Transforming Value Proposition from Product to Service for Tech Startups

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It seems like an undeniable fact that the future of our world lies in technology. On the individual level, we’re never without our devices. They enable us to stay in touch and receive updates about what’s going on with people in our network and brands and personalities we follow.

In the business realm, technology is even more deeply integrated. Even a small company will have a web page, social media presence, and mobile landline to reach its customers nationwide. And of course, technology has also stepped in to rescue many companies from the pandemic with remote work.

Yet if you were to found a tech startup today, you’d be facing stiff competition not only from other businesses in the same space, which is a threat in any industry but from the nature of technology itself.

Users can adapt most existing products to their needs. It’s hard to justify shifting to a brand-new platform, even one that’s focused on serving a specific niche. How does a new startup differentiate itself and provide value?

Even tech giants evolve

A look at the history of some of today’s tech giants will show you that far from banking on established success, these companies have actually evolved several times.

Apple, for instance, started outgrowing its foothold in the arena of personal computing. Then they dipped into the music industry with the iPod. Though greatly successful, that product was eventually rendered obsolete by their own foray into the smartphone industry. It enabled them to profit from the emerging mobile device market and launch their own app ecosystem.

Or consider Netflix. The company started as a mail-based DVD rental service. Over the years, they shifted focus towards developing streaming technology to a point where it could supplant DVDs and even traditional cable programming.

Apple wasn’t the first company to make a portable music player or improve mobile phone design. Netflix wasn’t the first online video streaming service. Neither of them had core competency in the areas that would arguably become their biggest source of success.

But they perceived, correctly, where the value lay. And they pivoted their efforts in response, making the technology better, and largely cornering the market for that demand.

Pivoting to services

This is the same challenge facing any tech startup in the modern world, albeit on a much smaller scale. How can you test your business model to determine if it’s under threat? How effectively do you pivot in response?

Most businesses fall into either of two categories: product-based or service-based. Tech companies may manufacture physical products. But startups today often find an advantage in providing services.

Manufacturing a device that resonates with modern audiences today is tricky. Users have smartphones and the app ecosystem, giving them a jack-of-all-trades device that can even compete against dedicated fitness trackers or ebook readers.

Services can face similar competition, but they have an inherent advantage. It’s easier to go through multiple iterations in search of a better model. And on a fundamental level, all tech startups are engaged in pursuing a business model that leads to repeatable, scalable success.

Thus, making headway in tech by manufacturing a physical product is often an all-or-nothing affair. You either hit a home run or go home. But developing software is something you can quickly test and release. Then you can gather feedback from the audience and improve or tweak different aspects to see if it does better.

Outpacing customer maturity

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Service-based tech startups can still fail to sustain success if they cannot stay ahead of their customer’s maturity level.

Maturity is demonstrated by how comfortable customers are with tech. The more proficient they are, the more likely they will be to figure things out on their own and apply tech to suit their own needs. This, in turn, reduces the demand for a developer’s services to release updates or provide new features.

That happens because they’ve sufficiently closed the knowledge gap. It doesn’t mean they can write their own software, but they can use the existing tools well enough to dispense with your services.

Mature customers, in other words, don’t need to continue paying you for what you do. Thus, a tech startup can’t be content with improving a product. It has to expand its capabilities and upskill to diversify offerings.

Maybe at some point, that might include a physical product. But that only happens once you’ve gotten the hang of pivoting to the value proposition and business model that really works for your audience.

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