Service vs Product: 5 Points to Keep in Mind When Deciding on a Startup Type

If you want to start a business and are looking for ideas, both services and products can be very profitable. Each type, however, can also present many unique obstacles along the way. For example, if offering a service, you’ll need to consider what types of clients you’ll serve, the frequency of client interaction, your pricing model, etc. If selling a product, considerations include cost of development, overseas or onshore production, cost of inventory, and marketing, for starters. As a novice entrepreneur, it’s very important to understand all aspects of both services and products before making a final decision. Here are a few points to keep in mind.

1. Investment

A small service business can be relatively inexpensive to start, especially if you’re providing the service yourself. Think of a kid starting a lawnmowing business with just a mower and some grit. Even growing that business can be fairly easy, especially in today’s “gig” or freelance economy. A product, on the other hand, typically requires a bit more investment on things like prototype design, development, production, and initial inventory, not to mention storage and distribution. These are generalities, of course, as it always depends on the type of service and product, but entrepreneurs usually spend more time and resources launching a product.

2. Marketing

The marketing of a product or service is usually different for a larger company than for a small startup like ours, and also depends on if you will be marketing to consumers (B2C), businesses (B2B), or both. For example, if you build a supermop, you can sell to homeowners and shopowners alike, although ideally you will optimize your marketing to focus on one or the other. Service marketing, especially for very small startups, tends to be more about the entrepreneur and his or her personal brand, which these days is accomplished more and more via social media.

3. Inventory

A product-based business requires manufacturing or purchasing inventory, which must first be stored and later, possibly liquidated – all of which can be expensive. Storage costs can be minimized if you keep the product in your home or garage at first, or if it is produced on demand. With a service-based business, you may not have a physical product, but the hours spent providing and honing your service become your inventory, and should be treated accordingly.

4. Expansion

While the “gig” economy and increased freelancing have made it easier to offer and market your services, expanding your service-based startup can be tough, especially if you are the only one providing the service. As the saying goes, there are only so many hours in a day. For the most part, a product-based business is easier to expand by simply placing a larger order with your supplier or ramping up production. Unless, of course, you are making the product yourself, in which case, see above.

5. Pivoting

It’s almost inevitable that at some point as an entrepreneur, you’ll find your business model just isn’t working and you’ll need to pivot in a different direction. If you’ve already invested heavily in product development and production, this pivot probably won’t be as easy as it would be for a small service startup.

While all of these points are factual, they are also somewhat subjective. And although they seem to lean toward choosing services over products, don’t underestimate the power of the fourth point. A product can quickly make wealthy an entrepreneur who has the resources and has perfected the art of expansion.

If you need help growing your product or service business, please contact us. Let us put our startup experience to work with your startup experience and increase your chances for success.