MIND THE GAP
20x vs 2x.
That's the valuation gap between selling products (data, lawn mowers, blow dryers) and selling services (analytics, landscaping, hairstyling). Don’t believe me? Create two identical company profiles - same revenue, team, and market share. Only one sells products while the other sells services. Ask any investor which they would invest in. I bet the answer won’t change.
Why The Gap Exists
The valuation gap isn't merely a difference in numbers; it reflects something deeper - how value is created and scaled.
With services, growth means more projects, more hours, more people. Want to double revenue? Double the customers. But doing so requires doubling headcount. It's a linear relationship - more input means more output. It’s why investors are cautious with multiples.
But sell products and this relationship breaks. The same product can serve 10 customers or 10,000 with little additional cost. That scalability attracts investors.
The differences continue:
Difference in Risk. Services live and die by the next project. The revenue stream is more like a mountain range - each project ends, and you start the climb again. Products? It’s more like an escalator of recurring revenue as each new customer is added.
Difference in Value Creation. A serviced solution walks out the door with the customer. Sure you can keep the experience, but the actual value? The customer owns that. Product companies capture their brilliance in intellectual property to freely sell again and again.
Difference in Market Position. When a service produces a brilliant solution, the customer shines. When a company produces a brilliant product, everyone shines.
You may have been taught this in childhood. Many children first learn about business by setting up lemonade stands. Why? Because even a child understands that creating something once and selling it many times is far easier and more rewarding than starting from scratch with each person. It's fascinating how many forget this concept in adulthood.
Common Mistakes
Many businesses try to move from offering services to providing scalable products – the pandemic (and more recently, inflation) only accelerated this trend. But few successfully transform due to common missteps:
The Template Trap, where businesses take their best services and turn them into templates, calling them a product. But customers aren't buying templates - they're buying solutions. Big difference.
The Features Fantasy, where businesses build every feature every customer ever requested. The result? A bloated platform that's hard to maintain and even harder to sell. Good products solve specific problems really well, not all problems somewhat well.
The Customization Crutch, where "Our product is customizable!" is the battle cry. Translation: "We’re still doing custom work but the next version will be the answer to your current problem!"
Look at industry reports over the past 24 months to see this tension more clearly: over 70% of service businesses attempted some form of productization. Yet less than 20% have succeeded in generating meaningful product revenue. The problem appears to runs deeper than capability.
Services are built on a fundamental promise: to solve a specific problem with unique expertise.
But for products, the opposite is true: solving a critical problem shared by many.
One for one vs one for many. You see, the challenge to transform isn’t technical - it's mental.
The Mind Shift
The hardest part of this transformation is rewiring your mind. With services, you’re trained to customize, to tailor, to craft custom solutions that delight the customer. It's in your DNA.
And it's exactly what you need to unlearn.
Product thinking requires the opposite mindset. Instead of spotting differences, spot patterns. Instead of customizing solutions, standardize them. Instead of saying "yes, we can do that" to every customer request, learn the power of "no."
The transformation now takes on new meaning:
1. From Hours to Outcomes
- Service: "How many hours will this take?"
- Product: "How much value does this create?"
2. From Point Solutions to Systems
- Service: "Let's start anew for this customer"
- Product: "Let’s build something reusable"
3. From Custom to Configurable
- Service: "I can build what you want"
- Product: "Here's what I offer"
The hardest part? The consultants on your team will resist this change the most. Why? Because you're asking them to abandon what made them successful.
Steps to Success
So how do you transform successfully? Here's a roadmap built from my personal journey of success and failure.
Start Small, Think Big
Don't try to transform everything at once. Rather pick one solution, one problem. But make sure it's a problem worth solving – something that appears consistently across customers, causes real pain, and has clear value.
Once you’ve done that, follow these steps:
1. Spot The Pattern - look at your last 20 projects, finding common problems you've solved and those you've created similar solutions for
2. Build The Solution - Start with 80% of what 80% of customers need, designing for scale from day one
3. Change The Conversation - Start selling outcomes instead of hours, declining custom requests and pricing your solution based on value, not cost.
4. Transform The Team - Identify product champions on your team who amplify your message, rewarding those who demonstrate product thinking
And perhaps most importantly: accept that this is a journey, not a switch you can flip. You'll likely run hybrid models for a bit - part services, part products. That's okay. The key is maintaining momentum in the right direction. Movement makes momentum.
The Road Ahead
The 20x vs 2x valuation gap is more than numbers - it’s a fundamental mind shift in how value is created and scaled. The transformation from service to product isn't simple, but worth the journey.
Successful businesses don't just change what they sell - they change how they think about value creation. They stop seeing every customer as unique, and start seeing patterns across customers. They build solutions that scale beyond billable hours.
They sell lemonade.
