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Product vs Service - Which Do you Prefer to Sell?

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.
 
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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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ItsAJackal

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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?
 
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Andy Black

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

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
 
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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.
 

astr0

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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.
Both of your friends would love digital products.

No inventory. No importing. No investments to purchase inventory and the servers are quite cheap.
No phone calls. Minimal customer service. No shipping.

A big investment upfront to create the product and some relatively low recurring improvement costs.

From my short experience with both, I would say products are more fun. That's probably partly because I'm currently in services for more than a year.

With services, you're actually managing the service more than doing sales/marketing. You're getting paid for your time which is hard to resist in a small company plus hiring people is a pain, especially in high-skilled fields like software engineering. We get 20+ relevant CVs per position, talk with every one of them, and do 10-15 interviews to hire one developer. There are two interviewers, so it's roughly 45 hours to hire someone great.

Services do scale well, slow, and steady. I would also say they're more stable at any scale.
On the other hand, the web product we had crazy swings with almost 0 profits during the COVID lockdowns and more than service business can make at the current scale in a year on best months.

With product business, you have more free time for high-level thinking and taking actions based on that. With services you're stuck in the business 80% of the time, have 20% time for sales and thinking. Taking actions on evenings and weekends.
 

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