Marty Cagan is a figure you can't overlook in the product development world. His mission to preach the principles and practices that the best companies use to build their products has significantly shaped our vision for service and influenced how we run our company. Recently, Marty shared his insights on outsourcing companies and how they can elevate their service by adopting the product operating model he outlines in his book Transformed. This topic resonates deeply with me, having run a professional service company for 14 years. While I agree with Marty’s observations about agencies, I believe a more profound issue is at play—one rooted in the flawed business model many agencies continue to rely on.
Let me show you how we use product operating model principles and practices to improve our product — the software development as a service and challenge outdated business model agencies rely on. At the same time, how we use them in our work for our clients.
Most professional service firms operate with a cost structure rather than a true revenue model, with hourly rates merely reflecting their internal costs. This approach is inherently limiting. In contrast, their clients employ innovative pricing strategies designed to capture the value delivered to the customer, not just the cost to the company. Modern businesses have pioneered creative pricing methods like dynamic pricing, two-part tariffs, buy-now-pay-later schemes, partitioned pricing, and subscription models. These strategies enable them to grow exponentially by attaching price to the value of the service itself, rather than the outputs.
Time & material billing, the prevailing model in many agencies, is a self-imposed limit on professional firms' earnings, constricting them to linear growth. The direct relationship between income and expenses means that economies of scale are practically non-existent in these firms. One of the simplest ways to judge the effectiveness of a revenue model is to calculate revenue per employee. At Accenture, this figure currently averages around $95,000. At Apple, it’s $2.4 million, highlighting how a flawed business model can significantly limit growth and innovation.
Agencies are often not incentivized to deliver faster, smarter, or invest in their people. Under a time and material structure, the longer the work takes, the more the agency can charge. This discourages efficiency and innovation, caps potential earnings, and delivers suboptimal value to clients.
The product operating model is a versatile framework that can be applied to any company, including service-based businesses like ours. Adopting this model has enabled us to innovate our business model. We began by clearly defining the characteristics of our service and establishing a long-term vision for how companies would engage with us. This led us to reframe the role of the agency. This approach aligns with Marty Cagan's principles and empowers our teams to take ownership and drive meaningful progress toward our goals.
As mentioned above, we treat our service as a product. It has architecture, features, and bugs. We are eager to work with users — our customers to improve the service. We believe that technology and product serve people and businesses. Let me tell you how we envision an ideal customer experience and work daily to improve our service and achieve outcomes with our client technology investments.
Delivering quality service begins with building trusting relationships and prioritizing the client’s success. Inspired by the principles of Getting Naked, we aim to be more than just vendors. We strive to become trusted partners, offering genuine insights and advice from the first interaction. We ask the right questions to uncover clients’ needs and challenges instead of relying on useless workshops. This involves exploring the client’s motivations, the problem they want to solve, and their success metrics. With this context, we craft a strategic plan that aligns with the client’s goals. This plan guides our execution and builds our autonomy, ensuring we stay agile and responsive.
A critical aspect of agency service is overcoming common fears—fear of losing business, embarrassment, and feeling inferior—that can hinder effective client engagement. By embracing honesty, transparency, and humility, we foster an environment where tough conversations are welcomed and the client’s growth is prioritized over our status.
Technology investments are all about creating value for clients—to benefit their customers and the company. We started the transformation by changing how we serve and shifting focus from the project to our relationship with the client. Clients come to the agency for different reasons. Understanding these reasons enabled us to deliver more effectively.
External teams should operate as seamlessly as internal teams, adhering to product operating model principles and techniques. This means working directly in the client’s environment, committed to releasing software into production as often as possible, similar to the best product teams described by Marty Cagan.
Our teams must have direct access to the communication architecture of the companies they work for—access to monitoring, CI/CD, and other tools that create psychological safety for developers. This access allows developers to work at their highest potential, ensuring that the work is efficient and aligned with the client’s long-term objectives.
Clients often communicate in terms of solutions, usually through stakeholders who may understand their needs but lack a deep understanding of the enabling technology critical to tech-powered products. We are responsible for discovering the problem behind the client's solution. Then, task the team with a problem, not a solution, to deliver.
This distinction is similar to the difference between feature and product teams. Feature teams are typically tasked with building a feature on a roadmap, often driven by stakeholder demands. Product teams, however, are tasked with solving a problem.
We built processes that ensure they sit down with relevant stakeholders and work backward from the specific features requested to uncover the underlying problem for the customer or business. From there, the discussion should focus on how success will be measured and what the desired outcome is.
Using mission command to define the objective, align with the client, and outline the approach in a common document shared with the client, ensures clarity and alignment. We use tools like Notion databases to track the problems we solve for our clients. This approach enables us to use product discovery, A/B tests or any approaches that will
While it might seem unnecessary that additional work is required before the actual work begins, this has fundamental implications. With a team aligned around business objectives and measured by outcomes—not outputs—they can be held accountable for the results. They have the autonomy to use their expertise to solve the problem. While time to market is important, the ultimate goal is time to money—time to achieve the necessary outcome. By focusing on time to money, the team incentive shifts to quickly determining whether a product idea or approach will succeed.
We assume clients might not be fully aware of what’s possible with current technology or within our engineering team. The service provider is responsible for ensuring that business goals are aligned and that the best value is derived from the team’s work.
Clients often arrive with roadmaps ready for execution. These are valuable artifacts, but they should be carefully evaluated. Each feature or project must be assessed to determine the underlying problem it is meant to solve and the logical way to measure success.
We created an internal client advocate role within our company. This role stimulates interaction by gathering insights, understanding the business and team situation, and connecting these insights into meaningful discussions on what problems should be prioritized to achieve the best results for the client. Traditionally, account managers or client success managers focused on upsells or cross-sells. In our model, these roles take on a different responsibility: they ensure the client’s goals are aligned, even when the client isn’t watching.
It is essential to have the competencies to conduct product discovery with the client’s users and share insights transparently with stakeholders. That process allows open discussion on priorities.
The traditional approach to compensation in agencies often focuses on justifying costs rather than demonstrating value. This mindset leaves agencies vulnerable during negotiations, as they’re seen as cost centers rather than value creators.
We are experimenting with value pricing, which emphasizes the impact of our services on our clients. This requires a deep understanding of what success looks like for the client, not just in terms of deliverables but also in achieving their broader business objectives.
We report our progress based on the outcome we agreed to. The price is always a product of risk and projected return on the investment. To truly embrace this shift, we want to eliminate timesheets. Timesheets are a relic of a bygone era, a tool that perpetuates the outdated notion that time equals value. By abandoning the billable hour and embracing value pricing, we reorient our business models around what clients truly value: the expertise, creativity, and impact our services bring.
It’s worth acknowledging that the traditional work and contractual agreements between agencies and their clients were shaped mainly by us—the agencies. As a result, we bear some responsibility for the current market dynamics, where many agencies are dissatisfied with how clients treat them.
As companies become more specialized, external partners like us will become increasingly important. Our goal is to be the best technology partner, not just through outstanding service, but through a deep commitment to our clients’ success. With the advent of AI, agility is more accessible, as the speed at which companies can innovate and iterate is accelerated, democratized, and scalable.
We aren’t trying to appeal our service to everyone. If you want to increase your return on your technology investments while decreasing risk, we are looking for interesting problems to solve. If you see those problems and want to work closely with us to improve service, we seek early adopters.