Ever wonder why there are so few product-based companies, and so many service-based ones? It’s all about cash flow. The images below illustrate this, but they need some explanation.
Product-based companies
If you’ve got bright ideas of building a product and making lots of money, think again… There’s a long pipeline from product development to big piles of sweaty cash. First, you have to build the product. Nobody’s paying you to do that. It’s your nickel, pal. And you can spend as much time as you like. But then comes marketing and promotion. Get it out there for the world to see – but still more time without pay. And then, when they find your product, you’ve got to sell it and collect your reward. It can take months or years. And it can be exhausting. See the stages below.
Service-based companies
Want cash quick? That’s why there are many more service-based companies in the world. In that model, you can find a client and begin invoicing them after the first thirty days. The path to that stack of sweaty cash is much shorter. But, the stacks are smaller. And, you tend to live on them so they never accumulate. Lose a client, and you’ll have to start over. Even this model has it’s risks.
So which model suits you? Got the time of invest and wait for the “big” payoff? Or, do you prefer earning as you go along? There are plenty of advantages to both, and only you can decide what’s right for you. Hopefully, this short post will help in your decision-making process.
–newshirt
The world isn’t black and white. There are many companies, especially small ones which take whatever life brings. This usually means having those models mixed.
You base at least partially on regular service-based income and you try to exploit the chance for a big shot with the product whenever possible.
Another thing with the product-based scenario is timeframe. Depending on type and size of the application and target market the timeframe can differ much.
And there’s of course web which changes product model into service model. When you deliver you application in SaaS or S+S model it’s no longer product-based when you consider it income-wise. On the other hand internally you still have to focus on the product. And this trend will be stronger over time.