A good friend of mine, a former client of my consulting business, became involved with a productized service in the late 1990s. What the company had was a team of technically gifted people and a database back end. What it offered to the market (large companies) was a turnkey intranet complete with security, interface, policies and procedures.
The firm gave that so-called product a product name and priced it at $100,000 and up. Most installations were closer to $500,000 than $100,000, initially, and then tens of thousands of dollars annually, later on, for maintenance.
There was a trick involved; sleight of hand, smoke and mirrors. Each time they made a sale, they’d send in a team of engineers for what they called “installation.” What installation was, in fact, was taking their back-end database skills, some packaged code and data routines, and building a custom application.
Although there never really was a product, in the sense that we assume when we distinguish between product and service, to invent a nonexistent product for purposes of sales and marketing and–note this next one–valuation was, in fact, a stroke of genius; it was the key factor that turned an interesting engineering and development company into an opportunity for lucrative exit and financial payoff.
The company was bought by an acquirer for very good money, sometime around the turn of the century. Founders became rich. I think both acquired and acquirer are now out of business. And there never was a product.
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Hi Tim,
Great observation! I recall 1999, when one San Diego entrepreneur garnered millions in venture capital from an 8 page PowerPoint presentation — in less than 10 days.
He later sold that business, but never could repeat his success. He never truly learned the fundamentals of building a wealthy company (which I talk about in my upcoming book):
1. You consistently and confidently express and demonstrate your value to the market.
2. You are paid handsomely for that value.
3. You continuously innovate.
4. You focus on business endeavors that do not exploit and degrade other people.
5. Your business endeavors do not cause irreparable damage to the natural environment.
6. You have enough of the “right” clients – in other words, you know who they are; you can explain your ideal client to others very clearly; and you market to them in an authentic, consistent, systematic way.
7. You provide your stakeholders, investors and employees enough time for family, friends and personal growth.
These are the new rules of increasing company valuation.
Companies built on “smoke and mirrors” seldom honor these time tested principles.
– Lisa Nirell
http://www.energizegrowth.com
author of “EnergizeGrowth NOW: The Marketing Guide to a Wealthy Company” (Wiley, 2009)