8 Categories Of Business To Build Yours Around
The last thing you want as a business person is to get into one of those awkward moments in a high level networking session where you can’t define what business you are in. That really shows everyone how much you really know about your own business.
Knowing the fundamental nature of a business is not only important when you run one, it is also a very crucial element when you are considering buying one out.
Can you imagine buying a company thinking that it’s core business is in one particular area, and then realize later that you got it wrong? Even worst when you run it as a particular type of business when it is fundamentally a whole different animal under the hood.
But who is anyone to tell you what your business is anyway? It could be nice to do your own thing while the outsiders looking in have no idea what you are doing, therefore have a lower chance of replicating it.
And if you really want to classify your business into a category, here are the 8 that yours will fall into.
For those that don’t like to carry inventory due to personal preferences or resources, being broker is the perfect scenario to get into. In industries that have physical inventory involved, you typically find buyers of products in which vendors will deliver. This will immediately bring up links of brokering with affiliate marketing and drop shipping.
Most of us associate brokering with the glamour of power lunches and intense meetings to negotiate deals for 2 parties. But that is more like describing an act rather than defining a business.
Brokers have a useful role in a competitive environment. As companies pull out all the stops to acquire new customers, consumers can face a daunting task to find and compare similar products offered by competitors. This is when brokers make the life of consumers much easier.
Brokers can basically aggregate and present products and services offered by all players without being bias towards any. They get compensated by every player. This way, consumers get to easily choose from a selection of options rather than running round town like a headless chicken.
A business can be classified as a licenser when it owns some kind of intellectual property that is desirable. Among others, it can be a patent for product design or a brand that is well-known.
Whatever it is, it must be something that another company sees as being able to add value to what they already have. For example, you might have patented a new way to package poultry that changes the way people consume it. A food company might then be interested to use your patented process for their own products. In this case, you will license them to use your intellectual property and collect a royalty.
In a way, franchising is can also be considered as a form of licensing.
Being a dealer is somewhat like licensing. Just that in this case, you will carry the inventory. Saying that, it’s also not uncommon for dealers to negotiate terms for the licenser to carry the inventory.
Dealers usually carry a whole line of products belonging to the parent company. This serves both sides of the transaction. As dealers may not find it worthwhile to only carry and marketing a specific niche product. A small revenue might make the business unsustainable. And parent companies will often prefer a main dealer to carry everything from their catalog rather than having to deal with many different dealers that carry different stuff.
You can see this in practice in the automobile industry. Japanese car manufacturers often appoint a master dealer within a geographic region who will import all models of their car.
For many companies, their core competence has nothing to do with product development or marketing. Many of the big time distributors are solely in the consumer product business because of the huge distribution networks that they have built up over the years.
These distribution networks include key accounts with major retailers, storage facilities for a variety of products, logistics support for timely and dependable delivery, etc.
For example, if the owner of a frozen product line intends to enter a new market, one of the biggest challenges is to ensure the proper delivery of the products so that they remain consumable by the time it reaches the storefront. So they would prefer to deal with distributors with a proven track record of cold storage and delivery instead of a licensee who has no experience with frozen products. Of course, the established relationships with retailers make it easier to get prime shelf space as well.
Most consumable and expendable products are carried by distributors with huge overheads. It is also not limited to consumables.
5) Direct response
In the old days, direct response is basically another word for mail order. But with the rise of so many alternative marketing channels over the years, direct response has encompassed many different business types as well.
Other than direct mail, we can now include infomercial online and offline, internet marketing, cold calling, mobile marketing, etc. It is basically a business that identifies prospects and market products directly to them via one marketing channel or another.
Because of the low costs objectives of conducting business associated with direct response, you will also find that these expert marketer usually also sell products that have a low carrying costs, but big value.
For example, perfumes, magazines, digital newsletters, pocket sized gadgets, software, etc.
To keep costs low, direct response businesses often source and procure their own products in bulk rather than seek licensing arrangements. Bulk orders come with big discounts and less restrictions that come with a standard licensing agreement.
Wholesalers are the ultimate businesses that profit from high volume rather than high margin. The focus is always on moving more inventory to hit a higher revenue because the margin is usually low.
Another giveaway of a wholesale business is that they usually don’t deal directly with end consumers and prefer to sell directly in bulk to retailers instead. This is in line with keeping their core competences of moving in high volume.
Suppliers are often businesses that sell parts or materials for the client to use for creating another product. They can also be described as vendors when supplying products or services to maintain the operations of another company. Stationary suppliers come to mind.
Suppliers and vendors are often started up by previous employers of organizations. They know what the organization needs and have the contacts to sell to with existing relationships. So they are often the types of businesses that budding entrepreneurs frown upon as they got in via the back door.
If you have no knowledge of how a product is made or fabricated, you will be a fool to get into a manufacturing business or buy one. Especially when there are so many alternatives available to choose from.
This is a business that probably requires the most hands-on involvement and the most product knowledge. Not a good business to get involved in unless you already have the required skills, knowledge, and expertise.