Why spinning off a SaaS from your non-SaaS business is harder than you think
Every year, I have around 10 to 15 calls with non-SaaS companies that have decided to create a SaaS product. Usually it’s a consulting firm, an agency, or some kind of services business that’s built internal software to deliver their work faster and cheaper.
And now they want to spin it off and sell it as a standalone product.
I get why this seems appealing. You’ve already built the thing. You’re using it with clients. It works. So why not package it up, slap a price tag on it, and sell it to people who aren’t working with you?
Here’s why: Because you’re not just launching a new product. You’re starting an entirely new business. And unless you understand what that actually entails, you’re going to waste a lot of money learning the hard way.
How this usually starts
There are a couple of common paths that lead companies down this road.
Path #1: The efficiency play
You’re a consulting firm or services business delivering high-value projects — maybe $250K to $2M contracts. To deliver those projects efficiently, you build internal tools. Maybe it’s a project management system. Maybe it’s specialized software for your industry. Maybe it’s just a better way to track time or manage deliverables.
At first, this software is just part of your service offering. But then you start thinking: “What if we productized this? What if we made it its own thing?”
You give it a name. You refine it a bit. Maybe you even include it as an add-on in your consulting deals.
And then someone has the brilliant idea: “What if we spun this off as its own business unit and sold it outside of our consulting agreements?”
Path #2: The siren song of software
I lived this one when I worked at a consulting firm years ago. We would hear constant whispers about how software is so much better than services.
“The margins are incredible!”
“Growth is way more scalable!”
“You’re not limited by headcount!”
It’s true that software has different economics than services. But what people don’t tell you is that building a successful software business is hard. Like, really hard. Maybe even harder than building a successful consulting practice.
But from the outside looking in, software seems magical. So services firms hear that siren song and start dreaming about diversifying their revenue streams with a nice, scalable SaaS business.
Why this is harder than you think
Here’s what I see happening repeatedly: Companies underestimate what it actually takes to spin off a SaaS because they’re applying their services business logic to a completely different business model.
You’re literally starting a new company
I want you to think back to the first two to five years of your organization. How messy was it? How unpredictable? How much trial and error did you go through?
Now imagine doing that again, but this time you’re playing by completely different rules.
When you spin off a SaaS product, you are starting from scratch in many ways — even if you have a strong parent brand. The brand equity you’ve built through consulting doesn’t translate the way you think it will.
Why? Because you built that equity by solving problems through people and services. Now you’re asking the market to trust that your product can solve their problems without that services wrapper around it.
That’s a completely different value proposition, and it requires completely different go-to-market motions to sell it.
Your brand equity doesn’t transfer like you think
This is the part that shocks people the most.
Let’s say you’re a well-respected manufacturing consulting firm. You’ve built incredible brand equity over 15 years. Everyone in your industry knows your name.
Now you spin off a SaaS product for manufacturing companies.
You might assume that brand equity will carry over. That manufacturers will see your name and immediately trust the software.
But here’s what actually happens: The people who would buy your software aren’t necessarily the same people who would hire you for consulting. They have different budgets, different decision-making processes, and different expectations.
More importantly, you’re attracting net-new customers who don’t know you from your consulting work. To them, you’re just another software vendor. Your 15 years of consulting reputation? Doesn’t matter if they weren’t in your consulting pipeline.
I’ve seen this happen with development consulting firms spinning off dev tools (which actually works better because it’s contextually aligned), and I’ve seen it with firms in industries like construction or commercial real estate trying to spin off software (which faces much steeper challenges because software isn’t expected in those contexts).
The economics are completely different
If you’re used to a services business, you’re used to thinking about your economics in terms of:
- Hourly rates or project fees
- Team utilization and efficiency
- Cost to deliver vs. revenue per project
SaaS economics are totally different. You’re thinking about:
- Customer Acquisition Cost (CAC)
- Lifetime Value (LTV)
- Monthly Recurring Revenue (MRR)
- Net Revenue Retention (NRR)
- Time to payback on CAC
These aren’t just different metrics — they require completely different strategic thinking.
For example, in consulting, you might be profitable on a project within a month or two. In SaaS, it might take 6-12 months just to recover your acquisition costs, and you won’t see meaningful profit until year two or three.
That’s a fundamentally different cash flow model, and it requires a fundamentally different approach to budgeting and growth.
You need dedicated resources (and I mean really dedicated)
Here’s where I see companies shoot themselves in the foot most often: They try to run the SaaS spinoff with part-time resources.
Maybe the VP of Operations spends 20% of their time on it. Maybe the CTO carves out a few hours a week. Maybe they cobble together a committee of people who meet monthly to discuss it.
This doesn’t work.
Starting a SaaS business requires someone who is fully dedicated — ideally full-time — to be the CEO/GM/President of that product. This person needs to own:
- Product strategy and roadmap decisions
- Go-to-market strategy
- Budget allocation
- Team building
- Everything else that a founder does
If you can’t afford to put a full-time owner on this, you’re playing a time game. It’s going to take you 3-5 years to see any meaningful traction, and even then, it might not materialize the way you hope.
The trade-off: You can either fully commit with appropriate resources, or you’re going to spend way more time and money than you anticipated.
The successful examples (and what made them work)
Let me give you some examples of companies that actually pulled this off.
Moz: Rand Fishkin started as an SEO consulting agency before building Moz. But here’s the key: he committed to the software. Eventually, Moz became the focus, and the consulting work faded away. It wasn’t a side project — it became the main business.
SearchPilot (formerly Distilled): Will Critchlow spun off SearchPilot from Distilled, the SEO agency. But SearchPilot became its own entity with dedicated leadership. It wasn’t an agency project with part-time attention.
What made these work?
- Dedicated leadership — Someone owned it full-time
- Contextual alignment — SEO agencies offering SEO software isn’t a huge stretch. The market expects it.
- Full commitment — Eventually, they had to choose. You can’t half-ass a SaaS business.
Now contrast that with a PR firm trying to spin off project management software, or a construction consulting firm trying to launch a SaaS for commercial real estate. The contextual gap is much wider, and the brand equity doesn’t transfer as easily.
What it actually takes to do this right
If you’re serious about spinning off a SaaS from your non-SaaS business, here’s what you need:
1. A dedicated full-time owner
This person is essentially the founding CEO of the SaaS. They need to:
- Own product strategy and roadmap
- Understand how product management works (which is different from delivery management in services)
- Drive go-to-market decisions
- Manage the budget
- Build the team
This can’t be a part-time role. If everyone is juggling this alongside their “real” job in the parent company, you’re going to move at a snail’s pace.
2. Real budget (and double what you think)
Whatever number you have in your head, double it. Minimum.
If you think it’ll cost $1M to get this off the ground, budget $2-3M.
Why? Because you don’t know what you don’t know. You’re applying services-business thinking to a software business, and you’re going to make expensive mistakes.
Development costs alone can run $200-800K if you’re starting from scratch. If you’ve already built the product internally, you’ve already spent that — but now there’s a cost to provision it as a standalone product, which could be $100-300K.
Then there’s go-to-market. And ongoing product development. And customer support infrastructure. And all the hidden costs you didn’t think about.
3. Product strategy expertise
Here’s a critical point: Product management for SaaS is not the same as delivery management for services.
In services, value is delivered through people and processes. You can coach your team, refine your delivery process, adjust your approach based on feedback.
In SaaS, value is delivered through product. The product is the salesperson. The product is the service. If it doesn’t create value on its own, customers won’t stick around.
This requires a completely different skillset and mindset. You need someone who understands:
- Product discovery (how do we figure out what to build?)
- Product roadmapping (what do we prioritize and why?)
- Feature vs. product value (are we building the right things?)
If you don’t have this expertise, you’ll end up building a bunch of features that don’t actually move the needle on retention or acquisition.
4. Go-to-market strategy for strangers
This is the part that trips people up the most.
Your consulting firm knows how to sell to people who are already in your ecosystem. You have relationships. You have trust built up over years of delivering great work.
But now you’re trying to sell software to strangers who have never worked with you. They don’t know your brand. They don’t care about your consulting credibility. They just want to know: Does this software solve my problem?
That requires completely different messaging, positioning, and channel strategy than what worked for your services business.
You need to figure out:
- Who is your buyer? (Might not be the same person who buys your consulting)
- How do they currently solve this problem?
- Why would they switch to your product?
- Where do they hang out? What channels do they use?
- What’s your pricing and monetization model?
All of this needs to be validated before you go spend $100K on marketing.
5. Strategic clarity on your business model
Here’s a question most parent companies don’t think hard enough about:
Is it actually worth it to spin off this SaaS, or should we just keep using it as a competitive differentiator in our consulting practice?
There are real trade-offs here.
If you spin it off, you need to invest significantly in building a standalone brand, acquiring net-new customers, building out product infrastructure, hiring a team, and doing all the things that make a SaaS successful.
If you keep it internal, you can continue using it to close consulting deals more efficiently and at higher margins. You can charge more for your services because you have this proprietary tech.
Which path actually generates more profit over the next 5-10 years?
I’m not saying the answer is always “keep it internal.” But I am saying you should do the cost-benefit analysis before you commit.
The most common failure modes
Over the past eight years, I’ve seen these same patterns repeatedly:
1. Underestimating the investment required
“We’ll give this $200K and see what happens.”
That’s not enough. You’re going to burn through that in 3-6 months and have nothing to show for it. Then you’ll go back to leadership asking for more money, and they’ll be skeptical because you didn’t deliver results.
2. No dedicated owner
A committee of part-time people doesn’t work. Someone needs to eat, sleep, and breathe this thing.
3. Hiring an agency too early
“We’ll just hire a big marketing agency and they’ll figure it out!”
No. If you don’t have product-market fit yet, you’re going to waste a ton of money on execution before you’ve validated that anyone actually wants this thing.
4. Assuming your services customers will buy the software
They might! But that’s not a scalable growth strategy. You need to be able to acquire customers outside your existing ecosystem.
5. Not validating standalone product-market fit
Just because the software works well as part of a consulting engagement doesn’t mean it works well on its own.
Your consulting engagement provides context, handholding, customization, and expertise. Without that wrapper, does the product still create value? You need to find out before you invest heavily.
If you’re going to do this, do it right
Look, I’m not trying to talk you out of spinning off a SaaS. It can work. We’ve seen it work.
But it requires real commitment. You can’t toe-dip. You can’t half-ass it. You either commit fully — with budget, resources, and strategic focus — or you’re going to create a self-fulfilling prophecy where it fails because you didn’t give it what it needed.
Here’s my advice:
Do the strategic planning first. Really understand what this will cost, how long it will take, and what success looks like. Run the numbers. Compare the ROI of spinning off a SaaS vs. keeping it as a services differentiator.
Commit real resources. Hire a full-time GM/president for the SaaS. Give them a real budget. Build a real team.
Validate product-market fit before you scale. Don’t spend $100K on marketing until you’re sure people actually want this thing without the services wrapper.
Get expert help. If you’ve never built a SaaS before, work with people who have. Hire advisors, consultants, or fractional executives who know what they’re doing. It’ll save you so much wasted time and money.
And if none of that sounds appealing? That’s okay. Maybe spinning off a SaaS isn’t the right move. Maybe you keep that software internal and continue using it to make your services business more profitable and efficient.
There’s no shame in that. Not every services business needs to become a software company.
But if you do decide to go for it? Go all in. Because anything less is just expensive theater.
Thinking about spinning off a SaaS from your services business? Book a call with us and let’s talk through your specific situation. We’ll help you figure out if it makes sense, what it’ll really take, and how to avoid the most common pitfalls.