Why You Should Fire Your Clients And Launch A Product

Hitting the Jackpot!

There are more benefits to running a product business, but we can’t cover all of them in this article. The final one we’ll look at is what I like to call the Jackpot Potential. This is the unlikely but real potential for your business to grow much bigger than you anticipated.

If your web design business takes off in a big way, what’s the maximum amount of money you can expect to make? Given the scaling difficulties of a service business, the amount of money you might make is limited. Of course, if you manage to sustain meteoritic growth for many years, and grow into a multi-billion dollar consulting company, the profits would be huge. But growing a consulting firm to that size requires a very different set of skills than running a small web development shop, and it will take an enormous amount of work, talent, and luck. Even if you have built a successful design practice and you have the opportunity to grow it into something huge, the hardest work is still ahead of you, for many years to come.

When building a product business, you should never count on the jackpot potential. It might happen, but it should not be your only goal, since it’s very unlikely. Building a start-up that grows huge takes a rare mix of genius (in product development), luck (in timing the market) and very hard work. However, these rare elements come into play before the opportunity to grow gigantic arises. If you’ve built a fantastic product and been the first to serve it to the right market, so that it is on the cusp of growing to become a very large business, most of the really hard, really risky work is behind you.

Both service and product businesses can become giant businesses, but the timelines for doing so are very different. Because of the differences in scaling difficulties, it will take you twenty or more years of exceptional luck, talent, and hard work to grow into a large service business. In a product business, although these elements are still required, a handful of years can be enough. Look around you—this is exemplified by, well, most of the great online successes, all of which were only a few years old when they grew to their current size.

The Downsides of a Product Business

With all these advantages, why doesn’t everyone build a product? Why bother with services? Although I myself believe that online products are a better choice, there are some good reasons why one might choose to start (and even pursue in the long term) a service business.

The first consideration is one of risk. Product businesses are much more risky. A web development shop knows that almost every bit of billable work it does will be paid for. A product business has no such guarantee. Until the first client validates your business model by paying you money for your product, there is not a single penny of income. It’s very unlikely for a service business to go bust having not produced any revenues at all, yet this happens to countless start-ups. If your situation in life forces you to be very risk-averse (for example, you have a family, mortgage, and so on to support), a product business may not be the right choice.

Another difficulty of product start-ups is the need for up-front investment. Whether you decide to spend your evenings and weekends on it, or to hire yourself and others full-time (or both), a product start-up requires that you put lots of resources into the creation of the product before having the option to make any profits. If you have no way to raise that initial capital and no free time to invest, then it is impossible to start this kind of business. By contrast, a service business can be sustainable and profitable from day one, since you bill for hours worked, and so it funds itself more naturally.

Another reason to avoid a product start-up is that successful product development is very hard—harder than client work. Web development clients may be fickle and not know what they want, but at least they will try to define the requirements for you, or tell you when the requirements you’ve come up with look right (and whether they’re willing to pay for you to implement them). In a product business, no one can tell you whether you’re building the right feature—or even whether your business model is viable at all. You have to follow your instinct and experience, with no validation until users finally start paying for your product. Product development is never completely “out of the door,” either. The only time you can draw a line under your product and say it’s finished is when you decide to wind down your business.

This never-ending uncertainty is often under-estimated, but it is one of the greatest difficulties in creating a product business. Like any other entrepreneur, you will suffer highs and lows, but with a product start-up you’ll have no validation that it’s worth doing until it succeeds, which demands a lot of optimism and great sense of faith in yourself.

Conclusion

Product businesses have several advantages over service businesses. They’re more scalable, allowing you to grow your business from its humble beginnings to a much larger and more profitable size with relative ease, when compared to the headaches of hiring ever larger numbers of consultants. Product businesses are also a more natural way to produce residual income, which allows a more flexible lifestyle and more freedom in your business pursuits. Finally, they have a better chance of growing beyond your expectations and making you rich!

In the next article in this series, we’ll discuss nine deadly pitfalls of start-ups, and how to avoid them.