[MUSIC] Okay, welcome back everybody to module six. Here we're going to focus on the second most widely applicable of the five customer funded models. If you've got a services business, or you're thinking about one, this model's for you. If you can figure out how to apply it, it just might enable you to transform your not very scalable services business into a fast growing and highly scalable product business. Now of course, most services businesses are already customer funded by their very nature. If you're a consultant of some kind, for example your customer pays you a deposit to get the project underway and the same is true for most other services. If you are not asking for payment up front in the service business you run, I suggest you start doing so today. And don't forget, by the way, to ask your suppliers for good terms as well. The combination of customer funding up front and good terms from your suppliers on the back end ought to keep your business flush with cash that you can use to grow the business. So, that's all good, right? But, it's hard to scale many service businesses, why? Because you have to keep adding more service providers as you get more business. So, if you're an ad agency for example, if you win a new big client you probably have to hire a bunch more people. And attracting and then retaining the right talent is not as easy as it looks, you all know that. So if you'd like to transform your services business into something more scalable, a service to product model might just be the ticket for you as it was for Bill Gates and Paul Allen. The story of Microsoft's early days is way too long to tell here, and its in the book in chapter seven. Including, by the way, the hilarious story of what the Japanese company Ricoh had to do get Gates and Allen to actually deliver the operating system they contracted to build. But, after developing operating systems for lots of the early players in the PC industry, they figured something out. They could write a standard operating system that looked like all the others they've written that would actually work for everybody. And that product, MS-DOS, downloaded with new PCs or sold in a shrink-wrapped box, was what made the value of Microsoft finally take off. So, let's make sure we know what we're talking about here. Service-to-product models are those in which the business begins by providing customized or tailored services to one customer and then another, and then another. Eventually, they develop packaged, standardized solutions that can be sold on a standalone basis, with little or no service support. So let's start here with a little quiz. For which of the companies I'm going to mention below do you think Gates and Allen wrote customised operating systems? Altair, Apple, Dell, IBM, MITS, Ricoh, Texas Instruments. The answer, all of them but Apple and Dell. Apple always followed its own path and by the time Dell got into business, MS-DOS was already in existence so Dell didn't need something custom. He was able to license MS-DOS off the shelf. Had that not been the case, Dell might not exist today. So, that's how service to product models get started. You provide the service for one customer. And then perhaps slightly different version of it to another customer and so on. And pretty soon you get pretty good on understanding customers needs in that arena. For Gates and Allen it was PCs and then you're able to build another version, a standardized one that works pretty much as is for lots of customers instead of one customer at a time. And you begin selling the product instead of, or maybe in addition to your earlier, tailored services. Pretty simple idea, isn't it? So why do I love service and product models? There are three key reasons. Number one, the world is full of great services business that could have way more impact and create way more jobs if they could scale what they do. Number two, many service providers live under the constant stress of wondering where is the next client going to come from. But the recurring revenue from licensing your products, Microsoft did with Dell and others, or selling it outright is way more appealing. In fact, licensing is particularly attractive because it's one of the ways in which you can make money while you sleep. It's just as good as a mailbox to which people send checks. These kind of businesses often enable entrepreneurs to retain control over their own destiny. In fact one of the most important benefits of all five customer-funded models is the freedom it buys you. No bankers bearing covenant's, no VC's nearing the end of the life of their funds. You remain in the driver seat and I suspect that that's where many of you hope to stay. So let's look ahead to what we'll do in module six on service to product models. First thing we're going to do is to add some depth to the Goviral story that's told in the book. In doing so, I'm going to go even deeper with an interview of Claus Moseholm, Goviral's founder, and another interview with Jimmy Maymann who joined the business later to help it scale. Jimmy has gone on after the exit to run Huffington Post and now serves as Executive VP for Content and Consumer Brands at AOL which owns Huffington Post. Jimmy is one of the real movers and shakers, or maybe shapers, in the media industry today. After the interviews with Klaus and Jimmy, which will give you the inside and somewhat naughty story of how and why GoViral did so well with virtually no money, we're going to talk with an investor. But it's not just any investor. Though go viral never took any VC on its journey, they did bring in VC expertise and they did it in a novel way. We'll hear from that VC how they did it and perhaps you can do it too. So, as you can see, I wanted you to have a chance to dig really deeply into one of the models for each of the player's viewpoints and that's exactly what you're going to get here. Then I'll be back on screen to wrap up this topic with some further observations on bootstrapping, which we talked a bit about before. About when you can expect to take some money off the table, which often you'd like to do at some point if you decide to raise VC. And about the all too common phenomenon of what I call incomplete management teams. I'll also tee up a couple of things to watch out for in making the transition from a services business to a product business. It's a tricky one, to say the least. Meanwhile, I suggest those of you who are reading along, get up to speed by reading the customer funded business, chapter seven. As always of course, we'll close with an assignment, the last one in the course, you'll be happy to hear, for those who are taking this course on a certificate basis. So we'll get started on GoViral in the next segment. Are you Ready? Let's go. [MUSIC]