Finally, someone says it: This thinking is largely driven by the venture capital industry Yeah, that's definitely the truth. Aside from the improbable, b

Finally, someone says it: This thinking is largely driven by the venture capital industry Yeah, that's definitely the truth. Aside from the improbable, but magnitudinal valuations and exits, I can't think of another reason why "startup" has come to be synonymous with "product company" in the popular narrative. The article touched directly on many of the reasons why I find consulting as a steady state much more lucrative and rewarding, but the one about services as a bridge to product strikes me as most salient. The difference is, my preference and strategy is to never fully cross that bridge. We do maintain fairly sophisticated and feature-complete product codebases, not just SDKs or frameworks or scaffoldings, but--critically--I see the sweet spot as addressing a market where they are mostly, but not quite ever deployable in just a stock, as-is configuration. There is always some customisation, tweaking, domain-specific configuration, etc. to be done, but not to the point where it's anything like a one-off; 90% of the fundamental needs have been met and core problems have been solved. I suppose an appropriate analogy would be: do on a small scale what SAP and Oracle do on a large scale, with their ERP/CRM/PRM packages. This commonly goes by the name "consultingware." The beautiful thing about specialised consulting is that one can bill a lot of things as services that really have a product-like consistency underneath. This achieves a few things that are not compatible with the general trajectory of a product company: - Wrapped in a service packaging, these "products" are a lot more opaque, thus more resistant to direct price comparisons and direct commensurability with your competition, especially if the service aspect of deployment is an indispensable part of the value proposition. It's an imperfect, but formidable weapon against commoditisation. - As the author astutely points out, there are considerable margins to be made in customisation/configuration/setup. - More opportunities for price segmentation, since what every customer pays will inevitably vary with their needs to begin with. - You can bill more for your "product." Some of that is indebted to specialisation, not just the fact that it's a service company, of course. - But it's a lot easier to do specialised stuff this way. Building a product--together with all the trimmings of product fabric in which you have to wrap it for mass use--for a very idiosyncratic, small addressable market is not worth it in many instances unless you can charge a lot, and if you're competing on price with vastly larger competitors with more economies of scale and sales muscle, that can lose big. Unless, of course, they charge even more than you do, in which case coming up from the bottom works just fine. - Recurring revenue is easier to capture than with off-the-shelf products sold one time, since there is always support and maintenance on anything non-trivial. That said, it's not nearly as easy to get as subscription revenue for SaaS stuff, obviously, but when you get it, it tends to be higher-dollar. - More flexibility & agility in business concept. When you start a company around a specific product, you're pretty much staking everything on that product, that product line, or that concept. A service business is a lot easier to remake. Sure, that gets harder as it grows bigger and inevitably becomes more foundationally tied to earlier core technology investments, but I would still say a lot easier than Zappos turning around and becoming an industrial machine parts distributorship. The last point is really important. Higher margins and higher pricing are sustained by resisting direct comparisons to competing options, and thus avoiding competition on price (this is not to say that you are not broadly competing with conceptual alternatives, or that there is no price-level competition; it's just a matter of degree and impact on individual sales cycles). Staking everything on a product concept links your fate much more to the manoeuvres of your direct competitors, Scrum sessions and Olympic sprints and customer-driven development and continuous integration be damned. Keeping a mostly-product tucked away inside a thick tuft of service and integration allows you to confront changing market dynamics a lot more obliquely on the plane of marketing and politics. That said, there are definitely some downsides. - Fundamentally, service business is still a linear proposition. One can combat that linearity with reusable assets of the aforementioned nature, and with business processes surrounding them replicated at decreasing marginal cost. Still, if it has any kind of non-trivial marginal cost, you're never going to have the kind of multiplier effect or economies of scale that selling a marginal copy of almost "frictionless" off-the-shelf software or hosted service is going to have. You need to make peace with that. At the worst extreme, it's kind of like a barber shop; if you want to make about twice as much money, you have to cut about twice as much hair. Hopefully you can do a little better than that, but results vary. - Specialisation is a fairly indispensable ingredient to the formula, mostly as a price support. I can't really see how one can make more money doing something fairly generic as a service than putting out a product in the same space. If you're selling something with a really low price ceiling and no opportunities for substantial upsale or upward price segmentation, more marginal cost vs. less marginal cost is not a hard decision. - Getting consistent results out of very inconsistent people on a large scale as an integral part of every iteration of your sales cycle is really hard, especially if you're doing something very esoteric. You may be brilliant, but hiring copies of yourself is neither easy nor cheap. And many of the most qualified people are going to want a pretty big cut of the action, which is why you see so many consultancies structured as very multilateral partnerships, as with law firms, accountants, and other professional services companies. Unless it makes sense to dilute yourself, in most cases, there will be an unavoidable movement toward mediocrity as part of your efforts to standardise using lower-skilled, lower-paid employees. The good news is that it may not matter once you're entrenched, but it's almost always bad news for your customers. Still, any kind of non-trivial business growth requires some compromises with reality. Effectively cutting yourself out of the loop and building a process that is more effectively self-sustaining will either work or it won't, depending on just what it is you're doing. Still, this will probably be the biggest problem you'll face: "Yeah, I've got money to hire another somewhat competent guy, but I'm still going to have to do 90% of the heavy lifting unless I want to see everything go to shit." For the control freaks among us (me), some of that is about learning how to let go and delegate, but most of it is just reality. Joel Spolsky condenses this issue very well here: http://www.joelonsoftware.com/articles/fog0000000024.html http://www.joelonsoftware.com/articles/fog0000000024.html - As the author said, nobody's going to fund consultancies in any serious way. Small investments to bolster cash flow are about the most you can hope for. As a result, your growth path is going to be quite linear and incremental, and certainly much less impressive than that of someone who just got VC afterburners. That may account for a lot of the product envy; "if only we could get funding to hire 20 sales people at once!"