The Product Spectrum

How to make your transition to entrepreneurship (a little bit) easier

Over the past couple years I’ve gone from being a freelance designer to working exclusively on my own projects (some very successful, and some less so).

And I’m not the only one. Every day, more programmers and designers join the tide of hopeful bootstrappers launching a book, an online course, an app, or some other kind of product.

But sadly, success as an employee or freelancer doesn’t always translate into success in the marketplace, and many have to fall back on their boring-yet-stable day job when the bootstrapping experiment doesn’t pan out.

So what makes the difference between success and failure? I believe I can offer a theory that can at least provide a few clues: I call it the Product Spectrum.

First, let’s consider a grid:

On the X axis, we’ll chart a product’s customer base size, from 1 to a few billions:

And on the y axis we’ll chart the service’s monthly average revenue per user.

Let’s try and approximately plot the location of a few products.

For argument’s sake, we’ll consider full-time employment as a “product” in which you sell your own time for several thousand dollars a month to a single employer.

This gives us something like this:

Freelancing would be next. Most freelancers don’t charge as much as a full-time monthly salary to each of their clients, but they can also take on more than one client at a time.

Next up would be productized consulting, such as Nick Disabato’s Draft Revise. Nick charges a bit less than traditional consultants, but by standardizing his process he’s also able to take on more clients and generate a more stable revenue stream.

Going further, you reach the domain of “info-products”, a.k.a. eBooks, video courses, and so on. Nathan Barry has to be one of the best examples of this model, and usually sells his material in three packages going from $39 to $249. A successful eBook can easily get a couple hundreds of sales.

(Of course, this is not recurring revenue. But unlike freelancing or running an app, an eBook does not always require constant attention. So the average revenue per active month of work often ends up in a similar range.)

After info-products come more traditional SaaS B2B apps like Intercom, Mixpanel, or Vero. These all charge around $100 a month, and have thousands of customers.

You then have small businesses or B2C apps like Buffer, which only charges $8 per month but has tens of thousands of customers.

And finally, we get to huge services like Twitter and Facebook, who aggregate a huge userbase by offering a free service, and then monetize it through ads.

Because of this revenue model, their monthly revenue per user often ends up lower than a dollar:

Because I picked the units myself, these data points end up nicely aligned. And this is what I call the Product Spectrum:

So here’s my theory: when moving across the spectrum, the bigger the gap, the harder the jump.

It makes sense if you think about it. The skills involved in being an employee aren’t all that different from those required to be a consultant.

Similarly, running a productized consulting service isn’t that far from packaging your knowledge as a video course.

But on the other hand, there’s a huge gap between being an engineer at a big company, and producing, marketing, and selling a video course from scratch (although some have done it!).

What’s more, things get harder as you move down the spectrum. So while making the transition from productized consulting to eBooks isn’t too hard, going from eBooks to SaaS apps is another matter altogether.

Just ask Nathan Barry, who tried to do just that and had to admit his efforts weren’t succeeding as he had hoped. He ended up smartly moving back along the spectrum, to settle somewhere between productized consulting and SaaS (“consulted producting”?)

So here’s my advice: if you’re fed up with your day job and thinking about taking that big jump into entrepreneurship, don’t rush into the deep end of the spectrum right away.

Instead, maybe take a moment and ask yourself what the smallest step would be.

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