Evergreen dilemma : Product Company vs Service Company

From the title itself some of you might have guesses the question. Yes it is an ever green dilemma of entrepreneurs especially in our field. Of course I am not an exception here.

I run an IT service company along with my 3 friends for last seven years. We are doing pretty good as of now and future seems bright. We are around 50 people right now.

We are going through this great dilemma right now. What should be our future?

Should we remain a service company or should we move gradually towards a product based company?

Main reason is, we do not want to increase the number of people by a huge margin. We don't think we are cut out for a number game business and in IT services, that is how you grow. Right now we are growing in terms of quality we provide and we charge more than our competitors. But that will also hit a limit someday.

Other reason is, satisfaction. I don't think we all are highly satisfied with our work as we do it for other people. Want to scratch our own itch now!

We did launch few web based products in 2007 and got not so great success. One of our web based service is doing ok right now. One we closed down after 6 months and 1 is not doing so great right now. So we do have some experience in launching and maintaining web based services.

At this moment, revenue is quite ok from our services business. We do not have lot of extra cash to burn but we can make do with it. We do Web based apps, iPhone apps, iPad apps etc for clients.

So now my questions to you guys are:

• How should we go about it?
• We are 4 people, should 1 of us do only products and nothing else?
• How much investment should be there in creating a product?
• Should it be under a separate company or same company?
• What are the pit falls we should be aware of?

We have read recent article on Techcrunch about it so have some ideas on that. We would like to hear more from you guys.

Looking forward to your replies and interesting conversations.

Thanks.

Update: This article provides good points for the transition I am talking about.

http://onstartups.com/tabid/3339/bid/130/Software-Products-vs-Services-Are-You-Making-Money-While-You-Sleep.aspx

I agree with you the Service vs Product dilema is really eternal. While service ensures $$ right from first day, a product can ensure huge scale that a service business can never ever think of. The good part with your business is you already have people on board and you have worked on projects in your market. Though your product experience has not been awesome, I would still suggest to keep trying it and try to spinoff one from your existing jobs. A few pointers

How should we go about it?

• Either 37 signals way. make a product for yourself, use it and if you develop it sufficiently sell it.
• Convert an existing service that you provide into a product project and test waters
• Make a complimentary product of your current service projects and try to sell/providing free to existing client base to test waters
• Create a substitute for your service. Ex if this was a web design business, try to create a CMS which will be DIY for clients
• Since you talked about iPads and iPhones I guess this might be of interest like http://www.onswipe.com/

• Let 4 of you coordinate and let your juices flow on products, once you find some initial revenue allocate the business to one ofthe partner to take it to the next level.
• Alloting one right from the start might put pressure on your existing service business.
• I suggest even one of them can permanently start concentrating on client support, understand their traumas and create a product at the same time

How much investment should be there in creating a product?

• Minimum! Really. Every idea is worth dime till the time it is not in the real world executed. Try to build products which you can build upon. A MVP to be relelased first and than create the bells and the whistles.

• I guess this is too much of advance planning. It will also put additional costs and hassles of monitoring. Have it as a separate dedicated project within the same company if required but not a separate company untill and unless $$ star tflowing in.

• Hell many! I guess right from a Google search to a filthy consultant can give you the 101 list but end of the day remember your problems will be YOUR probles and not the Search engines. Surprisingly they will even be unique to you.
• While I still invite others to add to this; the only advice I can give is keep your eyes and ears open while executing the product business. Your pitfalls can turn into the best feature of your product.

Hope I added value to the decision process. All the best.

You already have an amazing foundation for improving on what you are already doing. I don't think it's worth pivoting very hard at such a point, and if you DO want to get into a service business so badly, do it the way 37signals did it. They remained a service business while working on Basecamp until basecamp way way bigger than the service part of the company.

Mark Suster from Both Sides of the Table recently posted a good post on it http://www.bothsidesofthetable.com/2011/04/25/what-should-you-do-with-your-crappy-little-services-business/ And adding my 2 cents... It is easier for a service company to systematize and streamline most of their processes and become almost product-like scalable than it is to just make the switch. Can you provide some more info on what exact services do you provide, so i don't have to be so vague in my answer and actually give you some actionable stuff? :)

Hope this helped