One of the more interesting conversations I have with entrepreneurs is whether or not what they have is a product or a business. It’s a tough conversation because most entrepreneurs are very passionate about what it is they want to pursue, and believe that they are on the cusp of building a multi-million dollar business. Sadly, many would be entrepreneurs cannot make the subtle distinction between a product and a business.
Here’s a great example. I had one entrepreneur approach me in the last few weeks because what he wanted was guidance on building a business plan around a new idea he had for a blog program. His program was essentially a blog editing tool. Sounds great, right? Blogs are hot, there is a clear market, what could be the issue? The challenge is that this is a product idea, not a business. The reason? Well, most potential customers who would buy this tool would either already have a blog set up, meaning they have a blog business that is either hosting the solution for them, or has provided them with the software to manage their blog (which has fine blog editing tools built in), or this is a new blogger, and they are most in the need of a web hosting solution or the server side code to manage their blog. Either way, how would this entrepreneur build a business when they are missing so many pieces of the value chain, especially when customers have an expectation of what should be provided from a blog business? It’s a tough sell. The entrepreneur got it though, and is retooling his thinking. I can’t wait to see what he comes back with.
I really like to make things simple when I talk about topics like this. I really want to feel like I could have the discussion with my mother or father and they would get it. Put simply, a product is something you can sell to a customer once and you never see that customer again. A business builds a long term relationship with that customer and sells them many things over the lifetime of that relationship. If that seems too simplistic, then I have done my job. It’s important for would be entrepreneurs, before they jump off the deep end and commit to their passion and pursue their new idea, to consider and understand whether what they have is a product or a business.
While it is possible to transform from selling just a product into a full fledged business, it’s a tough road and not easy. You have to know who your customer is, and what experience you are selling them, and whether or not you can provide enough of that experience. There are times where it would appear that what a new business has is just a product (great example: Baby Einstein), but they really do have a business with only one product in their portfolio. The key differentiators is the ability to grow that product portfolio, leveraging the skills and experience from creating and selling the first product, which is the definition of a successful business.