Monday, June 25, 2012

Challenges of Small Services (& Product) Companies

My Good friend, Amarinder, asked on OCC googlegroup that what are the challenges one faces while running a pure services company, or doing services to sustain yourself and your product development?

I just realized that we kind of fit in this category as we are developing products and surviving by providing services. I started OpCord abt 3 yrs back (in fact, we celebrated our 3rd birthday on 22-Jun) with trainings, services and also thought that I could develop products in future.  Services / Trainings are surviving us from last 3 yrs. I got an idea of a product worth pursuing (as I am crazy sometimes) about 2 yrs back of a mobile app which enables rides sharing (much more than car pool) and we are working on that as well. We are also working on test automation framework for web / desktop based applications and intend to make a product out of it.

After setting the background, the challenges we faced are:

1. Focus on product misses unless your services business revenue is so high that it can take care of both.You tend to make product team members billable if revenue is not good enough which breaks the flow. We are delayed on our product "RideAlly" by 6 months because we made key people billable.

2. Cash flow is a challenge. In our case, out of 35 members, 8-10 are dedicated to product development hence cost of these has to come from services. We are bootstrapped and able to manage without any loan/investment hence if some services gets stopped, we are on our toes.

3. You cannot hire high class talent required for product development due to high cost hence more mistakes, more learning time and more cost.

4. Out of 10 proposals, one gets 2-3 projects and each proposal takes considerable bandwidth. Whomsoever senior is available, participates in analysing feasibility, estimation and we dont care whether product development is taking a hit. We have worked for 2 months with 3 persons to get a project and still, we could not get Because customer changed technology itself, HTML5 over flash.

5. You are lucky if you get very tech savvy partner who understands product life cycle, architecture and fully committed (do or die kind). I have talked to almost 10 part time senior people (< 15 yrs exp) who wish to take plunge but ultimately could not. Its not easy to leave >20Lakhs/Annum job when you have EMI commitments, single salary, particular lifestyle (car, flat, kids going to school, maids etc), status etc.

6. Services business means you are always on hunt. You may have done great work for one customer but it does not mean that customer has repeat business for you. We get lots of 3-6 months assignment and once these people become non-billable, you just take a nosedive. Every year, we have 2-3 very bad months and 2-3 very good months.One needs to be very cautious in spending when earnings are good.

7. Being small company, we work with many small companies and they come to us due to cost advantage than large companies which necessarily means even you provide resource better than large company, your margin is less.

8. Many a times, we work with large companies through a middle partner and actually they earn, not us. I am not complaining as I also become middle partner nowadays.

9. Getting high performers on payroll is tough and retaining them is even tougher.

10. In India, we have so many taxes, service/professional/TDS/ESI and so many acts/laws with different CAs giving different interpretations. We spend lots of time in finance and marketing time reduces. E.g., we pay professional tax always on time and one month out of 2 yrs,  it got delayed by 2 days (due to weekend) and we got about 1200 Rs penalty. Person, who delivered, asked for bribe which we did not pay and later, our CA got it waived as well but it took unneccessarily my time.

11. Late delivery of invoices payment just kills you. I have to admit that I had to delay senior persons salaries just because invoice payment is delayed. Junior persons are always paid on time irrespective you take loan or sell yourself or whatever.

Challenges are many (above list is just top of mind and some points can be repetitive) and rewards are also many. Whatever it is, we are there and someone said that if one can survive for 3 years than they are going to be in business for forever. Amen!!!

Hariprakash Agrawal (Hari),