The Startup Offers Quadrant

What to offer as a product or service to your customers?

In the previous post, we discussed why you don't need a new idea for a startup and why your startup should be built around your expertise. In this post, we will dive deep into the different offers you can make for your potential customers.

All businesses have a balance between a product and a service. Products are scalable, and services are not so scalable. No company has 100% product or 100% service. It's a spectrum.

For example, a restaurant is a service but not 100% service. The restaurant's brand, menu, recipes, processes, and systems are part of the product component. The food that is prepared daily is the service component.

We can say that a restaurant is 80% service and 20% product. Every day, groceries and raw materials must be bought, and a chef must prepare the food for the customers who walk in. When a restaurant is just starting, there is no momentum. But with time, repeat customers start walking in and the restaurant owner understands what menu items sell the most. They start getting some momentum.

If the restaurant starts succeeding, the owner can give out franchisees of the restaurant. The service can be productized. A McDonald's outlet is a service but the franchisee is a product. Anyone who wants to buy a business out of the box pays a franchisee fee to McDonald's and they can set up their own restaurant. The menu, the colors, the theme, the employee behavior, and so many other things are standardized.

If you work as an employee in an organization, you offer 100% service. If you start freelancing and get 3-5 clients, you are 80% service and 20% product. If you convert the freelancing practice into an agency, you are 60% service and 40% product. Because as you move forward, you are productizing your services.

Now let's think about the other end of the spectrum. Apple iPhones and MacBooks. We think of them as products. But they are not static products. They are 80% product and 20% service. Without the constant software updates of iOS and Mac OS, the devices are not useful. Without having a service center that fixes broken screens or coffee-spilled keyboards, the product cannot work.

That's why I recommend starting with more service-heavy businesses and slowly transitioning into product-heavy businesses. A lot of startup founders make the mistake of starting with a product right away. In the case of Micro Startups, a product is going to be a tool or software. Software as a service.

I do not recommend starting with software right away because it not just requires upfront investment, but also distribution and product-market fit. You can discover product-market fit only when you have a community and offer a service to them. That's how you validate the need in the market.

This understanding leads us to the Startup Offers Quadrant.

It involves Education, Services, Software, and Platforms. You can do this in any niche that you want to. I am doing this in the digital marketing niche, more specifically in the email marketing micro-niche.

Education

The easiest way to monetize your expertise in a specific subject is to teach other people what you know. This can be done in the form of 1-on-1 mentoring or consulting. If you are teaching a junior student who wants to become like you we call it mentoring. If you are sharing your knowledge with a business owner or someone from the management of a company, we call it consulting. Both are similar except for the target market.

This involves building your brand as an expert in your niche. You can blog, write an ebook or a book, post on social media consistently, and so on. We will dive deeper into these strategies in future lessons.

Doing consultation calls consistently will give you a clear idea about the market conditions and the challenges that your market is facing. Ideas are not born in a room. Ideas are born when you interact with the market. The more you interact with the market, the more crystallized your idea will become.

After you have done enough mentoring and consulting, which is more of a service (because you are trading your time for money), you can eventually package your expertise into recorded courses and training modules. How to build a scalable education business is a topic of its own and we will cover that in future lessons.

I have done this for my email marketing and digital marketing courses. I have sold my packaged, recorded courses to 1000s of students across India and the world. This has helped me build a strong brand in the market as an email marketing and digital marketing expert. Which has led to many clients for my services business. Education business can feed your service business. Your personal brand is built automatically when you educate people.

Services

When you consult businesses with your expertise, and if they like your solutions and suggestions for business growth, they might want you to implement the strategy for them. Here, you can offer your services as a freelancer. You are not just telling them what to do, but doing it for them.

Your clients will have conviction in your execution only if you have built your authority through content and consulting beforehand. Even if you don't package your knowledge as courses and monetize it, you still need to blog about it and consult 1-on-1 to build that trust. Some people feel that they do not have the patience or the inclination to build courses, but they still have to educate if they want to get clients for their services agency.

For example, I keep writing, talking, and making videos about "Deep Marketing Framework" which is a digital marketing funnel with email marketing as the foundation. Potential clients who want to implement the Deep Marketing System for their business consult with me on the topic. Then they want me to execute the strategy for them. My agency is called "Deep Marketing" and I generate revenue through services.

It takes time to productize the service and it's not an easy task. An agency business cannot be scaled quickly because many times clients would need the founder's presence, at least in a few meetings if not all the meetings. An agency that has 10 clients paying $3000 a month on average can generate $30,000 a month in revenue and at least $10,000 a month in profits. Scaling to $300,000 a month with $100,000 a month in profits might be much more difficult, but not impossible.

The best part about working with clients closely and providing DFY (done-for-you) services is that you get a very clear understanding of their needs and challenges. You also become more authoritative with your content, education, and personal branding because you are not just preaching. You are practicing what you preach.

Software

When you build software, ideally a tool that helps your clients achieve their goals, you can charge a monthly subscription to your customers for using your software. This is usually called SaaS (software as a service). There are many B2B and Enterprise software applications. HubSpot is one such example. HubSpot makes around $2B a year in revenue from its operations and is a publicly listed company.

Since we are building a Micro Startup, we would be building a Micro SaaS product for our fans and customers. Providing a service to your clients is a great way to understand their needs and build custom niche software that serves their needs. If you have 100 customers who pay $50 a month to use your tool, you would be making $5,000 a month in recurring revenue.

The good part is that if you start with education and services, you will have the distribution built through your education and a clear understanding of your customer's needs through your services. If you build a niche Micro SaaS, you are going to have an easier time convincing your customers to subscribe to your software. You don't need everyone in the world. You just need 100 customers to make it sustainable.

For example, in my case, I would be building an email marketing tool for my clients. However, I need to invest some capital in building my Micro SaaS product. That investment will come from the cash flow generated through education and services. I am not there yet as of today, but I will get there.

Platforms

Platforms are the most difficult business models on the planet. A platform is usually a two-sided business model. One of the best examples of a successful platform is AirBnb. On one side they have people who want to rent out their houses and on another side, you have tenants who want short-term rentals as an alternative for a hotel room.

Platform businesses create monopolies within their categories and dominate the niche. Network effects make sure that there is usually only one or maybe a maximum of two players in a specific category.

For example, in the cab booking business, Uber and Ola (in India) dominate the market. A third player usually doesn't have an opportunity to see traction because any new addition to the network (either a cab driver or a passenger) would want to use the app that has the maximum number of users in it. People install Uber because that's where they find drivers and drivers use Uber. After all, that's where they find passengers. It starts feeding on itself and becomes dominant.

Other platform businesses include Zomato & Swiggy in the food delivery business, PhonePe and PayTM in the payments business, iOS and Android in the mobile OS category, and so on. The third player starts losing market share over time and either shuts down or gets acquired by another company. For example, Windows Phone OS didn't survive. TaxiForSure (an early competitor to Ola and Uber didn't survive).

The competition in a platform business is brutal and requires external funding to support the initial costs of platform development and acquisition. This is where unicorns are made. When I say that you should build a Micro Startup, it doesn't mean that you can't dream big and eventually build a Mega Startup. Just don't start with the big idea first because we want to increase the likelihood of staying alive first.

I also have plans to build a platform, but not right now. I will focus on education, and services and eventually build software. When all these businesses are firing on all cylinders, throwing out a lot of profit, I might want to look into building a platform business.

I hope this article gave you a clear idea about the different types of business models. Some are profitable and certain, but not scalable. Some are scalable and profitable, but if not done right cannot be sustainable. You need a balance of both.