What is it that you're selling? Widgets? Investment services? Beauty products? Home repair services? Imported gadgets? Ethnic foods?

None of the above. Nor any other product or service!

What your business offers its customers is … solutions. For example, if your new venture sells auto parts, it is actually in the business of helping customers solve automotive problems that require parts. The problem may be that a car needs clean oil to ensure long life for the engine. The solution is for you to provide the appropriate oil and filter for the customer's vehicle at competitive prices.

Yes, your business does offer oil and filters and hundreds of other parts, but what the customer wants is a solution. If your business is auto repair, it is your job to analyze the problem for the customer and come up with an appropriate solution before buying parts. Customers for auto part and auto repair are, obviously, auto owners, but they have different problems that require solutions. One type of customer understands what the problem is in specific terms: parts. The other requires that you provide diagnostic services to define the problem and make the appropriate repair. Offering parts is a product business. Offering repair services is a service business.

If you think of your business as a problem-solving venture, you will be more in tune with what customers want. It will help you understand how best to offer products and or services to your customers.

Products

A product is something that is produced or made. Each was designed with a primary function that solves a problem faced by a specific group of potential buyers.

A commodity is product produced in quantity and readily available. For example, hand soap is a commodity that you can buy at numerous locations in any town or shopping center: drug store, grocery store, discount store, etc. Because it is standardized—a branded bar of soap is the same wherever it is purchased—and widely available, pricing can be competitive. If you shop around, you can buy that bar of soap at various prices. Some sellers don't make much profit on the sale of that bar of soap, instead profiting from related sales or quantity sales. Smaller, independent businesses prefer to specialize in offering specialized, noncommodity products with less competition from larger businesses.

Here's an example of a products definition from a typical business plan: “Frank's Furniture offers more than 150 items including, chairs, stools, dressers, book shelves, mirrors, screens, side tables, dining tables, and lounges selected and priced to match the household needs and economic levels of the residents of Smithtown.”

Services

A service is work performed for another. Changing the oil and filter on a customer's car is a service, even though products are involved. The services that your business provides to customers must solve specifically defined problems. That's how your customers look at your business. For example, a customer may say, “I know my car is due for an oil change, but I don't want to climb around underneath it trying to figure out where the filter goes—and maybe getting oily in the process.”

Following is an example for the services description from a typical business plan: Fuzzy Wuzzy Child Care offers child care services for children ages from three months to six years old. Hours of operation are from 6:00 a.m. to 7:00 p.m., Monday through Friday.

As you develop your business plan, consider what problems your services will solve for potential customers, but state it in terms of the solution. Later, in your market analysis you will expand on these definitions with an analysis of exactly who needs your business services and how to reach them.