Based on insights from Kim Saxton, clinical associate professor of marketing at IU Kelley School of Business Indianapolis
So you want to start your own business – and you’ve got an idea. Where do you go from here?
Kim Saxton, clinical associate professor of marketing, explains one important issue is deciding whether you want to build what’s called a “lifestyle” business (or small business) or whether you want to focus on expanding into a scalable business.
“If you want to earn an income, a small business is a great way to go. You’re your own boss; you find your own customers, and you’re selling customers one on one,” explained Saxton. “Remember, the opportunity for growth isn’t very high because it’s all dependent on you. But you also don’t need any money, or you’ll only need a limited amount of money.”
On the other end of the spectrum, you may want to look into starting a “scalable business.” You’ll create something that could multiply revenue with little incremental cost.
“To begin, think about how to put parameters into place to form a successful business, and then, figure out how to remove yourself from the operation. Franchising is one example. Of course, before you can franchise something, you need to do it yourself a few times to see what the issues are and if there is demand,” said Saxton.
“A great example of a successfully franchised, scalable business is Orangetheory Fitness. It started as one person’s personal training approach. Ellen Latham started with one gym. It had a lot of success, so she expanded the number of gyms and then franchised the idea. Now there are an estimated 500 locations across the country. That’s a scalable business,” she added.
The key to move a small business to a scalable startup is deciding how to remove yourself.
“To remove yourself from your small business, you need a business model. There are more than a dozen types of business models you can choose from—for example, a subscription business, leasing products, selling partial ownership, bundling products and services and even “pay as you go,” like a retail store or e-commerce business, and the list goes on,” said Saxton.
Saxton points to The Limited as an example. The company shut all its retail stores, leaving its website open. Amazon’s business model was e-commerce, and now, it’s adding physical stores. In some of those retail stores, there are no checkout lines as your smartphone tracks what you bought and charges you automatically.
“Business models can evolve and change over time, and there isn’t one set way of doing something. It’s all about evolving to better serve your customers’ wants and needs,” explained Saxton. “Take Uber, which is a whole new business model for a taxi. Other companies saw that Uber was successful, and now, there are others who are modeling their businesses after Uber. Uber, in return, is thinking about partnering with companies to share data, which is a whole new business model.”
So, if you want to start your own business, here’s what Saxton recommends.
First, you have figure out what product or service you are going to offer. Then, you need to determine how to sell it. Your business model is your story of who your customers are and how you are going to deliver value to them in a way that makes money. To be scalable, you may need to try several alternative business models to figure out which makes the most incremental revenue at the least incremental cost.
Kim Saxton hosted a StartUp Study Hall through the group, The StartUp Ladies, at the Kelley School of Business on IUPUI’s campus. It focused on this topic – building a scalable business. For more information on future StartUp Study Halls, click here.