I started my own service business and survived that way for 12 years before Palo Alto Software finally established itself as a product company. So, I do have some tips I can share.

1. Set your goals right and define success well

Service businesses generally take less start-up capital but are also much less likely than product businesses to offer eventual leverage and scalability. There are exceptions, but in most service businesses the assets walk out the door every night.

Those businesses are relatively easy to start, relatively easy to survive and prosper with, but also hard to grow beyond small, hard to sell, and hard to attract outside investors.

2. Look for a business anchor

That’s a former employer and/or a strong client. For example, I had Apple Computer, a former client, and Creative Strategies, a former employer, both willing to contract my services from the beginning.

Apple remained critical to – and loyal to – my business services from the beginning in 1984 until Business Plan Pro changed the business to product-driven in 1994.

3. Your first client is 2x as hard to get as your second

And the second is a third harder than the third. Land those first few clients well. Make sure they’re happy. Give them a huge discount to get the relationship going, and expect to keep your rates low for them, but ask them, in return, to not tell strangers what they pay you.

Work free if you have to. You need references and testimonials.

4. Find a focus

Be different from anybody offering similar services to similar clients, in a way they can understand immediately and will share with others.

Example: I was a business plan consultant with a fancy MBA degree—no big deal—but I had also built my first computer, programmed extensively, lived in Latin America, and spoke fluent Spanish.

My clients tended to be high-tech companies doing international business.

5. Use social media, blogging, and your website

Create and share content that validates your expertise.

Your marketing today is so much easier than it was when I went out on my own, when I had to get through editors and publishers and conference organizers to get my expertise in front of clients (specifically, I wrote magazine articles and books, and I spoke at COMDEX and the like). You can do it yourself by posting on blogs, Twitter, Facebook, and LinkedIn.

And, soon, RebelMouse. Oh, and that reminds me: Read Duct Tape Marketing by John Jantsch.

6. Spend wisely on your logo and look and feel

Look into 99Designs. I’ve seen some sensational work from them. It’s really important to have a professional look for your logo and website (or Twitter or Facebook or LinkedIn profile, if that’s all you do for a website). It isn’t a matter of business cards or stationery anymore, but it is how you represent yourself.

7. Don’t ever spend money you don’t have

You’ll get lots of suggestions for ways you can spend money now to make money later; mail lists, marketing programs, they never stop.

8. Don’t ever lose a client

Repeat business is vital. Keeping your existing clients is way cheaper and easier than finding new ones. Always go that extra mile, when you have to, to keep your existing clients happy.

9. Know your numbers

If you don’t know the difference between sales and money in the bank, between profits and cash, learn it. It’s vital. Know your numbers like the back of your hand.

10. Never compromise integrity

Your reputation will determine your success or failure. Don’t cut corners with credibility.

(Bonus point) Expect to make mistakes. If you can’t acknowledge and learn from and apologize for your mistakes, then you’re doomed. You will make them. If you think you won’t, keep your day job.

(Second bonus point) Create your own simple, practical business plan. Do it for yourself, not outsiders. Make it just big enough. Keep it fluid and flexible, and review and revise it frequently.

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Tim Berry is the founder and chairman of Palo Alto Software , a co-founder of Borland International, and a recognized expert in business planning. He has an MBA from Stanford and degrees with honors from the University of Oregon and the University of Notre Dame. Today, Tim dedicates most of his time to blogging, teaching and evangelizing for business planning.

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10 Tips For Starting a Service Business