Which Business Model Is Best: Selling Services, Software, Information Or Physical Products?

Published by 40 Comments

I’m getting old.

Well, at least in internet years.

It’s getting close to 15 years now that I have been online and had a website of my own. During this time I’ve played with all kinds of different business models. Perhaps just calling them money making techniques rather than fully fledged businesses is more accurate in the majority of cases.

Nearly every technique I’ve used was designed to set myself up with what you would call a “lifestyle business”.

I didn’t realize it at the time, I thought a business was a business, but I can see now that what type of business you decide to build very much dictates what kind of life you will lead.

A lifestyle business is, as the name suggests, a business created to facilitate the kind of lifestyle you desire. In my case, and I suspect for many of the current solo-internet marketers out there, the kind of business you want is one that requires little time to manage, yet makes enough for you to live a comfortable life, not have a job and travel if you desire so.

Passive income, low labour or easily outsourced income streams are perfect for a lifestyle business, and are exactly what I went after during the first 10 or so years online. Although I knew the outcome I wanted, I didn’t really understand how to get it, so for a long time I focused more on just “making money” than anything else.

The Pros And Cons Of The Four Primary Business Models

Here’s a breakdown of the four different models I have used and what I like and dislike about them.

1. Selling Physical Goods

I used eBay briefly, then eventually had my own e-commerce store. While most of my eBay trading was selling things around the house, my e-commerce store focused on selling collectable Magic cards.

Pros: What I like about having a physical store is that the value is in the product. In my case I never manufactured a product myself, I bought product at wholesale or traded for product using cards I already had. As long as people want the product, you can keep selling it, assuming you can get in front of them somehow. All you worry about is supply, delivery, marketing and your profit margin (only!).

Cons: That delivery part of the equation was a nightmare. I spent hours every day writing out addresses on envelopes and cardboard boxes and heading to the post office once a day to send off the goods. It was tiring and the profit margin made it a low return for a lot of work.

I did make my own hours with this business, but I never felt like I was exactly living the dream. If anything, it was because I didn’t make enough money and I could tell to ramp things up it would take an incredible amount of labour. Luckily (perhaps) credit card fraud hit my little e-commerce store hard, which made me give it up.

2. Selling A Service

I’ve had several service businesses over the years, from an English tutoring service, to a web hosting and design service and most significantly, a proofreading service.

Pros: I liked selling services when it was a service I primarily didn’t deliver, or I could deliver once and then it kept paying me. For example, once a website is set-up, I earn a recurring hosting fee, or I sell a service someone else delivers, like the proofreading business where I had editors working for me. The margins could be good too, and if you know how to market and set up with the right model, you can scale this kind of business quite far.

Cons: I made the mistake of delivering services myself several times, which obviously can’t scale far and makes for a lot of work, although it is a good way to learn about your customer and industry. The hosting business had became so competitive that the margins were all but eliminated, and given the amount of customer service required it can be tricky to justify doing so much for so little in return. Services are often easy to replicate, unless you have some kind of proprietary advantage or positioning advantage.

3. Selling Information

You might call selling information just like selling a product, but thanks to the Internet information is a non-physical product, which has several advantages (no trips to the post office for example!). I’ve enjoyed tremendous success with this model and still consider it the best option for a lifestyle business.

Pros: The margins can be significant, your delivery cost is next to nothing, you can replicate as much of your product as the market demands and if you establish authority, you enjoy competitive advantage. If you know something that other people want to know, you just need to get what you know into some format others can learn from, and sell it. It’s one of the simplest businesses to run without employees, and can make big money.

Cons: Finding the right niche can be challenging and executing a strategy that nets you the necessary traffic takes work, a lot of work. You can eventually settle down somewhat, but until you have built up some kind of “traffic assets” you face an uphill battle to build the audience you need to succeed. It can be hard to systematize and scale this kind of business into the multiple millions, however if it’s a lifestyle business you want, you don’t need that much money.

4. Software

I’m only just now embarking on a journey involving software with CrankyAds.com. We are not selling software, we are giving it away, however we are using software as the basis for the business. In the past I’ve had one other software experience – an attempt to build automation software for my proofreading business – which I stopped early on because it was clearly going to balloon in cost.

Pros: Software is one of the best ways to develop a competitive advantage, especially if you build something people can’t live without and switching cost is high. Today’s largest Internet companies and pretty much every successful start-up is based on software, although software alone is usually not the key.

Cons: By far cost has been the hardest part of software development in my experience – it quickly spirals up just getting basic features created. I realize outsourcing to India or Romania etc are options for creating software with lower cost, but I do think you get what you pay for, and explaining features to someone in another country requires a lot of documentation. The nature of software development means constant bug fixing is a way of life, so much so that it can be enough to kill your project before it even gets off the ground.

Reading the stories of successful tech start-ups, it appears that a solid tech founder or tech team is key to success. We’ve got a good foundation team at CrankyAds now, however we could really use more help (we’re hiring!) and I believe hiring the right people is going to be key to our success.

Switching From Lifestyle To Start-Up

You can see the language I use in the fourth option with software is different to the previous three. My own experience before doing software has been all about lifestyle businesses, where growing big is not paramount. The main goals are developing cash flow sources that don’t require too much work.

That’s not to say that software can’t be the foundation of a lifestyle business. It really depends what your model is. In my case, with software, we are working the start-up model. The goals are bigger but consequently our needs are greater too.

To be honest I think a lifestyle business is still the best choice for most people. The risk-reward ratio is “safer” – you don’t risk as much upfront and the rewards are still life changing. Of course as you enjoy success you might like to develop something bigger or different, which is exactly where I am right now.

Become Aware Of Your Growth Stage

As I look back on my own growth as an entrepreneur, for a long time I had no idea what I was doing in terms of the business I was growing. I spent all my time playing with techniques in the hope of making money, that’s all I could think about.

I learned a lot initially through experience, but often I discovered there were flaws in what I was doing, contrasted with what I wanted.

As I read books about successful online businesses and entrepreneurs, met people, observed what others were doing, things became clearer. The learning never stops of course, but you do move forward, especially if you take action as the best learning is always through experience.

My advice to you is to look at the current business or project you are working on now and assess the business model. Ask yourself questions like…

  • How big can what you are doing get?
  • How big do you want it to get?
  • What people are necessary to get it that big?
  • How many customers/sales are needed to reach that goal?
  • What specific jobs will you be doing personally to get there?
  • Can you realistically do all those jobs?
  • Are you a lifestyle or start-up Entrepreneur?

You may not be able to answer these questions yet, but just thinking about them will help you gain clarity.

And don’t forget, you can change any time.

Yaro Starak
Entrepreneuring

Photo courtesy of mattjiggins

About Yaro Starak

Yaro Starak is the author of the Blog Profits Blueprint, a report you can download instantly to learn how to make $10,000 a month, from only blogging 2 hours per day. You can find Yaro on Facebook, Twitter and .

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40 Comments

  • “the best learning is always through experience”

    Ahh… too right. And I think software is a great model to follow, although personally if I had time again I’d probably look to get into SaaS straight up.

    But for me, selling a piece of software on a licensed basis has been a great tool to get my business brain switched on.

    Good to see you’re already scaling with CrankyAds..

    • I don’t know if jumping into SaaS as a first time project is a good choice unless you are going to go start-up and get investment, etc.

      I think SaaS is one of the harder models to monetize quickly, as you spend a lot of the early months and even years developing a platform, fixing buys and acquiring users.

      • After more thought I’d probably be inclined to agree with you.

        While SaaS can certainly be more lucrative it is harder to build up because of the nuances of managing members. You would know, after all, you taught a whole course on it.

        Speaking as a software developer, I think a lot of us find it more attractive because it increases the return per customer and provides something more solid as far as revenue goes. That is, you don’t have to go out and get more customers every month (ignoring churn obviously.. lol).

        Maybe SaaS is more suited to teams than single founders….

  • The trend which I see these days is new and small companies starting up with their unique way of E-Commerce, Software sales, services etc. The problem is for every niche you will target there is a giant sitting on top…..i started domain buying and selling business once…but then you have Flippa and Sedo.com . Now I am working on a Windows Blinds E-Commerce Site that is fully featured like the big guys….and it did cost me 11000 USD just for the development. The golden rule for online business these days is that in order to make money you need to invest money.

  • Yaro, you’ve outlined it so well. Your lifestyle will be how you go for it. You need time to enjoy life. Some business models won’t leave you any time to enjoy. Some eats up all your time to make ends meet. I still believe the one that you create something and sell it for several times is the best. There would be some large resource spent first and sold later for the years to come, like membership sites.

    The important point to make a huge difference is you have to think BIG. Do something for the entire world. Get out of your local skin and see how it grows. If you set it on a snowball effect and keep pushing it till it attracts lots of attention, you’ll see the result. Well, maybe this is another start-up!

    I wish you all the best of luck in your new business.

    Rahman Mehraby
    TraveList Marketing Blog

    • Hi like your thinking Rahman – go big or go home right!

      Or just go big enough for your needs right now ;-)

  • Nicola Cairncross

    Hi There and great article! Have you read a book called Ready Fire Aim yet? By Michael Masterson and recommended frequently by Rich Schrefren it covers what skills, staff, etc a start up will need at each stage of growth and what the entrepreneur needs to focus on specifically. I am still on Part One but I think you will enjoy it. Nicola

    • I’ve heard Rich talk Masterson up a few times, especially in regards to cash flow at start-up. I haven’t read that book yet though.

  • Well said Yaro,

    I think this is an important criteria for any business online or offline is selecting the right business model to pursue. Actually is a vital ingredient to success in any profession as selecting the wrong business model can have you wasting time and money in as well as derail your success.

    One of the best book I could recommend for anyone interested is the emyth revisited by Michael E. Gerber as well as looking around and following/mirroring successful individuals and/or companies like yourself. Also any book by tony robbins will help anyone once they take action of course.

    Selecting a proven business model is essential to success ie Mcdonalds, starbucks, amazon, zapoos and virgin even thought we are talking about online efforts.

    In my opinion I think one has to become an investor to succeed because you need to have the correct mindset, plan, and take the right actions.

    Akil

  • Hi the lifestyle we all crave is one of “passive income” I think we are all searching to find that magic solution and only by continuing the search will we reach our goal.However the one thing against us is time,every second that passes leaves us with less time to achieve our dream of doing what we want when we want and still getting paid.Of all the ways to reach our perfect lifestyle,the internet still offers the best chance,most work can now be outsourced which leaves time to live.However you might still need to generate the income you need to outsource,by doing a traditional business as per your example of buying and selling real products.Ultimately for the very few a true lifestyle business is achievable but it will take time and action on your part and a clear goal to aim at.

  • Hi Yaro, I never thought of it that way as a lifestyle business or a start-up. I ran a service model lifestyle business offering ghostwriting services. I had a handful of writers writing for me but it was still really stressful because I went through every single article and proof-read before submitting to my clients. So I scaled down. I still offer ghostwriting services but I only take assignments that really interest me. That way I write the articles myself and even though I’m usually booked for months in advance, I’m able to space myself.

    However I have decided to branch out and build a startup. I’m working on selling information products and you are so right about the cons. It isn’t easy breaking into the market but I don’t believe there’s anything that can’t be done with determination and passion.

    I will go though your list now and apply those questions to my business. There is so much to learn from EJ, which is why I keep coming back.

    Thank you!

  • This post was great read Yaro. I too am going for the lifestyle choice as opposed to a business that keeps me working more than I want to.

    !5 years is a long time to be online and I respect your ability to share what you learned and to be successful at it.

  • Hi Yaro,

    Great article!

    I currently run an ecommerce website which takes up far too much of my time and am trying to move to more passive income streams. The problem I have is that financially I need the income of the ecommerce business however I’m eft with little time to work on the other projects. I guess the answer is with a mix better time management and strategic outsourcing.

    It’s great to read about your experiences though.

    Darren

  • i have a click and order business i think ebooks and blogs and other software is better much easier to get

  • Thanks Yaro for a great article. Maybe I am wrong, but starting with a lifestyle business first may be wise in order to gain the experience (and income) needed to possibly move to a start-up business? We learn by doing and taking action every day. I guess if your income and knowledge is not limited, a start-up business first is very doable.

    It’s interesting to see your “stages of business growth” and how you have grown personally too. Thanks so much for sharing your insights and spurring us on to “think” about our own journey every day!

  • Thanks for the post, Yaro. I’m definitely in the lifestyle entrepreneur phase, but definitely plan to scale things up when I’m able to.

    My main business model is centered around creating businesses that generate passive income with minimal maintenance. Once I get to a level where I am comfortable and have that passive income routinely coming through, I can fund other “bigger” projects and other ventures I have in mind. That way, I’ll not only have the time to take on those tasks, but I will also have the funds to support me while I chase those dreams.

    I’m on the right track and I can see things already unfolding. It’s amazing what can happen when you are determined, focused and don’t let anything get in your way!

    Bryan

  • Excellent article. People forget that the internet basically changes where you are doing business how business is done remain in place. You still have to offer the best product or service for the price. Increase value increase interest increase chances for success.

  • Hi Yaro,

    Thanks for sharing your experiences as an entrepreneur. I’ve tried some of the models you mentioned, and my experience was that selling physical products on eBay was time consuming and the profit margins were low.

    Presently, my business model is a combination of providing service and selling information, and the fact that I’m passionate about what I do makes a tremendous difference.

    Cheers,
    Pope
    P.S. CrankyAds seems like a great idea – I’ll utilise it sometime soon.

  • One of the best articles I’ve read this year on life and business life. I wish you the best and look forward to reading about your journey while I work on my own. I’m going through a similar phase coming from the Service side of things. Mindset and learning curve are what’s getting me right now but, without trials we have no stories…

  • Hi Yaro:

    Another great article. Thanks! As I get older, I value more and more my free time to spend with family, friends and participating in activities that fulfill and allow me to grow as a person. That said, I have over the years thought about starting different business, from a bar to selling wedding invitations, to ecommerce. In the end however, I find that the business that will afford me the life-style that I want, is indeed writing/blogging. I am slowly building my blog site (and am a proud member of BlogMasterMinds) while working my full-time job. I love to write in other genres too, but blogging is what I’m hoping will provide me with the income and free time to enable me to focus on my other writing projects that don’t seem to ever amount to more than ideas and outlines on paper.

    Thanks again for this article and thank you for all that you do. You have been and continue to be an inspiration to me and I’m sure to so many others out there in the cyber world.

    Cheers!
    Rebecca

  • Yaro,

    I thoroughly enjoyed reading this. I noticed with most successful entrepreneurs who start from the ground up usually go through this type of progression. We see it all the time even in big brands like Apple. They started with personal computers years ago. Now they have the #1 selling mobile device, they are one of the biggest retailers for online music downloads and software apps for phones and tablets.

    You just hope like in your case the successes you have along the way will be able to help fund the bigger things you want to do in the future.

  • Wow awesome article Yaro Starak sir. Its really unique for me. For me software selling service is the best way. Thanks for sharing with us.

  • Any business can become a lifestyle business all you have to do is be able to remove yourself from the day to day running of it. I know staff can cause problems but with the right ones you can leave them to do the hard work and you can reap the rewards.

  • Hey Yaro,

    You went the whole circle of possible businesses. That’s impressive. But 15 years is not such a long time really. This post is a nice overview of what one can do and what it takes. It seems that the software area is one people tend to get into after they’ve made a lot of money. Since you’re not that old I wonder where you’ll venture to go next.

    It’s an interesting journey you’re on. Keep on giving your thoughts and share experiences that not everyone can experience for themselves in all their variety and scope, at least not at such a speed that you’ve managed so far.

    Cheers,
    Vance

  • good summary Yaro, thank you. a lot of it also has to do with “boredom” and new challenges, something inherent in many entrepreneurs.

    for me personally, more passive / information base business models such as niche sites and ebooks have been very lucrative, especially as I keep adding to the portfolio with each passing year, creating more income streams and diversity over time.

    however recently I have been contemplating a product, perhaps a software, not so much because of necessity or because what I am currently doing isn’t working, but because of a new challenge, something different and even added diversity.

    this evolution and variety is exactly what keeps us vested and interested over time. all the best with Cranky Ads, I’ll certainly be using it on my blog.

  • This is a great summary of everything someone can expect to experience throughout their Internet marketing journey as well.

    I’ve had many times where I have had to stop cramming information and trying new things to take a break and look at how this was getting me to my intended goal. That is probably one of the biggest problems with getting starting–figuring out what tactics and information you need and what is holding you back.

    While I am most definitely the lifestyle type, the risk-vs-reward of start-ups is also an alluring part. Best of luck with CrankyAds!

  • I currently use several of those business models simultaneously. I own ElectroGeek.com which is a service business that also sells computers and parts and I make money online with my blogs. I haven’t ventured into software development but I am focusing on moving from the service/product side to an all online business model. It’s the only way to achieve the kind of lifestyle that everyone desires.

  • I’m into selling services, hopefully software in the next few years. It made me realize of scalability at the moment. Thanks for highlighting the cons and pros.

  • I got around 27,000 unique visitors to my Excel help blog last month but only made a few dollars a day. What’s the best way to monetize my blog?

  • Eliot

    Thanks for the perspective Yaro. Quick follow up question: can you give a few examples of the ‘Selling Information’ business model? It makes me think of consultants or self help experts (or maybe Blog Profits Blueprint…).

    • Elliot – The obvious example is my past five years selling my courses, Blog Mastermind, Membership Site Mastermind and Become A Blogger. If you want more examples, just check out clickbank.com.

  • In my experience the most effective structure is to have a core off-line business around which one can design supplementary sources of income (both on and off-line) which are effectively an add on service to your existing one. You have a captive audience to which you can market these additional services.

  • I’m keen to see how Crankyads turns out. Congratulations on developing it, Yaro!

    It’s great to see you as a blogger develop an advertising system because you know exactly how tricky it is (especially for new bloggers) to find advertisers, determine the price of an ad – and then get paid.

    I’m looking forward to seeing how Crankyads lives up to its promise. I’ll definitely be testing it :-)
    - Mary

  • cynthia

    i am taking over my friends online store. this is my first time selling anything. do i need to get some kind of sellers license and if so how? thanks

  • Obviously, I’ve chosen the service providing business for myself because all I want is a decent business that will provide steady income and let me do what I do best – giving advice and helping people.

  • Rosie

    Hi Yaro. My two cents about the Information business model…You said that traffic is key…yes!…but someone who has great ideas — and (more than all) is a master in discovering opportunities (unmet needs)…who is market-driven — can partner with someone who has the audience (and the huge traffic) or the ability to build traffic. I think the number one challenge in creating info and products is…creating value. Most of the info and products are worthless :(
    And I think value drives traffic.

  • Yaro,
    I agree with you and the very fact I am here proves that I am interested in finding ‘the right” business model, at least for me. Personally I own and run a small software company, we develop our own eCommerce engine(that powers now over 60 dedicated shops). At this moment we sell it as custom work, what customer wants, customer gets. Difficult, a lot of work to please the customer, a lot of work to find new customers, custom work does not look like a very good model, or anyway, not a lifestyle model, I’d say.

    At this moment we sell our software as a service (not SaaS, but the service itself of building the custom shop) and we are ready to put it out there as a product under it’s own brand but I’m still trying to figure it out which is best: sell it “one time license” based plus features/templates, etc or hosted or our own servers, with a monthly, recurring fee. Any advice here in this particular domain?

    And one more thing: the thing that started me to comment here now, even if I do read you since a long time, is that we are from Romania and I can tell you great things are done here, people are great, smart and you can get a lot of value for your money when hiring the right people.

    • I like the monthly recurring fee option Ovidiu, assuming you have the positioning to justify charging for it. In the end though you won’t know until you try.

      Yaro

  • Mr. Yaro Starak,
    Its pleasure to read your article. I would go with Services Selling by the way! I believe, either you develop or get trained, Service is something you bring out of yourself.

  • Jay

    I have a business that sells plans (information products) for download. I am really trying to diversify and get passive income though. Great thoughts, and great article.

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