Services vs Products

Services vs Products

Services vs Products

In my book I claim businesses sell 1 of 2 things: services vs products. There is plenty social proof, of course, that enterprises of all sizes can experience success with either offering. Fortune 500 is a smorgasbord of cell carriers (services), gas providers (products), technology companies (products and services), and so forth.

So it’s worth arguing that services vs products are intrinsically better than the other; they’re simply different and with unique sets of challenges.

McKinsey, a world-renowned management consultancy, is one example of a service company that has a challenge of scalability. First, there are only a few thousand businesses with enough resources to retain McKinsey. Second, the resource of talent (human capital) to serve these clients is limited as well. Third, McKinsey consultants may only be at one place, with one client, at a time. If McKinsey wants more clients, then, the solution depends on more employees and increased global wealth.

Now let’s talk Facebook, the darling of consumer tech.

Laugh if you want, but Facebook can only scale to 2.4 billion users. When that happens they’ll need to a) destroy contraception in developed countries or b) move to the next phase of growth – increasing existing user engagement.

So the idea that some businesses scale and other don’t is simply untrue, because everything can scale. It’s just a matter of how much.

In startup land, however, services get a bad rap for their scaling challenges more so than products because service scaling is often a function of internal controls, whereas product scaling is more often limited by the readiness of the environment (external controls, ie: world population).

As such, startups with service offerings are getting clever with their value proposition by “productizing a service offering.” For example, if the pitch in 2004 was “web design,” the 2014 iteration is “5 simple website fixes for $50.”

But now the clever startup is manually performing backend miracles in an inevitably fledgling attempt to provide the instant gratification consumer expects from products, from their service. Eek.

Psst– This is also one of the biggest secrets of most startups. Customers may receive awesome, automagical, streamlined experiences, but the inner workings of that so-called “high tech machine” are truly broken.

But a business isn’t a website. The moment you think a button on a landing page will fix a broken business model, you’ve already lost. Which is why when I navigate the depths of startup la la land and come across an unassuming “Buy it Now” with a “Starting at $xx,xxx” price point, I start to smell fish. And I don’t like it.

When you productize your service offering, just know that sometimes it works and usually it doesn’t.

Ryan Kulp

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