I wish someone told me earlier how important business models are.

When I first became an entrepreneur my ideas were basic.

Find something people want and sell it to them.

That was my plan.

At first I sold something physical, Magic: The Gathering trading cards.

Then I sold a service, essay editing for university students.

Next I got into digital products, selling courses, membership sites and ebooks.

Along the way I also sold software products, tickets to conferences, coaching, website templates and hosting services.

Some of these were once-off campaigns, others were businesses I ran for years.

At times I had small teams of contractors supporting me, but I did much of the heavy work, creating products and conducting all of the marketing.

Other times, like today with my current company, we have a much larger team (approaching 80 contractors as I type this), with my own role more narrow.

Profit Margins Matter

Perhaps the most important lesson from all of this is how important profit margin is.

For example, despite my current company generating FAR more revenue than any other company I’ve had before, I’m actually taking home LESS money in monthly income than I did with my coaching business.

Why?

Because my current company InboxDone.com has a large team to pay so the left over profit is smaller than my previous coaching business, BlogMastermind.com, which at one stage I was keeping 80% of the income (before tax).

80% of $35,000/month is more than 20% of $120,000/month.

Of course other factors matter. A coaching business that relies on me is not something I can sell. Plus it all comes crashing down if I stop working.

Despite the smaller profit margin, a company with a team that keeps working if I stop is a much more sellable asset and stable business.

Product Format Is An Important Decision

What you sell is also a deceptively important factor.

Again profit margin matters – how much do you keep per unit sold?

But there’s more to consider…

• How complex is the product to create/deliver?
• How hard is it to reach the target market for this product?
• How long is the sales cycle for the product?
• Is there a recurring income component?
• Can the product lead to an upgrade, or many upgrades over time?
• Does use of the product automatically lead to reaching more customers (product led growth)?
• Is the product based on a temporary fad or unique market conditions that will change?
• How much competition is there and how able are you to differentiate your product from similar offers?
• Are there barriers to entry or other forms of competitive ‘moats’ you can build over time?
• What resources are required to support the product? People, tools, administration, etc

I often think about the people I meet and the products and services they sell.

You can see strengths and weaknesses in their business models so easily once you’ve experienced many different business models yourself, or studied other companies.

Some of my friends have teaching/coaching/service based business with fantastic profit margins, but their businesses are completely dependent on them delivering something.

If they stop, everything falls apart pretty quickly.

This may not be an issue though, as they can earn a large amount of cash over five to ten years, and turn that cash into more passive forms of income.

Others people I know have teams and systems, businesses that don’t rely on them for delivering value.

However, often these people perform a core function — usually they bring in the customer.

Perhaps they run the ads, or they deliver the webinars, or they speak on stage or do joint ventures or write the code.

Although the business runs with teams and systems delivering value, they still perform a key function.

When I meet the really successful people you can tell something is different. They seem very relaxed.

Their business model doesn’t rely on them. They can stop working and things keep going. There is no core function entirely dependent on them.

They may still choose to do some work, perhaps high level decision making, hiring for leadership roles, etc, but they are not a critical cog in the machine.

What Are You Prepared To Do?

You’re probably thinking — it makes sense to build a business that runs without you!

Which business model is best for that?

The interesting thing is that pretty much all of the business models can become machines that run without you.

That being said, some models are easier to make this work.

• Services you deliver are dependent on you, but the profit margin is usually better.
• Services other people deliver don’t rely on you, but paying your staff eat into margins.
• Software products have great margins, but you need an engineering team to keep developing features and stay on top of technology changes.
• E-commerce products often have small margins, but can be simple products to deliver once you have your manufacturing/suppliers sorted out. However, competition can easily replicate your product, making it difficult to build a moat around.
• Digital products like courses have great profit margins, but often require you build a large audience and use more complex sales cycles to build up trust since you are only selling information on how to do something, not an actual product or service to do it for them.

As you can see, the answer is not obvious.

The place to start in my opinion is asking yourself what do you want to do, at least for the early few years?

Are you a content creator, a team builder, a software coder, a product ideas person, do you love social media, video, fostering communities or speaking on stage?

Then once you have your core skill or area you are willing to work on, plug that into a business model that matches your goals.

For example, I recently started a new email newsletter. It’s a side hustle and has nothing to do with any of my existing businesses.

I decided to start this project because I wanted to something that I could hire just a couple of contractors and use a small budget to get started.

It also had to function without me, as I’m still focused on my role at InboxDone.

I hired a researcher/writer to create the newsletter and taught her what content I wanted her to create each week for the newsletter. I then made sure she had the process for researching and publishing the newsletter entirely without needing me.

Then I set up some ads to attract subscribers.

Now I’m sitting back and watching it grow.

Once it hits 10,000 subscribers, I’ll attempt to earn some revenue from sponsors, but that money will go back into growing the newsletter — likely into more advertising.

This is costing me money — about $1,000 a month for the newsletter software, the contractor and the ads. But importantly it only takes 5 minutes of my day to check in on things.

I wanted a very simple business model, with not many staff required, but the potential to scale significantly, ideally for less than $1,000 a month to launch.

The niche the newsletter focuses on is quite mainstream and I could easily see it reaching one million subscribers one day.

You could call this my ‘hobby’ project, an experiment that could just turn into a business.

Making the decision to test this business idea (a newsletter) was very different from what I would do at 21 years old when I didn’t have $1,000/month to invest, I needed to pay for rent and food, and I didn’t really understand newsletters.

Get Educated, Take Action, Then Iterate Based On Results

You need to look at your goals, life situation, resources and other factors when deciding what business model to focus on.

Don’t rush this decision. It’s the most important one you will make early on.

If you’re not even sure you understand what business models there are or how they work, at least from a macro point of view, start by filling in this education gap.

Once you know enough to be aware of the options, pick the one that appeals to you and start taking action.

Then make decisions based on the results of these actions.

Iteration is such a key skill in business, but it only works when you iterate based on what you learn from taking action.

What has been the right business model for me has changed over the years and I suspect will change again.

That’s the fun part of entrepreneurship — you get to choose the business you build.

You can change things as you go, but taking a little time at the start to consider where your decisions today will take you tomorrow, is a smart idea.

Yaro