How To Turn a Service Business Into a Product Startup

It’s no secret that a product company is much more valuable than a service company. It’s why every service provider has that dream about transforming their service into a product. The problem is that there are a lot of wrong ways to put that evolution into motion, and doing it wrong can kill the business pretty quickly.

I’ve been through the product evolution several times. It’s sort of become my specialty. My first startup successfully turned a consulting business into a product. My current startup is turning a labor-intensive service into a product. Along the way, I’ve learned that there are basically a handful of overarching strategies you can use to convert a service to a product, and all of them come with easy-to-make, potentially lethal mistakes.

But here’s the deal: At some point, product evolution is inevitable. Service based businesses, no matter how well they’re run or how premium the service, will always max out at two to three times the labor costs. And if we run out of cost-effective labor, the business begins to fold like a Ponzi scheme.

If our service isn’t acting like a product and evolving into a product, we can be sure that technology, market trends, and skill scarcity will turn our business into a race against time.

So I’ll take you through each of the overarching strategies and how I’ve used them to transition from a service business to a fully-functional product company, and how to avoid the killer mistakes along the way.

Automation: Machines do all the non-skill stuff (and some of the skill stuff)

What if you could take all the stats from your fantasy football league and write crisp, fun recaps that read like sports-page articles about the matchups between you and your friends? It’d take you a couple hours to do it well and maybe two of your 10 league friends would care, but they’d really care.

Now imagine you could do this for everyone who played fantasy football. At last estimate, 41 million people play fantasy football, so two out of 10 is 8.2 million people who would really care. Too bad performing that service would take millions of hours.