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A Product or Service Business?

By: Maggie Lonsdale BA (hons) - Updated: 27 Sep 2012 | comments*Discuss
Product Service Business Customer Skills

There is a vast amount of difference between a product and a service business, so it is important that you understand what you are offering before you start your own business.

In very basic terms, a product business sells something physical and a service business offers a service. Examples of a product business would be a greengrocers, a record shop or an art gallery. Service businesses could be hairdressers, recruitment agencies or life coaches.

There is a third option, which is popularly becoming known as a ‘value added business’. This is where a physical product is sole, but with additional benefits. Examples of this would be a restaurant (you are selling food, but you have ‘added value’ by making meals) or an IT software company that sells software but also advises on what type of software you require, or can service your computer, too.

Deciding on whether you will set up a product or service business is unlikely to be a totally free choice for you. You will probably already know the type of industry you want to operate in, or have a clear appreciation of your skills and experience.

What are Your Skills?

There is no point wasting the skills you have developed throughout your career when you start your own business, but there are often more effective ways than you first think. You don’t want to just do what you have always done if you don’t actually like it.

You may need to do some retraining or take an evening class to support your background. It is better to enhance your skills at the beginning rather than realise you are missing a key skill once your business is floundering.

A product business tends to require sales and negotiation skills, so if you are going down this route, be aware that you will need to sell. You are also likely to require IT skills as all product based businesses need a website – you do not have to be able to design or manage a website, but at least be able to email clients and respond to online questions.

Service businesses often require a friendly, customer focused attitude as you are selling a concept as well as a product.

Cost Implications

A product business usually has higher start up costs than a service business as you will need stocks. You do not have to have great big warehouses full of product, but you will soon have disgruntled customers if you have long lead times.

Be realistic about what type of stock levels you need. If you are going to open a delicatessen, for example, you need a good amount of high quality stock. You can’t just have product sitting about because you haven’t sold it.

A service business can be launched with very little start up costs. If you are a life coach, for example, you may only need a website. Added extras may be flyers, advertising and business cards. Don’t scrimp on these products as they are what represent you and your business.

Niche in the Market?

All start up businesses need to offer something that their target audience needs. The Internet means that you do not need to be located anywhere near your target customers – not even in the same country, sometimes – but you do need to be clear about what you are offering, and to whom.

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