Product, Platform or Service
Few companies are started with modest missions. Many companies have failed due to lack of focus. One of the first decisions to make is whether the company will be developing one or more products, developing a platform for others to use, or providing a service. Each model has different risk profiles, potential rewards, timelines, and resource requirements. Clarity of purpose is critical.
Deciding how to put your technology to best use is more complex than it sounds. A services business requires very little investment, can generate revenue quickly, but typically must deal with high commoditization and competitive pressures, fewer exit options, and limited upside. Of course, there are huge exceptions to these rules, often 7 with creative business models at their heart. Platform companies require significant investment, but typically less than product companies. They seek to spread their technology broadly across the industry. Product companies require the most investment – hundreds of millions of USD to get to revenues, but usually IPO or exit pre- revenue, and are comparatively liquid/transactable. Beyond these general traits, the skillsets, organizational structures, and risk profiles are all quite different.
This is a fundamental decision that should be made before speaking with investors.
The temptation to provide services from your platform-in-development while nominating a few lead molecules for internal development is ever-present. But our is a highly competitive industry, and a highly focused company will always beat one that’s trying to move in three different directions. The dangers of distraction are potent because they are insidious. Focus!!
Understand the differences between product companies, platform companies, and service companies, and truly understand that attempting to do it all is very high risk.