My honest take on service-based companies

Nine years ago, right after graduating, I joined BearStudio, a service-based company that at the time consisted of * three people*. I stayed long enough to see it grow to around thirty employees. A few weeks ago, I decided to close that chapter to start my own company and grow a product I’ve been working on for several years.

With a bit of hindsight, I felt it was time to put words on a realization I’ve had for quite a while:

When fatigue sets in

The first fundamental difference between a service-based company and a product-oriented company lies in how the business grows.

In services, growing the company almost mechanically means hiring more people. More clients or more revenue imply more hours to produce, which means more developers, and therefore more employees. Growth is directly correlated with team size.
On the other hand, in a product company, sales do not depend — or at least not directly — on the number of people in the company. The same product can be sold to 10, 100, or 10,000 customers without proportionally increasing the workforce.

This structural reality of service companies inevitably leads to an increase in headcount, with all that it implies:

• Loss of freedom: When a company is small, it’s relatively easy to operate without strict rules: flexible working hours, sometimes unlimited vacation, total trust — for example, every employee having the office keys. Things run on common sense, and it works very well… up to a certain point.

  Over time, I’ve observed what I call the “1% rule.” It consists of putting a restrictive rule in place for everyone because of a situation that only occurs in a tiny fraction of cases. The more a company grows, the more likely that this famous 1% scenario is to happen.

  A very concrete example: one day, an employee loses their office key. The locks need to be changed. The logical solution then becomes to stop giving keys to everyone. As a result, someone now always has to be present to open the office, which leads to a loss of freedom for the entire team. This mechanism repeats itself across many topics, and each new rule chips away a little more at the original autonomy.

• Transparency becomes a constant effort: Another direct consequence of growth is that the more people there are, the more energy transparency requires.
  Explaining the financial situation, strategic decisions, trade-offs, constraints… all of this takes time and requires pedagogy.

  The more employees there are, the more diverse opinions and sensitivities you get, and therefore the higher the potential for disagreement. These disagreements are normal and often healthy, but they still generate additional workload for leadership, who must justify, arbitrate, reassure, and sometimes make hard decisions.

• Human management becomes central (and heavy): Finally, the bigger a company gets, the more complex its management becomes. HR topics take up a considerable amount of space: human errors, performance issues, struggling employees, conflicts, misunderstandings… All of these situations require time, energy, and create a significant mental load.

  Gradually, a divide sets in. On one side, management, accumulating responsibility and pressure. On the other, employees, who may feel that certain decisions are made beyond their reach. Even with the best intentions in the world, this gap almost always ends up appearing.

Of course, all of this also applies to product-oriented companies as they grow. But as mentioned earlier, their increase in size is not intrinsically correlated with their economic growth.

The failure of fixed-price projects

Fixed-price projects hold a particular place in service-based companies. They are projects for which a precise estimate is made, with an obligation of results for the company. Paradoxically, they are also often the most interesting projects for developers: more freedom, more responsibility, and more learning opportunities.

But the risk is high. Accurately estimating a software project is notoriously difficult. After a few projects that largely exceed their initial estimates, and when this pressure is combined with the organizational and human load mentioned earlier, many companies end up avoiding fixed-price projects altogether.

This leaves a dominant alternative: staff augmentation

Staff augmentation consists of placing developers with clients, often for long periods of time. From a purely economic standpoint, it is a reassuring model for a service-based company: the risk is low, billing is simple, and revenue visibility is far better than with fixed-price projects.
How could one not be tempted by a solution that offers more than three months of visibility on the business?

But this model has deep consequences on the life of the company:

• Developers working in staff augmentation are physically distant from the team. They work day-to-day with people who are not part of their company, follow the client’s processes, integrate into a different culture, and sometimes even adopt a different vision of the job. Gradually, the connection to their own company weakens.

  This distance triggers several cascading effects. Investment in the company decreases, interactions between colleagues become rarer, and the sense of belonging erodes. It becomes harder to build a collective dynamic when everyone lives a different reality, sometimes in opposing contexts.

• This phenomenon also reinforces the separation between management and employees. The service company primarily becomes an administrative intermediary: it invoices, manages contracts, and pays salaries, but no longer truly embodies a shared project. Over time, both management and employees naturally start defending their own personal interests.

• The logical consequence of this situation is increased turnover. Developers in staff augmentation see what exists elsewhere, compare working conditions, salaries, and missions, and know they can find another position quickly. When there is no strong sense of belonging, loyalty to the company almost completely disappears.

Gradually, transparency — already difficult to maintain in a growing organization — nearly vanishes. Employees become mere executors for management, and the company turns into a “traditional” one.

Yes, employees primarily work for a salary. But what is the real value of that salary when you know that an employee earning €50,000 per year will take 40 years to make the two million euros that the founders of a company of around twenty people will receive on the day of its sale? This reality creates an imbalance that is hard to ignore, even if it is rarely expressed openly.

I also can’t shake the — perhaps somewhat idealistic — belief that a company works better when people work together toward a common goal, rather than side by side for diverging interests.

My view on management and salaried work in service-based companies is therefore largely tarnished. It is shaped as much by my personal experience at BearStudio, where I saw the gap between management and employees widen over time, as by what I’ve observed and heard in many other companies of the same kind.

”Don’t come with a problem without proposing a solution”

At this point, the article isn’t very positive. And that’s without even touching on the consequences of actions taken by leaders who have little consideration for their employees’ well-being.

The first thing I would do is clearly define my intentions — and above all, be perfectly honest about them. Many frustrations in companies stem less from the decisions themselves than from the ambiguity surrounding them.

• **If the goal is to maintain a human-sized, almost “family-like” company, then the consequences must be fully accepted **. This implies voluntarily limiting the number of employees, but also distributing profits in a truly fair way, in order to eliminate — or at least reduce — money as a source of tension.
  Concretely, this means including employees in the company’s equity, or at the very least granting a meaningful amount of stock options. Not a few symbolic percentages, but a stake large enough for everyone to genuinely feel invested in the company’s success. This approach must, of course, be accompanied by total transparency around finances, strategic decisions, and by real moments of discussion and listening.

• On the other hand, if the goal is to run a “traditional” service-based company, then employees simply need to be aware of it. There is nothing wrong with offering a clear framework: a salary in exchange for work, within an explicitly professional relationship. What becomes problematic, however, is making employees believe they have something to gain beyond their compensation, in a market where a developer can find a new job very quickly.
  This ambiguous stance often leads to a form of moral pressure: implying that an employee would personally benefit from working more, being more devoted, or investing emotionally in the company. This conveniently overlooks — or deliberately hides — a simple reality: shareholders primarily grow wealthier through collective work, in exchange for recognition that costs them nothing.

I hope this honest feedback on service-based companies will be useful to you, whether you are an employee, a manager, or a future entrepreneur. And if this topic resonates with you, or if you’d like to discuss it further, feel free to reach out to me on LinkedIn, X, or by email.