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Starting Up: Which Type of Business is Best for You?

Despite what you might see in the news, entrepreneurs aren’t just software developers, hip millennials and venture capitalists. Entrepreneurs are neighbors, parents, activists, dreamers and all sorts of people willing to burn the midnight oil to create a business from nothing.

And because entrepreneurs are so varied, entrepreneurship is, too. This quick guide will help you learn about several different types of businesses, the people who run them, and which type of business might be best for you.

Sole Proprietor, independent contractor or freelancer

A sole proprietor, freelancer or independent contractor is a business owner who works for herself, by herself. Often, these are people who learn a trade or skill, and then get their own customers instead of working as an employee.

They include:

  • Creatives: photographers, writers, designers, etc.
  • Consultants: marketers, life coaches, etc.
  • Service providers: accountants, mechanics, insurance agents, etc.

These entrepreneurs enjoy running their own businesses, but don’t want to manage people day-to-day. They’d rather increase rates for a few customers than hire staff to accommodate growth.

One perk of these businesses is that all the profits flow straight to you (or can be used as capital). One downside is that you’re responsible for everything about your trade, and the backend of running a business, including accounting, legal and operations.

Total startup costs vary, plus the cost of a computer and potentially office space. If you think this kind of business would be a good fit for you, check out this guide to becoming an independent contractor.



E-commerce or online store

An e-commerce site or online store comes with all the potential variations of a physical retail location, and then some. You could run it yourself, or with a large team. You could choose to dropship, or warehouse your own products. And what you sell is entirely up to you.

Typically those who choose to dropship are solopreneurs looking for a good source of income. Those who carefully select, warehouse and distribute their products tend to have much bigger goals (and companies) in mind.

One pro of running an e-commerce store is that online shopping is still a large and growing market. A con is that people have to be able to find your site, so in addition to retail skills, you need to develop online marketing and SEO skills.

If you think this type of business is a good fit for you, check out these e-commerce guides to get started.

Franchise

A franchise is a license to market another company’s products or services in a specific territory. You might think of franchises as chain stores, but Julie Batycki of Educational Outfitters says it best: “A franchise is a like a paint by numbers kit.”

You still have to put in the work, and there’s a chance you could mess it up, but if you just follow the instructions, you’ll create something beautiful.

Accordingly, franchise buyers tend to come out of corporate America. By the time they leave, they want to be the ones calling the shots, but they also want minimal risk.

One perk of owning a franchise is that you get proven strategies with a brand people already recognize, which often leads to higher income. One downside is that you pay extra for this stability.

If you buy a franchise, just make sure the brand you choose shares your values, because you’ll have to operate by those values daily.

Total startup costs can be anywhere from $50K to $1.5M, but normally hover in the $150K to $400K range. If you think buying a franchise is a good fit for you, check out this guide to getting started with a franchise.

Tech startup

Tech startups are new businesses that use technology to solve a problem. The people who start them tend to repeatedly ask, “What if…?” or “Why can’t you just…?” They realize a pain point could be eliminated or reduced, and they use technology to create a solution.

You don’t have to be a developer or super techie to launch a tech startup. You just need to want to solve a problem, and find people to help you do it. One pro of choosing a tech startup is that the potential payoffs could be massive. One con is that it’s very difficult to solve people’s problems so well that they pay you for it.

It’s a fast-paced sector (even though most tech companies solve problems in industries other than tech, like transportation or inside sales), but that’s one reason entrepreneurs are attracted to it.

The average startup cost is around $30K, but could be anywhere from a few hundred bucks to several million dollars depending on the path you take. If you think this might be a good fit for you, check out these startup tips for more details.


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Other types of business

“Small business” is the catchall for everything that doesn’t fit inside the other four types. Most small businesses have one to 10 or 11 to 50 employees, and could be legally structured several ways.

These businesses thrive on repeat business, so the entrepreneurs who start them tend to be great at building relationships that make buyers want to come back again, and refer their friends. They’re often highly skilled in one industry, and active members of their local communities, too.

One perk of small business ownership is management. You get to do what you love, and help your employees grow. One con is that you’re responsible for all those employees’ livelihoods, including their stress, pay, benefits and more.

Average startup costs depend on how much inventory, space and personnel you need to get started.

Determining which type of business best aligns with your skills, values and goals, is the most important first step. The sooner you plan and start your business, the sooner you’ll be able to live your dreams.

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