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Business Models

If you look up the term ‘business model’ in a Google search engine you’ll find this...

I like that because it is short, concise and easy to understand.

Way to many business plans are so extremely complex that they scare people into not implementing them way before they even start. Business models don't really have to be complicated like this business model is. As I see it pretty much all business models are arrived at by answering four very simple questions (these are the same four questions that are included in the business model definition above that I found searching Google).

  1. WHAT will I sell?
  2. WHO will my customers be?
  3. HOW will I get customers?(traffic source)
  4. HOW will I finance this business?

When you know the answers to those four questions you know your business model. All businesses MUST know the answers to these four questions. When you know these you basically have your business model figured out and can begin creating it.  Let me give you an example.

Your local grocery store 1) sells food and general household items 2) in a brick and mortar physical building 3) to anyone who walks in the store either by just driving by and seeing the store or due to advertisement they saw or heard and 4) after an initial loan or investment to buy the building and inventory they expect that sales will make profits after paying for the loan or making payments on the original investment. That is what we would call their business model.

The answers to these four questions will tell what business model you are using no matter if it is a ‘brick and mortar’ business in a physical location or a ‘virtual’ business operated totally on the internet.  An example of that might be a search engine optimization company.  They 1) sell a service of optimizing websites to get better search engine rankings using 2) an online payment platform like Paypal as well as their own merchant account by 3 ) convincing people to use their service through videos and sales copy place on their website that will be 4)built, operated and maintained by a sole proprietor until profits allow for an require hiring a team to keep up with demand.

So, if you’re considering building an internet business you have to start by knowing the answers to the 4 questions. The answers, if you don’t already know them, are should not be arrived at without doing some research so that you know, before you start, that your business will succeed.  If you ‘wing it’ you MAY succeed or you may NOT.  And that is a gamble you shouldn’t want to or have to take.

And as you’ll soon find out, all four of these questions have to be answered keeping the other three in mind.  You can’t decide to sell a certain product (question #1) that doesn’t have customers who are willing to spend any money (question #2) or are impossible to find (question #3). All four answers must work together. So let’s dig into what your research should include.

First of all , you have to have something you are going to sell . Online businesses sell either an 1) informational or educational product (text, audio or video courses designed to inform), 2) a physical product, or a 3) service. As you read through this page you’ll discover my strong preference to be information products and this is why.

Physical items require either you or someone else to buy and maintain inventory which reduces your profits or commissions considerably. Selling a service requires selling either your time or your team’s time of which there is a limited supply and is only worth a certain going rate making scaling a service business considerably harder than some other business models.

Information products, on the other hand, can be created one time (either text, audio or video) and sold as many times as you can find buyers for without ever having any further expense. An example would be to create a downloadable ‘how to’ pdf and/or video course showing someone who desperately needs it exactly how to get something (like better conversions for their product offerings on their website) they really need.  Once the course is produced there is a digital copy of it on your hard drive and it can be stored anywhere you want to store it so it is ready for downloading literally millions of times. You can sell it at virtually 100% profit to as many people who wanted the information and find your offering on the internet and that can happen with almost no further effort, work or expense. That is why I love selling information products as a business model.

Creating an information product takes a bit of time, effort and skill initially but once it is done it is done and whatever you are able to sell it for minus the cost of getting customers becomes your profit. The more you sell, the more you profit and costs of inventory or maintenance for your product are very minimal in comparison with the profits made.

Secondly , you have to answer the question, ‘ WHO are my customers going to be?’. This is a really important question that will be a big factor in determining how big your profits will be.  If the product you sell is for a non-existent audience or for a customer base that won’t or can’t spend  money you probably won’t do very well. An example would be trying to sell a how to video game tutorial for a game that only 10-12 year-olds play who don’t have money or credit cards.

In trying to find a product and a customer base don’t look for those who don’t have money, for those who don’t spend money, or for those who don’t have to spend  money but just want to. You will do best if your customer is in desperate NEED of an answer (remember…you are selling information) and they want it fast. You’re not looking for someone who is after a luxury or something that might be nice if they had but something they will continue to be in pain of some sort if they don’t get and get it NOW.

Thirdly , you have to know HOW you are going to get your customers.  In the internet marketing space, potential customers…website visitors often called ‘traffic’ is NOT the problem.  There are billions of people online every day searching for everything under the sun. And there are thousands of information products available teaching how to get traffic )from any number of sources.  (Go to WarriorPlus or JVZoo and search for 'traffic'.)  You just have to find a way to get your offer in front of the right crowd. So HOW are going to get customers online?

You will get your customers either by paying for them or by implementing some other ‘free’ method of getting traffic.  Here is something to remember.  Both methods are legitimate but there are great differences.  Paid traffic cost a little but is very fast and if it is done right will not cost you anything because you will make sales with that traffic and the purchase of the traffic will actually become an investment.  The idea is to get as high of an ROI (return on investment) as you can by learning all you can about paid traffic and doing it right rather than winging it and losing your shirt.  On the other hand, free traffic may not cost money but it will cost you lots of time. How much is your time worth?  You can spend hours or days or weeks (or even months or years) trying to get good rankings in the search engines (SEO) and still not be making any money when if you had just spend a few dollars weeks or months ago you might have already been making good money.

So make the decision that is right for you.  Will you get your customers using free or paid traffic? Some of the most common methods of getting free traffic include getting good ranking and placement on Google’s search engine results page (SERP), getting high ranking and placement in YouTube’s video search results or using other social media platforms in a free way to get your offer in front of those who need it.  (You have to be careful using social media for marketing that you don’t go against the Terms of Service or against what those on the platform consider normal or you’ll get booted off and never get any customers.)

Fourth and last,  ask yourself this question. HOW am I going to finance my business.? Those who start ‘brick and mortar’ businesses (actual physical stores or businesses that must have a physical location) have huge start-up costs simply because renting, leasing or buying a building to operate in costs a LOT. They either get the money using savings or through getting a business loan (even if that loan is in the form of giving away equity in the business ownership in trade for operating capital).

Those of us who start internet businesses don’t have that high initial cost. That is one of the reasons there are such a huge number of new internet businesses starting every day. It doesn’t cost hardly anything to start an online business but you may have also heard that over 95% of those who start online businesses fail at it. That is very true but not because it cost too much. The reason they fail is that they haven’t answered the four questions discussed in this post in a satisfactory way.

If you have thought through the answers to these four and have good methods and strategies to make them a reality you will be in the 5% who succeed. If you don't, you'll waste time, energy and money attempting something that won't yield the results you're after.

The mindmap below gives you, in a snapshot, exactly how to figure out your business model very quickly and it shows you in highlights what MY answers are to the required questions.