Choosing the right business type

If you are trying to make a living online, it can be so hard to choose what to do! There are so many ways to go, and it is totally okay to feel lost and frustrated. Where to even start? What kinds of businesses there even are?

All of you have heard “wise” phrases like these:

  • Find the need / demand and fill it
  • Find the problem / pain and solve it
  • Or even “Find where the money flow is and just stand there

They may be wise, but they don’t tell you anything concrete! In this article, you will learn the four basic types of businesses that you can do online and how to choose the right one for yourself.

Basically, what do people pay for?

Let’s start by simply listing everything that people pay for online, and let’s break it down into simple categories:

1. Physical Services

This covers everything that has you physically going to your client to provide them your services, such as being a tutor, a plumber, a maid, or a lawyer. Yes, you can operate through the internet, and find your clients on the internet, but at the end of the day, you render your services physically.

You can provide this services yourself. You must know, that although many people do it, this is work, not a business. You’re trading your time (and health) for money. Of course, when your business grows, and you have a team of employees making the products for you, then you’ll get to work less. But there’s a limit to how much you can grow.

You can also become a reseller or an affiliate for other service providers. The biggest reseller examples would be such businesses such as CraigsList, AngiesList, and Thumbtack, who connect clients with a physical service provider and take a small fee for it.

2. Physical Products

This is a huge industry. People buy physical, real world stuff all the time. The last pair of jeans you bought online, the iPhone in your pocket, and the cereal you had this morning are all physical products.

Of course, you can create and produce the products yourself, and then sell them online. Tons of people have online stores or sell their products on Amazon, eBay, and Etsy platforms and so on. Yes, you’d have to work hard first. But when your business grows and you have a team of employees making the products for you, you’ll get to work less.

You can also become a reseller, or an affiliate for already existing products. For example, you can be an Amazon Associate, getting paid every time someone purchases something through your link. There are many other affiliate markets like Commission Junction, Clickbank, Clicksure and others. Or, for example, you can make a Youtube channel where you advertise certain physical products, and get paid by their manufacturers for doing so.

3. Digital Services

This is a very wide category, as well, encompassing all services that you can provide remotely, through the internet. Starting from, for example, translation services to, say, building websites. Again, there are two main ways that you can be in the digital services business:

You can provide the services on your own: be a designer, a software developer, a copywriter, a translator, a researcher, a promoter, etc. Exchange your hours for money. When your business grows, you can have your employees doing the hard work for you, and you can do less.

The other way is to resell someone else’s services! You can become a translator services coordinator. Or get your own freelance marketplace (example businesses would be Freelancer, UpWork, or Fiverr) for whatever type of services you want. Or just be an affiliate and refer people to the service provider (say, a web design company), making a buck every time someone purchases the service you’ve referred them to!

4. Digital Products

This is not only a wide fields, but it is what the entire internet is based on! People buy access to something online: e-books, e-magazines, access to different software, web services, subscriptions, courses, lessons, etc. Again, there are two main ways to create a digital products business:

You can create your own digital products: write an e-book, create an online course, develop a useful online service, and sell access to it.

Or, exactly as before, you can resell or be an affiliate for someone else’s digital product! Already mentioned affiliate markets like Amazon Associates, Commission Junction, Clickbank, Clicksure and others have a lot of digital products, too! Yes, you’ll be earning a little less, but not every one of us is a great writer, teacher, or services developer. There’s a ton of amazing products you can just tell people about! And get paid in the process!

Your own products vs someone else’s?

Have you noticed something important? There is always a choice, whether to render your own services and sell your own products OR resell someone else’s services and products!

If you are a talented painter or blacksmith, if you make homemade soap, bake cookies, make custom skateboards – go for it! But be aware of the following:

  • Initial expenses

    Your own products or services will make the initial business set up much longer and more expensive. You may need to invest in a production line, open a physical office, find and hire employees, think about packaging, delivery, etc. Even if it is a digital product, you will need to write that e-book, or develop that service, which can take months and even years of your time!

    Selling someone else’s products and services does not require the initial investment or long preparation time. You don’t have to think about packaging, delivery, returns, and customer service! Sometimes you can just get a link and email it to someone – and your business is all set!

  • Customer reach

    Having your own products or services may also limit you in the number of customers you can serve. You can only bake so many cakes, or sell so much soap. It depends on your business, but sometimes you can only serve customers living in the same city as you.

    And this not just about money – many times it’s about being able to help people who are in need. Providing services or products yourself, you can (not necessarily, but still, possibly) be limited in your client reach. It depends on how you set up your business. But it is, definitely, something to keep in mind.

  • Profit margin

    When you are selling your own product (especially digital one, which is cheap to multiply!), you can earn much more than reselling it, where you only get a portion of the profit. There is no doubting in that!

    But when you are reselling someone else’s products you don’t have to deal with initial expenses, product manufacturing, packaging, delivery, returns, refunds, customer support, and everything else that the original product owner does. This simplifies the entry cost, the exit strategy, and your day-to-day operations. And who knows, maybe you can even sell more than the product owner! There are many companies with great products that suck at marketing and sales!

  • Scalability

    Your own products or services can limit you in terms of scalability. Again, if you are selling your own digital product, for example, you can always sell more without even noticing. But in many cases, it is not easy to scale up 10x overnight, if you, for example, provide translation services, or make scented candles.

    On the other hand, if you are reselling someone else’s products, you are not limited to how much you can or should sell. You can sell one candle a month, or a thousand – and it makes no impact on you! After all, you can always switch to a different product if the current one doesn’t meet the demand. Which leads us to…

  • Exit strategy

    Having your own product or service will limit you in terms of your exit strategy, in case your product or service just doesn’t fly or the market demand suddenly changes overnight.

    Imagine an affiliate who sells camping tents. If it doesn’t work, it’s very easy to make a switch and start selling bicycles. It isn’t even remotely this easy if you’re selling your own products. Now, if it is a service that you provide, imagine that you have to switch from being a web designer to being a piano tutor. How do you like that perspective?

Let’s recap:

  Your own products Someone else’s product
Initial expenses High expenses Usually lower
Customer reach May be limited Hardly limited
Profit margin High profits Lower profits. But also lower costs!
Scalability Not easily. It’s expensive. Highly scalable!
Easy exit? Almost never Most of the time!

I am not trying to tell you that selling your own products is any worse than selling someone else’s. In many cases, it’s much better! I am just pointing out to you the problems that you will have to tackle when choosing one or the other.

Now, let’s take a look at it from an entirely different angle:

Physical vs Digital

Speaking about products (and services, too), there is a main division between Physical and Digital ones. Physical products are something we are all more familiar with. Physical products are believed to have the following advantages over digital products:

  • Being real (?)

    For millennia we, humans, learned to deal with physical products, and to this day physical products are considered “real things” in comparison to “fake” digital products. It is merely a delusion, but many prefer physical products because “you can hold them in your hand.”

    A fallacy, of course. If a digital product makes you a fortune, who cares? But it’s important for many of us. If you can’t wait to be able to hold your product in your hands, touch it, keep it on your shelf, and look at it from time to time, then you should probably consider making physical products.

  • Looking more profitable (?)

    Yes, a website subscription can’t be priced at $100,000, in comparison with some cars, for example. This may lead you to believe that physical products are “serious business” and digital products are “toys.” Yet another misconception – digital products don’t cost much to multiply, while every physical product has a production cost attached to it.

    Look: Someone spends a year building a house for $200,000 in costs, sells it for $300,000, and makes $100,000 in profits. A digital product can cost $0 (for a copy) and be sold for $100 to 1,000 people in a single day, bringing in that same $100,000 of profit. And there are digital products that cost much more and are being sold to millions!

In turn, digital products and services have two main advantages over physical products:

  • Business scalability

    With digital products and services, the business becomes highly scalable. You don’t worry that you’ll run out of products: you painlessly scale your business up as the demand grows.

    Just imagine: If you expect to sell 10 products, but the market demands 10,000? What would happen in a “physical product” business? To scale your business up, you would need a lot of time and investment. And you never know how the demand will change with time. Will it stay that high forever? Or, what if it drops and you have to downsize your business back to its original size?

    In the digital products and services world, it does not matter how many courses or e-magazines you’ve sold, 10 or 10,000, these are just numbers on your screen! You can go from 10 to 100,000,000 overnight and not even notice!

  • Passive income

    Once you write that e-book or create that web service, you don’t have to work anymore. The income comes to you in a passive manner. Hell, you get paid while you sleep!

    Yes, you still have to promote and maintain your business to some extent, but it’s very much a “work hard now and reap the benefits later” type of business (a nod to Pat Flynn and his SPI podcast).

So, let’s summarize:

  Physical products Digital products
Real? Yes, they are real. Go with physical products if it is really important to you, if this is the only thing you can do, or if they’re someone else’s products! Digital is still very real! And if something makes you a fortune, does it even matter?
Profitable? Yes. But not necessarily more profitable than digital products Can be even more profitable! Because of low production costs and high scalability of digital products
Scalable? Not easily. Unless you are reselling someone else’s products, you always have to scale your production to meet the demand. It costs a lot of time and money. Highly scalable! Many times it does not matter if you sell 10 or 10,000,000 products – if you set it up right you won’t even notice!
Passive income? Yes, if you set it so that the business works without your supervision. But, this is much harder to achieve with a real world business than with a digital business. Unless, of course, you are reselling someone else’s products! Highly passive, if you set it up the right way. On the internet you can automate things in ways that you could never automate a real world businesses. Most of the time, you don’t even need employees – you can automate everything and go to bed.

I’m not saying that digital products are always a better choice than physical products. Under certain circumstances, you can make your physical products business highly passive and highly scalable!

Choosing your business type

Here is the decision tree:

  • Are you really good at something? Do you love talking to real people, helping them, and don’t really care about becoming filthy rich? Do you suck at online marketing and just want to stick to doing what you love? Do you prefer to serve your local community and don’t care about all the folks living in other states? It’s a no-brainer — the best business for you would be to provide a physical service!
  • Do you have an awesome idea for a physical product? Do you have, or can find, enough money to fund the design and production costs? Are you ready to deal with the operations, deliveries, and customer support? Are you prepared to face the challenges of scaling up or down? That’s awesome, why don’t you sell a physical product!
  • Are you smart enough to make money without even touching a product or providing any service? Are you familiar with automating things and building self-sustainable systems? Do you prefer flexibility, and easy entry and exit strategies? Do you want a perfectly scalable, passive income? You can try reselling someone else’s physical or digital products!
  • Do you have a great idea for a digital product or service? Do you have the experience and knowledge to pull it off? Do you have enough guts to face the market? Ready to become filthy rich? Go ahead and create your own digital product or service then!

As for myself, I’m choosing the last two options: to become an affiliate and to create my own digital products. In my next posts, I will tell you the strategies you need to achieve this, so stay tuned!

But what will you choose?
Let me know in the comments below!

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1 Comment on "Choosing the right business type"


Useful tips mate. Keep writing more!