Starting a Business
Choosing a Business Model

Choosing a Business Model

Thanks to technology, there are more business models to choose from than ever before. Today you can start a business part-time or full-time, at home, online or in a brick-and-mortar commercial location!

The key is to choose a business model that fits your Life Plan. This will ensure that you spend the right number of hours each week, take the right level of risk (some models involve more risk than others), are practical in terms of your financial wherewithal, and gain the kind of satisfaction and success you’re after.

First off, you have to make a key choice: How much time do you want to devote to your business?

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When you go for a full-time business model, you leave behind whatever you were doing previously to commit yourself completely to your startup. When you make this leap, expect to spend more hours working than you ever did working for someone else.

Alternatively, you can start up a business part-time. With this model, you adapt your business to time-consuming obligations you already have, such as your day job, parenting responsibilities or any other activities that would keep you from making your startup your primary focus.

Once you’ve determined whether you see yourself as a part-time or full-time entrepreneur, consider our list of business model options.

  1. Home-based
  2. Brick-and-mortar
  3. e-Commerce
  4. eBay
  5. Franchising
  6. Licensing your product
  7. Multi-level marketing

Business Model Options

Home-based Business

Drawing upon technology, you can create a legitimate and competitive business from home. It’s part of our culture now, accounting for more than half of all businesses. Home-based businesses can be run full-time or part-time, and may or may not be web-based.

Upside

  • Less risk and lower startup costs – allows you to test the entrepreneurial waters without having to spend money on real estate and staff.
  • Easily scaleable – you can make your home-based business as big or small as you’d like to suit existing commitments, such as parenthood and a day job.
  • Outsourcing – a great strategy to keep things simple at home. You can contract with other companies to do your public relations, warehousing, shipping, website management, even manufacturing.

Downside

  • Shipping activities and customer traffic at residential properties are restricted by local zoning ordinances (check with your local government for details).
  • Working at home can come with lots of distractions and can infringe on your other domestic commitments.
  • If foot traffic is necessary in your business, your home may not make the desired impression on customers.

Green tip

Work from home

Instant messaging, video conferencing, and other innovative workflow tools make effective telecommuting a reality. If you can telecommute, hold phone conferences, take online classes, or otherwise work from home, give it a try. It’ll save you the time you would have spent on the trip as well as sparing the air. As a bonus, you get to work in your pajamas. Telecommuting works for 44 million Americans (not to mention the TreeHugger staff).

Also, consider the possibility of working four ten-hour days instead of five eight-hour days (a consolidated workweek), cutting the energy and time spent on commuting by 20% and giving you some lovely three-day weekends.

Green tips for your business are provided by treehugger.com, a leading resource for all things “green”!

Brick-and-Mortar

This is a business with a classic physical location outside of the home. It involves a dedicated facility – whether retail, wholesale, service or manufacturing.

Upside

  • Gives you an opportunity to work face-to-face with people and become more involved in your community.
  • A physical location may attract walk-in traffic to supplement traffic you gain through marketing efforts, depending on your type of business.
  • Gives you a dedicated space to go to work each day and become mentally and physically immersed in running your business.

Downside

  • Higher risk and startup costs (build-out costs to set up your location, lease/purchase costs)
  • Requires a full-time commitment upfront to get the facility ready for business, as well as to hire personnel to staff it.
  • If your concept is retail-oriented, you must acquire inventory to merchandize your store.

e-Commerce

In this model, you don’t have foot traffic in your business, only traffic to your website. You sell your product through your website to consumers or to other businesses.

Upside

  • As with a home-based business, this is a lower risk, lower cost business to start. You don’t necessarily need lots of personnel, inventory and facilities.
  • You can choose to do it full-time or part-time.
  • Easily scaleable – you can make your e-commerce business as big or small as you’d like to suit existing commitments, such as parenthood and a day job.
  • You can tap into a national, or even global, customer base through the internet.

Downside

  • As with a brick-and-mortar store, shipping, inventory management, and credit card processing can all become headaches if you don’t do them right, particularly if you are a one-person show.
  • Over 800 million people access the internet globally, but it’s a challenge to a) get that traffic to come to your site and b) convert them into a customer confident enough to make a purchase.

eBay-preneurship

A sub-category of e-commerce, but one big enough to consider on its own, eBay can serve as a location for your online store, and allow you to tap into its huge marketplace.

Upside

  • Lower cost, lower risk than starting an independent e-commerce site as there are a great many tools to help eBay sellers get their businesses off the ground (e.g. PayPal to accept payment, a ready-made marketplace, online store templates, market research tools).
  • Avoid having to build website traffic from scratch – eBay has a huge following worldwide, so you tap into a vast existing customer base.

Downside

  • As with a brick-and-mortar store, shipping, inventory management, and credit card processing can all become headaches if you don’t do them right, particularly if you are a one-person show.
  • Even with the guaranteed traffic that eBay offers, you will still face stiff competition from existing sellers who have already staked their claim and built up a strong feedback rating & customer base.

Franchising

When you choose a franchise business model, you use someone else’s proven business concept as your entrepreneurial roadmap. Typically you pay an upfront fee, as well as a portion of revenues over time, to the franchisor.

Upside

  • Lower risk than opening an independent brick-and-mortar business, because franchising provides you with a streamlined process to start your business, as well as support for marketing, business plan samples and estimates, assistance with real estate issues, and staff training.
  • Provides you with a recognized, established brand to attract customers more quickly.
  • To illustrate the lower risk inherent in a franchise, success rates for franchises are higher than non-franchise businesses.

Downside

  • You’ve got to be able to pay the upfront franchise fees.
  • Franchise guidelines can be strict and limit your ability to get creative with your business.
  • Your financial upside is somewhat limited because you must pay your franchisor a cut of your profits.

Resource:

To learn more about franchising options, visit the International Franchise Association.

Licensing your Product

If you’re working a day job and don’t want to start a business, you can still take advantage of your great product idea by licensing the product to another company that has the entire infrastructure in place to properly manufacture, market and sell the product .

Upside

  • Lower risk because you can work on your product part-time.
  • Lower cost because your main expense is production of a prototype and testing the product to make it attractive to potential licensees (rather than the cost involved in setting up an entire business to make, market and sell the product).
  • Freedom to move on to the next big business idea – if you do successfully license your product idea, you could receive royalties long after you’ve stopped working on the product!

Downside

  • Finding the right licensee takes tenacity and determination, and can take a long time – don’t quit your day job!
  • Unless your product gets sold in a significant enough volume by the company to which you license it, the amount of royalties you receive can be low or non-existent.
  • It’s extremely difficult to get through the door of big companies to start a negotiation. That’s partly why less than 3% of all patented ideas actually make it to market through licensing agreements.

Multi-level Marketing

Multi-level marketing (MLM) is a marketing and distribution structure. People at the top sell to those below them, who in turn sell to those below them. The higher up you are in this structure, the more money you can make. The challenge with MLM businesses is that people at the top are frequently the winners. The vast majority of people at the bottom end up spending money and time to get involved and end up losing whatever they put in.

If you’re determined to choose a business with an MLM model, be sure to check with at least a handful of other people who’ve entered at your level (who you identify on your own, separate from people the MLM promoter refers you to), and see what they have to say. Find out their perspectives on how – and if it’s possible – to be successful.

Upside

  • Typically, limited startup costs (a membership or initial inventory commitment).
  • Viable home-based business.
  • You are provided pre-packaged tools, products and sales techniques.

Downside

  • Most people lose money in MLM activities, because they can’t sell the product as effectively as they thought they could.
  • Credibility can become an issue, especially if you start treating friends like they’re customers.

In this model, you don’t have foot traffic in your business, only . You to consumers or to other businesses.

  ABOUT THE AUTHOR:
StartupNation
StartupNation

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