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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.
 

RazorCut

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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.
 

MTF

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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.
 

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.
 

Jaden Jones

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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. :)
 

MattR82

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

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.
 

MattR82

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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!
 

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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