Choose the Right Type of Business, Create the System, Automate it, Replicate it, and Profit

There are many different types of businesses that you can start. All, however, will fall under the four basic categories of manufacturing, wholesale, retail, or service. A manufacturing business actually makes the product, wholesale businesses sell products to stores, and retail businesses sell products to end buyers—which may be businesses or consumers. Service providers, on the other hand, sell their time and expertise instead of a tangible product.
My experience in business is in selling products at wholesale and retail and providing a service. Though my experience, I have found a very big difference in running product-centered and service-centered businesses. My current product-centered business in called Broadwick Corporation. We sell the web-based email marketing software IntelliContact Pro. My current service-centered business is called Virante, Inc. We do web marketing consulting for high potential companies and take payment in cash, equity, and commissions on generated sales.
Whether you start a service-based or product-based business will have a large effect on the steps you’ll have to take to build it to one million dollars in sales. I find that product businesses, in general, are more entrepreneurial and easier to grow exponentially, whereas service based businesses are nearly always limited. While one can be making money while they sleep selling a product, in most service-based businesses, you can only make money when you’re working. Your income is limited by the number of hours you can work. In order to overcome this, as a service-based business owner, you’ll have to put the proper systems and processes in place and hire employees that can do the work for you so all you’ll have to do is manage the company and set its vision. You’ll have to find high margin services in areas where you can truly add value for your customer. While services such as programming, web design, marketing consulting, and search engine optimization can be lucrative, it is rare that a one-person company makes more than $200,000 per year. To reach that $1 million dollar level you’ll have to stop working in your company and start working on your company—the classic advice of Michael Gerber in his book The E-myth.
Another difference I often find between product and service-based companies is that there is often only one founder of service based businesses—whereas there are more often than not three or four founders of product-based companies. This holds true with my companies. I maintain 100% of the equity of Virante, Inc., but share the equity in Broadwick with 6 others. I consider Broadwick to be my “entrepreneurial” company that we will hopefully sell for tens of millions in a few years, while Virante will always be my personal service firm, holding company, and tax advantaged business. This can be further seen by the fact that Broadwick is a C corporation—what all large corporations are—whereas Virante is an S corporation that will allow the profits of the company to pass through to me without being taxed twice. Service companies tend to be lifestyle companies whereas companies selling a product tend to be high-potential companies.
By selling a product, one can automate much more of the business—especially if that product is delivered online or you can set up an autobilling system. One can easily automate an affiliate program, shopping cart, online merchant account—and then hire someone at $10 per hour to do the shipping and answer the phone. Further, there is much more ability to scale up. While I was working with the nutraceuticals company, they handled over 400 orders per day with one customer service rep and one fulfillment person. In a service firm making $2.5 million per year, you’d likely need at least 20 people.
If you do decide to start a service based company, see if you can also develop a product based on your expertise in your niche—perhaps an ebook or informational product. If you can develop a product in addition to your services, you’ll gain additional credibility and be able to develop a stream of income that will allow you to increase your revenue in a way that is not directly tied to the number of hours you work.
This concept is illustrated well by Robert Kiyosaki when he notes the difference between a small self-employed service provider with that of a business owner in his Rich Dad’s Guide to Investing:

Those who are self-employed will never become rich because they are not building an asset. If they stop working, they will stop making money. If a business owner stops working, he or she will continue to earn passive income from the asset he has built. At the core of assets are systems.