How To Choose Your Business Model

Thanks to technology, there are more business models to choose from than ever before so it’s important that you take the time to consider which one will work best for you and your business idea.  Today you can start a business part-time or full-time, at home, online or in a regular ‘bricks and mortar’ commercial location.

There’s a popular adage, often attributed to Benjamin Franklin, the father of time management, “Failing to plan is planning to fail.” Even if you’re confident that you know your preferred business model, it’s crucial that you really take the time to look at all the options and consider which of these best fits your life plan, lifestyle and will give you the best route to your target market. The alternative could be a very costly mistake.

The key is to choose a business model that fits your Life Plan. This will ensure that you (i) work on your business the right number of hours each week for you (ii) take the level of risk you’re most comfortable with (iii) are realistic and practical about the financial costs and (iv) get the kind of professional and work satisfaction and success you’re looking for.

Your first key decision is how much time do you want to devote to your business? If you decide to opt for a full-time business model, expect to spend more hours working than you ever did working for someone else. Alternatively, you can start up your business part-time allowing you to work your business around your other responsibilities, such as your day job, family or any other activities that you’re your start-up cannot be your primary focus. Once you’ve decided whether you are a part-time or full-time entrepreneur, consider the list of business models below.

1. Home-based Business

Half of all businesses now use technology to create a legitimate and competitive business from home as they can be run full-time or part-time. Examples include PR, marketing, coaching, freelancing as well as web-based retail businesses and direct selling (see below).

Benefits

  • Less risk and lower start-up costs – allowing you to test your entrepreneurial skills without having to spend money on offices and staff.
  • You can choose to do it full-time or part-time.
  • Easily scale-able – you can make your home-based business as big or small as you’d like, working around existing commitments, such as family and the day job.
  • Outsourcing – a great strategy to keep things simple at home. You can contract with other companies to do your PR, warehousing, shipping, website management, even manufacturing.

Considerations

  • Shipping activities and customer traffic at residential properties may not be allowed.
  • Working at home can come with lots of distractions and can infringe on your personal domestic life.
  • If foot traffic is necessary in your business, your home may not make the desired impression on customers.

 2. Direct Selling/ Multi-level Marketing

A sub-category of the home based business, Direct Selling/ Multilevel Marketing (MLM) is a business structure in which products are marketed directly to consumers by sales representatives or distributors. Their compensation is based on their own product sales as well as the sales of the distributors who they have recruited to be part of their team. These recruits are called their down-line.

Benefits

  • Start-up costs are usually low (a membership or initial inventory commitment) and ethical companies do not encourage stock holding.
  • A viable home-based business model, you are provided with the tools you need to run your business.
  • Easily scale-able – you can make your home-based business as big or small as you’d like, working around existing commitments, such as family and the day job.
  • Many companies offer excellent training and personal development opportunities.
  • For those who work hard and consistently, the financial rewards can be very significant.

Considerations

  • Many people give up because they can’t sell the product as effectively as they thought they could.
  • Credibility can become an issue, especially if you start treating your friends like they’re customers.

To learn more about Direct Selling and Multi-level Marketing options, check out the Direct Selling Association website.

3. Bricks and Mortar

This is a business with a physical location outside of the home e.g. office, shop, factory, fitness centre. It involves a dedicated work facility, be that retail, wholesale, service or manufacturing.

Benefits

  • Gives you an opportunity to work face-to-face with people and become more involved in your community.
  • Depending on footfall, a physical location will attract walk-in customers to supplement those you gain through your marketing efforts.
  • Gives you a dedicated space to go to work each day, so that you can separate yourself mentally and physically from your home life.

Considerations

  • Higher risk and start-up costs (lease, refurbishment, fixtures and fittings etc.)
  • Requires a full-time commitment up-front to get the facility ready for business, including staffing.
  • If your concept is retail-oriented, you’ll need an inventory and stock control systems in place.

4. e-Commerce

In this model, you direct traffic to your website as you sell your product through your website straight to consumers or to other businesses.

Benefits

  • As with a home-based business, this is a lower risk, lower cost business start-up option. You don’t necessarily need a lot of staff, an inventory and facilities.
  • You can choose to do it full-time or part-time.
  • Easily scale-able – you can make your e-commerce business as big or small as you’d like to suit existing commitments, working it around your family and/ or the day job.
  • You can tap into a national, or even a global, customer base through the internet.

Considerations

  • As with a ‘bricks and mortar’ business, shipping, inventory management, and credit card processing all need managing with care.
  • Whilst over 800 million people access the internet globally, it’s a challenge to a) stand out from the crowd and get that traffic to come to your site and b) convert visitors to your site into a customer confident enough to make a purchase.

5. eBay Entrepreneurship

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

Benefits

  • Lower cost, lower risk than starting an independent e-commerce site as there are a lot of 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.

Considerations

  • As with a ‘bricks and mortar’ store, shipping, inventory management, and credit card processing can all become headaches
  • 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.

 6. 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. The key to making the right choice between a franchise or start-up business is research. You must do your ‘due diligence’ about the franchisor before you proceed.

Benefits

  • This is potentially a lower risk option than setting up your business from scratch because franchising provides you with a streamlined processes to start your business, as well as support for marketing, business plan samples and estimates, assistance with premises issues and staff training.
  • Provides you with a recognised, established brand to attract customers more quickly.
  • Success rates for franchises are higher than non-franchise businesses.

Considerations

  • You’ve got to be able to pay upfront franchise fees and are tied into a legally binding contract until the franchise term expires.
  • Franchise guidelines can be strict and limit your ability to get creative with your business.
  • It is important to recognise that not all franchise businesses are soundly based or well run so it is therefore essential to select one which is competent and ethical.

To learn more about franchising options, visit the British Franchise Association and Which Franchise websites

7. Licensing your Product

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

Benefits

  • Lower risk because you can work on your product part-time.
  • Lower cost because your main expense is the 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 your 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!

Considerations

  • Finding the right licensee takes tenacity and determination, and can take a long time – don’t quit your day job!
  • Unless your product is 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. This is partly why less than 3% of all patented ideas actually make it to market through licensing agreements.

The choice may seem quite overwhelming but you’ll almost certainly rule out some out quickly for time and/ or financial reasons. Then take your time to look carefully at each of the remaining options and evaluate which one is most suitable for you.

Question:

What’s your experience of the different business models above? Are there some you prefer over others? Leave a comment for me in the box below.

 

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25 thoughts on “How To Choose Your Business Model

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