A Young Entrepreneur’s Guide to Business Models
When you think of yourself as a “young entrepreneur,” what exactly do you mean? We’re guessing that your definition includes something about starting a business. Babysitting. Tutoring. Selling homemade cookies.
Whatever your business is (or will be), you might want to consider the type of business model you’ll use. A business model is the foundation you’ll use to make your enterprise successful.
WHY YOU NEED A BUSINESS MODEL
- To explain what your service or product is and how it works
- To explain the value of your product or service
- To understand the problem you’re solving
- To maximize the chance of making money
- To set goals
Let’s say you’re making widgets. You make wonderful widgets that you know everyone will love. How will you sell those widgets, and to whom? Where will the funding come from? What is the goal of your widget-selling business? How can you make the most money out of selling widgets?
THE MOST COMMON TYPES OF BUSINESS MODELS FOR YOUNG ENTREPRENEURS
This one’s pretty straightforward. You buy something wholesale and resell it at a marked-up price.
Advantages of a retail model:
*Instant customer satisfaction
*Nearly endless options, including the option to specialize
*Fairly straightforward way of doing business
Disadvantages of a retail model:
*Potential lack of a market
*Increasing cost of wholesale items
You make a widget. You sell the widget.
Advantages of a manufacturing model:
*Low barriers to entry
*Creative and innovative
*Create products that are always in demand
Disadvantages of a manufacturing model:
*High investment before profit
*You need to be skilled at your craft
-> Affiliate Marketing
Companies and brands pay you to speak positively about their products and encourage others to buy them.
Advantages of an affiliate marketing model:
*The potential to make tons of money
*Nearly anyone can do it
*Very low cost to get started
Disadvantages of an affiliate marketing model:
*You need a large audience
*Income is not guaranteed
*You answer to your merchant’s rules and code of conduct
You provide a service, such as tutoring or babysitting. Someone pays you for doing it.
Advantages of a service business model:
*No inventory required
*Certain services are always in demand, such as, well, tutoring or babysitting (see also: lawn mowing)
*Choose your rates
Disadvantages of a service business model:
*May require the cost of tools or transportation
*Hard to figure out the value of your time and work
*Difficult or demanding customers
Part of manufacturing or retail, eCommerce means selling a product online.
Advantages of eCommerce:
*Anyone can open an online shop
*Global customer base
*Built-in payment methods for easier transactions
Disadvantages of eCommerce:
*Nearly unlimited competition
*Lack of real-time engagement with customers
*What happens when the server crashes?
CHOOSING YOUR BUSINESS MODEL
Those of you who currently make widgets (manufacturing/eCommerce) or mow lawns (service) already have your business model in place.
What about the rest of you? Those young entrepreneurs out there who know they want to start a business, but aren’t sure where to begin?
First, as with all entrepreneurial journeys, start by finding a problem you can solve. Up north, homeowners need their lawns mowed in the summer and snow shoveled in the winter. Parents always need babysitters and often need tutors. Kids will always love toys and candy. Does your town have a recycling program? Do the major food delivery apps not deliver to your street?
Once you know what problem you want to solve, you can choose a business model based on your solution. Consider:
- Who are your customers?
- How will they find you?
- Which business model will make your product or service the most convenient for your customers to use?
For example, starting a recycling program in your town probably won’t work with an affiliate business model. Instead, consider what your recycling program will offer. Will you pick up your neighbors’ paper products and bring them to a recycling facility? That’s a service model. Will you sell recycling bins to your neighbors? That’s a retail model. Will you collect recyclables and turn them into art to sell online? That’s manufacturing and eCommerce.
USING BUSINESS MODELS TO GAIN INVESTORS
The right business model isn’t only for maximizing profit. Before you launch your business, it’s also a great way to attract investors.
Your well-thought-out business model should be part of the business plan you write. It’ll help you focus on the day-to-day logistics of running a business. Think of it as prep work or research. The more you put into your business model, the smoother things will go when you get up and running.
Investors love it when entrepreneurs have their eyes open and know what to expect. This proves you are a serious young entrepreneur, not just a dreamer with your head in the clouds. You come across as professional, articulate, and driven. Understanding how different business models work, which one fits your idea best, and how your business will work within that model, are all signs that you’re setting yourself up for success. Who wouldn’t want to invest in someone like that?
There are many other types of business models out there for more complicated businesses. As your startup gains traction and gets ready to grow, you may consider adding other business models to your existing one. ECommerce lends itself well to subscription models. Service can lead to affiliate marketing as you become popular enough to endorse certain products.
Only you, as the founder and CEO of your enterprise, can determine which model will work best. Remember that you can always change your mind and switch. Maybe you don’t want to resell second-hand earrings anymore (retail). Instead, you start making your own earrings (manufacturing) to sell online (eCommerce).
As a young entrepreneur, now is the time for you to have fun and experiment with your many clever business ideas through the many business model options available!
The Kantner Foundation offers college scholarships to young Florida entrepreneurs. Ready to learn more? Click here to see if you are eligible!