How do you make the most important strategic decisions at your company? Decisions that could potentially alter the trajectory of your company and shape the future of your business such as whether you should invest in building your own product or focus on growing your existing service business? At times, these decisions can lead to heartbreaking failure or a spectacular success. These are consequential decisions. The sad thing is that many early-stage companies make many of these decisions on baseless assumptions causing long-term problems for the company. The best way to deal with these decisions is to develop your own decision framework. But how do you design your decision framework? What are the components you should incorporate in your framework?
That’s exactly what Brain Station 23 Founder and CEO Raisul Kabir explained in his recent interview with FS in-depth that you could borrow and use in your industry and situation. Mr. Raisul explained his decision framework in context when Brain Station 23 itself was weighing on a decision about its long-term strategy, should Brain Station 23 focuses on developing its own product or invest more into its growing service business. In the following question, he goes on to explains how he and his team made the decision and also illustrates his way of thinking about the challenge and come up with a decision.
Question: When we interviewed you in 2017, you mentioned a few strategic priorities for Brain Station 23 at that time. Let me read back a quote from your interview: “Strategy-wise, the major shift will be coming up with our own products and market focus wise, we plan to increase our work in the local market while continuing our outsourcing work.” What are the updates on those two fronts?
Raisul Kabir, Founder, and CEO, Brain Station 23: We have made some changes in regard to that strategy. We have decided not to go in the direction of building our own product from scratch, which, had we pursued, would have been a complete shift from our strategy as a service company. We made this decision consciously. The reason behind is that while contemplating that product-first strategy, I have come to know something really very interesting about it and why service companies tend to fail while walking down that path.
Everyone thinks that product is the ultimate outcome. That it is the ultimate business. But a product business has its downside as well. All software companies face some common challenge such as programmers leaving the company, project delays, payment delays on the client end and so on. When you are handling all these pains, you think that this business is not good. Product is better. But the thing is people who think this they have no prior experience of doing product. Which means he doesn’t know. He is guessing it. The software service provider thinks the guy who is in the fashion business is better positioned to succeed and has a better life than him. But he does not understand fashion business. On the other hand, the fashion owner makes his product on loan. He takes loans and manufacture products. Then send them to the market. When you send it to the client, they find an issue that you missed and dismiss an entire lot of the product. When that happens, your entire business is done at one go. That’s the challenge with the product.
Many people say that we don’t have great technology companies in Bangladesh because our people don’t want to or can’t build great technology products. We could not build Flipkart or Pathao. That when people think about starting a company, they think about starting a service company. But I beg to humbly differ. I think we should start more service companies in the technology space. We need service companies more. The reason behind that logic is that how many Pathao you can build in one market, no more than two. In many markets, if it’s a technology product, there are only two players in a market. In many instances, it is only one major player, for example, Amazon or Google. That’s one.
Product has this risk. You could go out of business any day without doing anything wrong. You did nothing wrong but your business fails. Nokia was not a bad company but they failed regardless. But a service company all of sudden gone is very unlikely. The point is, in a product business you may make hundreds of crores of taka in one moment, in the next moment you may go out of business as well. The problem with product is that competition can potentially kill you or you could make a terrible mistake and go out of business. But in service, your risk is always diversified.
We have made this wonderful internet banking software for the City Bank. We won awards for it. They also won awards for it. But could we make internet banking solutions for every bank in the country? Could anyone do that for that matter? The answer is a resounding no. But Pathao could potentially, at least theoretically, serve all the riders in the country. Product has a challenge that many of us tend to overlook. That’s part one of the story.
The second part is when we look at our vision (at Brain Station 23), – which is broadly, create employment, earn foreign currency, and later save foreign currency – it is not that we could serve that goal best with only being a product company. We could do that by being an excellent service company. You could argue that you should diversify as a product company to reduce your risk. Or you should be both a product and service company.
But it is rarely the case for a company to do two things equally well. Google is good at consumer products. Microsoft (MST) is good at enterprise. MST seldom does well in consumer space and Google is struggling to find a foothold in the enterprise space. It is a universal case. So we wanted and decided to do one thing and do it really well.
Does that mean that we would never have products? No, we will have our products but our strategy would be offering a bundle – product along with services. Potentially product with a greater focus on service. What do I mean by that?
Let me give you an example, we did not want to build an ERP of our company because there are so many great ERP software on the market. Instead, we took an open source ERP software called Odoo, which is an excellent product and customized that for our customers. We now offer customization service on Odoo. If a customer has a special need, we do that for them on Odoo. We work on the Odoo and make the thing that they need. For example, someone needs an ecommerce solution, we do that on NopCommerce where we have specialization. For example, Ecstasy needs an ecommerce solution, instead of building an independent ecommerce product, we work on NopCommerce and build it according to the needs of Ecstasy. Ecstasy runs his product business and Priyoshop runs his product, we just give them services.
We don’t make an insane amount of money but we create a lot of employment opportunities and we create a lot of impacts. We are fine with that. We don’t want to invest a lot of money in developing products, we want to invest in growing our services business.
We are now working on hiring sales agents in different international markets. We will pay monthly salaries to these agents and their job will be to find more projects for us. We are working with a wonderful partner in Germany. This is an interesting story. They found us through content marketing. We published an article on AEM on Linkedin. A gentleman from Germany was coming to Bangladesh and he looked up on the internet whether there is any company in Bangladesh working on the AEM and he found us. Then he contacted us, came to our office and we liked each other after having an initial conversation. He then returned to Germany and started a company called Brain Station 51 and we became partners. We are getting really good work through them. Even we won a tender where one of our competitors was Accenture. It was a small project for Accenture but it was a big project for us and a huge win for us.
We have realized that product is not aligned with our vision. We neither have the deep pocket to invest in a product for an infinite amount of time. Our ambition is different and we believe we could achieve that through investing more in doing well what are already doing.
This has been a profound realization for us. When we finally realized that we are not a product company and we don’t want to be one, it was a liberating experience and it helped us to focus and do our work better. Before we were thinking like all other software companies that product is the holy grail and that if we launch a product, it would solve all our problems.
While going in that direction, I came to see that we and many other software companies, we’re failing on our ambition to turn us into a product company. It is tough to build products. It is a difficult and different skill. As a result, most software companies that take that route fail. Let me give you an example. I have seen many of my colleagues in the industry to make these mistakes. When they enter the market they start with offering services because they needed money to survive. They plan that we will do service for now and earn enough money and then eventually invest in building a product and it will end our misery once and for all.
Everyone starts with this sort of ambition. The problem with this way of thinking is that he is not paying enough attention to his service business, which is his main business at the moment. He is multitasking in a way and is not trying to make a profit and grow his service business. If someone asks him to do a job at 3000 taka per day, he happily agrees to do that despite the fact that it is not profitable. He thinks very differently. He thinks that I have 3000 taka expenses per day per person. If the customer even pays me three thousand taka, it should at least cover my cost and in the meantime, I would be able to develop my product. Then I will sell the product and get rich. The problem with this thinking is that making a product is expensive and you would never be able to build a good product through this half-assed strategy. On top of that, it is unlikely that you will become a success on the launch of your product. You will need to work hard for a sustained period of time.
It means everything becomes risky for him. Had he thought a little differently and thought that I would stay in the service business and this is my main business, then he would think differently. He would think that if I do this job at three thousand taka how would I make a profit. This is my business and if we don’t make a profit, we will eventually die. Then he would make a very different decision and at least bargain with the customer for a better price. Then he probably would have gotten a better deal and with the proceeding could have tried to hire more people and grow his business.
This was a huge advantage for me. When I started, there were not these many distractions. The competition was not this much either. What we wanted to build was something like Infosys. What Infosys does, it is in outsourcing business. So I knew from the day one that I have to make a profit from each of my work. So I never thought of making products from the beginning. Instead, we made profits from every project and hired more people with that money because we wanted to provide services. Through this process, the company has grown.
Despite that whenever there were some issues, like everyone else, I also thought that product is probably the solution to all the challenges. We have to invest in the product. But then I realized after a while that it is not the right strategy for us because our vision is very different.
That does not mean that we would never do any product. We are doing products but we are giving more emphasis on the service side of things.
This an excerpt from our interview with Raisul Kabir, Founder, and CEO of Brain Station 23, you can read the full interview here.
Cover photo: Photo by Joseph Barrientos on Unsplash