Yaro Blog

Which Business Model Is Best: Selling Services, Software, Information Or Physical Products?

I’m getting old, at least in internet years.

It’s almost 20 years now that I have been online and had some kind of website of my own.

During this time I’ve played with all kinds of different business models, all kinds of different ways to make money online.

Nearly every technique I’ve used was designed to set myself up with what you can call a lifestyle business.

I didn’t realize it at the time, I thought a business was a business, but I can see now that what type of business you decide to build very much dictates what kind of life you will lead.

A lifestyle business is, as the name suggests, a business created to facilitate the kind of lifestyle you desire.

In my case, and I suspect for you too, the outcome we want is a business that requires little time to manage, yet makes enough for you to live a comfortable life, not have a job and travel if you want to.

Passive income, low labor or easily outsourced income streams are perfect for a lifestyle business and are exactly what I went after during my first 10 or so years online.

Although I knew the outcome I wanted, I didn’t really understand how to get it, so for a long time I focused more on just making money in any way possible.

The Pros And Cons Of The Four Primary Business Models

To help you understand the different kinds of business models available to you, I’ve reviewed the four I have used to generate an income online with.

Some of these business models led to earning lots of money, some not quite as much. I also outline what I think are the pros and cons of each business model, so if you’re still deciding what kind of business to create, or considering a pivot to a different model, this will help you decide. Here we go…

1. Selling Physical Goods

I used eBay briefly to sell my own products (mostly second-hand toys and video games), then a few years later had my own e-commerce store selling Magic: The Gathering collectible gaming cards. These were during my very early days as an entrepreneur (I started as a teenager), so I was very much learning how to run a business and how the internet worked.

Pros:

What I like about having a physical store is that the value is in the product.

In my case I never manufactured a product myself, I bought cards at wholesale or traded for other cards using cards I already had.

As long as people want the product, you can keep selling it, assuming you can get people to discover your online store.

All you worry about is supply, delivery, marketing and your profit margin. There’s a lot to do, but you can’t avoid these business basics.

Cons:

Delivering product was a nightmare for me.

I spent hours every day writing out addresses on envelopes and cardboard boxes and heading to the post office once a day to send off the goods. It was tiring and the profit margin made it a low return for a lot of work.

Today with modern fulfillment services, you may not have to worry about the delivery aspect, since you can rely on other companies to do that for you (for example, Amazon Fulfillment). However, you still have figure out how to make enough of a profit margin to cover the costs of delivery.

I did get to make my own hours with this business, but I never felt like I was exactly living the laptop lifestyle dream.

If anything, it was because I didn’t make enough money. I knew to ramp things up, it would take an incredible amount of labor, and the profit margins were just not there for what I was selling. That may not be the case for you if you choose products with good profit margins.

Luckily in my case (perhaps) credit card fraud hit my little e-commerce store hard, so I decided to give it up.

2. Selling A Service

I’ve had several service businesses over the years, from an English tutoring service to web hosting and design services, language translation services, and my best result, an essay editing service.

Pros:

I liked selling services that I personally did NOT deliver, or services I could deliver once and then I kept getting paid.

For example, once a website is set up, I earn a recurring hosting fee, or I sell a service someone else delivers, like essay editing, where I had editors working for me.

The profit margins can be good, and if you know how to market and set up with the right business model, you can scale this kind of service quite far.

Cons:

I made the mistake of delivering services myself several times, which obviously can’t scale beyond your own means to work, although it is a good way to learn about your customer and industry.

The hosting industry became so competitive that the profit margins were all but eliminated, and given the amount of customer service required, it can be tricky to justify doing so much for so little in return.

Services are often easy to replicate unless you have some kind of proprietary advantage or positioning advantage, so you have to watch out for competition.

3. Selling Information

You might call selling information just like selling a product, but thanks to the Internet, information is a non-physical product, which has several advantages (no trips to the post office for example!).

I’ve enjoyed tremendous success with this model and still consider it one of the best options for a laptop lifestyle business.

Pros:

You can earn a significant profit margin selling information, your delivery cost is next to nothing, you can replicate as much of your product as the market demands and if you establish authority, you enjoy a competitive advantage.

If you know something other people want to learn, you only need to get what is inside your head into a digital format (like an ebook or online course), and then sell it.

This is one of the simplest businesses to run without employees and can make big money.

Cons:

Finding the right niche can be challenging and executing a strategy that nets you the necessary traffic takes work. A lot of work.

You can eventually work less, but until you have built up some kind of traffic assets you face an uphill battle to build the audience you need to succeed.

Most information is free online, so you need a powerful marketing process to convince people that your information is worth paying money for.

4. Software

Years ago, I embarked on a journey with a new startup company with two partners. It was called CrankyAds and our focus was the online advertising space.

We were not actually selling software. We were giving it away for free and planned to make money by taking a fee from transactions made through our platform. We did succeed to get 1,000 users, but after a couple of years, we decided to shut down the startup (you can hear part of the story in this podcast).

Prior to that, I had one other software experience – an attempt to build automation software for my essay editing business – which I stopped early because it was clearly going to balloon in cost and was unnecessary.

Pros:

Software is one of the best business models to develop a competitive advantage with, especially if you build something people can’t live without and where switching cost (going to another option) is high.

Today’s largest Internet companies and pretty much every successful tech start-up are based on software or software as a service. You can make a lot of money, and even change the world with a good software-based idea that is well executed and timely.

Cons:

The challenge of finding good software engineers and the capital requirements to get started are the hardest parts of software development in my experience. It’s incredible how costly software can become, even just basic features can run up thousands of dollars in development time to create.

Outsourcing to India, Romania, Ukraine, or other countries with lower cost development teams is an option for creating software, but you have to be very careful about the quality of what you are paying for.

The nature of software development means constant bug fixing is a way of life, so much so that it can be enough to kill your project before it even gets off the ground.

Reading stories of successful tech start-ups, it appears that a solid tech co-founder or tech team is a mandatory requirement. If you decide to go down this route, make sure you have confidence in your tech solution.

Switching From Lifestyle To Start-Up Business

You may notice the language I use in the fourth option with software is different to the previous three.

My own experience before doing software was all about lifestyle businesses, where growing big is not as important as creating freedom.

The main goal is to develop a cash-flow source that doesn’t require too much work.

That’s not to say that software can’t be the foundation of a lifestyle business. It really depends on your strategy.

In my case, with software, we were working the tech start-up model.

The goals were bigger but consequently, our needs were greater too.

To be honest, I think a lifestyle business is still the best choice for most people. The risk-reward ratio is “safer” – you don’t risk as much upfront and the rewards are still life-changing, but maybe not quite as world-changing.

Become Aware Of Your Growth Stage

As I look back on my own growth as an entrepreneur, for a long time I had no idea what I was doing in terms of the business I was growing.

I spent all my time playing with techniques in the hope of making money, that’s all I could think about.

I learned a lot initially through experience, but often I discovered there were flaws in what I was doing that contradicted what I wanted.

As I read books about successful online businesses and entrepreneurs, met people, and observed what others were doing, things became clearer.

The learning never stops of course, but you do move forward, especially if you take action, as the best learning is always through experience.

My advice to you is to look at the current business or project you are working and assess the business model.

Ask yourself these kinds of questions…

  • How big can what you are doing possibly get?
  • How big do you want it to get?
  • Who do you have to hire to help you get it that big?
  • How many customers/sales are needed to reach that goal?
  • What specific jobs will you personally do to get there?
  • Can you realistically do all those jobs?
  • Are you a lifestyle or start-up entrepreneur?

You may not be able to answer these questions yet, but just thinking about them will help you gain clarity.

And don’t forget, you can change anytime.

Yaro Starak
Entrepreneur

P.S. I consider selling information, in particular using a blog and email list, the best option for building a laptop lifestyle business for people who have the knowledge to share.

It requires a lot of work, but it’s incredibly rewarding when done right.

A blog can be more than just a place to share your ideas, it can become a platform for building a cash producing business.

Whether you sell your own course, a book or ebook, physical products, tickets to your events, coaching, launching a startup — whatever your business goal, you need some kind of platform online to reach people — and that is what a blog is.

Over the years I’ve helped thousands of my coaching members develop their blogs into real businesses.

If you’d like me to walk you through how to do that, sign up for my free online workshop below –