Service Business
vs.
Product Business
Which one is better?
vs.
Product Business
Which one is better?
1/ Definitions
For the purpose of this thread, my definitions are as follows:
• Service business: One that is delivered by people (man-hours)
• Product Business: One that is delivered via a tangible good
For the purpose of this thread, my definitions are as follows:
• Service business: One that is delivered by people (man-hours)
• Product Business: One that is delivered via a tangible good
2/ Which one is easier to start?
Service Business:
To get started, you need a website and maybe some marketing
Start-up costs are usually low
A service business has a fast time to market
Service Business:
To get started, you need a website and maybe some marketing
Start-up costs are usually low
A service business has a fast time to market
Product Business:
To get started, you need to build a product before you can sell anything to customers, or
You need to source a product and that you can sell
A product business has a slower time to market
To get started, you need to build a product before you can sell anything to customers, or
You need to source a product and that you can sell
A product business has a slower time to market
3/ Which one requires more capital/risk?
Service Business:
I started my CFO business with a $20,000 investment
The business was able to pay this back to me in the 1st year
Service Business:
I started my CFO business with a $20,000 investment
The business was able to pay this back to me in the 1st year
Product Business:
The average product business requires more startup capital than a service business
If you’re going to build a new product, you need money (either your own capital or through investors) to develop a prototype
The average product business requires more startup capital than a service business
If you’re going to build a new product, you need money (either your own capital or through investors) to develop a prototype
4/ Which one is easier to scale?
Let’s take a look at some numbers to illustrate this point:
Service Business:
• Company: EY
• Revenue: ~$40 billion
• Employees: ~310K
Product Business:
• Company: Apple
• Revenue: ~$360 billion
• Employees: ~150K
Let’s take a look at some numbers to illustrate this point:
Service Business:
• Company: EY
• Revenue: ~$40 billion
• Employees: ~310K
Product Business:
• Company: Apple
• Revenue: ~$360 billion
• Employees: ~150K
Apple is a product business that generates 9x more revenue than EY and yet employs half the people that EY does
Product Business
When land on the right product, your revenues can increase exponentially - it’s MUCH easier to scale
Service Business:
To scale a service business, you always need to add more people to grow the business which makes it HARDER to scale
When land on the right product, your revenues can increase exponentially - it’s MUCH easier to scale
Service Business:
To scale a service business, you always need to add more people to grow the business which makes it HARDER to scale
5/ Which one can make more money?
Both types of businesses can make loads of money
The $40 billion business that EY has created is nothing to laugh about
However, product businesses are in sometimes in a different league
Here is why:
Both types of businesses can make loads of money
The $40 billion business that EY has created is nothing to laugh about
However, product businesses are in sometimes in a different league
Here is why:
EY started in the 1900’s
Apple started in the 1970’s
Apple started it's business 70 years later than EY and is now 9 times bigger than EY
Apple started in the 1970’s
Apple started it's business 70 years later than EY and is now 9 times bigger than EY
This goes to show, when you have the right product (i.e. the iPhone),
A product business can grow at a pace that no service business can match
A product business can grow at a pace that no service business can match
TL;DR:
1. A service business is easy to start
2. A service business needs less capital
3. A product business is easier to scale
4. A product business can make more money
1. A service business is easy to start
2. A service business needs less capital
3. A product business is easier to scale
4. A product business can make more money
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