Products vs. Services

Last night at one of those entrepreneurial networking dinner things, I struck up an interesting conversation with a guy who sold a cheap but important product to the medical community. As we talked about business and strategies and all that, he told me "you have to go with a product, not a service." He said he was probably selling product even now, while he was at the meeting. I pointed out that he could do the same with services, by hiring people to provide the services while he isn't there. He agreed, but told me that "product multiplies, service adds." I'm not sure, but I think he was talking about the marginal contribution margin of each additional item sold. He repeatedly pointed out that even by hiring more people, a service is limited by man-hours. But in my view, a product is too. A large growth in orders will usually demand hiring new people to help fill them. Maybe that is what he meant, though, that hiring one more person may double the amount of product you can produce but only increase available service capacity by 20% (if, for instance you had 5 employees). I guess it depends on how you look at it. Products have significantly worse cash flow, since you have to buy and store materials. Services can usually be billed up front and employees paid later. I don't know that one is necessarily better than the other, they are just different. I wouldn't turn down a business opportunity just because it was a product and I prefer services, or vice-versa. If any of you have experience selling/managing both domains, I'd be very interested to know your thoughts on this debate.

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