Chapter 1: What Makes a Good Business Idea?
Most businesses can be split into two main categories: product based and service based. With the advent of the internet and online companies taking the world by storm, digital service based startups offer a legitimate option to any budding entrepreneur willing to grind it out. Service based companies typically require little to no startup capital, as they generally revolve around the founder’s prior skillset. Another advantage to service based companies is the option to start as a freelancer and expand into a fully fledged business down the line. Industries like photography or content creation, digital marketing, SEO, web & graphic design, sales, consulting, copywriting, software and third party API development, or being an internet personality are all examples of companies that can be easily started by a freelance founder.
Product based companies can be a bit trickier to start, since unless you’re dropshipping, you have to physically design, create, sell, and ship a product. This can be a time and money intensive process just to get through the research and development phase. Then you have to establish a means of production and fulfillment, establish systems and workflows, etc. (we will go over this more later in the course). However, the advantage to product based businesses is scalability. Service based companies are limited by the actual amount of man-hours it takes to complete the service. You can hire dozens of employees to run ads or design graphics, but you will always need people to be doing things in order to make money. Product based companies offer fixed-cost scalability of production, sometimes even positive economies of scale, that can expand to worldwide markets with much less staff and direct man-hour input dollar for dollar.
There’s no clear answer to which model is better for starting your first business. In essence, it really comes down to the idea question checklist in the previous section. If the idea has a competitive advantage, access to necessary funding, an enterable market, and practical requirements, it’s time to move forward.