Did you spend time thinking what is the impact it has on the way you run your business?

Because, make no mistake, your online business model has a big impact. Thus the decision should not be made haphazardly.

Basically all online business models can be fit in to 4 categories.

None of them is better than the other. They are just not alike and thus have different requirements to work well.

So, let’s take a look at those categories.

The 4 types of online business models

The online business model depends on 2 things:

• Are products being sold or not, and
• Have you created those products or not

Huh?

Let me explain.

These things have a huge impact on the way your business is run. The ownership of the products states your place in the value chain, i.e. do you own the final stop or are you the one who directs visitors to the destination. This has an impact on the distribution of money.

And the existence of products has a similar role – if no products are being sold, then it is either a service business or not a business at all. This determines the use of time.

Kind of.

I admit that the model is simplified, but surprisingly(?) potent.

As an ex-business school student and with a tendency to get a virtual boner when I see a great matrix, I have drawn one here too with my hairy little hands (they are really not that hairy).

I have chosen the names of each category in a way that it has a clear link to traditional business where goods are being sold.

Now, let’s take a look at each of these types in more detail.

Manufacturing business model

In manufacturing business model, you are the one who creates the products and sell them. This is your main source of income, but it doesn’t prevent you from also promoting other people’s products.

Since you are the manufacturer (or creator if you will) of the products, you are the one who controls the price, promotion messages (salespage) and the availability of the product.

Basically, you are the king.

Obviously, such a role comes with responsibility.

If people don’t like or want your product, you are the one who is not making any money. You also need to set up the customer service and handle client relationships. On top of these things, you may need to form relationships with other people who promote the product (affiliates).

However, product creation is not the only way this online business model exists. Another good example is site flipping, where you either build the site yourself and then sell it to others. In this case the site is the product.

Another version of flipping is when you buy a site that someone else has created, develop it further and then sell it again or keep it for yourself (based on the monetization method, then it could be publishing. More about that later).

Also paid, subscription based membership sites belong to this category.

In case you need a famous example of this kind of business, think no further than Copyblogger.

A brief summary of manufacturing business model:

• You are in total control
• Income potential is high
• You have the responsibility of your customers
• Product with no demand –> no sales –> no money

Service business model

Okay, then let’s talk about the service business model.

In this case, your primary source of income comes from trading time to money. Great examples of this business model are (website) designers, programmers, copywriters, coaches and consultants.

The good thing about this business model is, that you can start earning money right now since you don’t have to codify your knowledge in to a sellable asset. This of course assumes that you have something valuable to offer to your clients in exchange for their sweet, sweet money.

As with manufacturing model, you are in control of your time and rates. Which is nice.

But, of course there is a but. This model relies heavily on your own effort (i.e. if you are not working, you are not making any money) and ability to package and sell your services to customers.

Also, you’d need to be able to attract those customers somehow, which can be easier said than done. In general, the service business model relies a lot on referrals and/or website traffic. Fail to get those and you will fail to sell your services.

Service model in a nutshell:

• You are in control
• Quickest way to start earning money for most people
• Need to have deep enough expertise in the subject matter
• Have to offer services others are willing to pay for and be able to attract those people

Store business model

This is probably the most common online business model at the moment.

You are sporting a store business model if you are primarily selling other people’s products as an affiliate.

Typical examples are of course affiliate sites (review sites etc), blogs and e-commerce sites where you are selling other peoples products.

As you know, the great thing about this business model is that you just need to get traffic and send it to the right place. If they buy, you will get your cut and your responsibility of that sale ends there.

Of course, in many cases value creation is required in order to get people do what you want them to do (i.e. check out the product you recommend).

Another positive thing about store model is that you don’t need to spend time and effort doing market research to deeply understand the target customers (even though that of course helps immensely) or to actually create the product and all the stuff that goes along with it.

However, with the store model you are never in full control of your own business – the products you promote might be taken offline or become redundant. Also, in case you are promoting something with your own name and brand, a bad recommendation can ruin your reputation which can be very hard to mend.

Also with this model you need to be very good at getting traffic to your website, often through SEO or other means. For example in manufacturer model you don’t necessarily need that skill-set as your affiliates can handle that part.

It is time for another summary:

• Doesn’t require time to create a product or support it
• Often easy to get started and find products to promote (or switch promotable products)
• Need to be very good at getting website traffic in order to make meaningful income
• You are not in full control of your income streams (unless you diversify a lot)

Publishing business model

And finally, there is the publishing model.

Typically publishing revolves around (a huge amount of) content creation which attracts an audience. That website traffic is then monetized by selling advertising space.

In this online business model you are not creating or promoting products or that activity forms a very low percentage of your total income.

For example many niche websites that rely on adsense income fits this category perfectly. As do news sites, celebrity gossip stuff and others of that ilk. Also most of free community sites, such as forums and social networks (like Facebook and Twitter) belong to this category.

Again, for this model to work properly, you need to be able to get more or less consistent stream of people coming to your site. If you rely on search engine traffic and Google drops your site it is not really good for your business.

The good thing about this model is that you are basically just responsible for creating content and getting it in front of people. No need to worry about product creation or selling your time, but there might be some effort needed to contact potential advertisers and sell the ad space to them.

Summary of the publishing model:

• No need to sell directly to anyone (if you are uncomfortable with that)
• Focus on content and value creation
• Need to be able to build a valuable community or attract new eyeballs on a constant basis
• All income depends on the amount of traffic and/or the value of the community

What does this mean to you?

Please notice that in the above descriptions I didn’t want to be extremely specific with the types of websites. For example a webapp can belong to all of the above categories, depending on how it is monetized. Also a simple “squeeze page -> email list -> promotion” type of website can promote at least 3 of the above (maybe publishing is a bit difficult).

So, generally speaking, the type of website does NOT determine the type of business model. Also, whether you are selling information products, software or physical products does not really matter.

Yes, I know. I am a genius.

But as you could see from the descriptions and examples that your online business model has a huge impact on the way the business. Different types require different skill-sets.

The biggest 3 areas of impact are the following:

• Traffic
• Control
• Use of time

Let’s tackle these one by one.

If you are using the manufacturing or service model, you can rely on affiliates and other people sending traffic to your way. Heck, you can even use paid advertising.

That is not really viable option in most cases if you are using a publishing model. The store model can be either way depending how the site is setup.

Your business model also affects the way you use your time. The store model requires potentially the least amount of personal attention while service model needs probably the most. So depending on your business model, your activities are also different.

In manufacturing model, a significant amount of your time will go on planning future products, improving the current ones, improving the sales process as well as customer acquisition and service. Compare that to the store model where you need to pick good products to promote and then get people to see those products.

For me, the biggest thing to consider is however the matter of control.

I would never, ever build my business around only a certain product unless that would be my own. I am sure you wouldn’t do that either. If you are doing that, try to diversify as soon as possible.

Another thing that I wouldn’t base my whole business around is to just supplement something else. A great example of this is Market Samurai.

They are basically running the manufacturing business model, but since they are relying on Google and other services to provide the data for them, they are not really in control. They are constantly playing catch-up and not really in control of their business. (They can’t provide rank tracker anymore, some time ago they had to change the provider of backlink data etc. Not great for customer experience)

Final thoughts on online business models

It is valuable to know what kind of business model are you running, especially if you have never really thought about it. Knowing the business model helps you focus on the right things – if you are running a manufacturing model but most of your time is NOT spent on improving your product or bringing more people to your sales funnel.. then reality check is in order.

Of course, you are not limited to only one business model in general even if you are more or less so per site.

Sure, you can use several of these models. That is what Pat Flynn is doing. His niche sites are running the publishing model, SmartPassiveIncome is clearly using a store model while his iPhone apps and LeedExam-site lands in the manufacturing online business model. For him the combination seems to work wonders.

You can’t really say what is the best online business model, because all of them work. It is also possible to build a sustainable business around each of them.

What matters though is the execution.

Poor execution will most likely bring poor results. Great execution is more likely to be successful.

So, choose a suitable business model and then execute it as well as you can. I know I am trying to do exactly that.

Okay, I’ll shut up now. Your turn.

I know this was a long ass article. Hopefully you found it useful.

Please leave a comment and answer these two short questions:

• What kind of business are you running?
• Did you consciously choose that kind of business model?

And feel free to share :)

Creating content, promoting it, building relationships.

But have you ever done any strategic planning or analysis regarding your business?

Most likely no.

Now, “strategic planning and analysis” sounds fancy and that term can also scare you. You might ask, is it even necessary?

The answer is no, it’s not necessary BUT it can give you a hell of an advantage. And the easiest way to start doing something about it is to use SWOT-analysis.

Two dimensions to consider

There are only two kinds of things in life: things you can control and things you can’t.

This is also the basis for the SWOT analysis.

So what you need to do is to take a look at the internal factors of your business, i.e. the factors you can control and are directly responsible for as well as the external factors which you can’t control, but can exploit and prepare for.

Let’s start with the internal factors. The two things you should consider are:

• Strengths: The characteristics that give you an advantage over others.
• Weaknesses: The things that your business is lacking in.

Not exactly rocket science, right? Then, let’s move to the external factors:

• Opportunities: External chances that you can exploit to improve or grow your business.
• Threats: External events that can harm your business.

So the end result is an analysis of the Strengths, Weaknesses, Opportunities and Threats (=SWOT) regarding your business. Typically the analysis is performed in a 2×2 matrix, just like in the image below.

Don’t be fooled by the simplicity – when used right SWOT analysis can really give insight in to your business and help you grow it while minimizing the risks involved.

The easiest way to demonstrate the power of SWOT is to actually do the analysis. I recently published an ebook on Kindle, so to me it’s natural to talk about that experience.

Example: SWOT for a Kindle ebook business (Case: Joona)

Let’s dive straight in.

1) Strengths

One of the strengths in this case is my definite subject matter knowledge. And what’s even better, there are very few people around who has similar experiences and skill-set and even fewer who are willing to write their knowledge down. Good for me.

Another strength is the fact that the target market is big and is kind of evergreen. Okay, I will reveal the general market: my product has been targeted to students. There are students now, there will be students next year and the year after that. And that.

My product helps them solve several problems that actually exist in real life. I know that because I have suffered from them and seen other student’s struggle with the same issues.

And, I made some research to validate the idea too. (More about this and the mistakes when creating this product in another post)

2) Weaknesses

…But not all is fine and dandy. As you can probably see, I am not the strongest of writers. Usually I am able to get my message across and understood, but I am not a wordsmith with superpowers courtesy of God/Allah/Buddha/Santa/Whatever you believe in.

Other thing is that I have no passion to become a writer. So, for me this business model would not work in the long run.

And to be fair, I do not have external qualifications that would set me apart in the niche. Plus I am using a pen name so they wouldn’t help anyways.

3) Opportunities

The biggest opportunity is definitely the expansion of Kindle as a platform. As Amazon grows their customer base, so grows the number of people who could potentially buy my ebook.

Another big opportunity is Amazon’s marketing and authority. If the product gets a decent reception from the general public, Amazon will do a lot to promote it to people who might be interested in it. You know, those emails you get from them occasionally. Big, big opportunity right there.

I could also expand this business by riding the trends. For example, last years have seen the paleo diet become more and more popular. Surely there could be a sub-niche I could target. And there will always be new trends. Identifying the strong ones early on and pouncing on them before others would be a big opportunity too.

Of course, outsourcing the writing by hiring a ghost writer is one option too. (And in case you are wondering… Yes, a native English speaker edited the ebook.)

Okay, then the threats.

4) Threats

The biggest threat is of course suspension of the product from Amazon. Or some problems with the account. I don’t consider the likelihood of these to be very high, but still… it could happen.

Other threats include competing products who target exactly the same topic. At the moment there isn’t any, but information is so easy to copy and re-write…

Related to the previous point, new entrants in the same niche could also prize their products lower than me which could mean a (big?) portion of the target market opt for their ebook instead of mine.

As you can see, the analysis itself gives a pretty decent overview of the current situation regarding the Kindle publishing model in my case. However, this is not where it all ends. This above matrix can and should be taken a bit further to squeeze out action steps to improve the business model.

Actionable insights based on the SWOT analysis

First, let’s check the internal stuff, meaning strengths and weaknesses with focus on weaknesses.

I can’t do that much with the unwillingness to become a writer. I could try to force myself to that direction for business reasons, but… I am just not interested.

I can, and will, work on my writing skills though. Being more comfortable with writing and improving my style would of course make it easier to make this business model work for me. Maybe sometime in the future I could write more ebooks. Maybe.

Now, let’s switch the focus to the external situation.

Again, let’s start with the negative stuff first. I could fight against new entrants by lowering the price of the ebook. If other’s see that a similar product is already on the market with a price of 1 dollar, most likely they would not start selling/producing their ebook at all. Then again, this would mean that my profits would plummet too.

There is not much I could do in case my account would be suspended, at least not on Amazon. They would not accept the same ebook for sale under a different name/account.

One solution would be to start selling the same product on a different platform, say iTunes or independently by building a small site around it and promoting it.

Final thoughts

Granted, the above example is not the most sophisticated one. After all, publishing an ebook on Kindle is very simple kind of business.

But the thing is… just stopping for a while and analyzing your business can make a huge difference in the long run. You can see if there are some untapped opportunities out there and you can also discover ways to protect your business from external threats.

The SWOT-analysis is not an almighty tool that will solve all the problems related to your business. A lot will depend on the person or persons who are actually doing the analysis. The better the observations, the better the result.

SWOT is very useful, if:

• You are working with a partner or partners. This will give you a common understanding about your business and put you all on the same page.
• You have never put any effort in analyzing your business landscape.

To help you do the SWOT, here is a template you can download in pdf-form:

SWOT-template

You can type in to it and save it for later.

One more thought… What about using SWOT to analyze the business of your competitors and using the insights for your benefit? I bet there is something you can learn by analyzing the most successful businesses in your field and using the same strategies in your business. (Of course the strengths and weaknesses would be from an outside perspective, but it is surprising how much you can find out just by keeping your eyes open. Again, more about this another time.)

Few questions I’d like you to answer:

1. Are you aware of the strengths and weaknesses about your business model(s)?
2. How do you try to find untapped opportunities and identify the threats your business might face?
3. Do you think SWOT would be useful tool in your arsenal?

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Most likely you have done it too.

At the time, I didn’t know why I was failing. Why people were not coming to my site and not buying anything from me.

I was sure that I was creating good and valuable content. I also promoted good and helpful products.

But the sales weren’t going anywhere.

After several of these failed attempts I had to do something. I was bored of failing.

It was time to go back to the basics.

I also took a hard look at the successful businesses and compared them to my sites.

And then it hit me. My focus was off.

In some cases I was close, but not quite there. And that makes a huge difference.

I realized that the successful business ideas nailed 3 elements perfectly.

And here those 3 ideas are in a nice little graph.

And here is how I define them:

1. Market = Target customers (or readers)
2. Offer = Value creation in exchange for money/attention
3. Execution = A platform which connects the market and offer

All these individual elements will be discussed in more detail in upcoming posts.

But now, let’s take a look why having only 2 of the 3 is no good.

Market + Offer = Wishful thinking

This is the case when you know who you are going to target and you have the offer, but you are lacking in execution.

I call this “wishful thinking”.

After all, everything you have is just a dream, an idea. Without execution you don’t have a business.

I know this very well, since I am prone to come up with a lot of (great) ideas but often won’t execute on them. Hence a long list of ideas, techniques, business concepts and yes, unused domain names.

The only way to get rid of the wishful thinking syndrome, is to choose a market + offer combo you have identified and start building a platform. Or you can give others incentives to use their platforms to sell your products and services (= you are the product creator and rely heavily on affiliate activity for sales). Adding the platform to the mix and making it a valuable resource is the thing that will create a business.

Offer + Execution = Conversion nightmare

What about the case of offer + execution?

This one is called “conversion nightmare”.

Conversion nightmare refers to a situation where you have taken action (good job!) and you have a product to sell… but you don’t have a target market.

If you don’t know your market, your platform will be a bit hit and miss as you are trying to cater to an audience that doesn’t exist or you are trying to please everyone but actually pleasing no one.

So basically you have just built a product without customers or a blog without readers.

I have made this mistake in the past with a weight-loss blog. The keywords that I was ranking for brought in an okay amount of visitors, but there just wasn’t any conversions. Now, when I think about it in retrospect, the reason for the failure came down to few things:

• Me not being passionate enough about the topic. This lead to lack of consistency.
• Writing style of the content was aimed towards people my age. The people doing searches on those terms are typically around 40 or older. I found this only later on when I did some research.
• The above point also meant that the site wasn’t focused enough to solve problems of that exact market.

So been there, done that. Learned a lesson.

To solve this problem you have to focus. Focus on specific market. Market that has people willing to buy from you. Or to read your content and share it to their networks if that is your goal.

Market + Execution = Broke and Bitter

Ah, now comes the situation where several bloggers are in.

This is something that I call “Broke and Bitter”.

You have built a platform, gained some kind of an audience but you have absolutely no idea how to monetize.

Then you go on forums and/or other blogs asking how can you monetize your awesome site about minimalist lifestyle or wallpapers. Classic.

The thing is… you should have some kind of idea how you are going to monetize before even starting. Sure, in many cases you can come up with some ways to make some money after you have gotten traction.

But why make it harder for you in the first place? In the beginning, why not spend a little bit of time to have an idea what you want to accomplish and what is your vision for the future?

I have done this mistake too.

I ran a site focused on personal productivity, aimed at serial procrastinators employing themselves. I created pretty good content for the site, got some traffic and all. But I had no idea at all how to turn that traffic to money.

Sure, I could have created some products myself, but in reality, all my best content was already out there in my blog for free. Since this wasn’t a passion project either, I did what many people with no clue how to continue do: I quit.

Market + Offer + Execution = Viable business

Now this is the ideal situation. And I dare to say that it’s the only situation when you can create a sustainable business.

Sure, you can make some money when you have 2 of the above elements in place. But it won’t last for long.

Combinations of just 2 usually rely heavily on tactics. And luck.

I don’t want to base my business on those two things. I am sure you don’t either.

Just answer this question: If you know what you are selling, to whom you are selling and how you are selling, do you think there is a chance you will actually make money?

Sure.

If you know all those things, can you actually build a sustainable business around it?

Of course.

Final thoughts

Now I won’t be stupid enough to say that if you know your market, your offer and have a suitable execution platform, then you will immediately become Donald Trump of online business. That would be naive.

But. I dare to say that the likelihood of you actually creating business will increase a lot by thinking about the mix you choose and doing research about your target market.

The easiest way to know the target market is to belong in it, or have belonged in it before.

The best way to match a market and an offer is to create the offer yourself based on real, existing customer needs.

When you know the market and the offer, then it is just a matter of connecting them on a platform. Preferably a platform that your market is already familiar with, no matter if it’s run by you or partners (=affiliates).

And yes. You are not restricted to only one platform, one offer and one market. But all those should still form a coherent mix. Diversifying them too much will just lead to confusion and kill the laser targeted focus. And that will kill the business.

Your turn

Now, in the comment section please share some of your experiences:

• Have you reached a market/offer/platform fit? How did you do it?
• If you are comfortable with it, share a story of a failed project and explain why it didn’t work.