14 Jan Deciding Between a Product or Service Oriented Business
When people start playing with the thought of starting their own business, the first thing that needs to come is the idea. What will I do that will make me happy, have demand in the market, and earn me some decent money? The first question that comes up is whether to start a product oriented or a service oriented business.
Today I’d like to shed some light on the main differences between these two, while also pointing out some of the pros and cons of each option.
Product oriented startups rely entirely on selling a “thing” that’s usually the same for everyone. The products stretch from software solutions over interned-based data and analytics to sweaters or cakes. When selling a product, you need to invest a considerable amount of time in product development, and it may take long for the product to actually find its demand to fill. However, once that is settled, you’ll be delivering the same product (with possible upgrades and expansions) as long as the demand lasts and as long as the customer pays. The research and development is an one-time investment, and the rest of the time is spent on marketing and selling the “thing”.
Service oriented startups are businesses that profit from offering human skills, services and expertise for money. Whether it’s house cleaning, construction work, web design, financial consulting or legal representation. The final version of the service is a part of every pre-contract negotiation, and it is subject to a high amount of personalization in order to fill every customer’s specific needs. The selling process starts right after defining your service and finding the first customer. If you’re selling a certain skill, you should dedicate a fair amount of time to practicing and developing said skill to keep up the quality and extend your knowledge.
Other differences also include the pricing system (single pricing tier vs. customized price based on requirements), the “no” moment (a product can only fill the requirements it was made for, whereas a service can expand and cover more areas), or the sale pattern reusability (a product gets sold to everyone the same way, a service requires a more personal approach for each customer).
Generally, a service oriented business takes less money to start (given you can do the service or know people who can), but it also generally brings a smaller revenue growth.
Product orientation requires a significant investment during the product development, advertising and stabilization period. Product upgrades and improvements also mean a significant cost, plus the risk is higher because a) it takes longer for the business to start earning money due to the high initial costs and b) there’s no guarantee that your product will be a success, regardless how much money you spent on market research beforehand. But if the product catches on, the revenue by far outweighs the initial investment, as this graphic from thehurdlebook.com suggests.
All in all, it’s up to you how you decide; whether you choose the “easier” and more straightforward way of service, even knowing that the sales probably won’t go through the roof but they’ll make a living, or the more adventurous and demanding way of product that requires much more resources, but will reward you with growing success overtime, if you get it right.