When researching online business ideas one of the core decisions you’ll be making it whether to focus on products or services.

Most online business ideas will involve a mixture of the two. That said, we also advise focusing on one thing at a time. So just telling you “both!” isn’t helpful (even if it’s true).

Instead let’s look at whether you ought to be focusing or products or services first when analysing an online business idea.

What are products and services?

First a note on definitions.

It used to be that we could roughly divide products and services by whether they are tangible or not.

In fact the top definition of the distinction on Google (and thus Gospel!) is from the US Chamber of Commerce:

Basically – in the more traditional definition products are physical. They “exist” in the world of atoms. They have form and shape like a toothbrush or a television.

Services on the other hand are intangible. They didn’t have a physical form. For example a haircut or a property inspection.

This division between tangible (physical) and intangible (non physical) makes less sense in the world of the internet and online business.

A book is a great example here. If I sell you a book is that a product of a service?

A physical dead-tree book :  it’s a product.

 

A PDF eBook of the same content though? It’s not “physical” (unless you print it out I suppose) but to call it a service is a bit strange.

It’s still a product – it’s just a “digital product”.  The contents of the book itself are the same letters and words. They are just formed of pixels rather than from ink.

The purpose here is not to get philosophical here about how the world is digitising. Instead it is to point out that the more traditional definition of products as tangible and services as intangible doesn’t really mean anything anymore. We need a better way to think of the two.

Once we have a better definition we can look at which is better for your current online business ideas.

Online Products vs. Services : A Better Definition

A far better definition removes the physicality of a product.

Instead it’s useful to think of a product as a self contained unit of value. 

It’s simply a unit of value that I produce and you want and that you are willing to exchange money for in order to get from me.

It could be physical. It could be digital. That’s unimportant.

The important fact is that it’s a unit of self-contained value that can be exchanged.

What about services?

The original definition of a service wasn’t too far off the mark – it’s been changed less by the shift to online business.

A service is value that is transferred by helping someone achieve an outcome. 

Again this can be offline or online, physical or digital.

Unlike a product though a service is not “self contained”. It is not easily divided into single units. In fact the rendering of a service often varies wildly depending on who you are helping.

Toothbrushes (a product) are the same and can be mass produced in huge quantities because our teeth are pretty much the same. The function of the product works for everyone. Each toothbrush is the same.

Haircuts (a service) are not the same because on the customer side everyone has a different current state of hair (depending on our genes, our last haircut, how we’ve looked after our hair etc.) with different end goals (the style) whilst on the business’ side hairdressers and barbers have varying levels of experience, tools and ability. Each haircut is unique.

Your online business ideas and where products and services fit

Now that we have a basic grasp of the difference between online products and services we can ask how this affects our online business ideas.

Specifically: should we start with products or services?

Again – eventually we’ll probably have both! Most well rounded businesses do.

Eventually your online business will very likely follow this flow:

Free/cheap products -> Core/Products -> Premium Products -> Services. 

That’s very product heavy right?

Services sit as the end point for most online businesses for a reason : they are not scalable.

Online Business ideas and Product Scalability

The huge advantage of products is that once you’ve designed and made a product once you can sell it again and again and again.

For instance you’ve designed an amazing new toothbrush. Once it’s designed and manufactured once it’s very easy to repeat that process and make 100,000 tooth brushes.

The same is true for online products. Once you’ve produced a video course once and got it live on your website you can sell it again and again and again.

This is not the case with services. Remember the uniqueness of a haircut? Once you’ve completed a first haircut you can’t “package it” up and stick it on a shelf. A haircut has to be done from scratch each time.

If an offering is not scalable does this mean we shouldn’t do it? Not at all. But it has to be priced much higher to compensate for the fact that it’s not scalable. The amount of extra effort that the business has to put in to fulfil a service needs to be compensated with a higher price point.

As such the lack of scalability becomes (in a way) a selling point. The fact that your business only performs services for a select subsection of your customers makes those services less available and more attractive!

Therefore services definitely have a place in an online business funnel – it’s simply that they belong towards the backend of your customer journey due to their inherent lack of scale.

Online Products First?

Based on this we obviously want to start with online products then. Right?

Well…yes and no.

Products:

• are much more scalable and thus fit better earlier in our funnel when we want to be talking to lots of prospects and getting more and more people into our sales funnel
• allow us to start with low cost offerings and escalate prospects from one level to the next – each time increasing in price.
• allow us to do this at scale as selling 10,000 units is not much harder than selling 10.

As a result of this we definitely want products to form up the front end of our online business funnel. There’s no doubt here.

However, the very same aspects of a product that make them scalable also make products inflexible.

When we are selling 10,000 units of a product we want the product to be the same. We want rigidity. We want inflexibility. In fact we call this “quality control” ie. making sure than all products are the same and that there’s no variation.

But early on when testing online business ideas we need some flexibility.

Why?

Frankly – your product might be crap.

Warehouse of crappy product

Let’s say you’ve designed a new toothbrush. You think it’s the next leap forward in tooth brushing technology. You’re confident that you’ll revolutionise the space and be Scrooge McDuck diving into pools of money by the end of the year. You put in an order for 100,000 of your new toothbrushes to be manufactured.

Fast forward 6 months. Turns out the world did not share your enthusiasm for the next big thing in tooth tech. In fact you sold 7 toothbrushes (mainly to your mum but I won’t tell your investors don’t worry) and have 99,993 of the darn things in your front room. At least you are set for tooth care for life I guess?

If your product really had be “it” and flown off the shelves then great! You’d have needed to order more and more to keep up with demand. The problem is a lot of business owners fail to test demand before trying to supply it. The result is boxes of toothbrushes.

Products are a double edged sword in this regard. If there is demand then the product’s inflexibility makes it easy to scale and easily meet demand.

If there is not demand then that very same inflexibility leaves you with a product that no-one wants. And if it’s physical rather than digital this can quite literally mean a warehouse full of product. Eek.

This leaves us in a dilemma. The endpoint should be products. But if we go in too hard on the wrong product too early we’ll cripple our business.

Scaling the right product

There are two basic fixes I recommend here.

First up, make sure that you use lean methodology of some similarly flexible form of product development. Make small, de-risked choices. Test constantly with live audiences and potential customers. Don’t be afraid of failure as this means learning. Tweak and pivot your product based on feedback, not based on your gut feelings telling you what’s right. Check out more details about lean methodology here.

Second, and more pertinent to this article, you can start with a service and convert it to a product.

What does this mean?

Kick off any product with a serviced version.

Start by working with your customers. Learn their needs and wants. Get to know them personally. White glove concierge your first customers as if they were top level clients. Why? Because this is how you get to know your general client and customer.

What does this mean in real terms? In the world of online business let’s say you are producing an online course. You could go ahead and film and edit it all in private – never showing any potential customers until it is “ready”. OR you could first run the course as a live experience with real students – delivering the lessons week by week or even over a single day workshop.

You then use the feedback of your first customers to refine the offering before you make it “final” in a product.

Another example – let’s say you are writing a book. The standard approach is to write everything and send it off to a publisher who then (maybe!) releases it to the reading public. Very old fashioned. Very “product” focused.

An alternative would be to first write up your drafts with your reading public. This is easy with non-fiction via a blog. But it also works with fiction – check out the story of Hugh Howey and the Wool trilogy for example.

Summary: Your online business ideas and choosing between products and services

Coming back to the original question : should you kick off your online business with a product or service?

A full online business will have both.

Eventually you want your first products in your funnel to be products.

But

Products take time to refine and get right. Don’t try to scale before locking down the right product.

Instead kick off with a service. Use this to work out what your final product line will be. Use a serviced offering to refine the product. Then put the scalable product in place and move on.