Product or service company?

To start up a company you need a product or a service that you can launch to the market. Starting up a product based company is much more difficult than starting up a service based company.

When starting up a product based company you assume that you:

• know the market demand.

• have a perfect command of the technology.

• have control over the production process.

• have the team and adequate financial resources for sales, marketing, production and further development.

Any product has to fulfil a set of conditions (inspections, quality, manufacturability) to sell successfully. If one of these conditions is not met, sales will quickly drop, and as a result so will the company's income. Starting up a product company therefore is a relatively high-risk endeavor. There is often significant pressure in terms of timing, because of the initial "cash-burn" situation. If all the risks have been estimated and are under control, you can start your own product company. For this you need a detailed business plan and an external source of cash or cash in the bank.

‘’We had promising clinical results, but turning that into revenue is another story. Even with investor backing, you need solid plans: who are your customers, and how many devices can you sell? We had to make tough, radical decisions early on. For instance, we started with the idea of pre-filled devices for vaccines, which seemed logical, but no pharma partner wanted to even evaluate it. That was a hard reality check, but it’s part of the journey." Vanessa Vankerckhoven, co-founder and CEO of Idevax

If you have a significant amount of initial capital and an experienced team of entrepreneurs (especially with market knowledge and operational experience) you can consider starting your own product company. Often significant initial capital is required (three million euros is not unusual). Raising this amount on the market is hard if you do not have the necessary experience and demonstrable sales of your product.

When starting up a service activity, you have the chance to get to know the market first. These services may consist of engineering activities, consulting assignments, in short activities tailored to customer demand.

The advantages of a start-up in "consulting mode" are numerous:

• The client indicates what he or she expects (specifications).

• You can request an advance and interim payments.

• You have the chance to get to know the activities and needs of your client in detail.

Besides your service activity you can still develop or market your own product. The advantage of this mixed product-service-model is that the risks are significantly reduced: as an entrepreneur you have to get through the surf after the launch. You should use a small lightweight boat for this, because you only have a limited team to push it through the waves after all.

“Our choice to focus purely on services as a business model meant thin margins and limited leverage. But it was a deliberate strategy: we built expertise, generated capital, and used that foundation to develop a product.” Bram de Muer – co-founder and CEO of IScence

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