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Services vs Products

Andy Black

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Lots resonate here.

It’s why I’m moving away from services to products.

From being a hired gun, having clients, having a personal brand, and saying yes to all-comers

... to slowly no longer being for hire, having customers instead of clients, building non-personal brands instead of personal brands, and saying no a lot more often. (It’s a work-in-progress for sure.)


Some of my takeaways:
  • Service business owners potentially spend more time improving and innovating their processes and company, and product business owners potentially spend more time improving and innovating their product.
  • You could decide NOT to try scaling your services business and work on the product side on the side.
  • Your revenue will likely drop as you transition (yep, it sure did).
  • A service based business often gives you the knowledge and insights to build a product based business.


Here’s another interesting podcast. It kicks off 15-20 mins in:


What’s your takeaways?
 
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Royce2

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That's what I'm afraid of with my wife's post construction business. We want to scale it but how can you scale the quality she is known for? If we get deep into this, I feel like it will be hard to get out of a lot of things tied to it like bottle necking, quality control, customer satisfaction etc.

My belief in service business is that it's simply a medium of personal growth to whoever is involved. For example, I worked as a cutter boy for a house builder and 2 years later I left him and moved on because my skills proved to be more valuable than he can afford. And that's okay.

A service business has to really stay in the "artisan" stage to get the most value out of it.

I really believe there is a genius in service process as well, just like a computer program. But that is now leaning towards a service based around a product. Like AT&T having customer service to support their product to retain customers.
 

Andy Black

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I’m sure @Tom.V has thought about this as he’s scaling an agency with clients.
 

Isaac Oh

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That's what I'm afraid of with my wife's post construction business. We want to scale it but how can you scale the quality she is known for? If we get deep into this, I feel like it will be hard to get out of a lot of things tied to it like bottle necking, quality control, customer satisfaction etc.

My belief in service business is that it's simply a medium of personal growth to whoever is involved. For example, I worked as a cutter boy for a house builder and 2 years later I left him and moved on because my skills proved to be more valuable than he can afford. And that's okay.

A service business has to really stay in the "artisan" stage to get the most value out of it.

I really believe there is a genius in service process as well, just like a computer program. But that is now leaning towards a service based around a product. Like AT&T having customer service to support their product to retain customers.
Have you read The E-Myth? It goes a lot into creating systems so that less competent people are able to provide the consistently amazing service that your wife's business is known for. Hopefully that can help you
 
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Andy Black

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"Built to Sell" is good too.
 

Andy Black

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NOT selling on ROI (23 mins in)
  • One thing that resonated in the second podcast is that when you're selling a productised service or product then you're often NOT selling ROI.
  • I've found this myself. When a client is paying €3k/mth or €5k/mth and we're managing a big ad spend then the client is often very ROI driven ... on the ad spend AND on the management/consulting fee.
  • When a client is paying a tenth of that management fee and a fraction of the ad spend, then they are less focused on the ROI. One client pays €250/mth to be able to turn the ads on and off whenever they want. Most of the year the ads are off (like 95% of the time).
  • I've also had to tell my salesman NOT to promise people they'll make sales from working with us. We can't control whether they make sales, or even if they get enquiries. If their offer isn't competitive, if their website sucks, or if their competitors are running circles around them, then we can't promise the client will convert visitors into enquiries, never mind sales.

Not having technical skills can HELP
  • By not being able to do the technical work, you have to immediately outsource/delegate.
  • It can help you escape the technician stage earlier.
  • In my experience, I tried to delegate/outsource my technical skills, and I quickly took it back again. Mostly because I'm doing consulting still, and want to gain the insights and create the tools/processes that I can use to hire lesser skilled technicians. So take everything with a pinch of salt.
 
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Tom.V

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Thanks for the tag @Andy Black .

As many of you may know, I am building up my agency and refining it day in and day out. Personally, I really like the service I offer and have no plans of abandoning ship until I see it all the way to the end. The business is flexible, adaptive, and dynamic. While it is a monstrous amount of work to scale it and hire the right people for the right roles, when you do it right it is the most rewarding thing ever.

The key here of course is hiring the right people to fill the right roles. If you're literally trying to duplicate yourself, be ready to pay for talent. Be ready to reward that talent as they continue to fail and strive. It really takes being a great leader to make it all work and continue onward towards the business goals.

For services specifically, processes for talent to follow and rules for them to abide by is necessary. I've spent hundreds if not thousands of hours thinking through and refining organizational aspects or project management pieces and I'll continue to. BUT, and here's the best part, as my talented team gets more and more experienced and closer and closer to the visionary groundwork I have laid, they can begin picking up these pieces I have laid the groundwork for. Aka they can start think tanking their way through these cumbersome problems that arise as you rapidly scale an organization.

More time focused on these problems from the team as a whole going in the same direction. It's a magical thing once you start seeing people come into their own. This all means I have to do less and less of the day to day and can focus more on other areas of the business, wherever that may be. Such as hiring more great, talented people to join us on this journey.
 

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You may be interested in Dan Kennedy, specifically on how he got out of this paradigm of being a copywriter into becoming a positioning master.

He positioned himself as the most expensive authority in his niche. Created courses, newsletters, magazines, books, conventions etc. His copywriting is now a very expensive service he sells only a few times a year, it's almost silly 100k + a percentage of the increased profits = a lot of money per client.
 

NewManRising

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One thing I will add is that with services (depending on the service) it tends to be B2B. Which means, these people are smarter with money and can be picky and hard to get money from. On the other hand, products (depending on the product) tends to be more B2C. In my opinion, it is easier to get money out of consumers than businesses.

Products also allow you to be behind the scenes and not have to consult/discuss problems with people to get them to buy from you (such as in a service).
 
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Andy Black

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One thing I will add is that with services (depending on the service) it tends to be B2B. Which means, these people are smarter with money and can be picky and hard to get money from. On the other hand, products (depending on the product) tends to be more B2C. In my opinion, it is easier to get money out of consumers than businesses.

Products also allow you to be behind the scenes and not have to consult/discuss problems with people to get them to buy from you (such as in a service).
I like that my services are B2B. I'm prefer dealing with business owners instead of non-business owners.
 

Andy Black

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Just listened to this on a plane. Will come back and comment later.

EDIT:

I’ll relisten to this a few times.

My takeaways from memory:

There have an excellent discussion about whether making a living from someone else’s ecosystem is dangerous or not. The consensus (that I agree with) is that he’ll be fine attaching his flag to the Shopify mast.

It’s gonna take 3 years, and you’re going to need patience and keep nibbling forward.

He started by looking to solve problems for people in a Shopify forum. (Funny that... I mention this all the time - go help people.)

He started as a freelancer, then became a service provider, and is now starting to create products.

You may start by paying more to your developers than you pay yourself. I think I’m paying out more than I pay myself, and it’s good to remind myself of the long term vision.

Sugar vs vegetables. Short-term cash injections are so attractive, but anyone can hustle. The entrepreneur is focused on growing healthier revenue streams.

I believe he eventually had to change his domain and rebrand. So even though Shopify were originally OK with his domain name... they changed their mind. I personally wouldn’t have someone else’s brand or product in my domain name.
 
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JWM

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We want to scale it but how can you scale the quality she is known for?

How to scale existing quality and standards. That's something I'm trying to work out now as my business starts to bring in new employees.
 
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Pinnacle

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Lots resonate here.

It’s why I’m moving away from services to products.

From being a hired gun, having clients, having a personal brand, and saying yes to all-comers

... to slowly no longer being for hire, having customers instead of clients, building non-personal brands instead of personal brands, and saying no a lot more often. (It’s a work-in-progress for sure.)


Some of my takeaways:
  • Service business owners potentially spend more time improving and innovating their processes and company, and product business owners potentially spend more time improving and innovating their product.
  • You could decide NOT to try scaling your services business and work on the product side on the side.
  • Your revenue will likely drop as you transition (yep, it sure did).
  • A service based business often gives you the knowledge and insights to build a product based business.


Here’s another interesting podcast. It kicks off 15-20 mins in:


What’s your takeaways?

I entered a service-based business 2 1/2 years ago that I've successfully turned into a product-based business.

HARD work.

The time it has freed up and stress it has eliminated has been monumental. It's so much easier to sell, so much easier for customers (formerly clients) to buy, and it is so much easier to create value-added products that push customers closer to their goals.

Scaling a service business is doable, but turning your service into a product is worth the investment.
 

MichaelCash

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Services are also good when they don't require a lot of time or efforts. If you can optimize this process and make it scalable. Look at some services on fiverr. For example, they can promote your website by posting your ad on some popular blogs. This is not time consuming. They just post your text and charge you $10 or so. I see some sellers have have huge number of orders and a backlog in the queue.
 

Rincewind

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I entered a service-based business 2 1/2 years ago that I've successfully turned into a product-based business.

HARD work.

The time it has freed up and stress it has eliminated has been monumental. It's so much easier to sell, so much easier for customers (formerly clients) to buy, and it is so much easier to create value-added products that push customers closer to their goals.

Scaling a service business is doable, but turning your service into a product is worth the investment.
@Pinnacle that sounds great, could you describe what Kind of service you transformed Info which Produkt and how you Made thus decision?

I run an IoT engineering service company and would like to Transform into a productised service. I read built to sell this week and try to find out how to define my Future product.
 
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Pinnacle

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@Pinnacle that sounds great, could you describe what Kind of service you transformed Info which Produkt and how you Made thus decision?

I run an IoT engineering service company and would like to Transform into a productised service. I read built to sell this week and try to find out how to define my Future product.

It's a professional service for businesses. I tested and offered it as a done-for-you service you can order online.

Customers buy the service, and then we invite them to log into their project using an online portal we created. At that point, I have a small, trained team of contractors who deliver the service and communicate with customers.

The business is now virtual and can be run from anywhere in the world.
 

PizzaOnTheRoof

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It's a professional service for businesses. I tested and offered it as a done-for-you service you can order online.

Customers buy the service, and then we invite them to log into their project using an online portal we created. At that point, I have a small, trained team of contractors who deliver the service and communicate with customers.

The business is now virtual and can be run from anywhere in the world.
Nice work! That’s ultimately my goal.

How would you recommend doing this for a recurring service?
 
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Pinnacle

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Nice work! That’s ultimately my goal.

How would you recommend doing this for a recurring service?

If you're referring to billing, make sure you charge upfront, and then set up all clients on recurring monthly invoicing. You can do this with Wave or Paypal (or something else).

Set up a Zapier integration where when an invoice is paid, a project is automatically started for a client...whatever a project looks like for you.

If every project you do is custom, either get away from that quickly or find the parts of your process you can standardize so you can deliver the same level of service to all customers in a scalable way.
 

Andy Black

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Rincewind

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It's a professional service for businesses. I tested and offered it as a done-for-you service you can order online.

Customers buy the service, and then we invite them to log into their project using an online portal we created. At that point, I have a small, trained team of contractors who deliver the service and communicate with customers.

The business is now virtual and can be run from anywhere in the world.

That sounds great, thank you!

We offer IoT product development and I try to get that into a more productised version. But we have a large amount of customer interaction an need several rounds of feedback with them.

Currently I try to define several "packages" with defined deliverables, at least on the project management and process side is a huge potential to move it into a productised direction.
 

Andy Black

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That sounds great, thank you!

We offer IoT product development and I try to get that into a more productised version. But we have a large amount of customer interaction an need several rounds of feedback with them.

Currently I try to define several "packages" with defined deliverables, at least on the project management and process side is a huge potential to move it into a productised direction.
A way to start is to create a sales-page with a price and Buy-Now button. I don’t have one yet, which shows I have work to do before I have a productised service.
 

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Here's the biggest problem with physical product:

You won't get paid for years if you're growing organically and want to keep growing.

Right now I'm sitting on a lot of inventory.
  • Want new customers? Ok. Need more inventory.
  • Want to add products to increase the value per customer? Ok. More inventory.
  • Want to provide a better service and never be out of stock? Ok. More inventory.
There's a lot of risk associated with holding inventory. Market changes and no one wants the product you're carrying anymore = you're screwed.

Have $10,000 left in the bank account and the market slows down for a couple months = Might go out of business (at scale you're paying a lot of overhead, even you guys with the Amazon October+ months where they're charging you triple or whatever).

Want to pay yourself out? Ok. That comes at the cost of growth, service, or your existing income stream.

If you're going to launch a product business, grow organically, and keep increasing the size of your business, then you need to go in with the expectation that you won't pay yourself out for at least 2 years.

For any imported product, calculate a bare minimum 2 month lead time. 3 months is typical for most products and factories . 2 months productions, 1 month on the sea. Add a day to a month on unloading the product depending on the product, your process, and how much time you have to unload, arrange, take pictures, bring the product to market. If you're doing an Amazon business, then there's a good chance the market changes by the time you introduce a new product. More competition, lower prices from existing competitors, etc. There's always someone competing so you have to calculate that into what you're doing.

You can ask any of the product guys about this. When they start, the numbers look good. When they start growing that's where you'll start hearing from people wondering if it makes sense to do products. You'll start wondering if a service based business would be better since your cashflow is a lot better for paying yourself out. "Yeah, I'm making a lot of money, but really, I'm cashflow breakeven." That's a thought that you have to live with for 2 years at least if you want to be serious about what you're doing.

Growth is the only way to minimize business risk. So the longer you "stagnate" by paying yourself out, the more likely you are for your business to eventually get eaten by the competition. A lot of stress. Not for the light hearted.
 
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Ultimately, it boils down to what you're good at, what problems you like tackling/solving and what type of struggles you feel like dealing with on a daily basis.

Generally speaking, the barrier to entry is lower for services businesses (you don't have to be a good business person to generate some revenue), but the ability for scale is better for product businesses. In other words, services are typically lower-risk, lower-reward; products are typically higher-risk, higher-reward.

That's a very good point of view, thank you! I think that in the end even a productised services business is still a service business. We will still develop products for our customers, I just try to get it into a more structurized process and get cashflow, development process and expectation management more steady.

Since I see product businesses as our clients on a daily basis and am a shareholder and CTO in a scaling product startup I see the major difference here. Even if I can standardize our service a lot it will still be far away from a business developing and selling a phygital product.

Which one is going to be right for you is going to depend not only on your strengths (like I mentioned above), but also where you are on the risk aversion scale...

That's another good point. I like the lower-risk way of services, since I can control cashflow much better. We will continue co-founding tech-startups when we can be a good tech partner for them and get the scalability of product based businesses here, with a much lower risk.
 

Andy Black

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@JScott ... when you said product businesses have higher risk were you meaning physical products specifically? I’m selling a course and it doesn’t feel riskier to scale this.
 

Andy Black

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Here's the biggest problem with physical product:

You won't get paid for years if you're growing organically and want to keep growing.

Right now I'm sitting on a lot of inventory.
  • Want new customers? Ok. Need more inventory.
  • Want to add products to increase the value per customer? Ok. More inventory.
  • Want to provide a better service and never be out of stock? Ok. More inventory.
There's a lot of risk associated with holding inventory. Market changes and no one wants the product you're carrying anymore = you're screwed.

Have $10,000 left in the bank account and the market slows down for a couple months = Might go out of business (at scale you're paying a lot of overhead, even you guys with the Amazon October+ months where they're charging you triple or whatever).

Want to pay yourself out? Ok. That comes at the cost of growth, service, or your existing income stream.

If you're going to launch a product business, grow organically, and keep increasing the size of your business, then you need to go in with the expectation that you won't pay yourself out for at least 2 years.

For any imported product, calculate a bare minimum 2 month lead time. 3 months is typical for most products and factories . 2 months productions, 1 month on the sea. Add a day to a month on unloading the product depending on the product, your process, and how much time you have to unload, arrange, take pictures, bring the product to market. If you're doing an Amazon business, then there's a good chance the market changes by the time you introduce a new product. More competition, lower prices from existing competitors, etc. There's always someone competing so you have to calculate that into what you're doing.

You can ask any of the product guys about this. When they start, the numbers look good. When they start growing that's where you'll start hearing from people wondering if it makes sense to do products. You'll start wondering if a service based business would be better since your cashflow is a lot better for paying yourself out. "Yeah, I'm making a lot of money, but really, I'm cashflow breakeven." That's a thought that you have to live with for 2 years at least if you want to be serious about what you're doing.

Growth is the only way to minimize business risk. So the longer you "stagnate" by paying yourself out, the more likely you are for your business to eventually get eaten by the competition. A lot of stress. Not for the light hearted.
Yikes. This stresses me out just reading it. Fair play to those going this route.
 
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Andy Black

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The risk comes in the product development stage. Typically, the more potential a product has to scale and generate income/profit, the more risk there is developing the product -- risk in terms of time, effort and money.

For example, you mention selling a course. Some courses are very easy to create, don't require a lot of specialized knowledge, don't require a lot of effort to design and build, etc. But, they typically don't have tremendous potential for profit. Think of thousands of internet marketing and SEO type courses out there -- anyone with a computer and a couple weeks or effort can create one of those.

Other courses are highly specialized, niche, backed by uncommon expertise and thoroughly laid out and designed -- they often have more opportunity for income/profit. For example, people are willing to pay me $10,000 a pop to mastermind with me on real estate because I have specialized knowledge on the topic that most people don't have. It took me a decade of study, implementation and experience to build that knowledge that people are willing to pay me for.

If you think your course has the opportunity for tremendous profit, I would be willing to bet that you'd also say that the course is based on expertise that you've spent years (decades?) cultivating and that you have an expertise in that most other people can't claim to have expertise in. The fact that you spent years devoting time and effort to learning that information translates to a big risk -- if the course doesn't sell for any reason, those years of time/effort are wasted on that specific product.

Long story short, if a product can be created with little risk, that means there is essentially no barrier to entry for that product, and that translates to lots of competition, which decreases your profit-potential. Competitive advantages are built on risk (risk in terms of time, effort, money) that was previously invested, and that's what provides you the massive profit potential.

Low risk, high reward is the pot of gold at the end of the rainbow (it doesn't really exist).
Gotcha.

Yes, a decade of experience providing a service means I can create a course that helps people DIY it. For me, it's now low risk to add this product to the service I'm already selling.
 

AgainstAllOdds

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Low risk, high reward is the pot of gold at the end of the rainbow (it doesn't really exist).

A counterpoint to this: If you have an existing client base that buys from you, and regularly have discussions/feedback from your clients, then these low risk high reward products do exist. Your clients tell you what they want and you get it for them.

However, to get to that point you need to do a lot of legwork in order to have those clients and that feedback.
 

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