What is a Product-Based Business?
A product-based business focuses its resources on generating income from sales of products to its customers.
This article looks at the definitions of the term Product-Based Business in order to give a basic introduction for anyone that is new to the concept. It is also helpful for folks that are thinking about getting into product-based business themselves.
Welcome to the inaugural / first-ever topic on Speaking of Products.
It's a pleasure to have the opportunity to share this with you. Thanks for stopping by.
The topic today sits in the category of Product-Based Business 101 or Foundations of Product-Based Business.
It's the kind of discussion you'd find yourself having where one person says "Hey, I think I'm interested in focusing on products for my business, do you have a moment to chat?"
Essentially, we're going to take a look at the building blocks of starting and running a business that is focused on offering products.
This will be a very basic introduction and is ideal for someone that perhaps has an entrepreneurial spirit but hasn't yet made the leap to starting their business and creating the first product, or products, that they will offer through that business.
Alright, let's get into it.
What do we mean when we talk about Product-Based Business?
Let's Get Back to Business
Whenever I look into something, I find it's best to break it down into its parts. As a start, let's take a brief look at that word 'business'.
Now, I'm sure you most likely already know what that means, but here's a quick recap so we're on the same page together.
When we say 'business', we're talking about some type of organisation, that exists to provide something of value to its customers, in exchange for some sort of payment.
While there are technically other forms of business, in this case, we're interested in the kind that generates an income for the people within it. We're not focusing here on charities, or not-for-profits, or government departments, etc. We're interested in the one most people commonly think of.
In the simplest sense, there are basically two meanings of 'business' depending on how you look at it. You could think about the word 'business' as either an activity or an entity, i.e. from a verb or a noun point of view
Business as an Activity
When we say 'doing business', we mean:
- some form of 'for-profit' transaction
- where something is 'offered' (i.e. the thing being transacted)
- from a seller to a buyer (a.k.a. customer)
- to provide some sort of value
- in exchange for a payment (i.e. usually a monetary price paid)
Business as an Entity
In this meaning, business is described in terms of an object. In other words, 'a' business is the entity involved in such transactions.
For any given transaction, a business could be either:
- the seller
- the buyer
Types of Business Offerings
Great, now that we've got the basics out of the way, let's zoom in a little further.
Recall earlier when we said that in business, something is 'offered'. Offerings in the context of business are either:
- products; or
i.e. This business offers the following products, or that business offers those types of services.
Products or services are created
to deliver value to customers
- fulfil their needs
- satisfy their wants
- or both
What Do We Mean by 'Product'?
In this context, when we say 'product', we're talking about something that people can buy from a business.
Products can be either physical or virtual.
Physical products are essentially 'tangible', i.e. something you can touch. For instance:
- a car
- a bottle of perfume
- an industrial sewing machine
Virtual products are 'intangible' in that they don't 'exist' in in the usual physical form. For instance:
- computer software
- an education course
- a hotel stay
- a unit in an investment fund
Time of Use
Products can be used immediately by the buyer. i.e. as soon as you purchase the product, you can immediately start using it to generate value.
Products can be segmented into various categories such as:
- consumer goods
Where Do Products Come From?
Products can be created by the business selling them directly;
- For example, when you buy something direct from the original source manufacturer or producer;
- In most cases, you will see the product manufacturer combining materials, energy, components and knowledge together to create something new;
- In some cases, the business produces their products as raw material obtained directly from the environment, i.e. in mining, farming, fishing and forestry.
Products can also be obtained from another source and the business simply on-sells them.
- i.e. the product is sourced from some third-party supplier or wholesaler and passed-on/distributed in its original form;
- For example, a consumer product retailer selling clothing, furniture, etc.
Alright, that covers the basics of products. Next up...
What Do We Mean by 'Service'?
A service is an activity that is 'done' by the seller.
Sometimes services are described as being 'done for you' or 'done with you' or 'provided for you'.
In most cases, there is inherently some degree of 'custom' or 'bespoke' work involved in a service
Examples of services include:
- Interior design
- Fashion consultation
- Financial planning
- Mortgage and insurance brokering
- Custom software development
- Management consulting
Ok then, products ✅ (tick), services ✅ (tick), next we can ask...
What is the Difference Between a Product and a Service?
There are plenty of nuances to consider when answering this question, probably way to much for right now.
I go into this question in more detail in this post, why products instead of services.
For now, just think of products vs services in terms of things a buyer can purchase and use immediately vs activities the seller is required to do.
Just a brief side note...
There is a relatively new player in the world called a 'Productized Service'.
A Productized Service essentially combines a service and a product together in a way that removes the 'custom' or 'bespoke' nature of the service
In other words, the service is delivered the same way every time (also known as a generic service, or a homogenous service)
So, with all those foundations out of the way, this brings us to the main conclusion of the topic today...
What is a Product-Based Business?
Now that we've broken the term down into its parts, lets grab the main points and put them back together...
A product-based business is one that generates its income by focusing on products
A product-based business combines its time, people, energy skills and resources to establish and operate a set of systems and processes concentrated on offering products to its customers.
Lastly, a Product-based business doesn't usually include services into the mix, although they can do so occasionally. For example, using minimal related services as a form of marketing funnel or to provide a little bit of extra value add for the customers of the products
How Do You Start a Product-Based Business?
That, my friends, is the million dollar question.
There are plenty of paths to go down when you unpack that question so we'll definitely need a little more time to cover that one in its own topic.
It is, co-incidentally, exactly the question I am focused on myself at the moment, which is a topic for another day.
Key take-aways. Today we have:
- taken a brief look at the various definitions of the term Product-Based Business
- revisited the underpinning word 'business' and what that means in this context
- described products and services
- pulled all the pieces together to confirm that a product-based business is one that derives most of its income from selling products, as opposed to services, to its customers