How (and Why) to Pivot From Services to Products
As many of you have probably come to realize, a service business model comes with a unique challenge: the only way to scale it is to keep adding people and that takes time and capital. No people, no growth. That’s why companies like IBM, FedEx, and Wells Fargo have hundreds of thousands of employees.
While it’s certainly not impossible to make it big with a service business, it’s got to be scalable. In other words, there has to be broad demand, you have to stand head and shoulders above the competition, and you’ve got to have the resources to invest in growth. If not, you're in for a rough ride.
You’d be wise to consider selling or licensing a complementary product line and turning your business into at least a combination product / service company. You’d be surprised how many big, successful corporations started life as tiny service businesses that eventually grew into product companies:
- James L. Kraft sold cheese wholesale door-to-door in 1903 Chicago. Today you know his company as Kraft Foods.
- Michael Dell assembled computers for friends out of his Austin dorm room before founding Dell Computer.
- Sony began life as a radio-repair shop in post-war Tokyo. Its first product was a tape recorder but its real breakthrough was a transistor radio.
- Microsoft developed programming languages for customers before some suits from IBM asked Bill Gates for an operating system for a new product called a personal computer. Then he licensed it on a per unit basis. Smart.
- 3M was actually a mining company and not a successful one at that. Today, it sells thousands of products including Post-It notes and Scotch tape.
If you didn’t know any better, you’d think the concept of pivoting a business was invented by Eric Ries when he wrote The Lean Startup, but nearly every successful company since the beginning of time has had to change strategy and direction to survive and grow.
Here are five tips to help you effectively pivot to a product business with the best odds of success:
Stick to your DNA.
You’re most likely to be successful at what you’re good at and love to do. Whatever that is, there are creative ways to productize it. Stick more or less to what you know.
Listen to what your customers tell you.
More often than not, your customers know more about their markets than you do, as Bill Gates learned. New product opportunities – problems in need of solutions – are likely to come from them. Listen.
Look for complementary opportunities.
The least disruptive approach is to maintain your service business to help fund product development. And sometimes, as in the case of Dell, who customized PCs and sold direct, product and service go hand-in-hand.
Complement your skill-set.
Don’t be afraid to expand your team with an equity partner who adds a critical skillset for product development. A smaller piece of the pie is worth a lot more than 100 percent of nothing.
Think big but stay focused.
There’s a real dichotomy to making it in the business world. On the one hand, you want to think big but on the other hand you’ve got to stay focused on whatever strategy you come up with. Pivoting is good, but having a dozen irons in the fire never works out.
Don’t get me wrong. You can make it with a service business model if you can solve the scalability problem. But it’s a lot easier to build a sustainable business by developing and selling or licensing products. Why develop websites when you can sell an app?
Related: Do You Believe in Magic? Don't.
Steve Tobak is a management consultant, columnist, former senior executive, and author of Real Leaders Don’t Follow: Being Extraordinary in the Age of the Entrepreneur (Entrepreneur Press, October 2015). Tobak runs Silicon Valley-based Invisor Consulting and blogs at stevetobak.com, where you can contact him and learn more.