First-time entrepreneurs often start their business doing what they know best and what they are most passionate about. For most of us, that’s usually a service of some kind that requires your time and effort to produce results for your customers.

These can be very profitable and exciting businesses, but there is also the option of developing a product. Nowadays products don’t have to be physical items that you manufacture in a factory but are often software products that you sell access to, or as it is better known – SaaS or Software as a Service.

But how do you decide which is a better option for you? We decided to take a stab at helping you guys by weighing the pros and cons of each side.

Is this your side business?

It is quite common for entrepreneurs to start with a side hustle. It helps you test the market and also allows you to maintain the stability of a full-time job.

So which one is a better option if you are doing a side hustle?

We don’t think side hustles are a good long term play for serious entrepreneurs

Services are easier to provide and there is less initial involvement because you often have significant knowledge and expertise to provide these services. That’s why most people with a side business provide services like web development, content writing, and even personal training. While this is easy to start, maintaining it or growing the business can be time-consuming and be restricted by your full-time job.

Building and selling a product part-time can be more difficult initially but is easier to build up as time goes on. Let me explain.

Let’s take out physical products for now, just because designing and manufacturing products for sale can be quite a challenge. Alternatively, you can try sourcing for ready-made products and then selling them online, but that’s closer to a service than building a business based on a product.

person using white Android smartphone

If you’re building a mobile or web app or tool, it requires some technical skill and knowledge, which you can learn. It will require late nights and ingenuity to create something people would really want, but once it is built, tested and rolled out, there isn’t as much to do compared to a service. It is easier to run your side business in the long-term if you focus on a product.

How big do you want to scale your business

Scaling a service where you are the main provider and that requires skill can be very challenging to scale effectively. The further removed you are from a service, the less effective it will become, which can lead to dissatisfied customers and generally unhappy people.

New entrepreneurs make the same mistakes every time

Grab, Airbnb and companies like that are services. However, they built a product to manage that service. It is the difference being a Grab driver versus being Anthony Tan. We respect Grab drivers for their service but know that they are limited by the number of rides they get and the time they can safely spend on the road before they are exhausted.

man driving vehicle with GPS system turned on

In terms of scalability, a product wins hands down over a service. However, service companies like Accenture and the Big 4 are multibillion-dollar enterprises that dominate the global industry. It took them a while to get there though, while Grab and AirBnB are less than a decade old.

Do you want to exit your business faster?

Products are far easier and valuable to exit versus a service, simply because it is scalable and therefore has more potential.

We can look at the valuations of marketing agencies versus the valuations of tech startups as a way to understand this point. In the marketing world, acquisitions are quite common because a profitable agency making a clean US$1 million a year is often valued at between 2.5 to 3 times their revenue. A tech company making US$1 million a year and is profitable (which is a unicorn by itself) can often be valued at 10 times or even more depending on the industry and eagerness of the investor.

We show you how to exit your startup 

So, you need to make a decision with regards to your exit strategy, then should you commit time to build a product versus focusing on a service that you can provide. Once you decide on the amount of time you want to commit to your business, then the decision becomes a lot easier.

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Tech Collective Talks is a new segment where we discuss matters that our partners, startup founders, and staff feel is important enough to spend time around it. We discuss it as a group and from it, we craft a story to share with our readers.

If you’ve got something on your mind, drop us a note here and we’ll see if we can include it in the next session.

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