Getting Started: Types of Businesses
Find The Business Type That Fits Best
PREPARING TO LAUNCH
Suppose you are weighing the idea of starting a business — there will be a number of decisions to make, from writing a solid business plan to settling on your ideal business model to choosing the right business structure. Beyond that, your tasks include naming your new business, filing paperwork, getting set up with taxes, securing needed permits and licenses, and then marketing your company to attract customers.
But before your brain gets too overwhelmed with information overload, you also need to consider what type of business you want to operate. There are three main business types that all companies, no matter their size or location, fall under:
At Your Service
Service businesses are among the most popular small businesses out there. Depending on which website you review of the most popular small businesses, anywhere from 60% to 80% of the list is comprised of service businesses.
The simplest definition of a service business is a business that provides a service. More specifically, a service business does not provide any physical goods. Instead of clothing or electronics or toys, your skills/expertise/advice are your “goods.”
Example Service Businesses
- Law firm
- Accounting firm
- Human resources company
- Computer repair store
- Bank or financial planning/investing
- Auto repair shop
- Physical trainer
- Hair/nail salon
Most freelance contractors are also in the service business — business:
- Social media managers
- Web designers
- IT support
- Interior designers
What about the emerging sharing economy businesses? That may seem a little tricky since a physical “good” is involved, but consider what takes place — the vehicle of the rideshare driver is not being sold, but rather, a service is provided of taking a customer from Point A to Point B. Most sharing economy businesses fall under the definition of a service business.
The line where your new business falls might seem fuzzy; however, just remember that if physical goods are not exchanged and you perform any kind of service for which you are paid, you have a service business.
Get in the Middle of Things
Merchandising businesses comprise most of the more well-known companies in the US — Macy’s, Wal-Mart, Target, Barnes & Noble, Whole Foods, and even Amazon.
The definition of a merchandising business is one that buys completely made products from a resells to consumers (for a profit). Merchandising businesses are the middlemen between the product maker and the buyer. The hallmark of a merchandising business is that it sells a completed product — businesses that are strictly merchandisers do not also manufacture the products.
Types of Merchandising Businesses:
- Wholesale = buys items in bulk from the product maker/manufacturer and sells to retailers or other wholesalers
- Retail = buys items from either the manufacturer or wholesaler and sells to consumers
Wholesale merchandisers rarely conduct business directly with consumers; likewise, retail merchandisers (especially large companies) deal with a wholesaler more than the actual manufacturer. The primary mission of the merchandising business is to sell the products made by the manufacturer.
Build – a – Business
Manufacturing businesses — the makers of the products s, old by merchandising businesses — are the vital piece to the consumer economic puzzle. The primary role of the manufacturer is to make the stuff that will ultimately be purchased by consumers.
Sometimes the manufacturing business is an independent entity, and sometimes the product maker is connected to the merchandiser — like Ford, General Motors, and Fiat Chrysler. The manufacturing part is separated from the retail part, by both sections are owned by the same major corporation. But still, the actual builders of the vehicles do not also sell the finished products.
Flowers Foods is a good example of a manufacturing business. Keebler, Tasty Kake, and Dave’s Killer Bread are some notable product lines all owned and produced by Flowers Foods. The company makes the baked goods and pass on to the first of two “middlemen.” Independent vendors buy in bulk from Flowers and sell to stores, who in turn, sell to customers. Flowers makes the product but does not sell it.
Well-known manufacturing businesses include:
- General Electric
- Johnson & Johnson
- Proctor & Gamble
- Christian Dior
While the term “manufacturer” may sound more mechanical and technical, any business that focuses on the making of physical products is a manufacturing business. This can relate to jewelry and clothing as much to electronics and machines.
Starting a manufacturing business is not as difficult as it may seem, and you may be able to begin the business from your home.
Manufacturing Business Ideas:
- Jewelry making
- Candle/Incense making
- Clothing design
- Furniture design
- Growing produce
The key factors of manufacturing businesses are combining raw materials with manual labor to produce a sellable product.
Some businesses are a combination of service and merchandising or merchandising and manufacturing, or even all three business types.
Firestone is a prime example of a triple hybrid business — they perform services for customers where goods may/may not be exchanged, but they also sell physical goods (tires and rims). And while Firestone sells other brands of tires, they also make their own brand of tire.
Grocery stores with in-house bakeries could qualify as a hybrid business. Of course, some companies, like Walmart and HEB, also have their own product lines as well. Texas-based HEB oversees at least thirteen manufacturing facilities across the state.
Many small businesses owners may find themselves wearing two or three business hats in the beginning — you make and sell your own clothing or jewelry. Or perhaps you fix computers and sell electronic components to your clients. Hybrid businesses are probably the most popular of the business types.
Your business idea does not have to fit into only one category, and you are far more prepared if you cover these basics in the beginning. Deciding what type of business you will have is one of the first steps in creating your business plan. Your next big decision will be selecting a business entity (c-corp or LLC) and filing the necessary paperwork to make your company a real thing. When you are ready for that part, let HF Consulting give you a hand.