This has been a long lasting debate as to which type of business has greater ability to turn into a successful venture and which business doesn’t. Entrepreneurs have been, for long, confused about the choice of business they wish to make. Before taking the leap though, the most important question which bugs a young mind is that of the type of business person they want to be. “Do I found a product-based business,” comes the thought, followed by “or a Service-Based one?”
The Difference Between a ‘Product’ and a ‘Service’
Before one can begin delving into the matters of choosing what business they want to set up, it becomes imperative to also understand the fundamental difference between a product and a service.
A Product refers to a virtual or a physical commodity which can be purchased/leased by an individual, company or a group of individuals.
There are numerous examples of products in the market. A smartphone sold by Samsung can be perfectly cited as one.
One the other hand, A Service refers to a task or a group of tasks an individual, company or a group of individuals undertake for another individual, company or a group of individuals for an agreed upon compensation. A printing press is an excellent example. When you need printing done, you can just go to one and ask for print outs instead of purchasing a printer for yourself and printing all your copies on your own. You pay the owner of the press in exchange for his services.
Product Based Business – The Good and The Bad
Having a product and its strategy is great – but the same cannot be said about the efforts in executing the strategy and getting your product to reach the audience and customers. Before you jump into the pool of selling-a-product-for-a-living-entrepreneur, a diligent look at the challenges is a must.
A few challenges which almost every startup faces, is coming with a unique product of your own. If you have a product which can solve an existing problem faced by the people, your idea might just be the next million-dollar-business idea. Let’s consider the example of cell phone accessories and phones – a shop which sells phones and every type of accessory is rare to come by. Customers more often than not, roam from shop to shop finding just the right piece for their coveted phone. Solving that problem might become the perfect product customers would flock to buy.
Another challenge is to hold on till you break through. Most products require research, development, testing, feedback and then repetition of the cycle. This is equally true for physical and virtual products. Having the patience to hold on till it clicks with your customers is crucial.
The largest hurdle by far is finance – getting the dough to actually manufacture your product with cost-effective measures.
Once these challenges are mitigated, the road ahead is clear and profits begin pouring in. Mostly, a product has a short sale-cycle – which means you get money quickly enough to mitigate cost, book gains or even reinvest the earned money back into improving your product. Most startups which have been able to break-through have registered rapid growth in profits.
Service Based Business – The Good and The Bad
More youth are attracted towards a service based approach to begin their entrepreneurial journey, since the set-up cost/initial investment is minimal. However, the service industry is not devoid of challenges of its own. The waters usually go deeper than what one might think.
While offering a service, the most important factor that comes into play is the clientele. Thriving service-based businesses have their clients satisfied at all times, who, in turn, bring in more work through the word-of-mouth. A good service is synonymous with a profitable business. Should you be ready to take up the daunting task of managing multiple clients and keep them happy, you might just be in the right spot to take the load off a few shoulders in exchange for a handsome check.
Product vs. Service – Comparison
In order to be able to make a solid decision should you find yourself in a state of confusion, you can take a look at a few points of comparison between a service-based and a product-based venture.
While a product takes time to be perfected and must be created before you can sell it, a shorter sale cycle brings money faster once a profitability point is crossed. This way, you can earn more and grow virtually exponentially compared to a service. On the other hand, a service based businesses usually require almost no capital. Some services like social media management can be done from the comfort of your home sofa with the need of just a laptop and a stable internet connection.
But then, It becomes easier for a product to sell itself with minimal marketing once it earns its name in the market and makes a permanent place in the hearts of your customers. Although the same can be said about a service too, product-based companies have fared better in this regard over the last few decades.
Having said that, it is also true that more and more people are getting busier and busier with the fast paced environment of the 21st century. They need someone to do a lot of things on their behalf, bringing service-providers into the picture. Average growth of service-based companies has been consistently on a rise.
While the data in the graphs above shows that both the sectors have been growing globally, the service sector has shown greater scope of growth. The growth of the service sector However, as more and more people flock towards services, that leaves a gap in the products sector which can be filled up. From the latest data, it appears that opening service-based business is the more pragmatic approach. At the same time, higher competition in the sector would also demand that you consider other viable options before making your choice.