’s not easy, but it can be done.

Obviously, some product companies take on services work because they have to. They originally intended to build products, but product revenue isn’t sufficient for them to survive so they’re forced to expand into services in order to keep their business alive. This is typically a warning sign and at best a bandage solution. It’s difficult to sustain, but doable.

In other cases, services companies choose to take on services and consulting work because the work educates their team and informs their product. They gain more insights from the services work, and the services work enables them to experiment further with more diverse and further product work.

Consider startup studios who build really great products, like Betaworks and Expa. They have a lot of cash. While we want to build numerous products at those levels, we don’t have hundreds of millions in the bank. So at my studio Tiny Hearts, we decided to build our own cashflow, using a digital product studio model.

The digital product studio is built on three pillars: building internal products, consultancy (i.e., services work) and investing in ventures. The stability of the consultancy helps sustain the other two ventures, and offers a diversification that keeps things steady. Think about balancing on a tricycle instead of a bicycle. Or how steady a tripod is.

ustwo is a great example of the digital product studio at its best. Monument Valley generated a ton of revenue and they spun off a product group for it, but it also cemented their reputation and led to client opportunities. On its own, Monument Valley would not have sustained their highly ambitious growth goals, so their services compliment their product work nicely.

At the same time, as ustwo builds their own products and services and develops their playbook, it also invests in other ventures — like Marvel.

Ustwo is developing a symbiotic relationship between their products, ventures, and services, which will pay off in learning and funding. Everything feeds off each other.

Digital product studios don’t build microsites or promotional material. They’re consulted to solve tough problems, and they really end up owning these problems and building solutions for them.

If you’re looking for a digital product studio, or a design or development firm to partner with, you should work with people who have actually built products. That doesn’t mean side projects that they build for fun, but products their team has actually spent their full-time hours working on and pouring their soul into. They will understand your product and your problems better than companies who have only serviced clients, who have never built anything to solve their own problems.

It sounds like a small difference, but digital product studios that actually build their own products bring a more holistic perspective, which makes them better partners to work with.

We’ve had clients approach us instead of the development shops, because they saw our products and wanted to learn more about our process. We didn’t have to sell them — they knew that we were experts in mobile because of our work, and they knew we faced the problems they were going through firsthand.

Building either a services or a product company grows surprisingly complex. Doing both is twice as complicated. Here are some ways to manage it:

90%/10%

Every single person on our team is allocated to either 90% product and 10% services, or the other way around. For example, one of our developers might be 90% focused on an in-house keyboard product, and 10% on a client partner project. This gives each person an opportunity to work on other projects, but to preserve their focus and prioritize very clearly.

100%

Larger digital product studios have dedicated team members to build products or focus on services. If they’re successful they eventually form product groups, divisions, or entirely separate businesses altogether. Consider Invoke Media spinning out Hootsuite (which has blown up immensely). Invoke is still around doing services work, but Hootsuite would not exist without the team from Invoke that originally built it.

Bi-annual sprints

We encourage our team members to switch focuses once a year. For example, if in the first half of the year, they were working on an in-house product, in the second half they would be working on services for a partner. This contributes to that more “holistic” understanding that I talked about earlier in this piece.

Digital product studios are the future

We believe that being a digital product studio and building ventures, product, and services work informs us and refines our perspective. In order to manage our team and preserve focus, I use what we call the 99–50–1 method to manage product development in these relatively more chaotic environments.

Our insights from each of these activities cross pollinate so that we can go beyond standard best practices and excel and innovate faster than our peers. Eventually all services-based companies will look more like the three-pronged digital product studio instead of the standard agency or design/dev shop.