Home business basic training introduction
Business is about selling. There I said it, the bad word, selling.
But first, I want to define a few business related terms. You will see why later on.
By definition, business is an organization or economic system where goods and services are exchanged for one another or for money. Every form business requires some form of investment and enough customers to whom its output can be sold on a consistent basis in order to make a profit. To read more check out The Business Dictionary.
When it comes to business and selling, you will see and hear the term economics often. Economics, in part, is the study of production, distribution, and consumption of goods and services. It studies how scarce resources are used to satisfy wants of consumers.
Wikipedia defines the term business model as a description:
“used for a broad range of informal and formal descriptions to represent core aspects of a business, including purpose, business process, target customers, offerings, strategies, infrastructure, organizational structures, sourcing, trading practices, and operational processes and policies including culture.”
And Harvard Business Review published an article, “What is a Business Model?” The term “business model” is more common now than it was in the past. The heart of the matter is a business model tells a story. It is a story about how a business works. Your business, for example.
The definition of a business model above describes delivering value to a consumer. Within a business, value has two parts. The first part is the gathering of resources and converting the resources (production) into a product. The second part is the marketing of the product. Marketing is those activities related to selling and delivering the product to the consumer.
HBR adapted the following chart from Mark Johnson’s book titled, “Seizing the White Space” to show types of business models.
Why is all the above important to a home business?
It is important because the business model you develop or follow when deciding to start a home business will be determined by your business decisions.
You will have to decide whether you want to sell your products or someone else’s products.
If your decision is to sell your own products or services, then your business model will include both the production side and marketing side. If your decision is to sell someone else’s products and services, you will be concerned only with the marketing side of a business model.
When selling your own product or service, business decision factors relating to production include:
- design of the product or service
- facilities for production
- purchasing raw materials (sources of supply)
- labor required in production
- manufacturing process including production machinery, workflow, quality control
The following list of marketing components are considered whether you are selling your own or someone else’s products and services:
- market research
- product development
- sales strategies
- public relations
Home business model of selling someone else’s products and services
When you decide your home business will involve selling someone else’s products and services, you have several options. Your options are franchising, affiliate marketing and network marketing.
Franchising – is an agreement or license entered into by two parties, the franchisor and the franchisee. As defined by the Veteran Administration, Office of Small & Disadvantaged Business Utilization,
“a franchise gives a person or group of people – the franchisee – the rights to market a product or service using the trademark of another business (the franchisor). The franchisor has the obligation to provide these rights and generally support the franchisee, both initially and on an ongoing basis.”
Some franchise businesses are beyond the scale of a home business. For example, being a McDonald’s restaurant franchisee. But If you are considering purchasing a franchise, the Federal Trade Commission’s Bureau of Consumer Protection has a wide range of resources and guides to help you buy a franchise and avoid franchise mistakes.
Affiliate marketing – is an online process where a person (affiliate) earns commissions by selling other people’s or company’s (retailer) products and services to consumers. Most commissions are paid on a “pay per sale” basis. The amount is a percentage of the sales price. The percentage varies depending on the retailer and product. Your goal as an affiliate is to send visitors to the retailers’ websites and if the visitor buys something, you earn a commission (it varies between 1 – 75%+ depending on the program).
Network marketing – involves direct selling to consumers with the opportunity to recruit and create a sales organization and make commissions on multiple levels (commonly referred to as Multi-Level-Marketing). These “downlines” provide multiple levels of compensation. Network marketing companies are often criticized because more emphasis is placed on recruiting new distributors than selling products. The opportunity to earn commissions from downline distributors can exceed the amount of commissions earned by selling products.
Because of the shape of a sales organization, network marketing companies are often misidentified as illegal pyramid schemes. The Federal Trade Commission provides a definition of a pyramid scheme.
A coalition of lawmakers has come together to write and sponsor a bill that would finally define at the federal level what a pyramid scheme is and is not. The applicable bill number is H.R. 5230 – Anti-Pyramid Promotional Scheme Act of 2016.
Home business training summary
Home businesses come in many different shapes and sizes. Defining your home business model is important to the success of your business. Your business model tells the story of your business. Over time economic and business conditions change. These changes will impact the assumptions built into your business model. Evaluation and assessments of your business performance may require changing your business assumptions.
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