If you sell a service, my guess is you’ve fantasized about owning a product company.
Service companies often trade at low multiples because their biggest asset is usually the people, who are free to leave at any time. This means service businesses typically trade at low single-digit multiples and are often limited by the number of hours in the day.
Product businesses, by contrast, often seem like the holy grail. Products are repeatable and provide scale, with the potential to make money while you sleep. The only problem is, you have to fund the development of the product, which is prohibitive for most people.
So how do you start a product business without the backing of a giant venture capital firm or windfall inheritance?
The trick may be consulting while maintaining ownership of your intellectual property (IP). In this scenario, you offer your services by the day or hour but agree with your client that the underlying IP you develop in the process remains yours.
How Ben Kellie Built an Aerospace Company with Just $1,200
Ben Kellie got his start in the aerospace industry helping Elon Musk figure out how to get his rockets to land on a floating barge without blowing up.
In 2015 Kellie left SpaceX and invested $1,200 to start The Launch Company, where they supply hardware parts and consulting to a growing list of new aerospace companies like SpaceX.
Space is not cheap, so to finance his business, Kellie offered consulting services to a growing group of new space companies. One company asked Kellie to consult on the development of a Quick Disconnect, which is one of the many pieces of hardware a rocket ship needs to take flight.
Rather than give away IP to his client, Kellie was sure to retain ownership over his designs, which allowed him to build Quick Disconnects that would work for other manufacturers as well.
Soon after the consulting assignment ended, Kellie got a six-figure order from another aerospace company. The customer agreed to pay 50% of the cost up front, and the order enabled Kellie to make the leap from simple consulting to hardware supplier.
Less than five years after starting, Kellie was approached by Voyager Space, a private equity-backed group rolling up new space companies. Kellie sold a majority stake in The Launch Company but held on to a sizeable chunk, giving Kellie financial security for his young family and a significant upside in the next chapter of The Launch Company’s development.
If you’re paying your bills by offering a service, that can be a great way to get paid to do research and development on your product ideas. Just make sure your servicing agreement gives you the right to commercialize any IP after the client project is complete.
