How to Start a Business: Key Business Models and Business Structure Explained💡
- Your Compass
- May 7
- 6 min read
Starting a business can be an exciting yet daunting challenge. One of the first steps in your entrepreneurial journey is determining what kind of business structure suits you best. Your business structure plays a crucial role in how your business operates and grows, so understanding the different business models is key to choosing the right path.
In this post, we’ll explore two main business structures: lean & flexible versus structured & scalable. We’ll also help you understand how to decide which structure works best based on your business goals, risk tolerance, and available resources. Whether you're wondering how to start a business or searching for the best business ideas, this guide will give you the information you need to choose the structure that aligns with your personal circumstances.
Part 1: Understanding Different Business Structures
When people think about how to start a business, they often get caught up in the specifics of what the business will actually do. While that’s important, the business structure you choose is just as crucial in determining success.
The choice between a lean & flexible or structured & scalable business is influenced by many factors: your experience, risk appetite, goals, and even the amount of time you have to dedicate. Understanding these categories will help guide your decision and set the stage for your business’s growth.
Let’s dive into the two broad business structures to help you decide which path may be right for you.
1. Lean & Flexible Businesses 🏃♂️
These businesses are typically small-scale, low-cost, and require a flexible mindset. Lean businesses allow for quick adjustments as you learn what works and what doesn’t. This structure is ideal for entrepreneurs looking to start a business with lower upfront costs and a test-and-learn approach.
In many cases, lean businesses start with a minimum viable product (MVP). Entrepreneurs create a simple version of their product or service to test the market, gather feedback, and make improvements as they go. This approach helps avoid significant upfront investment and reduces risk.
Examples of Lean & Flexible Businesses:
Freelance services (writing, graphic design, consulting)
E-commerce platforms (dropshipping or print-on-demand)
Content creation (blogs, YouTube, podcasting)
Local services (dog walking, home cleaning, tutoring)
Why This Structure Might Be Right For You:
Low capital investment: Many lean businesses can be started with minimal upfront cost, perfect for people on a budget or those testing the waters.
Test-and-learn approach: You can start with a small version of your business and adjust as you gain more experience.
Flexibility: You can easily pivot based on customer feedback and market conditions.
The flexibility of lean business models means you can scale slowly, make changes without facing the major hurdles of a larger business, and even experiment with different business ideas. For many entrepreneurs, this adaptability is a huge advantage.
Risks:
These businesses often require significant time investment, especially early on, and may face some uncertainty in terms of steady cash flow. Since your business model is more fluid, it’s easier to pivot or change direction, but this can also lead to uncertainty.
You may find it challenging to scale rapidly without dedicated resources.
2. Structured & Scalable Businesses 🏢
On the other end of the spectrum, structured and scalable businesses are more formal and designed to grow as demand increases. They tend to involve higher upfront investment and offer systems and processes that make scaling easier. For example, many structured businesses leverage standardised processes, technology, or employees to support business operations, which frees up time for expansion.
If you’re focused on long-term growth, a structured business could be the right fit. These businesses often require detailed planning, extensive resources, and significant effort to maintain, but they provide a framework for larger-scale operations.
Examples of Structured & Scalable Businesses:
Franchises
Opening a brick-and-mortar store or restaurant
Software-as-a-Service (SaaS) business
Purchasing an existing business (e.g., gym, laundromat)
Professional services (law office, accounting firm)
Why This Structure Might Be Right For You:
Higher growth potential: These businesses are often designed for scalability, allowing for rapid growth and expansion.
Systems and support: Franchises and established businesses come with built-in systems, reducing the learning curve.
Stability: Structured businesses often tap into proven markets and models, offering more predictable paths to profitability.
Structured businesses come with the possibility of higher profits but also higher risks. They typically have the infrastructure to allow you to reach broader markets quickly, either through a franchise model or scaling your business to serve a larger number of clients.
Risks:
Larger initial investments are usually necessary.
Scaling too quickly can lead to operational difficulties, and the business may require additional team members or resources.
They are harder to pivot. If the business model is not working well, it’s difficult to shift in a new direction.
Part 2: How Experience and Risk Tolerance Impact Your Business Structure Choice
Now that you understand the two main types of business structures, how do you know which one is right for you? Your experience and risk tolerance are key factors in determining the best path forward. Your preferences will also dictate the business model that suits you.
Your Experience Level:
Low experience: Lean businesses are great for beginners because they allow you to learn as you go without a huge financial commitment. You can adjust, test ideas, and refine your business model as you gain experience.
Moderate experience: If you have some experience managing projects or running small businesses, you may feel comfortable moving to a more structured model like a franchise or an existing business.
High experience: If you’ve been an entrepreneur before, you’ll likely be ready to handle the complexity of scalable business models, managing teams, and making strategic decisions to grow your company. You have the ability to navigate higher risks and manage larger operations.
Your Risk Tolerance:
Low risk tolerance: Lean businesses are ideal if you want to minimise financial risk and test your ideas slowly, scaling up over time.
Moderate risk tolerance: If you’re comfortable with moderate risks and have capital to invest, a structured business like a franchise might be a good fit.
High risk tolerance: Scalable businesses offer higher potential rewards but come with significant risk. These models are great if you're comfortable with uncertainty and have the financial means to support rapid growth.
Part 3: E-Commerce — Is It Really the "Easy" Business to Start?
Since I see many people are considering E-Commerce as an easy and quick way to start a business, I dedicated this section to it. E-commerce is often promoted as an easy entry point for beginners, but it requires careful research and preparation. Platforms like Shopify, Amazon, and Etsy make it easy to set up a store, but success isn’t guaranteed without a solid understanding of the logistics, marketing, and customer acquisition process.
Many entrepreneurs who start in e-commerce underestimate the complexities involved. From handling product sourcing to managing shipping logistics, there are numerous factors to consider. The fast-moving nature of the e-commerce space means that businesses can quickly become obsolete unless they are adaptable.
Before diving into e-commerce, make sure you:
Learn about digital marketing strategies to attract customers.
Understand inventory and fulfillment processes, especially if you’re not using dropshipping.
Be prepared to compete with established brands in a saturated market.
While e-commerce can be a profitable option, it’s not as simple as just listing products online. Take the time to learn about the industry and make sure it aligns with your business goals and skillset. Don't be hesitant to explore other business avenues if you are at the stage of figuring out how to start a business. By educating yourself, you can increase the chances of success, whether you decide to build a brand or work with existing platforms.
Part 4: Personalised Guidance Through the Business Path Finder
If you’re unsure which business setup and model is right for you, the Business Path Finder is a great tool to help. This free tool guides you through a series of questions about your preferences, risk tolerance, and available resources. By answering a few simple questions, you’ll receive tailored suggestions for business ideas that fit your profile.
For even more personalised guidance, we offer one-on-one consultations to dive deeper into your unique situation and help you find your niche. Whether you're aiming to start a business with low risk or prefer a structured business path to scale, we’re here to help you create a plan for success.
Conclusion
When it comes to how to start a business, choosing the right business structure and business model is one of the most important decisions you’ll make. Lean and flexible businesses offer flexibility and low risk, while structured and scalable businesses provide a clear path to rapid growth but require more resources.
By understanding your preferences, experience, and risk tolerance, you can make a more informed decision about which business structure suits you best. If you’re still unsure, you may book a complementary one-on-one clarity session.
Ready to take the leap? Open your browser and go to our website at www.compasscoach.com.au, head over to Business Consulting page and scroll down to the Free Resources section for more tools and insights to help you along the way.
