As in any other sector of life, we are not all the same or start from the same point and that is why it is essential to choose the type of venture that best suits you, as well as to know the risks that each one implies and decide if you are willing to assume them. And it is that, it is impossible to look for new business models without first knowing the characteristics of the types of entrepreneurship . Here we explain them to you, to help you choose and flow with your creativity knowing everything you need.
First of all… Is there a collective madness for the world of entrepreneurship and startups?
Indeed, it seems that a kind of collective madness has been generated in the world of entrepreneurship and startups that plays a fundamental role in the failure of thousands of entrepreneurs who set up their startups without being aware of the risks they must face. It’s like a kind of gold rush for which it seems that we only look at unicorns, those that bill billions of dollars and appear in all the media. That is the exception! We must be aware that the majority (close to 90% of startups) fail. Having this very clear and regulating our expectations, we are going to see the different types of entrepreneurship :
Las startups
We can define a startup as those entrepreneurial companies that have a high innovation component, scalable companies in large markets, with high potential and a technological component. Due to the collective madness that we mentioned earlier, it seems that there is only this way of undertaking , but there are others! Obviously not all startups are the same and we find many differences depending on the type of business model you choose. But we can say that the common characteristics are the following:
- They have a high risk : the probability of failure is very high.
- They are scalable companies : you will have to invest a lot of money but, if you do well, you can grow a lot.
- Complex models : they usually require building a product, they need a lot of people…
- They have a high potential : when you get it to grow a lot, you can sell it for millions and it can change your life.
Within the universe of startups we find different business models:
Marketplace
Marketplaces work due to the existence of supply and demand (that is, sellers and buyers). This would be the case of Walla pop, Airbnb, Glove… These are really complex models and perhaps the ones that carry the greatest risk since they need a huge critical mass of supply and demand so that, by connecting them, you start to generate value. Look at the case of the Red Refrigerator. It needs, on the one hand, to have an abundant offer of restaurants and, on the other, to have many clients. Because otherwise the model makes no sense, because you don’t add any value. For this reason, a lot of money is needed to capture this demand through Digital Marketing and a lot of sales force to capture supply. Also, it takes a long time to get it. They are models with a lot of risk. Of course, if you achieve this network effect, the company will be worth a lot of money, since you will have created a brutal entry barrier.
Software as a Service (SaaS)
This would be the case of software products, such as Typeform, for example, in which you capture users with a specific acquisition fee and you make them profitable with recurring fees in the long term. The advantage of this business model? Which is predictable, so there is not much risk. The downside is that you need a lot of money to get started because you need to build that software and invest in every single user.
Models without direct monitoring
They are those that are monetized with advertising, that kind of financing “wild card”. It would be the case of a digital newspaper. These are very risky models since, in order to monetize through advertising, you first have to have a huge user base. Otherwise, who will be the advertiser willing to invest? And to have that user base you need a lot, a lot of money.
Models with direct monetization
They are those models in which you systematically buy from customers and that allows you to finance your growth. It would be the case of The Power MBA. With this model you minimize the risks because you do not have such a need for financing.
Los ecommerce
Ecommerce is a very common type of entrepreneurship. It consists of “creating a brand and selling online”. They are those brands of physical products such as watches, cosmetics, glasses, clothing, accessories… They are relatively simple models at the operational level and require little initial investment. You can start by creating an Instagram account , a website… But what are the challenges and difficulties of this type of venture?
- It is not enough to know about the product : in ecommerce the product is just a commodity. The important thing is that you are able to create a brand that you fall in love with and develop a powerful marketing strategy. Think that there are many competitors and you have to stand out.
- It’s hard to really scale – you may end up with a super powerful organic community and it’s especially easy for you to sell. The challenge here is to scale, and that does require a significant investment. So many entrepreneurs stay in this first phase.
Traditional businesses
Talking about “traditional businesses” is perhaps too simplistic an aggregation. This is the case when you enter a traditional and existing sector, such as hospitality, beauty, food, automobiles… With a proposal similar to that of your competitors, for which you usually need to make an initial investment: for a factory, winery, real estate chain, restaurant… Normally these types of models have little innovation, although they start from a lower risk: there is already a guaranteed demand. So, as we say, the main problem lies in the initial investment, which is much higher than in other models. To finance it, you have two options:
- You have the money : it is your resources that you are going to put to play.
- You go out looking for it: for traditional businesses there are usually fewer investors because they do not have exponential growth. With what you will need to borrow.
Are they businesses with potential? It depends on the size of the market and, above all, on your competitive advantage : are you a great expert in a specific sector? Do you have a super powerful personal brand ? If you do not have it, we do not advise you to invest in this type of venture. And it is that, if you want to minimize the risks, doing something that other people are doing well is a good option, as long as you are able to do it much better.
Services
First of all, let’s do an analysis of the different advantages and disadvantages of selling products and selling services. While creating a product is more scalable, since you create a product once and the income grows by increasing the margins, the scalability is less in the services because the margins do not grow as much (if the clients increase you need more people). You run the risk that they stay in “owner companies”. On the other hand, creating a product is much more complicated than offering a service, where, after all, you are selling hours and it is easier and faster. With the products you must invest much more. With the services we can differentiate 4 levels of risk:
1. Servicios One-to-one
For which you help a person who has a specific need or problem with your knowledge. It would be the case of a marketing consultant, a coach, a yoga teacher… It only requires that you have certain knowledge and you can start tomorrow pulling your agenda to get clients. It is not a very scalable model, but let’s see how you can make it grow.
2. One-to-many
You can also offer your services to several people at the same time (this would be the case of group coaching, for example). In this case, you dedicate the same hours and help many people, so the business is much more profitable.
3. Training products
If you take all the knowledge you have acquired, you can create a course, for example, and that gives you much greater opportunities to scale. Of course, it is a much more complex model for which you will need to invest in marketing, so the interesting thing would be to do it in an evolutionary way.
4. Other scalable products
In the same way, with all your knowledge you can create another type of product, such as a marketing tool, for example, and create a kind of monthly payment. How it sounds? If you ask us where it is best to start, we will tell you that the most viable path, the most logical, and where you will assume fewer risks is the latter: the service path. Analyzing these types of entrepreneurship, you have surely been able to determine which one best suits your profile, your knowledge and your situation. Based on this, start defining your goals and get to work! Can you think of other types of entrepreneurship that we should take into account.