To build a business startup is not easy. You have to have immense patience and perseverance to nurture the business until it can stand on its feet. Before then, you have to dedicate a lot of time and effort to the start-up. At some point when the business is doing quite well, you may consider selling it for a tidy sum. However, you have to decide whether to sell a product or service.
For the business to prosper, there are a few ways you can restructure it so that it can fetch you a good price in case you decide to sell in the future. In John Warillow’s book, ‘Built to Sell’, he outlines the restructuring process for startups. The product or service dilemma is one that plagues many start-ups and we shall look at what differentiates the two.
Product or Service? Which is Which?
Product or service business models are inherently different from each other in several ways:
1. Time Spent in Marketing
The amount of time you spend converting your idea into a sellable product or service greatly depends on the road you decide to travel on. If you have a product-based start-up, your model requires time investment plus upfront resources for the concept, creation, and testing of your product. The opposite is true for service to start up as you can hit the ground running and start providing and billing for your services almost immediately.
Scalability means that your business can multiply its revenue with very little cost increment. For example, software is a perfect scalability example considering it uses the money to create the initial copy, but you can make unlimited copies afterward for a smaller cost than it cost to create the first one.
In this case, product startups have the upper hand because, in service, you bill for your hours and the people who are willing to pay for the service, especially if it is in digital form. If your service gets a high demand, you can hire extra hands, which is certainly not a minimum increment of cost.
3. Business Risk
Between product and service, it is easy to guess that selling a product is riskier. When selling a service, you get a payment commitment from the customer before you offer a service. With product selling, there is no guarantee that you can never be sure that you will sell enough products to justify your initial investment.
You can attempt to minimize risk by asking for pre-orders or start small with an MVP (Minimum Viable Product). On the other hand, a service-based business only offers bespoke (one-off) solutions as the result is only tailor-made for a particular client, and cannot be distributed across different clients. In this case, the product-based business model wins hands-down.
In service-based businesses, you are obliged to give a solution based on each customer’s requirements. On the other hand, while creating a product, you have to give a product that solves a specific problem experienced by a certain category, giving you more control. It is not impossible to have control of a service-based model, but it is much easier with a product-based model. With a product, a person either needs it or they do not, there are no two ways about it, and you cannot change a product to suit one person. A service can, however, be tweaked to suit a client, and it is harder to control and predict which way the business will go.
What Matters When Building Your Business for Sale
Selling a business depends majorly on whether it is a product or service-based business model. Here are a few insights suggested by the author of Built to Sell, John Warillow.
Specialization means focusing on one product or service, which allows your clients to see your business’s core strength. This means clients will come to you to solve specific problems that only you can solve better. When people cannot go elsewhere to get your kind of service, you have the power to negotiate for better prices. However, the prices have to be commensurate with the product or service rendered and clients will recommend you. Word of mouth is very powerful and can either win or lose customers.
Specialization allows you to hire the best individuals for the job at hand. Organizations that provide several services need to hire different experts for the various fields. Instead of doing this, most tend to engage generalists to execute the jobs. Hiring generalists means they cannot concentrate on one field and they cannot deliver the best product or service. The quality of products or services cannot match up to those of firms that can afford specialists. Smaller companies can hire a few experts to specialize in one area.
Specializing helps you to give excellent product or service and gives you better-negotiating power with clients. This allows the company to run smoothly without needing your oversight, as each employee is skilled and knowledgeable at what they do.
· Build a Business that can Run without You
As a business founder, it is only natural to want to be involved in every aspect of your business. For your business to grow, you need to ensure clients do not associate the company with only you. When you start a company, you tend to bear any risk involved. It is only understandable that you want to take charge of all operations, as a way of mitigating employee mistakes.
Doing this makes clients associate the company with you and you seem like you represent the entire company. Service-based companies are more likely to be based on the owner’s relationship with the clients. This becomes hard to separate the company from the person.
As the company grows, this taking charge leads to various issues, as you will not manage to handle everything alone. Spending all your time meeting with clients will deny you time to focus on development strategies. You also will not have time to manage your employees or even have time to source for financing. As important as it is to have an overview of the daily activities, the founder needs to delegate and ensure the company runs independently. A company dependent on the owner makes it less desirable to purchase.
· Create incentives for Managers to Stay on After Company Sale
As a start-up founder, you want to ensure the managers have enough incentives to stay on after company acquisition. This is crucial because the purchaser will want continuity after the sale. The management team plays s huge role in company success.
Some of these incentives include share options for larger companies and long-term incentives that reward loyalty and performance.
· Get the Right Broker
If you are ready to sell your business, get the right broker who will be a bridge between you and potential buyers. The right broker recommends buyers and arranges discussions with potential buyers. A broker allows you to choose your buyers. Choose companies that need to buy for strategic reasons because they will likely pay more, and inject resources into the business, improving growth. Some buy for financial reasons and are only interested in turning profits and do not care about the business in itself
Where Onestop DevShop Fits In
Onestop DevShop is one of those organizations that have managed to pull off the product and service business models to near perfection. We have a successful SaaS (Software as a service) and in the process of building another one. We have 45, highly skilled developers who are always ready to turn clients’ visions into reality. We are specialists in creating SaaS applications in blockchain, eCommerce apps, real estate, etc.
We are a reliable, development team, which will not cost you an arm and a leg, and you will not have to worry about the management of freelance developers, which is a major pain.
Our clients consider us an outsource CTO (Chief Technology Officer)for the sole reason we have saved them colossal amounts of money and saved their businesses from going under.
Business startups can take off to the sky or come crashing down, depending on how your structure the business. The sole aim of a startup is obviously to make profits. You should always keep in mind that for various reasons, you might want to sell the company later. For this reason, you want to ensure the business thrives and runs smoothly with or without you.
It is human to want to hold on to things, especially projects we have nurtured for a while. This is where the real test comes in. Passion will make your business grow, but you have also to ensure that you do not attempt to run a one-man show. Clients should not overly associate you with the business because once sold, they might not be too happy to deal with strangers.
Delegate and specialize, which will allow you to hire the right people for the job. Your company name, not your name, should be synonymous with great products or services. Clients should be able to get a product or service without having to associate it with you. Look at Microsoft for example, which is huge, yet runs autonomously and independently of its owner. Aspire to be successful and to give your company and its product or service a name and reputation to be reckoned with.