Decide What Progress Should Look Like

Task

Set transition targets for non-services revenue, sales volume, and founder dependency.

Summary

Set clear targets for revenue mix, sales volume, delivery effort, and founder dependence.

Set Targets for Moving Beyond Founder-Led Services

Task ID: S1-12

A company cannot manage its transition from custom services to repeatable product revenue with a single percentage. It needs connected targets for revenue mix, sales volume, economics, and founder involvement. This article explains how to establish credible baselines, choose targets that reinforce one another, and build a transition scorecard that shows whether the business is becoming more repeatable without damaging cash flow or customer results.

The transition problem

A founder-led company can appear healthy while remaining difficult to scale.

Revenue is growing. Customers are satisfied. Referrals continue to arrive. Yet the founder still joins most sales calls, shapes every proposal, approves unusual prices, rescues difficult projects, and explains the product in ways nobody else can reproduce. The company may have software, subscriptions, or packaged offers, but custom services still pay most of the bills.

At this point, a general ambition such as “become a product company” is not useful enough. It does not tell the team how much product revenue is needed, how many customers must buy without a custom project, how quickly the change should happen, or how much founder involvement is still acceptable.

The operating principle is straightforward:

Set transition targets for the business model and the operating system at the same time.

A revenue-mix target shows what customers are buying. A sales-volume target shows whether enough customers are buying it. A founder-dependency target shows whether the company can sell and deliver it without routing routine work through one person. These targets must be reviewed together because any one of them can improve while the business as a whole gets weaker.

For example, the percentage of non-services revenue can rise because product revenue grew. It can also rise because the company rejected profitable service work, lost service customers, reclassified revenue, or discounted software heavily. The same ratio can therefore describe a successful transition or a deteriorating business.

The purpose of a transition scorecard is to make that difference visible.

What the targets must measure

The scorecard should answer three separate questions:

1. Is the revenue base becoming less dependent on custom labour?
2. Is the company producing enough sales to support the intended model?
3. Can ordinary sales and delivery work proceed without the founder?

These questions are related, but they are not interchangeable.

Revenue mix measures what customers pay for

The primary measure is usually:

“Non-services revenue” should be defined before the baseline is calculated. Depending on the company, it may include software subscriptions, licenses, usage charges, transaction fees, standard digital products, equipment, or another product sold without substantial custom delivery.

The definition should exclude revenue whose value is primarily created through customer-specific labour, such as consulting, custom development, implementation, training, managed operations, or bespoke analysis. Where an arrangement contains both product and service obligations, finance should separate them using a consistent accounting policy. IFRS 15 and its equivalent US revenue-recognition framework were created to provide a consistent approach to recognizing revenue from customer contracts, but management still has to define useful operating categories for its own decisions.

Revenue type and revenue recurrence should be tracked separately. A service contract can renew annually. A software license can be non-recurring. A usage-based product may be recurring but variable. Public companies also define annual recurring revenue in materially different ways: some exclude professional services, while others include selected recurring service contracts. Rapid7 has explicitly warned that annual recurring revenue does not have a standardized definition and may not be comparable across companies.

The scorecard should therefore distinguish at least four categories:

The classifications should reflect how the work is actually delivered, not how it is marketed. Renaming a consulting engagement as a “solution package” does not turn it into product revenue if every sale still requires a new scope, senior judgment, and customer-specific work.

Research on service productization emphasizes standardization and modular design because they make delivery more reproducible, easier to describe, and less uncertain. The same research also notes the tradeoff: greater standardization can make it harder to accommodate individual customer needs.

That is why a revenue-mix target should not assume that all services are undesirable. Services may reveal customer needs, fund product development, support adoption, or remain a profitable part of the offer. The target should reduce dependence on non-repeatable labour, not eliminate useful human work indiscriminately.

Sales volume measures whether the new model is real

Revenue mix can be distorted by one large contract. Sales volume shows whether the offer is repeatedly winning customers.

Useful measures include:

• number of new paying product or subscription customers;
• number of non-services contracts closed;
• product-qualified opportunities created;
• win rate for the repeatable offer;
• average initial contract value;
• new recurring value sold;
• renewals, expansions, and cancellations;
• the percentage of product sales that also require custom services.

A company selling a high-price enterprise platform may need only a small number of wins. A lower-price product may require hundreds or thousands. A sales-volume target therefore cannot be set independently of price, conversion rate, sales-cycle length, retention, and delivery capacity.

At minimum, management should be able to reconcile the target mathematically:

The required opportunity volume can then be estimated:

If the company wants 40 new customers and its evidence supports a 25% qualified-opportunity win rate, it needs approximately 160 qualified opportunities. If the founder’s network has historically produced only 30 opportunities a year, approving the 40-customer target without a credible acquisition plan would be approving an aspiration rather than an operating target.

Specific targets are more useful than vague intentions, particularly when people receive timely feedback and have a plan for reaching them. Goal-setting research also cautions that acceptance, resources, and attainability affect whether targets improve performance.

Founder dependency measures where the business still stops

Founder dependency is not the same as founder leadership.

A founder may remain chief executive, lead product direction, maintain important relationships, or make a small number of consequential decisions. The problem is not that the founder contributes. The problem is that ordinary work cannot proceed reliably without the founder’s personal attention, memory, authority, or reputation.

Research on startup decision-making finds that young companies commonly centralize authority. Delegation can free senior attention, use knowledge held elsewhere in the company, and reduce decision delays, but it also involves a genuine tradeoff between distributed knowledge and loss of control.

Founder involvement can also be valuable. A meta-analysis of 117 studies found that founder-led firms may enjoy performance advantages in some institutional conditions, while research on Japanese new firms found that founder-led businesses were less likely to liquidate during the global financial crisis than businesses led by successor chief executives. These findings argue against a simplistic “remove the founder” target.

The target should instead identify which work must become independent and which work should remain founder-led.

Founder dependency can be measured through observable events:

Public-company filings routinely describe dependence on founders and other key executives as a material operating risk. Pegasystems, for example, has disclosed that its business depends on highly skilled personnel including its founder and chief executive, and that losing key personnel could disrupt operations and financial performance.

A smaller company is usually more exposed because customer knowledge, pricing judgment, technical history, and relationships are less widely distributed. The scorecard turns that vague exposure into work that can be assigned and reduced.

Build the scorecard from real baselines

A target is credible only when the baseline is credible.

The baseline should normally cover enough time to reflect the sales cycle and normal variation. For a business with short sales cycles and monthly subscriptions, three to six months may be informative. For a company with seasonal demand, annual renewals, or six-month enterprise sales cycles, a trailing twelve-month view is more useful.

The company should not wait for perfect systems. It should, however, document where each number came from and how reliable it is.

For every measure, record:

• the exact definition and formula;
• inclusions and exclusions;
• source system;
• data owner;
• measurement period;
• refresh frequency;
• known bias or missing data;
• current readiness;
• baseline value;
• target value and date;
• current actual result;
• deviation from target;
• corrective action and owner.

This metric dictionary is as important as the dashboard. Without it, sales may count a signed agreement while finance counts recognized revenue, customer success may count an account while product counts active users, and the founder may count participation differently from everyone else.

Reconstruct the revenue baseline

Start with invoices, contracts, and recognized revenue rather than labels in the customer relationship management system.

For each customer and contract, identify:

1. revenue recognized during the period;
2. revenue type;
3. whether the work was standard or custom;
4. direct labour and third-party delivery cost;
5. contract term and renewal provisions;
6. product usage or adoption where available;
7. whether the founder participated in the sale or delivery.

Calculate both revenue mix and gross-profit mix:

Gross-profit mix matters because two revenue streams can have very different economics. HubSpot reported that subscriptions accounted for 98% of its 2025 revenue. Its filing reported approximately $3.064 billion of subscription revenue and $445 million of related cost, compared with about $67 million of professional-services-and-other revenue and $63 million of related cost. The example shows why a small amount of service revenue can consume a disproportionate amount of direct delivery cost, although those exact economics should not be assumed for another company.

A company should also calculate absolute revenue by category. Otherwise, the mix can “improve” merely because services decline faster than products grow.

Reconstruct the sales baseline

Review closed-won and closed-lost opportunities over the same period. Do not count informal conversations as qualified opportunities unless qualification criteria existed at the time.

Record:

• lead source;
• customer segment;
• offer sold;
• initial price;
• sales-cycle length;
• whether a discount or scope exception was used;
• whether the founder joined discovery, demonstration, negotiation, or closing;
• whether custom implementation was required;
• whether the customer reached first value;
• whether the customer renewed or expanded.

This establishes whether the company has a repeatable sales motion or a series of unrelated founder-assisted wins.

Reconstruct the dependency baseline

Founder dependency is often poorly recorded, so the first baseline may require a short observation period.

For four to eight weeks, log founder involvement in sales, onboarding, delivery, support, pricing, hiring, and internal approvals. Record the purpose and result of the involvement, not only the hours.

Classify each intervention:

• Value-adding: the founder contributed judgment, authority, or relationships appropriate to the role.
• Capability gap: another person should eventually own the work but lacks skill, information, or authority.
• Process gap: the company has no clear rule, template, or workflow.
• Exception: the situation was genuinely unusual.
• Habit: the founder participated even though the work could proceed without them.

The classification prevents the company from setting a blunt “reduce founder hours” target that accidentally removes valuable leadership while leaving underlying process failures untouched.

Set targets that reinforce one another

The transition target should be built as a connected model, not as three independent promises.

flowchart LR
    A[Baseline revenue, sales, and founder involvement] --> B[Revenue mix target]
    A --> C[Sales volume target]
    A --> D[Founder dependency target]
    B --> E{Targets reconcile?}
    C --> E
    D --> E
    E -->|No| F[Revise price, capacity, timing, or scope]
    F --> B
    E -->|Yes| G[Approve scorecard and owners]
    G --> H[Monthly actuals and quarterly review]

Text description: establish one baseline, set the three target groups, test whether they can all be achieved with the same sales capacity, price, delivery model, and cash constraints, and revise them until they form a coherent operating plan.

Start with the intended business result

Management should state what the transition is meant to accomplish. Common reasons include:

• reducing reliance on custom labour;
• making revenue more predictable;
• serving more customers without proportional headcount growth;
• improving gross margin;
• reducing key-person risk;
• creating a product that can be sold through additional channels;
• preserving service cash flow while developing repeatable revenue.

The chosen reason affects the target. A company trying to improve valuation, one trying to reduce founder burnout, and one trying to reach an underserved lower-price market may require different paths even if all three use the phrase “move to subscriptions.”

Model the revenue bridge

A revenue-mix target should be supported by an explicit revenue bridge:

Then:

This forces management to state whether service revenue is expected to grow, remain stable, or decline.

Consider a hypothetical company with $2 million in trailing annual revenue:

• $1.6 million from custom services;
• $400,000 from subscriptions and product fees;
• a 20% non-services revenue mix.

Suppose it wants a 35% mix in twelve months. That target could be reached in several ways:

All three reach the same percentage. Only the first clearly demonstrates product growth. The scorecard should therefore include the absolute non-services revenue target, total revenue or gross-profit guardrail, and customer-volume target alongside the mix.

Convert the revenue target into sales volume

Once the required new revenue is known, convert it into:

• required new customers;
• expected expansions;
• qualified opportunities;
• lead or referral volume;
• sales capacity;
• implementation and support demand.

Use ranges rather than false precision where evidence is weak. A base case, downside case, and upside case are more informative than a single forecast built on untested conversion assumptions.

The target should also state the intended sales source. A product is not yet independent if every new customer still comes from the founder’s personal relationships. Referral-led sales may remain attractive, but the company should distinguish:

• founder-generated referrals;
• employee-generated referrals;
• customer referrals produced by a defined program;
• inbound demand;
• outbound sales;
• partner-sourced opportunities;
• repeat or expansion sales.

The immediate objective is not necessarily channel diversification. It is to see whether the approved volume can be produced by the channel the company actually has.

Set dependency targets by stage

Do not use one company-wide founder-dependency percentage. Set separate targets for critical stages.

A practical first transition might aim to make routine sales and delivery independent while preserving founder involvement in major accounts, product strategy, and rare exceptions.

For example:

These figures are examples of scorecard construction, not external benchmarks. The right values depend on the baseline, product complexity, company size, customer risk, contract value, team capability, and cash available to fund the transition.

Approve assumptions as well as numbers

“Target approved” should mean that leadership has accepted:

• the metric definitions;
• the baseline period and data limitations;
• the target values and dates;
• the customer and offer in scope;
• the revenue-classification policy;
• the sales-volume assumptions;
• required hiring or training;
• founder decisions that will be delegated;
• financial guardrails;
• named owners;
• review and revision rules.

Without that record, approval can mean little more than agreement that a percentage sounds desirable.

What public transitions teach

Public companies do not provide universal benchmarks for an early-stage founder-led business, but their disclosures reveal useful measurement principles.

Adobe tracked the transition before revenue fully reflected it

During Adobe’s move toward Creative Cloud subscriptions, the company did not rely on recognized revenue mix alone. Its fiscal 2014 filing reported that subscription revenue rose to 50% of total revenue, from 28% in 2013 and 15% in 2012. It also reported paid Creative Cloud subscriptions and annualized recurring revenue because those measures helped management and investors assess a transition whose economics were not fully visible in current-period revenue. Adobe ended fiscal 2014 with 3.454 million paid Creative Cloud subscriptions and $1.68 billion of Creative annualized recurring revenue.

The lesson is not to copy Adobe’s percentages. It is to pair the lagging financial result with the operating quantities that create it:

• customers;
• contracts;
• price;
• recurring value;
• retention;
• product adoption.

Revenue mix tells management what has already been recognized. Sales volume and contracted value show whether the intended future mix has a credible foundation.

Mature subscription businesses can still use services strategically

HubSpot’s 2025 filing shows a business in which subscription revenue represented 98% of total revenue while professional services and other revenue represented 2%. Its services include onboarding, training, and consulting associated with customer adoption.

The relevant lesson is not that 98% is the correct target. HubSpot’s scale, market, product, pricing, partner ecosystem, and years of organizational development make that figure unsuitable as a starting benchmark for a consulting-led company.

The lesson is that services can remain part of the customer experience without remaining the principal source of revenue. A transition target can preserve services that improve adoption while reducing work that must be rebuilt for every customer.

Failure modes and judgment calls

A scorecard can look complete while concealing a weak transition.

Improving the ratio by shrinking the denominator

The most common failure is approving only a revenue-mix percentage. If service revenue falls because the company stops selling it before product demand is proven, the ratio can improve while cash flow, total revenue, and customer access deteriorate.

Prevent this with absolute revenue, gross-profit, customer-volume, and cash guardrails.

Counting recurring services as product revenue

A recurring contract is not automatically product revenue. A monthly retainer that requires a fixed number of expert hours may be predictable, but it remains labour-dependent.

Track recurrence and labour dependence separately.

Counting software attached to consulting as an independent sale

A customer may pay a software fee only because it is bundled into a larger custom engagement. That revenue is not yet evidence of a standalone product market.

Track:

The company may intentionally keep a service-assisted route, particularly for complex customers. It should nevertheless know whether the software can be bought, onboarded, and used without a custom engagement.

Reducing founder appearances without transferring capability

A founder can stop attending calls while remaining the invisible approval point behind them. Employees may relay questions, wait for answers, or imitate prior decisions without having authority.

Measure blocked work, exceptions, decision ownership, and interventions—not calendar attendance alone.

Delegating too early or too broadly

Delegation has costs as well as benefits. Knowledge may still reside with the founder, the offer may be changing quickly, or the consequences of an error may be substantial. Research on startup delegation describes the choice as a balance between using distributed knowledge and preserving control.

The appropriate response is staged delegation:

• define the decision;
• document the normal rule;
• set financial or risk limits;
• name the owner;
• identify escalation conditions;
• review outcomes;
• expand authority after evidence accumulates.

The target is dependable ownership, not indiscriminate decentralization.

Using an annual target without intermediate evidence

A twelve-month mix target can remain apparently “on track” for months because recognized revenue lags sales activity. Use monthly or quarterly leading measures such as qualified opportunities, wins, onboarding completion, first value, active usage, renewal pipeline, and founder-independent closes.

However, annual recurring revenue and similar operating measures must be defined precisely. Public disclosures repeatedly caution that such measures are company-specific, are not substitutes for recognized revenue, and are not forecasts because renewals, contract dates, and customer behavior can change.

Treating the first target as permanent

A transition target is a controlled hypothesis.

The company may discover that customers require more implementation than expected, that a lower-price product creates excessive support demand, that retention is weaker than assumed, or that a productized service is economically superior to pure software for the selected customer.

The target should be stable enough to guide action but revisable when evidence changes. Review actual performance monthly and reconsider the target quarterly, or after a material change in price, offer, market, team capacity, or customer behavior.

Revising a target because the underlying evidence changed is good management. Quietly changing definitions to make the target appear achieved is not.

The decision the scorecard should make possible

When this work is complete, the company should have more than a preferred revenue percentage.

It should have a transition scorecard that shows:

• what counts as services, products, subscriptions, and recurring revenue;
• how much revenue and gross profit each category currently produces;
• how many product sales are required to reach the intended mix;
• whether the existing channel can generate those sales;
• how many wins occur without custom work;
• where the founder is still required;
• which decisions and processes will become independent;
• what financial and customer guardrails must not be breached;
• who owns each result;
• when management will review and revise the targets.

The central decision is then clearer:

Is there enough evidence of repeatable customer demand, viable economics, sales volume, and transferable delivery to depend more heavily on non-services revenue?

A credible “yes” requires the measures to move together. Product revenue must grow in absolute terms. Enough customers must buy it. The economics must remain sound. Routine work must become less dependent on the founder. Customer outcomes must not deteriorate.

Until those conditions are visible, the company has a transition ambition. Once they are visible and measured, it has an operating plan.

Sources

Primary sources

• Adobe Systems Incorporated, Fiscal 2014 Annual Report, including subscription mix, paid Creative Cloud subscriptions, and annualized recurring revenue.
• HubSpot, Inc., 2025 Annual Report, including subscription and professional-services revenue and cost.
• Pegasystems Inc., 2024 Annual Report, key-person and founder-dependency risk disclosures.
• International Accounting Standards Board, post-implementation review of IFRS 15.
• Rapid7, Inc., public disclosure defining annual recurring revenue and explaining its lack of standardization.
• Amplitude, Inc., public disclosure distinguishing annual recurring revenue from recognized revenue and forecasts.

Open research

• Butticè, Colombo, and Rovelli, “Venture capital and the delegation of decision authority in startups: an exploratory study,” 2024.
• Shamsuzzoha, Blomqvist, and Takala, “Service productisation through standardisation and modularisation: an exploratory case study,” 2023.
• Zaandam, Hasija, Ellstrand, and Cummings, “Founder and professional CEOs’ performance differences across institutions: A meta-analytic study,” 2021.
• Honjo and Kato, “Are founder-CEOs resilient to crises? The impact of founder-CEO succession on new firm survival,” 2022.

Reference guidance

• American Psychological Association, definitions of goal setting and Locke’s goal-setting theory.