Getting to Know the 5 Business Models

Sophie Howard:
Hello, welcome to Episode Two of Aspiring Entrepreneurs. I'm Sophie Howard, and I love talking to you about the different online business models that are out there that are successful in generating really healthy profits for their founders, and in the last episode, we introduced you to the Entrepreneur Profiling Test to help you discover what kind of entrepreneur you are, because we're all wired a bit differently. Some of us like more technology driven things. Some of us are happy and chaos. Some like order. Some are very creative. Some people are more analytical. Some people are great with people. Some people find other people really exhausting and would rather just do something quietly at home. And so we've all got these different kind of preset, in a lot of way, traits in our personality, the way we're wired, and the type of work where we'll be happiest, doing our best work in a really happy, natural state of flow.
And that's what we really want to make sure we can achieve with the online businesses we start. There's no point in somebody really creative and flamboyant starting a Facebook ads company, and having an agency, analyzing data on spreadsheets all day, every day, without seeing anyone, or using their talents and skills or getting that really, really good feeling about their work. So, every business model out there is as different as all the different profiles. And so we've given you the chance to get your profile results and have that emailed through to you to know what kind of entrepreneur you are.
And today, we'll look at more around the different business models and what the five main ones are that I think you should be aware of, and know what the pros and cons of them are, and as we bring on different guests, it'll be really interesting for you to meet people who've been very successful in building these different business models, seeing what their typical days look like, how their business model actually works, what they do that generates the money in that business model, because it's really, really important you find a business that's a really good fit for you. And there's probably five main categories out there, which I'll run through now, and over future episodes, you're going to get a really deep dive into lots of these different types of businesses. I'll be interviewing founders who've had successful coaching businesses, affiliates, service businesses and agencies, software businesses. So, there's lots and lots of great learning as you understand real live case studies, and now we'll step into the five business models.
The first one is a firm favorite of mine, which is selling physical products. So, FBA, Amazon, we all probably have heard about that by now. So, this is selling physical products on Amazon's platform, branded by you. So, you own the brand. You source from China or India, or wherever, get it shipped to the states, and Amazon customers shop online. So, that's a business model I'm very familiar with. And another related one, which is also selling products, is eCommerce, so it might be that you sell physical products, but rather than on Amazon, you set up your own website, maybe through a platform like Shopify, you'll make it very templated and easy. And there're pros and cons to each of those, Shopify versus Amazon, actually, which I'll do a whole separate episode on one day. And so the model of selling products is good. You've got something tangible. People need stuff.
And there's value created the second you created a brand and put an interesting offer in front of your target market, and with modern marketing, it's so easy to get your offer in front of exactly who is interested. If you've got a yoga mat to sell, you can run Facebook ads for people who like yoga, and you can get in front of people searching for yoga mats on Amazon with your listing. So, it's a great way to meet existing demand, and it's a great way to build a healthy profit margin. It can be a bit lumpy on the cash flow. It can be a bit cash hungry, setting these things up, and you need to be a bit of a generalist. While there's some creative bits, there's also some logistics. There's some advertising. It's quite a broad kind of business to run, but I love it.
I've done well with that one. I've sold an Amazon business for over a million dollars that I've built from scratch, and another one a few years later for a few hundred dollars. So, physical products, great. It's a really enduring business model, one that'll be around for a lot longer yet, and it's a fun one. So, we'll do some more interviews with some Amazon superstars, some Shopify whiz kids, and we'll also do a comparison between the two platforms in a future episode, but that's a great one for a creative type of profile, if you're creative. Also, anybody who is an operator, there's a lot of logistics and supply chains to build there, not the best model, probably, for most connectors, because there's not a lot of human contact. It's very desk bound, and quite low tech, still quite a lot of you just manually moving those products through from supply to customer, and juggling all the bits in between.
So, there's advertising and there're variations on the theme like drop shipping, which we'll talk about one day. The physical products is the first one. The second business model is running a service. So, this could be a very wide range of potential services. We've got things like you could run an agency, running other people's Facebook advertising or Google advertising. You could run a service doing creative content for people. It could be copywriting. It could be writing social media content, or doing Pinterest Pins. It could be proofreading. It could be something quite highly specialized. It could be legal services, unlocking locked Stripe or Amazon accounts, just going into battle with these big companies on behalf of your clients, doing something kind of legal. It could be an analytical type of service. There's a lot of agencies that can be built, which are a neat business model, because as the founder of an agency, you can develop some intellectual property and processes to get leads into your business and then you'll have a process to sell to those prospects, and turn them into customers.
Then you'll have a bunch of work that you do. So, say you've got a design agency. There's a certain way to appeal to business owners who need design. You then project manage some work around that. You then build a little team of designers who do the design work. You don't want to do it all yourself forever, if you want to scale, but once you've got a bunch of designers working for a bunch of clients, you don't exactly get to sit back. It still rests with you. There's always kind of people interaction on both sides, clients and staff, but the really nice thing is, when you build one of those up, it can become seven figures quite quickly if you get the niche right, and the product offering really clear and really efficient, the way you deliver it. It doesn't take a lot of capital to get started.
It's probably one of the lowest cost businesses to start, capital wise, if you've got some relevant skills and expertise that people need as a service. And another really nice thing about this type of business, similar with the products businesses, is that you can sell an agency. You can't really sell a service. So, you, being a business coach, just as you, or you proofreading people's work or being an editor or a copywriter, you can't sell that business. The cash flow stops the second you stop. It's not too dissimilar to having a job. It's just you've got more freedom and flexibility, but an agency, you can sell that list of contracts and the leads and the cashflow. That's really valuable to somebody else looking to grow. So, you might get two or three or even more years' profits paid as a lump sum up front, freeing you up to start the next thing.
And that can be a really nice model, and really suit people who want predictable income. All of those clients can be on contract. It gives you a lot of freedom if you get it right, and if you're in the right niche, there's plenty of demand out there on all sorts of weird and wonderful services. So, in future episodes, you'll hear from people running wonderful agencies and service businesses from all around the world, in all sorts of different niches. And this really suits creative people if it's a creative type of agency, or it could be text stuff. You could set up sales funnels for people if you're an automator. So, it doesn't really matter what your profile is. To start an agency, you would just do something that uses your strengths, but certainly, to do the cold calling and the lead generation, you're going to probably want some good people skills.
And until you get quite big, you're going be the person managing that team of analysts or junior designers, or whoever you've got working with you, to scale up. So, you're going have staff dramas, challenges, and the joy of being able to outsource, but even if they're on a freelance agreement, sort of contracting to you, there's still a lot of responsibility with you to get deliverables to clients and keep the quality up. So, some of the things we don't love about our day jobs don't totally go away with the service model, but still, it's a great one for a lot of people, and it's a really nice first business, because you can start very small, very low cost, just perfect your offering, get it out there, and it's a new source of income, potentially very quickly. I've had lots of ideas for service businesses I could start, but I tend to try and say no to most of them unless they can really get some good leverage and scale without me doing all the work.
So, we'll talk about that, and I've had a bit of experience doing those as well. So, I'll talk about things like coaching in this model, coaching individually, coaching in a group, mastermind coaching. We'll talk to people who have got membership programs, consultants, also service people with agencies, and lots of very successful businesses in this category. The third business model is being an affiliate. So, this is where you can sell other people's products or services. So, this is a really neat model in lots of ways, and I think it's probably another really good place to start with your own first business, because what you would do is build an email list, or some kind of following around a theme or a topic, a subject area, and then go out and find other people's products or services to sell to your list and then you get some commission.
A percentage of the sale comes to you when that person buys. So, anybody who has got a big email list can go trotting around, looking at products and services available for sale. Look at the affiliate package that's on offer to anyone who promotes them. And then, if you do that carefully, you keep your lists keeping high trust in you, and you've got quality stuff to share, and the opportunities, or the products and services are really good quality, and you're not just peddling, junk, in which case your list will abandon you very quickly, but I work with a lot of people who are affiliates, and I've got some great people to bring on the show to interview about how they've become successful affiliate marketers. The nice thing is that while you get the income off somebody else's product and service, you don't need to develop it.
You don't need to do the customer service, and you can work as hard or as little as you like. You can do a couple of big things a year, or you could have a steady thing while you're looking for recurring income. So, if you promote somebody else's supplement... Let's start at the small end... If you promote somebody else's health supplement and they're on a recurring payment plan, you might get a recurring revenue stream forever more off that customer, as long as they're paying. If it's a high ticket item, say, a conference or a course and you promote that and you get 500 dollars per person that signs up through your unique link, then that big popular event that you promote to your followers could be a nice lump sum of cash. Usually, the way it works is you would look at a service like Click Bank or [inaudible 00:11:51].
There's quite a lot of services out there... Share a Sale... Which are platforms that bring together the affiliates who want to promote something and the people who have got a product or service to promote. The people with the product or service to promote will have an agreement for affiliates that have a system where you get your own unique link, so it's all trackable, and you might be given some design assets, or maybe some [inaudible 00:12:12] to go in emails, or something that will help you market it and get the message clear. Maybe there's a webinar recording, or some kind of arrangement where you can book them to give a live webinar. And then, through a series of followup stuff, the affiliate marketer pushes this offer out and then, whatever comes in, they wait for the refund period to clear and then you get a big fat check.
So, it's a really nice way to learn how other people have created successful products or services. It's a real peak inside what's working. You're making sales without a lot of personal responsibility for the deliverables, which is always good. It means you can do quite a lot at once and just really focus on building up your list. So, there's some great examples out there of affiliate sites, and I've got friends who've built and sold affiliate sites for lots of money. So, you could have a website that's just got links, recommending products or comparing products in a field, and when those links go get clicked on by your readers, when that person goes and buys that product, you get some commission. So, it could be automated. It could be through Amazon. There's lots of ways that people work as affiliate marketers, so a really cool business model. All of these are cool business models.
I wish I could do them all. This is one I've been not so much an active affiliate myself, but other people who have promoted my products and services, and it helps my cash flow and it helps them generate income off my products. So, it's great. The fourth model probably is my favorite, although I'm kind of fizzing about all of them. The fourth one is software as a service, and it depends on your goals in life, and mine are really about having smart businesses that are fun and having a great lifestyle at the same time, and I want a really healthy profit.
And there is no profit like a software as a service business profit margin. These are such brilliant businesses, in terms of a business model that's scalable instantly. All around the world, people can access some software. If you've written code, whether it's sitting on some software that people download or it's, "Log into a platform and access it like an Uber or Airbnb type platform," or if it's a bit of code that's been turned into an app that does some function, that work that you do once, there's no further inventory cost. There's no cost of goods.
You don't sell it and then have to make another one. You only need to create it once. So, there's no manufacturing. There's no shipping. It's wait lists. It's instant. You can upgrade it all the time without having to start again and do a new launch, and you can just keep fixing bug or adding features. The multiples, when people sell these businesses, are through the roof. So, Zoom, which is what I'm recording this podcast on now, the valuation of Zoom is 55 times its revenue, not even its profit, its revenue. Whereas, if I were to sell an Amazon products business, it would be two or three times the profit net, which is probably a third of the revenue, so a huge, huge premium is played by investors, because the cash flow is so certain. People are locked in as subscribers when it's software as a service. So, every month my credit card is pinged 90 odd dollars for Zoom, another 90 odd dollars for a research tool or a thing that automates some step of my business.
So, it needs to link to a really important business process, or a problem that business owners or customers have that you solve, or it could be a form of entertainment. I've started paying a little premium as a recurring subscription to listen to some of my favorite podcasts without advertising. So, that's a nice little income stream for Wandry, or whoever I pay, to listen to their podcasts a little bit earlier, get the whole series at once, and not have ads, costs them no extra hard cost to deliver it to me that way, and I'm happy to pay a premium. So, it's just a really simple little step where, for digital content, it's shared and I pay premium for that. So, it could be something as simple as that, right through to Uber or Airbnb, huge platforms that automate a business problem on a platform, and people pay to access it.
And you're solving a problem for both sides of the market there, or it could be something like a research tool. I use a thing called SCM Rush to do a lot of keyword research for my websites, and to see what other websites are doing, and what ads are working, and what's happening in the field of all my competitors and in the niches I'm in. And so I pay a few hundred dollars, probably a thousand dollars a year in total, on that, but every month, I'm really happy to pay it, because I use that data all the time for everything I do. So, software as a service is just brilliant. It's the best business model of them all. If you turn up on this course wanting to go really big and to make millions, that's probably the model to pick. There's some really good training courses out there, which I can point you to if you're interested, on software as a service training, and I've got a couple underway myself, so I've put significant investment myself into a software as a service business idea, and I'm an investor on another one as well.
So, one was my idea that I've got two other investors in on, and another one is me and a team and investing in another one, and I think that's a really, really high payoff, if you get it right, and it doesn't take 10 years to develop. It's quite quick, and it's very low staff, very low overhead, very, very high profit margin, and very certain future cash flow. So, those are wonderful things in a business, and it's really just fantastic, love it. Now, the last one I want to talk about is business model number five, which is search engine marketing, so SEM. So, this is something that you can start very quickly, and especially if you're fairly technically minded, and you could start doing something like running a few local companies, SEO, their search engine optimization on a website.
You could also use those skills to create a little content site. So, you could start a little website all about camping, and you might write blogs about camping. You might teach people how to do great camping trips, or all sorts, whatever you want to talk about with camping, but then maybe, in that, you have various links to other reputable camping info sites, or other people might point to your website if they need a really good article comparing Alpine tents, and maybe those links on your website for the Alpine tents go through to the person selling those tents, and you get a bit of commission. So, you can either use it as a way to offer a service, or you can use it as a way to promote other people's products, or you can build an email list, and use your email list to promote other people's products to your list.
There's a lot of variations on this theme, but if you can understand how to get your website or products ranked on Google, or online generally... It might be through YouTube... Where if you can create unique content and present it well in your smart about how to tag it and have the right keywords in there and have the right length of article and not make it spammy and make it a good reader experience, then Google slash YouTube, same thing really, or other ways of getting your website seen, you can really hone in on those skills, and end up with a high ranking website, with lots of traffic, which then gives you opportunities to do things like have banner ads at the top of the site, and a nice income stream of those. So, there's a lot of opportunities there. We've talked about five business models today, quite quickly, at quite a high level, the physical products one, the service businesses, the affiliate marketing, the software as a service business model, and the search engine marketing and content marketing.
So, all five can overlap a little bit with most of the other five, in some ways. If I'm an Amazon products expert, I could also be a coach. If I'm an affiliate of a product, I might also do some software that goes with that product, or partner with other people. There're all sorts of ways to combine the skills, the digital assets you create, the database that you own, the knowledge that you have. Over time, you'll end up with this sort of bank of knowledge, and people that you know, and skills you've picked up, and software you know about to drive, and be able to spot opportunities, because there're infinite combinations of things that we can do, and most original business ideas aren't completely original. They're just a combination of two or three disciplines, or you've spotted a gap. "This happens in this industry, but it's still a bit rough in that industry."
And you could sort of bring that A grade service across to this other industry that's having only B grade options. So, it's all really fun, and over the future episodes, as I bring on different guests, or do a deep dive into these different business models, you'll be able to really see what it takes to be successful with them, what's possible, what are the things to watch out for, who is at the top of these games, and what are they doing so well that lets them get to the top. So, I've got some really, really good guest speakers lined up, who you're going to love hearing their stories, and we'll look forward to sharing those with you in future episodes.
So, make sure you head over to the show notes and do that Entrepreneur Profiling Test if you haven't already, and as we start diving into these different business models, you'll be able to figure out which ones are naturally going to be a really good fit for you, and make sure that you set off on the right track, picking a business model that's a really good fit, and that you can learn from some really experienced people and have some really good role models, and motivation and inspiration to follow as you get started on your journey. So, I hope you enjoyed that. We'll see you in the next show, which is an interview with a coach. So, I think you'll really enjoy that. So, see you in the next episode. Thank you.