It’s a good problem to have. In the performance of your duties as a service provider, you’ve developed a tool, a protocol to make the job easier. You’ve built a product. Now you want to market the product on its own. Or, maybe you want to pursue some of that sweet VC money that is available to software makers, but not service providers, and grow your business as a product company. Maybe you want your own channel reselling your product.
Don’t do it, advises Mark Suster, a venture capitalist and an undisguised fan of service providers, in a post on his blog What Should You Do with Your Crappy Little Services Business? (the post originally appeared on TechCrunch.)
Suster’s advice can be boiled down to stick to what you know best and accept a the more modest, but more certain growth of the services business at which you already succeed.

• The thing is – even if your services business is a smaller scale than this – you have complete control over the decisions about where to take the business. There is no shame in making a few million dollars in profit and paying yourself dividends while still owning a large percentage (if not all) of your business. It’s how things are done across the country outside of Silicon Valley.
• The minute you raise VC you have one option – grow & try to become big. No VC is interested in dividends – they want growth. That’s the right answer for VCs.  It may be the right answer for you. But it might not.

Suster’s advice to those entrepreneurs who truly believe they’re sitting on a billion-dollar product and need to bring it to market:

If you really want to do a product business then hire a professional manager for your services company, quit that job and focus 100% on your product company.

Otherwise, those products can be a key differentiator for the services offering and a gross-margin bump when you include it in the package.
The service providers who want to be product businesses always made me laugh a little. After all the talk in the channel about commodity products and the margin found in services, you have to wonder if inventors don’t have stars in their eyes.