So you're ready to start a business but how committed do you want to be? Use these four examples as your guide.
Many of our readers are interested in starting a business and find themselves at various stages in the process. What type of business do you want to start?
You will find several "formal" definitions of the various types of business out there but we will look at four types or stages, using fictitious business Lulu's Lemonade as an example.
Extra Income/Hobby – Hands on, not too serious.
Lulu opens a lemonade stand one hot summer day. She procured the ice and cups and fresh lemons from her kitchen and puts a "fair" price on a hand written sign. She sets up a table and she's in business. Her lemonade is a hit! Lulu didn't invest a whole lot to open her stand; she can close it during inclement weather or if she has something more important to do. It is less a business than something she enjoys doing and provides a supplement to any other income she has.
A Lifestyle Business – Very hands on, pretty serious business.
After some period of time Lulu business is booming. She decides to quit her regular job and devote herself full time to the lemonade stand. First she needs to start keeping more regular hours, but she still has the luxury of closing during certain times or keeping limited hours that drive enough business to maintain her life style. Lemonade is typically a summer time thirst quencher so she opens early on summer days and works hard all the way to fall in order to generate enough income to support herself. This business provides limited capital but also limited scalability.
Self-Funded Growth Business – More removed from the customer and more administrative.
She is so successful after a year that she decides to grow the business. She adds hot cider and hot chocolate to her menu of drinks for year round appeal, designs an easily assembled stand and equipment and goes out to hire like minded beverage purveyors. Her drinks are popular so she is only limited by the ability of her business to self-fund its own growth. But now she has a reputation to protect and marketing to do in order to bring in more customers for her various stands. Her growth strategy has worked and she has a self-funded and growing business.
Growth Business – Very involved in strategy and administrative; dependent on others for service delivery.
She decides to franchise her business. In doing so she also creates her own central kitchen to prepare the drink mixes for distribution and warehouses and trucks to move them to the various locations. She gets an outside investor for this growth. Then she sells her "kit" as a franchise allowing her previous employees and others to become business owners. She travels to tropical climates to buy the best lemons, sugar, and cocoa. She watches trends, develops websites and marketing campaigns. She makes sure she is not in default on the investment that allowed her to build her kitchen, and hopefully, she is growing equity.
The choices you make will determine the life style you have and the level of risk needed to pursue your objective. So, which of Lulu's business models would you choose?
GLEN BLICKENSTAFF is the CEO of The Iron Door company, which makes high-end doors and windows. Glen has a track record of turning around and managing retail, building and financial companies. @glenblickenstaf