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Product vs Service - Which Do you Prefer to Sell?

GradyS

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And why?

If you could start over, and found two equal opportunities with one in providing a product and a second in providing a service, which would you pursue?

This is assuming that both opportunities conform to the CENTS model, and in early calculations they both have the same potential in terms of wealth/growth.
 

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For me it would be something simple and require no geographic location so a digital product. Something you can create once and sell over and over again without the need for stock, physical shipping, replacements, returns etc. (I've had enough of running those sorts of businesses over the years).

Something that once built will allow you to spend all your effort in marketing rather than the myriad of processes required in running a warehouse full of stock or worrying about competitors, Amazon, drop shippers courier prices, product margins etc. etc. etc..
 

astr0

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Service is less CENTS - more issues with scale, but easier to start, most likely require fewer investments and gets faster feedback and paying customers.
Products can definitely scale better, so have higher limits. On the other hand, they are riskier and can blow quite a lot of time & money on failure. Also, products are harder to validate for a market fit, while if you can't find a client for a service for a long time than you're definitely doing something wrong.

Starting with service this time for the reasons above. The plan also includes a slow transition to products once we would have enough resources to allow multiple failures. My service business model/niche also allows jumping into products we believe making a win-win situation for both us and the client for a small equity %. So we do have a small share of product potential with zero risks and a service business.
 

GradyS

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For me it would be something simple and require no geographic location so a digital product. Something you can create once and sell over and over again without the need for stock, physical shipping, replacements, returns etc. (I've had enough of running those sorts of businesses over the years).

Something that once built will allow you to spend all your effort in marketing rather than the myriad of processes required in running a warehouse full of stock or worrying about competitors, Amazon, drop shippers courier prices, product margins etc. etc. etc..
More of a SaaS solution? Or an application to solve a problem?
 

RazorCut

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More of a SaaS solution? Or an application to solve a problem?
Although I like the SaaS model (a subscription based business has a lot of advantages) it comes with many caveats, not least keeping everything up to date. If it relies on connecting to a third party (as in its middle-ware) then having to jump through hoops whenever that third party makes changes can be a major PITA.

For me I'm interested in solving human problems rather than digital ones.
 

Andy Black

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(For me) the ideal product comes from engaging the market by providing a service first.
 

CPisHere

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I agree with u/astr0

Service is easier & cheaper to start, but more difficult to scale vs a product.

So it depends on where you are starting and what you want to accomplish. If starting from scratch & shooting for $10k/month, service all the way. If starting with knowledge & skills, trying to get to $500k/year - info product. If starting with cash/resources and going for multi-million dollars/year - physical product.
 

mdivljina

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Service is great to start off with, build some capital and then move onto products to really blow your cashflow up.
 

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I guess it depends on what you're looking for in business. Services are probably better for extroverts and anyone who loves face-to-face contact as that's often the basis of a service-based business. Meanwhile, products are better suited to those who want to reduce the human factor (customer support, managing employees, etc.) as much as possible.

For me personally, it's without question a product. And more specifically, digital products, or books (which can be digital or physical).

I don't think that selling digital products is as rewarding as selling traditional physical products (particularly those people use to engage in their passions), but your headaches are limited to the minimum. You can automate or outsource a lot, you can scale fast and in a lean way (it's not like a service where you need to grow your team to be able to make more money), and eventually, it's easier to sell than a service business.

As for books specifically, what's so incredible about them is that merely one idea (Harry Potter, The Walking Dead, or Game of Thrones) can lead to a huge empire. Often, beyond creating the original product like a novel, the author doesn't even have to do that much work to scale to millions because it's the licensee's job to do the rest (a huge media company creates a TV show or shoots a movie, another company creates a board game, another manufactures and sells merchandise, etc.).

That's not to say that any of it is easy or typical for an average writer; far from it. It's just that the potential rewards compared to the initial investment (mostly just creativity) are immense. Not everyone can or wants to be a writer, but when you think about it, it's mind-blowing that J. K. Rowling, a single person who created a fictional world (which entertained millions nonetheless), is worth more than a corporation employing thousands of people, with the owner of the company probably having infinitely more responsibilities and stress than she does.
 

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advantagecp

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All things being equal, I prefer a product. My reasoning for this is that, at least for the businesses that I am envisioning a product is easier to scale quickly. And first to market can be a huge advantage, especially if there are obstacles and barriers to entry involved.

That said, my next venture will be providing a service. It will not scale to infinity, but it will not require a lot of my time or money. I have no problem with hitting a doubles and singles. A home run is not necessary to finance my lifestyle.

The question is interesting to me, but for the way my mind works it puts the cart before the horse. I have to see the opportunity first, and the lay that alongside CENTS to see how it fits. I can't envision starting with CENTS and building the idea from there. If you can, then you are thinking at a higher level than I can.
 

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I also prefer to offer a service, for reasons noted above, but also because services seem to get forgotten about, I feel like there are so many people making products or services that are online only and no one still offering face to face service. This model is definitely not as scalable, but could easily be franchised out. And I have a feeling this need is going to increase as people start to feel less connected to companies.
 

LinorCG

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For me service should always be present. Either you sell a product or initially provide a service, its the after sales service that keeps a customer.

but also because services seem to get forgotten about
This! Seems like we forget that we are dealing with other humans. Treat your customer as a human being and provide the best service possible and you get a customer for life (almost all the time). Treat your customer like products now a days (disposable) and you'll have more expenses acquiring new customers than keeping them. :)
 

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I feel like I'm learning things with service that will help when I one day jump to product.
 

Jaden Jones

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I feel like I'm learning things with service that will help when I one day jump to product.
\
Treat them right and provide good service and you will be able to sell them any product later.
 

banjoa

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I prefer services as I’m still in the ‘stacking cash’ stage.

Starting with products for many beginners is risky and most will fail at it.

Why?:

Selling products have too many moving parts and require multiple skill sets.

Skill sets like:

-Having a good eye for niches and products to sell within those niches

- sourcing

- web design

- outsourcing

- copywriting

- inventory management

- marketing/sales

- customer service

Even if you are outsourcing many of these, you still need basic knowledge.

For services, all you need is to pick 1 high ROI skill and offer that to businesses.

High ROI skill is a skill that’s close to the money as possible. Think email sales copy.

You just have to learn that high ROI skill and pitch that.

This is way easier and manageable than a product-based business with more chance for success.

The next step is to stack cash and learn how business work from the businesses you work with and pick up more high ROI skills that you can use later to start a product based business.
 

MILIANARD134

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Product. I really like the fact that someone can buy my product, touch it, feel it, and years later say "it's a good product". Also I like the packaging, and I think physical is the best thing.
You may pick a R.O.I service skill, and get it running faster, but how much can you scale it ? I think if you don't build something like the next uber or the next facebook or something like that. Digital products don't have a big potential to be the next multimillion dollar companies.

A physical product has better chances. Just my opinion by the way.
 

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Treat them right and provide good service and you will be able to sell them any product later.
In my case it's more about offering digital marketing services, learning what I can and working/collaborating/outsourcing with people way better than me. Great way to make cash and skills to fund a product venture later on. But I'm definitely doing this with a mind to get out of service as soon as I can.
 

ZeroTo100

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All things being equal, I prefer a product. My reasoning for this is that, at least for the businesses that I am envisioning a product is easier to scale quickly. And first to market can be a huge advantage, especially if there are obstacles and barriers to entry involved.

That said, my next venture will be providing a service. It will not scale to infinity, but it will not require a lot of my time or money. I have no problem with hitting a doubles and singles. A home run is not necessary to finance my lifestyle.

The question is interesting to me, but for the way my mind works it puts the cart before the horse. I have to see the opportunity first, and the lay that alongside CENTS to see how it fits. I can't envision starting with CENTS and building the idea from there. If you can, then you are thinking at a higher level than I can.
Product. I really like the fact that someone can buy my product, touch it, feel it, and years later say "it's a good product". Also I like the packaging, and I think physical is the best thing.
You may pick a R.O.I service skill, and get it running faster, but how much can you scale it ? I think if you don't build something like the next uber or the next facebook or something like that. Digital products don't have a big potential to be the next multimillion dollar companies.

A physical product has better chances. Just my opinion by the way.
It really depends. I think there are some companies out there who started as services and found ways to productize it and sell it.

I listened to every single tropical MBA podcast and for a while they spoke about this model. It got me thinking a lot.

A lot of people forget about affiliate marketing also...Some don’t realize that there are companies out there that pay recurring every month. So yeah, you can build a few clients a month and if your site gets a penalty, you don’t lose revenue unless those people pull out...

Unlike with amazon associate sites.

Yeah, it hurts control but you can always find another affiliate or run paid ads.
- No overhead
- No customer service
- Non of that stuff. Just sell!
 

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Razzle

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I agree with u/astr0

Service is easier & cheaper to start, but more difficult to scale vs a product.

So it depends on where you are starting and what you want to accomplish. If starting from scratch & shooting for $10k/month, service all the way. If starting with knowledge & skills, trying to get to $500k/year - info product. If starting with cash/resources and going for multi-million dollars/year - physical product.
What do you mean by info product?
 

Johnny boy

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I love this question.

I would prefer selling a service, and my business treats it as a product. The more you can take on the pros of each instead of the cons of each, you will have more success.

Services...

Pros: Large margins, always in demand, competition is usually other small businesses so not very competetive.

Cons: Difficult to scale, needs managers and deals with people much of the time, easily turns into you being your own boss and nothing more.

Products...

Pros: Scales easily, can run on autopilot once it is up and running, is regularly the type of business that can grow very large and become a recognizable brand.

Cons: Insane competition, low margins, hard to capture demand, 90% chance of it not going anywhere or making any money at all.

How to do this: Have a service and take away everything that makes it hard to scale, and then you will start to feel like you are in a product business that is taking off. I have a lawn care company so I will use this as an example.

Lawn care service​

How most people do it:

They do the work themselves at first. They post ads online and schedule work. They'll do one-time jobs, regular services, and they'll juggle the busy calendar themselves. Maybe they will hire a worker, but the worker will have a hard time understanding exactly what to do because it's a game of telephone between the customer and the owner. The worker will make mistakes because of this miscommunication and doing one-time services will cause them to have to return back to fix the job. They have to return and make the customer happy no matter what, or risk not getting paid since they only charge after work is completed. This cuts into their schedule and makes it hard to reliably schedule jobs in frequent succession, being forced to leave time for possible errors. They will stay busy, but lose money often, and not be profitable enough to hire more workers. The owner couldn't do it anyways because it would be twice the headache with miscommunication and scheduling and bidding jobs all the time. The owner realizes the company needs to perform higher level services and becomes a landscaping company. They can finally afford to hire better workers, and they make good money. The owner gets some more workers, and has a good business for himself. He cannot open another location because he cannot replace himself, the man that has to bid jobs, show employees what to do, fix all issues that happen, etc... He owns his one location and makes a few hundred grand a year. Good for him.

How you can turn your service into a low-attention product:

You focus heavily on marketing and sales, making sure to maximize the number of people that see you, hear about you, and eventually call you asking for services. You have hundreds of people calling you and only choose the few customers that 1. want recurring services and 2. are willing to pay a monthly rate that works out to be about $100 an hour that you price with a formula based on square footage. You sign them up on contracts that they are not allowed to cancel and prorate the totals over the whole 12 months so your revenue is no longer seasonal and they pay the same price each month. You offer only 1 or 2 plans and you make the work simple. You can fit many jobs all together and you know how long they will all take. You charge the customers' cards at the beginning of each month, and any mistakes you make you just correct at the next visit. The workers you hire can be more affordable because the work is predictable, repetitive, and simple. You have already signed up customers at an expensive rate, so you can be relaxed with your workers and not work them to death. They will have easy jobs and work at a reasonable pace so you don't have to watch over them constantly, even though you could because you track their location with GPS to see their progress. You don't have to constantly bid jobs because you only showed up once at the beginning of the year to sign them up. Since you can trust your income will be consistent, you can comfortably buy equipment and additional trucks without worrying about a dry spell. Since you have a simple formula for pricing and there are fewer mistakes and fewer issues for you to correct, it's easier to hire a competent manager since it already runs so well. Your simple systems allows you to replicate the process somewhere else with another location. You can now quickly and effectively combine the low-attention and scaleable perks of being a product business, with the profits and demand of services. And you'll one day build the Mcdonalds of lawn care while Joe Blow has his one landscaping company.
 

astr0

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You focus heavily on marketing and sales, making sure to maximize the number of people that see you, hear about you, and eventually call you asking for services. You have hundreds of people calling you and only choose the few customers that 1. want recurring services and 2. are willing to pay a monthly rate that works out to be about $100 an hour that you price with a formula based on square footage. You sign them up on contracts that they are not allowed to cancel and prorate the totals over the whole 12 months so your revenue is no longer seasonal and they pay the same price each month. You offer only 1 or 2 plans and you make the work simple. You can fit many jobs all together and you know how long they will all take. You charge the customers' cards at the beginning of each month, and any mistakes you make you just correct at the next visit. The workers you hire can be more affordable because the work is predictable, repetitive, and simple. You have already signed up customers at an expensive rate, so you can be relaxed with your workers and not work them to death. They will have easy jobs and work at a reasonable pace so you don't have to watch over them constantly, even though you could because you track their location with GPS to see their progress. You don't have to constantly bid jobs because you only showed up once at the beginning of the year to sign them up. Since you can trust your income will be consistent, you can comfortably buy equipment and additional trucks without worrying about a dry spell. Since you have a simple formula for pricing and there are fewer mistakes and fewer issues for you to correct, it's easier to hire a competent manager since it already runs so well. Your simple systems allows you to replicate the process somewhere else with another location. You can now quickly and effectively combine the low-attention and scaleable perks of being a product business, with the profits and demand of services. And you'll one day build the Mcdonalds of lawn care while Joe Blow has his one landscaping company.
Great plan! REP+

I'm in the process of building a niche software development service business and had a little similar plan although not that detailed yet.

You focus heavily on marketing and your partner on sales. This is pretty high-ticket business, so you won't have 100s of calls, but landing a few clients a month would be great. You never price per hour or doing an estimate for the project. Instead, you have 3 fixed price plans and just point the client to one of them depending on their needs. You push a dedicated team contract for the bigger projects, it's not that profitable but builds the bottom line. The projects in the niche are pretty small compared to the most software - so less competition, more clients and thus more referrals. They also require very similar skills from the developers, allowing to easily interchange people, quickly improve their skills and greatly simplify hiring. Optimizing delivery system mostly by reducing every overhead of bigger competitors and making communication as direct as possible would allow doing more work faster, thus having much higher rates and happy clients. Delegating sales is much easier too as that's not $100k+ projects and the marketing would do most of the job. Income still won't be very consistent without many employees working as a dedicated team, but high margins would compensate for the idling. This business doesn't need a bunch of traditional managers that other companies in the industry are packed with, a unit of scale would be a dozen of developers of different levels and a salesman that also has little PM responsibilities making sure everything is working like a swiss clock. He would know everything about the project cause, well, he got it, so communication overhead is minimal there too. With time we would also need other types of employees, but freelancers would do for the nearest future.

So that's a productized service too, right?

In fact, I have some doubts about following this plan now, after working on the current client's project.
I've been an employee in a software service business for more than 10 years, even had one failed service business 10 years ago. But every project I've worked on was something for enterprises, either public or for internal use. The current project is more of a startup that's live for little over a month only. And I know all the metrics. And I would need like 24 employees to hit them with this service business, which is nearly impossible in less than a year, 2 years is more realistic. And it's pretty much on autopilot, we still have to add one important feature to convert more users and increase the LTV, add localization for the different markets and probably can expand to similar niches. That's a month or two of development, max.

The ceiling of this product is definitely lower than software development service, but it can reach pretty close to it with 3-5 employees. While with service it would be hundreds to get better results...

We can make dozens of software products a year, so even if one of them takes off it would definitely pay for all the failed ones. Need a large marketing team for that, lol.

Maybe selling shovels is really better than renting diggers?
 
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Johnny boy

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Great plan! REP+

I'm in the process of building a niche software development service business and had a little similar plan although not that detailed yet.

You focus heavily on marketing and your partner on sales. This is pretty high-ticket business, so you won't have 100s of calls, but landing a few clients a month would be great. You never price per hour or doing an estimate for the project. Instead, you have 3 fixed price plans and just point the client to one of them depending on their needs. You push a dedicated team contract for the bigger projects, it's not that profitable but builds the bottom line. The projects in the niche are pretty small compared to the most software - so less competition, more clients and thus more referrals. They also require very similar skills from the developers, allowing to easily interchange people, quickly improve their skills and greatly simplify hiring. Optimizing delivery system mostly by reducing every overhead of bigger competitors and making communication as direct as possible would allow doing more work faster, thus having much higher rates and happy clients. Delegating sales is much easier too as that's not $100k+ projects and the marketing would do most of the job. Income still won't be very consistent without many employees working as a dedicated team, but high margins would compensate for the idling. This business doesn't need a bunch of traditional managers that other companies in the industry are packed with, a unit of scale would be a dozen of developers of different levels and a salesman that also has little PM responsibilities making sure everything is working like a swiss clock. He would know everything about the project cause, well, he got it, so communication overhead is minimal there too. With time we would also need other types of employees, but freelancers would do for the nearest future.

So that's a productized service too, right?

In fact, I have some doubts about following this plan now, after working on the current client's project.
I've been an employee in a software service business for more than 10 years, even had one failed service business 10 years ago. But every project I've worked on was something for enterprises, either public or for internal use. The current project is more of a startup that's live for little over a month only. And I know all the metrics. And I would need like 24 employees to hit them with this service business, which is nearly impossible in less than a year, 2 years is more realistic. And it's pretty much on autopilot, we still have to add one important feature to convert more users and increase the LTV, add localization for the different markets and probably can expand to similar niches. That's a month or two of development, max.

The ceiling of this product is definitely lower than software development service, but it can reach pretty close to it with 3-5 employees. While with service it would be hundreds to get better results...

We can make dozens of software products a year, so even if one of them takes off it would definitely pay for all the failed ones. Need a large marketing team for that, lol.

Maybe selling shovels is really better than renting diggers?

The idea is to find the thing people mentally place the most value on, which you can deliver in a laughably easy way using systems, and you stick with it.

I don't know about the process of software development or how it usually works and that's an important part, but I would look for the easiest thing that people are willing to pay a relatively high price for and sell it as a package. Packages are beautiful because they reign in the client's unique desires and says "no, pick from our options, no unique bullshit" and makes the work much easier. You don't go to McDonalds and have a consultation about what food they should make for you. You get a menu. It's the same idea with service businesses. Give them a menu, not a consultation.

With developing software, I think it would be fun to advertise to investors as a fund, advertise to the general public as a software development firm that grows businesses and makes ideas come to life, and you take equity and ideas, develop software and grow the business and position it as partnering with the new business, and use investor capital from your fund. You'd bring together ideas, the expertise to develop software, and money to speed things up. And you'll have your hands on all parts of it, giving you lots of control and flexibility.
 

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The idea is to find the thing people mentally place the most value on, which you can deliver in a laughably easy way using systems, and you stick with it.

I don't know about the process of software development or how it usually works and that's an important part, but I would look for the easiest thing that people are willing to pay a relatively high price for and sell it as a package. Packages are beautiful because they reign in the client's unique desires and says "no, pick from our options, no unique bullshit" and makes the work much easier. You don't go to McDonalds and have a consultation about what food they should make for you. You get a menu. It's the same idea with service businesses. Give them a menu, not a consultation.

With developing software, I think it would be fun to advertise to investors as a fund, advertise to the general public as a software development firm that grows businesses and makes ideas come to life, and you take equity and ideas, develop software and grow the business and position it as partnering with the new business, and use investor capital from your fund. You'd bring together ideas, the expertise to develop software, and money to speed things up. And you'll have your hands on all parts of it, giving you lots of control and flexibility.
Yeah, everything applies to the software dev business.

Except, the client can't pick from the menu cause he knows what he wants, but doesn't know how that would work.
For example, we have two projects running now. One is cryptodividend, the other is under NDA. First was built in 20+ hours, the second doesn't look much more complex from the first sight but 400+ hours was put already and that would double soon without too many changes visible to the users. The UI is just a top of the iceberg for that one, everything else is on the pretty complex backend.

So yeah, we would have packages, but that would be just to prepare prospects and hopefully avoid writing custom detailed offers. During the sales process, we would still discuss what can be done under different packages and recommend the one that would fit the best and would deliver optimal results. Or decide the minimal that still makes sense...

On the advertising part, that's the plan more or less. Except ideas are usually not that important and are quite easy to come up with. So that would be either making software for the clients and possibly helping them with the seed round or making a fund and producing our own software products. In fact, from the last project, I know an Asian fund doing that within one niche pretty profitably.

The first approach is more traditional. The second would require fewer developers, but also some marketers, copywriters, community managers and CEO-minded people to grow those products from infancy.
 

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Could you show some of the software you have the capabilities of building? Something similar to something you've created. I'm very curious about your services.
 

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Anything, except AI really :) from embedded to high-frequency trading to complex web sites to games.

I have 12 years of experience building commercial software and like 17 total in programming. Won national programming contests a few times in school and university and my partner on the first business won Elance (now UpWork) contest (there were many winners with max score cause of stupid rules, actually) and got invited to Google after that.

We don't have an official company yet, just got an email that my e-residency card is ready for pickup. But we've started doing something as sole proprietorships already while still on 9-5.
So the current "company" projects were:
  • A tool for crypto ICO analysis that was crawling the web for info, monitoring telegram&twitter and just doing some math. Had like 20 metrics and helped local crypto-investment fund a lot at times it was really profitable. They've used it for picking ICOs, estimating ROIs and risk management. Really a console app that would just produce a CSV table as the result. I'm not counting that in my progress thread, cause I was doing that alone and we had no plans for a company back then. Fixed price.
  • CryptoDividend - done for a friend, only for equity.
  • NDA project that really took off - equity + fixed price for initial development, low pay per hour for ongoing development.
My experience...
  • School: hacking, the multitasking OS that's could run DOS programs with WinXP style UI shell that got the last place on the national competition lol, fluid/waves simulation software that got first place on two national competitions
  • University: a few games that were never finished, some small tools for the local clients, a pretty unique at the time game engine for my master's degree (only Stalker's engine could do large open areas and closed spaces efficiently back then)
  • First 9-5: web sites, desktop CRMs, VNC remote desktop software, router firmware, logistics routing library that used under the hood in many products
  • First failed business: a tablet web app for collectors of the big US insurance company, movers rating and picking service (similar to MJs limo business), few short web site security audits, an app for kiosks
  • Second 9-5: trading platform, a high-frequency trading framework that allowed writing custom strategies easily, pretty unique risk management software (the client company was later acquired because of that), hotel booking system testing for HUGE hotel&casino enterprise.
  • Second failed business: mobile MMO product - run out of budget for art, never got to the market
  • Side-jobs for living during the second failed business: optimized a game that was using too much RAM and crashed on iPhones at that time, was a job from 200+ employees local software company, but they had no ideas what to do... The game was really successful later. Done some work for the insurance client on my first failed business from my ex-partners.
  • Second 9-5 again: support for risk management software with a new owner, crypto exchange, crypto arbitrage software, yet another trading platform with better/custom analytics, charts, and integrations than the competition has (internal use for 250+ traders company)
  • Own small projects that made some money: web analytics tool/bot for a stupid but popular MMO, crypto arbitrage software, Forex trading bot (was actually negative with slippage, but killing it on the simulator lol), a Ph.D. dissertation software for my friend on theoretical physics, a masters degree software for friend based on my game engine from the university, helping friend with CruelPoker (dead now) bugfixes, maybe forgot something...
  • Hobby: electronics and IOT playing with AVR, ARM, ESPs, and other microcontrollers, offroading (built an ECU for old VAZ Niva)

So yeah, the niche was chosen more because of size/competition ratio and possibilities to add a lot of value there and going "boutique", possibly killing it. It also should be pretty interesting for our future employees, definitely not something other companies are doing here. And we have huge competition for brains here in Lviv...
 
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Johnny boy

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Anything, except AI really :) from embedded to high-frequency trading to complex web sites to games.

I have 12 years of experience building commercial software and like 17 total in programming. Won national programming contests a few times in school and university and my partner on the first business won Elance (now UpWork) contest (there were many winners with max score cause of stupid rules, actually) and got invited to Google after that.

We don't have an official company yet, just got an email that my e-residency card is ready for pickup. But we've started doing something as sole proprietorships already while still on 9-5.
So the current "company" projects were:
  • A tool for crypto ICO analysis that was crawling the web for info, monitoring telegram&twitter and just doing some math. Had like 20 metrics and helped local crypto-investment fund a lot at times it was really profitable. They've used it for picking ICOs, estimating ROIs and risk management. Really a console app that would just produce a CSV table as the result. I'm not counting that in my progress thread, cause I was doing that alone and we had no plans for a company back then. Fixed price.
  • CryptoDividend - done for a friend, only for equity.
  • NDA project that really took off - equity + fixed price for initial development, low pay per hour for ongoing development.
My experience...
  • School: hacking, the multitasking OS that's could run DOS programs with WinXP style UI shell that got the last place on the national competition lol, fluid/waves simulation software that got first place on two national competitions
  • University: a few games that were never finished, some small tools for the local clients, a pretty unique at the time game engine for my master's degree (only Stalker's engine could do large open areas and closed spaces efficiently back then)
  • First 9-5: web sites, desktop CRMs, VNC remote desktop software, router firmware, logistics routing library that used under the hood in many products
  • First failed business: a tablet web app for collectors of the big US insurance company, movers rating and picking service (similar to MJs limo business), few short web site security audits, an app for kiosks
  • Second 9-5: trading platform, a high-frequency trading framework that allowed writing custom strategies easily, pretty unique risk management software (the client company was later acquired because of that), hotel booking system testing for HUGE hotel&casino enterprise.
  • Second failed business: mobile MMO product - run out of budget for art, never got to the market
  • Side-jobs for living during the second failed business: optimized a game that was using too much RAM and crashed on iPhones at that time, was a job from 200+ employees local software company, but they had no ideas what to do... The game was really successful later. Done some work for the insurance client on my first failed business from my ex-partners.
  • Second 9-5 again: support for risk management software with a new owner, crypto exchange, crypto arbitrage software, yet another trading platform with better/custom analytics, charts, and integrations than the competition has (internal use for 250+ traders company)
  • Own small projects that made some money: web analytics tool/bot for a stupid but popular MMO, crypto arbitrage software, Forex trading bot (was actually negative with slippage, but killing it on the simulator lol), a Ph.D. dissertation software for my friend on theoretical physics, a masters degree software for friend based on my game engine from the university, helping friend with CruelPoker (dead now) bugfixes, maybe forgot something...
  • Hobby: electronics and IOT playing with AVR, ARM, ESPs, and other microcontrollers, offroading (built an ECU for old VAZ Niva)

So yeah, the niche was chosen more because of size/competition ratio and possibilities to add a lot of value there and going "boutique", possibly killing it. It also should be pretty interesting for our future employees, definitely not something other companies are doing here. And we have huge competition for brains here in Lviv...

Could you whip up a site that allows businesses to post bad customers and review them? "Suzie Padoodles in Salem, Oregon does not pay her invoices." And then other businesses can search for them to avoid problem customers or make them pay money upfront before taking them on. The same could be done for doing work with other businesses for B2B work. Its for business owners to make sure they filter out bad clients. Would you want to help me make this happen?
 

astr0

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Could you whip up a site that allows businesses to post bad customers and review them? "Suzie Padoodles in Salem, Oregon does not pay her invoices." And then other businesses can search for them to avoid problem customers or make them pay money upfront before taking them on. The same could be done for doing work with other businesses for B2B work. Its for business owners to make sure they filter out bad clients. Would you want to help me make this happen?
Sure, but doesn't this exists already? And if not, is it legal? Cause that's like sharing a lot of private info on customers, definitely won't be legal in EU with their recent GDPR. We do have this in Ukraine, though, and our companies are usually cloning products from abroad.

We can definitely make this idea a reality, but we're taking over the thread already...
 

Greg R

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And why?

If you could start over, and found two equal opportunities with one in providing a product and a second in providing a service, which would you pursue?

This is assuming that both opportunities conform to the CENTS model, and in early calculations they both have the same potential in terms of wealth/growth.
Doesn't matter.

One thing they both have in common is sales.

Which ever you choose, you're in the business of sales.

Start selling something.
 

Tanu1234

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I love this question.

I would prefer selling a service, and my business treats it as a product. The more you can take on the pros of each instead of the cons of each, you will have more success.

Services...

Pros: Large margins, always in demand, competition is usually other small businesses so not very competetive.

Cons: Difficult to scale, needs managers and deals with people much of the time, easily turns into you being your own boss and nothing more.

Products...

Pros: Scales easily, can run on autopilot once it is up and running, is regularly the type of business that can grow very large and become a recognizable brand.

Cons: Insane competition, low margins, hard to capture demand, 90% chance of it not going anywhere or making any money at all.

How to do this: Have a service and take away everything that makes it hard to scale, and then you will start to feel like you are in a product business that is taking off. I have a lawn care company so I will use this as an example.

Lawn care service​

How most people do it:

They do the work themselves at first. They post ads online and schedule work. They'll do one-time jobs, regular services, and they'll juggle the busy calendar themselves. Maybe they will hire a worker, but the worker will have a hard time understanding exactly what to do because it's a game of telephone between the customer and the owner. The worker will make mistakes because of this miscommunication and doing one-time services will cause them to have to return back to fix the job. They have to return and make the customer happy no matter what, or risk not getting paid since they only charge after work is completed. This cuts into their schedule and makes it hard to reliably schedule jobs in frequent succession, being forced to leave time for possible errors. They will stay busy, but lose money often, and not be profitable enough to hire more workers. The owner couldn't do it anyways because it would be twice the headache with miscommunication and scheduling and bidding jobs all the time. The owner realizes the company needs to perform higher level services and becomes a landscaping company. They can finally afford to hire better workers, and they make good money. The owner gets some more workers, and has a good business for himself. He cannot open another location because he cannot replace himself, the man that has to bid jobs, show employees what to do, fix all issues that happen, etc... He owns his one location and makes a few hundred grand a year. Good for him.

How you can turn your service into a low-attention product:

You focus heavily on marketing and sales, making sure to maximize the number of people that see you, hear about you, and eventually call you asking for services. You have hundreds of people calling you and only choose the few customers that 1. want recurring services and 2. are willing to pay a monthly rate that works out to be about $100 an hour that you price with a formula based on square footage. You sign them up on contracts that they are not allowed to cancel and prorate the totals over the whole 12 months so your revenue is no longer seasonal and they pay the same price each month. You offer only 1 or 2 plans and you make the work simple. You can fit many jobs all together and you know how long they will all take. You charge the customers' cards at the beginning of each month, and any mistakes you make you just correct at the next visit. The workers you hire can be more affordable because the work is predictable, repetitive, and simple. You have already signed up customers at an expensive rate, so you can be relaxed with your workers and not work them to death. They will have easy jobs and work at a reasonable pace so you don't have to watch over them constantly, even though you could because you track their location with GPS to see their progress. You don't have to constantly bid jobs because you only showed up once at the beginning of the year to sign them up. Since you can trust your income will be consistent, you can comfortably buy equipment and additional trucks without worrying about a dry spell. Since you have a simple formula for pricing and there are fewer mistakes and fewer issues for you to correct, it's easier to hire a competent manager since it already runs so well. Your simple systems allows you to replicate the process somewhere else with another location. You can now quickly and effectively combine the low-attention and scaleable perks of being a product business, with the profits and demand of services. And you'll one day build the Mcdonalds of lawn care while Joe Blow has his one landscaping company.
Awesome really[emoji108][emoji108]


Sent from my iPhone using Tapatalk
 

astr0

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If you could start over, and found two equal opportunities with one in providing a product and a second in providing a service, which would you pursue?

This is assuming that both opportunities conform to the CENTS model, and in early calculations they both have the same potential in terms of wealth/growth.
If they are really equal then Product every time.

However, they different so it's unlikely. Been thinking a lot on this recently, sharing my thoughts and findings in a CENTS projection would probably help someone.

Control
Serving one big client is not different than depending on one supplier or one retailer or one anything.
Totally depends on the type of product or service and how the business built.
Yet, products usually depend on more things, so a point goes to Service on this.

Entry
Products are usually harder, so a point for them.
They require broader skillset, while one marketable skill is usually enough to start selling it as a service.
Services tend to make money from the start, while a product can be profitable in years or never.
The risk factor also scares people making it a little less crowded (depending on the niche).
There are exceptions, however. Think about an entry for a service company that's designing airplane wings and aerodynamics to make them safer and use less fuel. Or a "product" business that sells a 10-page book written by a freelancer on Amazon.

Need
Totally depends on the business. Both can be huge, both can be useless.

Finding a need for a service is easier though and require less time and effort. Just try to sell your skill.
Find a proven market for a product is not that hard, improving what's there already is a little harder.
So maybe a small point for services on this. I would say it's pretty close to a draw.

Scale
Both can be scalable, but the process and results are different.

Product profit margins usually increase with scale. The scale is also easier to manage, even one person can handle the quite large product with the help of some VAs/freelancers here and there. In the enterprise, the company structure is more linear, fewer managers, more replaceable employees that do the same thing. It can scale a lot faster with one event leading to multiplication in profits. Putting more money on marketing is also easier than hiring new people. Word of mouth also works better - service has to scale delivery to handle more clients, while it's much easier to make more products and digital ones can handle any demand.

Service business has two scale options. Increasing headcount or increasing margins. Increasing margins has its limits and the higher you go the more demanding your clients will be. Why they would pay you if they have cheaper options that do the same thing? So delivering more and skewing more values in the array is required for this path. Hiring gets harder cause now you have to hire only the best of the best.
Increasing headcount is what most software businesses in Ukraine do. Hiring is much easier cause the pool is bigger. But that's the model with diminishing returns. A service company with hundreds or thousands of employees has really high operational expenses that are growing exponentially with scale. It gets bureaucratical with managers on top of managers on top of managers and there's no way to do it differently. The complexity of systems and operations increases, as is the number of things a business owner should care about. That's all while staying at the most competitive low-mid price range.

This leads to interesting results.
Let's compare the two service companies.
One is the one I'm working in as an employee. It's a small niched 8-people company that specializes in trading software, mostly for the stock market. The boss is authority there. Employee responsibilities are split, but we have no managers.
The other one is my friend's 260+ employee software development machine that's doing everything it can sale. He has a CTO partner with equal equity in it and the top management also has a small share of the company.
Yearly revenue of that machine is obviously a lot higher than my bosses one, but the pure profit my friend gets from it is only 20-30% higher than my bosses. Yet the complexity and effort put to build and to maintain that thing are through the roof and my boss is not even a good salesman and really good, but not the best techie too. My friend is pretty stressed all the time and has fewer vacations than his employees and my boss is often skiing somewhere with no internet connection.
Yes, my friend's company worth 8 figures and no one would buy my bosses company, but is that what you're after?

There's also no billion-dollar businesses without a product component (either products or productized-services). The scale limits for products are higher. Please correct me if I'm wrong on this.

With that said, a big plus for Products here.

Time
A service business can be detached from time, no doubts. But it's quite hard. The systems must be perfect and the top people must be the best and with some incentives to really care about the results. That's even harder if the business wasn't built with a goal to leave it in the future. The owner is the business pretty much all the time. Selling services, doing work himself, managing people in the beginning. Building systems, implementing them, managing top management, and looking for more scale at scale. Only he has the knowledge and experience required to grow it and even keep it running. That would be tough to delegate.

Products are always detached from time, everything that isn't can be delegated pretty easy.
More points for them here.

Services are better short-term, products are better long-term.

Both businesses can be lifestyle businesses, but the service business would be very limited in scale if that's what you want.
Both businesses can grow to an enterprise if that's your goal.
Starting with product business definitely requires harder balls or much more action-taking than thinking.
Service business tends to follow the market more naturally, it's harder to spot a direction for a product one.
Luck has more impact on products than services.
It's hard to fail a service business (yet I've managed to fail one).
It's pretty easy to get stuck on an Entry barrier with product business (have another failure here too).
Product companies worth more cause they've more automated without too much owner involvement, so there's less risk with buying one.
Product companies improve their products in a unique way over time, increasing profit margins and customers, thus overall profits.
Service businesses improve their operations, which is not very unique and focused more on allowing them to scale with controllable expenses than on improving their service quality and margins.
Services are full of ups and downs, especially at the beginning. Products are "down" at the start, but the following "up" later on usually is more stable.
Products have more room for an action-faking. Services don't leave much room for it as the process is pretty straightforward: land a client, get sh1t done, get paid.

Good Luck everyone!
 
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GradyS

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This is fantastic.

@Johnny boy I knew you would come in and crush it about the service side. Thank you for your input.

@astr0 That in depth look helps a lot, thank you!

I think one of the main reasons I've been struggling and standing on the trust fall box for weeks and never actually moving was because I was thinking about this the wrong way. Everything I've read is service service service. Service is the easiest to start up, never depend on Amazon/another site to sell your products, unsexy businesses are the king, etc.

So I wait. I struggle. I get frustrated and depressed because of my lack of action.

I should be looking at a product business instead. I am naturally an introvert. This quote hit home.

I guess it depends on what you're looking for in business. Services are probably better for extroverts and anyone who loves face-to-face contact as that's often the basis of a service-based business. Meanwhile, products are better suited to those who want to reduce the human factor (customer support, managing employees, etc.) as much as possible.
I know it's worrying about step 12 when I haven't even gotten to step 1, but every time I've thought about a product business my very first thought is, "But there's no way I could take the time to fly to China and walk the manufacturers production facilities."

You can easily see my struggle in the execution thread I started. I bounce between 5-6 ideas, and none of them feel right. I get anxious about having to deal with people just writing some of the ideas down.

I think it's easy for Amazon to be a 4 letter word around here because it slaps the "C" right in the face. If Amazon goes down tomorrow you could lose everything. I guess the right move is to possibly start on amazon but also create your own store front on a website?
 

Andy Black

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@Kak ? You posted something about products vs services on the inside...
 
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Kak

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@Kak ? You posted something about products vs services on the inside...
Indeed... Quoting my younger self:

Don’t put products or services in a box. Both products and services can be highly scalable business models. Sometimes a model can be a combination of both. Sometimes the waters are muddy. I always lean scalability first.

Is selling an investment opportunity a product or a service? Example a hedge fund, or REIT.

Is providing an all-in service program to the government with a physical technology product element a product or a service?

Is facilitating a buyers market for commercial electricity and selling the electricity itself a product or a service?

Could we call an airline a transportation service? Or selling a product, a seat on an airplane?

Is this forum a product or a service?

Is Google?

I could keep going, but I have learned something already in response to this question. My true answer... Who cares?
 

Kade

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Indeed... Quoting my younger self:

Don’t put products or services in a box. Both products and services can be highly scalable business models. Sometimes a model can be a combination of both. Sometimes the waters are muddy. I always lean scalability first.

Is selling an investment opportunity a product or a service? Example a hedge fund, or REIT.

Is providing an all-in service program to the government with a physical technology product element a product or a service?

Is facilitating a buyers market for commercial electricity and selling the electricity itself a product or a service?

Could we call an airline a transportation service? Or selling a product, a seat on an airplane?

Is this forum a product or a service?

Is Google?

I could keep going, but I have learned something already in response to this question. My true answer... Who cares?
Guess the distinction was first created by an economist.

“An economist is a mixture of 1) a businessman without common sense, 2) a physicist without brain, and 3) a speculator without balls.” ― Nassim Taleb
 

biophase

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I have 2 friends... one is selling a product online and the other is selling a service. Both of them are looking to start a second business. Both of them want to start the other type of business.

The one with a product says, I want a service where I don't need to worry about inventory and importing. Plus it costs so much money to purchase inventory.

The one with a service says, I want to sell a product so I don't need to deal with my customers and phone calls. I want to sell a product and let Amazon handle all the customer service and shipping.

Me personally, I like selling products. I designed a product in 2009 and it's still selling today with no changes. To me, that sounds so much more appealing than needing to improve my product/service every year. But this is my personal opinion.
 

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