Which makes for a better business – selling a product or a service?

I happen to have experience in both.

I was the founder and CEO of a company which developed software for training pharmaceutical reps. Each project we got was a service job. With a decent turnover, the company looked like a goldmine, but in reality it was a nightmare to run.

At the end of 2003, a large pharmaceutical company verbally promised us a six-figure deal on a project that was due to start in January. However, the project was delayed and our staff spent the first month waiting for the go ahead. By February, there was no sign of progress, but I still had a team of highly-trained specialists to pay.

By March I realised that I would have to let some staff go in order to survive, but I knew that the project would be impossible to complete without their expertise. The pharmaceutical company assured me that the project would kick off at the end of the month, and so, I kept all the staff.

Then March came and went, but there was still no sign of payment. At this stage I knew that even if the project began in April, it would be impossible to pay the staff for four months of work without any turnover.

The project came in May, but it was too late. We had to close up shop. We owed too much money that would have been impossible to pay back. It was at this moment that I made a promise to myself that I would never concentrate on a service-based company again.

This is not to say that service companies cannot be hugely successful. Of course they can, but they can be far more difficult to grow and they can’t make you money while you sleep.

Service-based industries are limited in a way that product-based businesses are not. You only get paid for the work you do, and after each project is completed you must begin again. There are less limitations in the sale of products. Products have the potential to earn you money while you sleep, and, with products, there is no limit to how much you can sell.