Typically, product companies are more scalable than service companies because they are easier to scale and also easier to build barriers to entry around, which protects your margins from twenty clone companies. This is because anyone can hire your people and replicate most of your services. Many industries have near zero barriers to entry like real estate sales where you just rent a desk and join the MLS. It is also possible to have service companies that are hybrids because they have some proprietary processes, products and trade secrets embedded that help create some sustainable competitive advantage. H & R Block is a good example of this as they supply many systems for sales, tax prep and other benefits that enable the services, so an individual tax preparer has a tougher time competing.
Because scaling almost always requires outside capital too, you generally need strong margins and a large market opportunity to attract outside investors. This means you need to show investors good metrics on your business to project profit and give them confidence you can pay back a good return on investment (ROI) for the amount of risk and time commitment of capital they make. Most outside investors will want to know they can get their investment out at a later date, so you need to be prepared to sell the company, IPO or do a management buyout or other such transaction to provide a liquidity event also.
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Bob Norton is a long-time Serial Entrepreneur and CEO with four exits that returned over $1 billion to investors. He has trained, coached and advised over 1,000 CEOs since 2002. And is Founder of The CEO Boot Camp™ and Entrepreneurship University™. Mr. Norton works with companies to triple their chances of success in launching new companies and products. And helps established companies scale faster using the six AirTight Management™ systems. And helps companies successfully raise capital.
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