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This is a response to a http://www.softwareceo.com/ forum thread:

“Forums member asifbiz has a service-based company, but he’s also got an idea for a product that he thinks will sell. Seems like a no-brainer…
selling services and selling product = more revenue. But it’s not so easy moving your SW co from a service-based model to a product-based model.”

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Hi there,

Another thought that has been looked over is that there are really 3x business models. You touched on it when you said you want to create ‘recurring income’.

1. Business Model A – “Service”
ie: $99 per hour or quote for services, maintenance etc

2. Business Model B – “Product”
ie: $99 Download or purchase boxed product

3. Business Model C – “Service+Product” (Subscription)
ie: $99 per month for online service

Product based businesses and service based businesses have fundamentally different structures, needs, resource needs, cash flow structures, marketing, sales models etc. This is why it is difficult to use your ‘Service’ based business resources to create a ‘Product’ based business.

We designed and built a subscription based business ‘www.ProWorkflow.com‘ and can tell you from experience that it’s the best structure for ongoing healthy cashflow (each sale is a monthly recurring sale). But there is a catch that is not often mentioned.

It’s SLOW money! (Good money! but SLOW Money)

If you want to create a recurring income business you need to be prepared to prop up the cashflow for a while. It’ll take a lot of small monthly customer payments to cover the business overhead financially. But when you break even, it’s great! and dependable!

You are probably used to good sized payments from clients for your service work. If this is profitable, and you are currently making good margins, then you’ll be able to prop up the financial shift into the Product or Subscription area.

But… if you aren’t making good money at the moment and are looking to get into the Product or Subscription area to create a ‘profit area’ to your business, then be very careful. It’ll be both a financial and resource drain on your core service business for a year or two, so just make sure you realize that the business model shift WILL put a dent in your service business – and can you afford it?

I would suggest you forget about a ‘Product’ business (they’re an old model) and concentrate on the ‘Subscription’ model. But! don’t just ease into it. Treat it like a separate business, and either self fund it, or get investors. Treat it completely independently to your service business.

Plan on breaking even in 1-2 years, and make sure you can financially wear this period of early business development.

Subscription business is partly about having a good product, but also about having great underlying infrastructure and good support service, so there is a lot to consider.

On the topic of business models… Here is a link to an article on my personal Blog about the lessons we’ve learnt from our business model, and it also has an exact list of the steps needed to build a software company.

Here’s the link: http://julian101.com/archives/44

I hope this helps! Great topic to talk about!

Julian Stone,
http://www.proworkflow.com/

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About the author:
Julian Stone, CEO – Project, Task & Time Management specialist for: ProActiveSoftware.com, ProWorkflow.com & Julian101.com

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About The Author:
Julian Stone begin_of_the_skype_highlighting     end_of_the_skype_highlighting is the CEO of ProActive Software, developers and creators of the leading web based project management software http://www.proworkflow.com.