Why Some Tech Entrepreneurs Start by Selling Services Instead of Products
- LMSPortals
- Jul 2
- 5 min read
Updated: Jul 3
Introduction: The Hidden Path Many Founders Take
When we think of tech startups, most of us picture shiny new products — a slick app, an AI-powered platform, or a breakthrough device. But behind many of the world’s most successful tech entrepreneurs is a less glamorous beginning: selling services. Instead of launching with a software product or hardware prototype, they start by offering hands-on solutions, consulting, or custom projects.
This path isn’t just about bootstrapping cash. It’s often a strategic decision that shapes the business for years to come. Let’s break down why many smart founders begin this way.
Lower Barriers to Entry: Get Moving Without Heavy Upfront Costs
Building Products Takes Time and Money
Creating a tech product is expensive. You need developers, designers, testers, and often specialized infrastructure. Before you even know if anyone will pay for your idea, you might burn through your savings or rack up debt.
Services Can Be Sold Immediately
By contrast, selling services — like building websites, running digital campaigns, or offering data analysis — requires little more than your expertise and a laptop. You can start tomorrow. No manufacturing delays, no giant software builds, no long product roadmaps. Just you, solving someone’s problem for a fee.
Fast Cash Flow: Keeping the Lights On
Why Cash Flow Matters Early
Startups live or die on cash flow. Investors may come later, but early on, most entrepreneurs are on their own. Service work gets you paid quickly. Clients typically pay deposits or monthly retainers, and you can often negotiate payments tied to deliverables. This keeps your business solvent while you refine long-term plans.
Real Example: Agencies That Fund Products
Plenty of tech product companies began life as service shops. For instance, the team behind Basecamp (originally 37signals) was a web design agency before building their popular project management tool. The cash from client projects funded product experiments until they found what clicked.
Direct Customer Insight: Service Work Reveals Real Problems
Learn What People Actually Want
When you sell a service, you’re in close contact with clients. You hear their frustrations daily. This is a goldmine for figuring out what products they’d pay for. Instead of guessing from afar, you get a front-row seat to genuine business pain points.
Services Shape Better Product Ideas
Many great products emerge from patterns noticed while doing service work. A freelancer who repeatedly builds similar integrations for clients might spot an opportunity to automate it. A data consultant who keeps writing the same scripts might turn them into a SaaS platform.
De-Risking Product Development: Build Only When You’re Ready
Avoid Making Something Nobody Buys
One of the biggest startup mistakes is sinking time and money into a product nobody wants. By starting with services, you validate the problem and even the demand before investing heavily in tech. You only build the product once you’re sure there’s a market.
Pre-Selling and Custom Builds
Some founders go a step further, effectively getting paid to build a product. They land a big client who needs a solution, develop it under a service contract, and later spin it into a product for the wider market.
Stronger Relationships and Early Champions
Happy Clients Become Beta Users
When you’ve delivered real value to clients through services, you’ve earned trust. Those clients are far more likely to be early adopters of your future products. They may give you testimonials, case studies, or honest feedback you’d never get from strangers.
Word-of-Mouth Advantages
Satisfied service clients also refer you to others. This network effect can drive your first wave of product customers without spending heavily on ads or marketing.
More Control, Less Outside Pressure
Services Help You Stay Bootstrapped
Taking on investors too early can dilute your ownership and push you to grow before you’re ready. By generating revenue through services, you can fund development yourself and grow on your own terms.
No Need to Fake Scale
In the product world, there’s pressure to look big before you are — chasing vanity metrics, pumping up user counts, or offering unsustainable deals. Service businesses focus on real revenue from day one. That’s healthier and more honest.
Building the Team and Systems Before the Product
Sharpen Operations on Someone Else’s Dime
Running service projects teaches you how to manage teams, handle contracts, and deliver results. These same skills are critical once you have a product. It’s better to develop them while the stakes are lower and someone’s paying you.
Spot Your Future Co-Founders or Early Employees
Many founders meet their key partners while working on service projects. You discover who’s reliable under pressure, who communicates well, and who can execute — before you’re locked into a risky product venture together.
Case Studies: Companies That Started With Services
Mailchimp
Before becoming the world’s top email marketing platform, Mailchimp was a web design and development agency. Their clients often needed email campaigns, so they built internal tools to help — which grew into the SaaS everyone knows today.
Shopify
Shopify began when its founders tried to open an online snowboard shop. They couldn’t find a decent e-commerce platform, so they built one. Initially, they even offered to build online stores for other businesses — effectively as a service — until the platform matured.
Basecamp (37signals)
37signals started as a web design consultancy. They created Basecamp because managing multiple client projects was chaotic. The tool worked so well that it became their main business, and they gradually phased out consulting.
When Should Entrepreneurs Skip Services and Go Straight to Product?
Of course, starting with services isn’t right for everyone. Some situations favor jumping directly to a product:
Highly novel tech: If you’re inventing something groundbreaking (like new hardware or deep tech), service work may not be relevant.
VC-fueled blitz: If you’ve already raised substantial venture capital, your investors likely want you focused on scaling a product fast.
B2C models: Consumer apps often rely on rapid user acquisition and network effects. You can’t run a “service version” of a social network to fund development.
Still, even in these cases, smart founders often consult, advise, or build small paid pilots before committing full scale.
Summary: Why the Slow Start Often Wins
Selling services first might seem like a detour, but for many tech entrepreneurs, it’s the smartest way to build a lasting business. It means:
Lower startup costs and faster cash flow
Deep insight into real customer problems
Less risk of building something nobody wants
Stronger relationships and early product advocates
More control without outside pressure
By the time these founders launch a product, they’re far more prepared. They know the market, they have paying customers lined up, and they’ve already built trust. In the end, starting with services often isn’t just a fallback — it’s a strategic move that makes the later product far more likely to succeed.
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