James Altucher on being product or service company, meaningful insight. Several of my friends in college started a software house / development service company which some ive been involved in my early carrer. This is very relevant to their condition, to keep providing service, create a killer product or better yet, doing both.
Answer by James Altucher:
When I started my first business, Reset, we had no money, no product, and no employees.
It was just my brother-in-law and me. And we both had full time jobs.
But we knew how to do one thing that nobody else knew how to do back then (1994-5). We knew how to make a website. We knew how to design a website. We knew how to do all the programming that makes a website have more than just graphics on it and actually has some use.
And then we heard that American Express needed a website. Specifically,
And the people American Express had hired knew nothing about the technology behind websites.
So they hired us: for about $250,000.
Then we didWarner.com. Then we did .com, then Ed.com. And many many other sites.
Then we hired people. Then we did more sites. Record labels, movie studios, startups, and so on.
We hired designers and programmers. Our revenues were growing at least 10-20% a month. We were profitable from day one. Services are always profitable because, god forbid, a client fires you, you can fire the employees. Your only fixed cost is your office rent.
So the way to do it is to start off with services instead of products.
A) Every software company started as a services company. Read the history of Oracle, started by Larry Ellison. They were a "database" company. But for the first five years they were in business, in order to "install" their database you had to hire them to install it and they would send in 100s of consultants and "install" it for you.
They had no database then. They were a consulting / service company pretending to be a product company because it was an easier sale and Wall Street would value them higher.
B) My big regret on that first business was not packaging my services into a product. We build a lot of software during our existence that were powerful products. But we just used those products to make our services easier to execute (and enhanced our profits).
We sold the company as a multiple of earnings. Probably the only company in the 90s to do so.
But if we had lost money like everyone else, IPOed as a product company, and then flamed out in 2001, we probably would've made a lot more money.
That said, every month we were in business we grew profits, made our clients and employees happy, and had a fun time. Then we sold and everything turned to hell.