How to choose the right business model is one of the most fundamental questions when you start your entrepreneurial journey.
Today, we have so many opportunities and it is hard to navigate through the landscape of so many different business models.
I created this article for everyone who is struggling to get started and need more guidance for choosing the right business model.
Why building a business is the first place?
I recently had a chat with a friend about different business models.
Similar to me, my friend is working in the creative industry as a contractor and currently takes a few months off to think about his next steps. For him, it was a question of what he wants to achieve long term, because as a freelancer, there is only so much room for growth.
But regardless, if you are self-employed or not, if you achieved a certain level of success in your career, you will start to wonder what comes next.
Should you stay on the safe path as an employee? Or should you branch out and create your own business? Or should you pivot and so something completely different?
Similar to my friend, I started asking myself these questions a few years ago.
What now? What happens if I continue down this road? Where will I be? Where do I see myself?
I came to the conclusion that building a business is MY safe path to success and a life of freedom. Maybe not in the short term, but certainly in the long run.
The first thing you need to solve is to make a commitment
Because you stumbled upon this article, I assume you have somewhat of an interest in building a business. Whether you want to make more money or you just hate your current situation and want to replace your job.
But just because you are doing a little bit research here and there, doesn’t mean you are committed.
This step is the most crucial step after all, because it will determine everything else that you plan to achieve. You need to know your motivation behind building your own business and that motivation needs to be strong enough so you won’t give up if things don’t go as planned at the beginning.
You need to see yourself in the future and what you do every day to earn your money. If you don’t have a clear vision of that, it will be very hard to build a business.
Step 1 – Imagine your perfect day
What would you do everyday if you had $20 Mill in your bank account, 5 houses in your favorite countries and a private jet to go everywhere, anytime. Write it out. Draw it out if you can. This is why vision boards work. If this is too much work for you, then sorry, entrepreneurship is not for you.
Step 2 – Find your Why
You need to know WHY you want to build a business in the first place and going through all the struggle. If you have your perfect day in your mind:
Ask yourself why you want to achieve this lifestyle? What do you want to do more of? What do you want to do less?
If someone asks you tomorrow, why you are on this journey, the answer must come out without thinking. If you are at this point, you subconscious mind already knows what you want and you will march in this direction inevitably.
The 4 categories of businesses
Or also called the 4 Levels of Entrepreneurship. Having a clear picture of what categories of businesses are existing, can help you to make the initial step into the right direction.
A business category can be understood as an umbrella that can cover an infinite number of different business models. For example, you can decide to sell food and open a restaurant (category).
As a business model, you can decide to sell Pizza, Burrito, Salads and so on. There is no limit to what you can do with your restaurant. But turning your Pizza restaurant into a startup, might be a more difficult endeavor. Therefore, it is important that you make a clear decision when you start.
Without beating around bush and repeating my other article, here are the 4 categories with pro and cons in a nutshell:
1. A Freelance Business
You can argue whether freelancers are real entrepreneurs or not, but for the sake of this article I just put it into the lowest category of entrepreneurship. This is the most popular and safe one. It’s easy to setup and get started.
- generating income quickly
- flexibility (take time off when you want)
- more opportunities for growth (work with different clients, learn new skills in between)
- higher hourly rate than employee (Salary, income)
- you still exchange time for money = no work, no pay
- more responsibility requires more discipline
- higher liability
- no scaleability = the business is YOU
2. Small & Micro Businesses
Typically a business like a service provider (agency) or a product provider (restaurant, small boutique). that employs less than 10 people.
- higher flexibility for you than freelancing
- can be location independent (e.g. distributed ad agency)
- mindset shift from salary to revenue (enables higher upper limit = most likely higher 6-figures)
- still exchange time for money most of the time
- at the end of the day, you still need to run the show at this level
- limited scaleability (small number of people can only tackle small number of tasks)
3. Lifestyle Business
This is what I personally aim for: a business that generates enough “passive income” so the creators can focus on lifestyle.
- location independent
- great scaleability (because most likely being an online business)
- unlimited income potential
- high flexibility
- difficult to build
- requires up-keeping all the time (passive income is never 100% passive)
- more vulnerable to trend changes (e.g compared to restaurant: people always need food)
4. Startups / Organizations
Typically a company that leverages technology to tackle hard market challenges and create new markets as a result (Silicon Valley Tech Companies).
- high revenue potential
- highly scaleable
- you can create a lot of impact and even change the world
- working on new innovations can feel fulfilling
- very hard to build
- relies on investor money to scale most of the time
- very high risk
- low probability of succeeding
- little flexibility as founder because you need to answer to investors
So, what business category sounds most interesting for you?
But no matter which one you choose, it needs to be aligned with your values, because …
… every business has a soul
When I made the decision to live the location independent lifestyle, I needed a vehicle to sustain my lifestyle.
Like everyone else, who is interested in the digital nomad lifestyle, I stumbled upon concepts like Dropshipping and Amazon FBA. I heard about people succeeding “easily” and making a ton of money in no-time.
Of course, for someone just starting out, it sounded very tempting. Without hesitation, I went straight into it with the hope to someday replace my full-time job.
But as you may have guessed, things didn’t really go as planned. I lost a lot of money and my business didn’t go anywhere. Back to square one.
Before I continue, I want you to understand that the problem was NOT the business model (I did Amazon FBA).
The business model is never the problem, but it’s YOU.
You can succeed with ANY business model. If you commit to stick to one thing long enough, you will eventually find what works.
However, there is a big part on the other side of the equation. Perseverance and grit is one thing, but the more important question is: is the business right for you?
The problem why most businesses fail in the long run is, that it doesn’t align with the values of the owner.
You may make a lot of money at first, but it doesn’t mean you will be running this businesses for the rest of your life. I’ve seen a lot of people selling their Amazon FBA business / Dropshipping store for millions because they didn’t get the fulfillment.
Always looking for the next big thing. If you are selling cheap stuff from Alibaba just for the sake of making money, how long will you be happy with it? Show me one person who loves to sell crap from china? And once you sold your business, then what?
So instead of chasing shiny objects and just wanting to make money quickly, here is the best advice I can give you at this stage…
…find a business that can become the partner for life
Think of your business as a soulmate.
For the sake of this story, let imagine you want to do Amazon FBA. Let’s give Amazon a face and you are working with Jeff Bezos now.
If you are starting out, you are inexperienced and have no clue what you are doing.
Because your intention is to make money quick, Jeff will get suspicious and not really trust you at first.
With Amazon FBA, you are selling to the world, you need to negotiate with manufacturers, you need to handle logistics, you need to understand international trade laws, etc. There are so many moving parts involved. This complexity requires a certain level of energy you put out into the world. If you cannot match this energy level, your business will crumble.
Even though Jeff might be suspicious at first, he will grant you to work with him. After a while, however, he will find out that your intentions are just to make money quick and he starts to pay more attention. You may make a lot of money initially, but somehow, customers start to complain. Because your heart is not into it, you didn’t pay attention to quality. Your sales drop and Jeff will eventually ask you to leave.
Here is my personal example: After my FBA business failed, I started with a POD business. When I started, I wanted to make things quickly. I fell into the trap of creating low quality stuff, just for the sake of increasing volume. I didn’t feel right about it, but if it works for others, why shouldn’t it work for me, right? No sales came in and I lost my motivation. My values didn’t align with the energy that the business required.
A few months down the road, however, I decided to slow things down. I removed a lot of crappy products and put more effort into my products by leveraging a skill I’m good at: sketching.
I decided to say goodbye to text based designs (things that everyone can do), and used my skills to create products that are more carefully designed. Sales picked up and my customers enjoy my designs.
Now I enjoy the process of coming up with new ideas, sketches and it’s so much smooth to work on my shop.
You can have good values, but you can have no customers
The last ingredient to finding the perfect business model for you is also to align your values with what people appreciate.
What do I mean by that?
Let’s take Joe as an example. Joe loves eating pizza. Joe loves pizza so much, that he eats a pizza every day. And everyday, he will go online and do a livestream of how he eats Pizza. Pizza think it’s fun and a lot of people may watch it for a little bit. But when Joe, asks people to donate money through his Patreon page, not many people do.
But because Joe loves to eat pizza, it doesn’t mean that people are willing to pay money to see Joe eating pizza.
If Joe want’s to combine his passion of eating pizza and get paid for it, he could open a restaurant and share the love with other people. Then people are most likely willing to pay for it, because they know the Pizza from Joe is better than anyone else’s.
Now, let’s take this example a bit further and combine it with the last point, that every business has a soul. If Joe wants to expand his business, he can make a franchise out of his Pizza store. If he is just in for the money, he will take investor money and build as many stores as possible. By doing that, he sacrifices quality, because his business is losing it’s soul and becomes a commodity like any other average Pizza store.
But if Joe takes special care of every new store he opens, he will nourish the soul of the business. He moves slower and takes time to teach his staff every detail of how to make a great pizza. His personality expands beyond his presence and every pizza is made with love.
By doing so, he aligns his energy with the one of the business and it will most likely succeed beyond his wildest dreams compared to a watered-down pizza franchise.
I know this has been a beast of an article, but I’ve given you everything I learned in the last few years of building my own business.
When building your business, no matter what type of business you choose, you need to be patient.
With almost 99.9% certainty, I can already tell you that you will most likely NOT succeed with your first endeavor.
I don’t want to discourage you from making the first step, but have you understand that the process is more important than the outcome.
You have to look at your first business as your training program. Do the best you can to succeed and learn as much you can. Don’t embrace failure porn. Hope for the best and plan for the worst.
You have to go through trial and error before you can raise your confidence and your energy level. But once that happens, you will see that things can pick up very fast.
Maybe I sound little bit woo woo here, but in the same way that you need time to find the right business for you, the right business also needs time to find you!
As I said, every business has a soul and the energy of the soul needs to match the energy that you put out there into the world.
I know, mind blowing right?
I hope I could give you more clarity on how to choose the business that’s right for you. The most important thing is to be patient and let things develop naturally.
Keep your head up and always have a positive mind. Things will come to you faster than you think.
To remember the above lessons, I took some time to create this sketch for you. Maybe it’s easier to remember 🙂