Services business is easy to start mainly because it is primarily dependent on skills and a can be started by a small group of people or even by a solo entrepreneur. More over in many cases it doesn’t require huge investment in the beginning. Unlike in products business which requires several iterations of prototyping and hence resources to create a minimum viable product, creating a minimal viable service is easy and quick. However there are some challenges in starting a services business. Lets look at them.
Its hard to get funding for services business since it is hard to grow beyond small. The one very important criteria investors look for before funding any business is scalability.
2. Customer Support
Unlike in products business, in services business, you need customer support from the very first day. Which means, replying to customer’s e-mail promptly and answering their incoming calls immediately need resources. Thanks to lots of outsourcing options available but you as an entrepreneur need to keep it your top most priority.
Services business runs on reputation, referrals and reviews. No matter what it takes, you have to keep your reputation high all the time. Businesses give their initial customers a huge discount to get the relationship going. Sometimes they even work for free to build the reputation, earn referrals and testimonials.
4. Repeat Business
Keeping your existing clients is way cheaper and easier than finding new ones. Customers are tempted to try different service providers in the the same space. After all who eats in the same restaurant everyday? You need to find a way to engage your customers and eventually make them loyal to you. You also need to differentiate from your competitors through strong value proposition and positioning. Its always better to focus on the niche rather than offering boutique of services. For start-ups, breadth is not as important as depth.
5. Overspending on marketing
Marketing is the biggest expenditure in any services business. Initially its difficult to clearly identify your target customer segment. Even carefully done market surveys and customer segmentation sometimes don’t help in identifying the right customers and businesses spent huge money on marketing to wrong customers.
6. Overcommitting and under-delivering
In order to differentiate from competitors, many businesses end up over committing. Setting customer’s expectations is one of the biggest challenges startups face.
7. Strong online presence
Its difficult to improve your Alexa rating and keep you SEO optimized. Once again operating in the niche is one of the best strategies to keep yourself visible in online space. If they can’t find you, they can’t buy from you.
If you address these challenges in your business plan and marketing strategy, you can definitely improve your chances to succeed. Please comment if I missed any point that you think is a big challenge in starting a services business.