The Product vs Services Conundrum

Have you read Peter Thiel's Zero to One?

In simple terms:

One to Two players are those who are focused on increasing revenue in an existing market.

Zero to One players are those who creating a totally new market or new product. They will not have any competitors.

Think of a startup like Facebook or WhatsApp. They have no customers, or competitors. That’s a zero to one startup. A completely new domain.

Thiel was a founder of PayPal and the first investor of Facebook. Both zero to one startups.

You will find the following model in a lot of startups:

They will have a product division for long-term growth. But they will have a services division for meeting short term expenses.

But the services division will always get more focus because it delivers revenue essential for survival.

In my former employer's case, they were doing both with the same code. They were implementing the code at each client location for revenue. But they were also trying to build the code base into a reusable product.

What happened was that all the focus used to be on implementation because of constant survival / firefighting.

The implementation guys used to also actively sabotage product development; because if the product became stable, they would be out of a job.

This is one of the reasons it's almost impossible to build a Zero to One startup without funding.

Paul Graham

Quoting from his essay Why Smart People Have Bad Ideas:

As it turns out, VC-backed startups are not that fearsome. They're too busy trying to spend all that money to get software written. In 1995, the e-commerce business was very competitive as measured in press releases, but not as measured in software. And really it never was. The big fish like Open Market (rest their souls) were just consulting companies pretending to be product companies.

That's the essence of a startup: having brilliant people do work that's beneath them. Big companies try to hire the right person for the job. Startups win because they don't—because they take people so smart that they would in a big company be doing "research," and set them to work instead on problems of the most immediate and mundane sort. Think Einstein designing refrigerators.

Lecture 3 - Before the Startup (Paul Graham)

A great talk with too much useful information to summarize.