A simple question. A product business, right? The biggest and best companies in the world are all product businesses. 

Product businesses are easier to scale, don’t rely on as many people, are usually more profitable and operations are more predictable.

But they’re also more capital intensive to start and can have a harder time finding product/market fit. If you can’t build and supply your product at a price that customers will pay, the idea is dead in the water, even if it’s a great product.

Services businesses on the other hand, are a bit messy, harder to scale, and rely on humans doing the right thing a lot. You can put procedures and technology in place, but even then, people won’t always follow the procedures or use the tech properly.

But services businesses are much easier to start. They require far less capital. They’re much easier to pivot. You can tweak what you do slightly for each customer. And demand is easier to find – people always need help with something.

It turns out, there are pros and cons with each. 

I had a successful tech services business but always wanted a product business. I thought a product business would be better. Right from start, I had planned to spin out a product business:

• The first idea was an online two-sided marketplace in the automotive space. I realised the near-impossible challenge of entering a space with a dominant incumbent player partway through development.
• The second was a SaaS platform for IT companies. Again, partway through development, I stopped when I realised we were underfunded for what we wanted to achieve.
• The third was a premium SaaS platform for airports. We had a good product that solved a real problem, and early success – paying customers – but unfortunately the market was too small to make it viable long term.

After turning my attention as CEO back to the main business – the IT services business – it boomed. We hit the AFR Fast 100 – a list of the fastest growing businesses in Australia. Three times. With a services business (although admittedly a well productised services business with streamlined backend operations).

So do I still think product businesses are better than services businesses? It’s not that simple. It depends how you look at it. It’s much better to have a growing, profitable, in-demand services business than a struggling product business. You can use a productised-services strategy or integrate technology to make your services business more product-like.

The growth and profitability potential of a good product business is still much higher. But the probability of success might be lower.

Perhaps what matters is not if a business is a product or service – instead, how in-demand it is, and how easy it is to standardise what you’re selling so you can scale.