Why Startups Need To Follow the Hard Product Path

Four steps to a stronger company and a higher valuation

Joe Procopio

--

When a startup attempts to build a product-based business out of an existing service model, there will always be the lure of leaning on the service to bring in revenue. But while that easy money may support you in the short term, it’s going to suffocate you in the long run.

Thanks to the mainstreaming of cloud-based processing, mobile communication, and simplified digital commerce, we’ve arrived at an age where every single service you can imagine is being streamlined, restructured and offered as a product.

As we ride out the innovation cycle of Software as a Service, we’re seeing a new cycle developing you could call Service as Software. Innovation-chasing companies now offer the hiring of labor through an app — from consumer-based services like shopping, oil changes, and personal investment advice to business services like hiring, legal, and even creative services like design.

How a service model evolves into a product model

The modernization and automation of these traditional services begins with the streamlining of how they’re engaged, delivered, and paid for. What happens next, for those especially innovative companies anyway, are changes to the execution of the service itself.

If you can achieve the same results of a traditional service using a new process, and if those results can change the customer’s behavior and expectations, you can successfully shift from a service model to a product model. That means your company gets awarded all the trappings of a product play, including a sizable bump in valuation.

Unfortunately, on the way to product manna, the temptation will always be there to keep making the service money. Yes, it’s lower margin. Yes, it goes against everything your startup is trying to change. But the business is always readily available, and it’s low-hassle money. You don’t have to educate your customers to solve their old problems in new ways, you just have to show up and collect your hourly rate.

This is not a new problem. The very first startup I worked for, over 20 years ago, started as a technical services firm — a…

--

--

Joe Procopio

I'm a multi-exit, multi-failure entrepreneur. NLG pioneer. Building TeachingStartup.com & GROWERS. Write at Inc.com and BuiltIn.com. More at joeprocopio.com