The ultimate guide about digital businesses (everything you need to know)

Whether you’re looking to start a business, already operating one, diving into freelancing or side income, or studying companies, this is the most comprehensive guide on online businesses available.

We’ll cover:

• What is a business?

• Business financial principles

• Bootstrap vs. VC-funded businesses

• Different businesses categories

• The biggest business problems in the world

• Starting a formal business

• Scaling to $100K, $1M, $10M+

• Hiring vs. outsourcing

• Automation, processes, delegation

What is a business?

Let’s start with a dictionary definition from Investopedia:

The term business refers to an organization or enterprising entity engaged in commercial, industrial, or professional activities. The purpose of a business is to organize some sort of economic production of goods or services. Businesses can be for-profit entities or non-profit organizations fulfilling a charitable mission or furthering a social cause. Businesses range in scale and scope from sole proprietorships to large, international corporations.

In layman’s terms, a business is a company (or a registered individual) providing products or services to a customer base.

By definition, a business cannot operate without capital. Most businesses are “for-profit”, selling products and services to customers, aiming to generate more revenue than expenses to maintain a profit margin.

Some businesses, however, can also distribute work for free to their customers, by being subsidized by the government, through donations, investments, or other means. Their monetization can be delayed or completely ignored - think of charities or volunteering organizations.

For the sake of this article, we’ll focus more thoroughly on:

• business ventures you can start alone or with co-founders

• with little funding (or looking for ways to incur debt or find investors)

• and scale a service or product/subscription type business).

Business financial principles

Again, some businesses are completely funded or subsidized through wealthy investors in the form of charities or non-profits that may or may not generate revenue.

(We’ll touch on the investor vertical in the next section for startup founders seeking funding.)

Every other business needs to function with a profit-first mindset, or at least through a forecast that assumes an initial investment and growth traction that would reach “break-even”, stop losing money, and generate proceeds for the founders/team.

P&L Statement Principles

Company financials are driven by P&L statements - that’s what shrewd founders and CPAs follow closely to monitor company performance or build forecasts for future profits. Here’s a QuickBooks example:

On a high-level, we track down the following categories:

• Gross revenue - the total revenue generated from the business

• Net revenue - often similar to gross, but minus discounts, refunds, returns at the cost of the business

• Gross profit - the remaining amount excluding the so-called COGS, or “cost of goods sold.”

  • For product businesses, that’s materials, packaging, and everything directly related 100% to producing the product.

  • For service businesses, this is full-time employees entirely tied to the service execution (designers, developers, marketers with no other admin functions). Some financial experts recommend that to go into Opex below, but it’s often blended with non-billable roles doing so.

• Operating expenses - any other expenses required to keep the company around. Think of rent, team perks/bonuses, admin staff that doesn’t directly execute billable work but is integral (accounting, legal, cleaning), 3rd party vendors, ad budgets, events. All of your expenses not included in COGS.

• Gross income - revenue minus every other expense so far

• Net income - the gross revenue minus all other expenses ever incurred, or simplified - all of your revenue that hits the bank minus all payroll, materials, ad/vendor costs, rental, and everything you pay for. Taxes are also included as a cost cut between the gross income and the net income.

A product company example

You run a product business building wooden toys. The toy costs $50. You sell 100 of these, which generates $5,000. That’s your gross revenue. If you have discounts baked in, your net revenue will be $5K minus the discounts.

The cost of goods sold includes product materials and 100% labor to produce. If you have one part-time employee for $1K/mo crafting and packaging, and each toy requires $10 in wood, packaging, shipment labels, that’s $1K in product materials and $1K for directly related labor to COGS, or $2K in COGS.

So your gross profit is $3K ($5K in revenue minus $2K in COGS).

You may be paying $1K monthly in ads, maintaining your software fees, website licenses, ad fees, credit card fees and other tedious expenses to make this happen. Operating profit goes down to $2K. Consider CPA or legal expenses, subscriptions, and others in here (it may go up.)

Now taxes are extremely complicated and vary drastically across countries, states, types of corporations - this is a very challenging front. Averages can vary drastically from 10% to 40%, including personal taxes, double charging, and lots of other hoops. You can reinvest in the business in different ways or pay taxes in different shapes, based on revenue or profit, depending on how you split proceeds. Let’s take 25% as an average.

So 25% out of $2K is $500 for non-operating expenses.

You end up with a $1.5K net income you can cash out or reinvest in the business. Congrats!

This is a very simplified example, but it determines how P&L sheets are structured and how expenses are managed. As soon as you start allotting ads/marketing budget or hire freelancers or staff, it gets allotted to the corresponding places (and other complexities such as 401Ks or health insurance or pension funds fees get included in the mix).

There are tons of P&L templates you can start with - here’s a collection for you.

Bootstrapped vs. funded businesses (and ownership)

In most cases, companies are self-funded through the founders with their own savings and capital. Or through personal loans - credit and “friends and family” cuts.

This is especially through for service providers with little to no initial investment - like freelancers or consultants. The heavier the initial investment, the more challenging self-funding is, which is why founders:

• Spend years working to save or using proceeds from different ventures to bootstrap, or

• Look into the VC path, trying to raise a round and get the business funded

Bootstrapped businesses are 100% owned by the founders (with options for ESOP allocation among employees via Nimity).

Startups seeking funding go through different stages of funding pitches - pre-seed, seed, series A through D.

Round sizes can vary drastically, but average seed size funding amounts go for $250K to $4M whereas valuation depends on the equity taken from investors in exchange for the investment.

One of the most famous accelerators Y Combinator offers a fixed $500K amount in exchange for 7% of the business. Again, deals can vary dramatically depending on the industry, founding history, any competitive advantage, existing revenue (or not), the maturity stage of the business, etc.

There are also crowdfunding networks like SeedBlink or Wefunder working with thousands of individual angel investors on deals. I’ve been working closely with SeedBlink on European investments and funded 8 of their deals in the process - this is an accessible way for individuals to get portfolio access and join with smaller starter tickets such as $2K to $5K per deal.

The funding journey is its own different beast, with valuations, forecasts, decks, and tons of pitching. It’s still a lucrative way to grow when an opportunity exists, but many founders (particularly service-based ones) end up launching themselves.

Types of digital businesses (per category)

Since businesses depend on revenue, building your business plan should include the path to monetization.

(I have a separate 71-page free business plan ebook covering the plan development in details.)

And determining the billing model will establish the value proposition, how you package your offer, the pricing structure, and forecasts of what you need to accomplish to hit different milestones in the process.

Here’s my breakdown of business models you can explore:

1. Service-based: consulting, agency, freelance

2. Ecommerce: selling products online

3. SaaS (Software as a Service): subscription-based access to a digital platform

4. Marketplaces: think of Amazon, Upwork, Airbnb

5. Affiliate marketing: taking commissions of sales (could be channel-independent)

6. Advertising-based: display ads or sponsored ads on sites, newsletters, social promos

7. Content/publishing: media sites, blogs, digital magazines, newsletters

8. Informational products: courses, webinars, mastermind groups, books

9. Dropshipping: reselling products and arbitrage (e-commerce without manufacturing and production or print on demand)

10. Membership sites: monthly or annual membership and access to materials, gated content, private events, Slack groups, webinars

11. Communities: creating exclusive communities of likeminded professionals plus access to deals, discounts, opportunities, collaboration

12. Lead generation: collecting contacts and reselling to other vendors (such as outreach specialists, sales, social influencers finding clients for agencies)

This comprehensive list can open up ideas and opportunities for different business niches to start or ways to package your own solution.

I’ve worked with every single business category multiple times - via my own businesses and with our agency and consultancy clients. Each has pros and cons and different models work better for different audiences.

One we have a business model in place, we need to define our value proposition and start pitching.

I wrote a complete guide to launching ideas in under 2 hours last week - you can dive in, set up your offer, and send some traffic to experiment.

Once the business is in motion - and as companies grow - we face different challenges.

The biggest business problems

In my 15 years as a consultant and 13 years running an agency with hundreds of clients, I ended up compiling a list of the biggest business challenges.

This research is currently taught at 15+ universities in North America, Europe, and Asia. I get contacted by students and professors referencing my guide - and it clearly represents the market problems bundled in one single piece.

At a high level, all businesses go through and face problems at all stages of life in these core 7 categories:

1. Business strategy: value proposition, dealing with competition, designing systems and processes, handling production quality with profitability, working with consultants for strategic initiatives

2. Marketing: uncovering growth channels, building effective strategies, managing marketing resources, branding, lead generation

3. Sales: Closing business, building SDR/BDR teams, word of mouth, partnership development, customer retention and upsells

4. Recruitment: hiring staff, growing teams and departments, org chart and hierarchy, retention, company culture, diversity, outsourcing

5. Management: elevating founders above the business, creating leadership teams, middle-level management strategy, promotion, communication, leadership, focus and productivity

6. Technology: implementing strategic technology or building products, automatic processes, digital transformation, onboarding, innovations (like AI augmentation and adoption)

7. Compliance: finance, legal, global data privacy frameworks

No matter the stage of the business, these 7 core categories remain an integral problem. 90% of the time spent by executives is working on mitigating problems in these areas and unlocking new solutions to balance this act out.

When I authored 126 Steps to Becoming an Entrepreneur, I did a book signing tour in San Francisco and Los Angeles. I met dozens of solopreneurs and future entrepreneurs passionate about building or growing businesses. But the premise of my book was the challenges of running a company and the hardship over the first few year.

Only those who get excited about the venture feel comfortable devoting their career to these 7 categories.

If your idea has merit and you’re still determined to scale, you need an entity that handles billing, licenses, staff, contractors, legal - and start a company.

Starting a formal business

“The income tax created more criminals than any other single act of government.” - Barry Goldwater

Disclaimer: I am not a lawyer or a certified public accountant. Legislation and tax laws vary across countries and states - review this carefully before proceeding further.

As a rule of thumb, governments put a tax on any sort of income generated. With employment, both the employer and the employee are in charge of social or health insurance, pension funds, federal taxes, state taxes.

As a self-employed or a business owner, you still need to declare, report, and pay taxes on revenue. The tax law is complicated, and there are hundreds of edge cases and scenarios to consider:

• Being employed full-time while running the business - how and where do you pay taxes, tax brackets, and ceilings?

• What do you pay taxes on? Businesses can offload expenses and usually pay taxes on income not revenue.

• Tax periods and regulations - where and how do you pay and report? Monthy, quarterly, annually? Do you need a CPA monthly or can go with one for the annual reports?

• Different tax, hiring, legal limitations or things to consider - can you operate within the country/state or internationally? Any countries not supported? EU has a complex VAT law that requires different structures depending on whether you sell nationally or across the EU.

• Handling reporting and invoicing - receipts and invoices, nomenclature, payment gateways, billing providers, banks and currency transfers, digital connectors and compliance for receiving and paying digitally.

• How and where can you hire? Some legal frameworks are simplified for solopreneurs or even when working with freelancers and agencies, but not when hiring. You may have to provide specific perks, a workplace, or anything else when hiring depending on law. Treat carefully - both for compliance and tax requirements.

How do you incorporate?

In different countries, you may be able to operate as a freelancer and pay individual tax up until a certain bracket. Or register as a solopreneur officially (in my experience so far, it tends to be more paperwork or fewer expenses covered compared to founding a company).

There are different types of companies as well and you may want to consult locally for a national company (legal and accounting) or look into an international solution with an easier process and fixed costs.

I have several different businesses for different service lines and teams. As a European founder, my go-to solution for a US-based LLC is doola (the link gives you a 15% discount if you use them).

Foreign founders can set up a solopreneur company as an LLC with a simplified legal structure and a very easy-going law code. The tax framework in the US is 10X easier compared to the EU for most businesses, especially if you don’t run a full-time US team. Here are some of the benefits:

• Very, very simple sign-up process and a lightweight tax code

• Annual tax filing (once) vs. monthly back and forth with accounting firms

• Simplified tax code - the EU has made this a nightmare with different VAT codes and treating companies vs. individuals differently, therefore sales and reporting is excessively complicated, making it nearly impossible to operate a smaller business (subscriptions, infomercial products) without spending half the budget on accounting and handling refunds or missing invoice details

• Supported payment gateways - different payment providers or banks may not play well internationally, but the US is rarely a problem

• No need to travel - most international options require a travel for signatures or signing up for bank accounts; not a problem when going with doola

• Easier expense management - usually connecting your Stripe and using any service that gathers a form of receipts as proof is enough. Compared to my EU businesses, it’s light night and day.

• Accounting plan available - I was exploring a US LLC option for many years, but searching for CPAs and entrusting them over the shore felt very risky as the stakes are high. doola was the only solution with a bundled tax management plan that handles incorporation, filing, and accounting. It’s an LLC in a box as I’ve seen their founder say on social.

• Payouts - funding or withdrawing is no different from a personal bank account. You don’t have to formalize loans or pay yourself a formal dividend to a personal account. It’s just simple.

Before you move forward, run a sanity check on your business model, target market, and value proposition.

I’ll supplement another business framework known as the “business model canvas” you can use as a 1-pager to describe everything about your business:

Fill it out and let’s get back to setting up the LLC.

If you go and incorporate locally, you’ll need to consult with a lawyer for incorporation and an accountant for handling taxes, payroll, and everything else for you. Then pay, wait to incorporate, get your files in order, set up a bank account locally, tie it up to the company, and prepare the rest of the paperwork to get ready to issue invoices.

If you pick the doola path, you sign up for one of their plans, process your personal details, and wait for incorporation. They have a banking solution internally or you can go for a virtual bank like Mercury or Wise (I have both).

Once you get confirmations, you can download an invoice template and fill out your company details and Tax ID and are ready to go. Or depending on the business model, connect to an e-commerce solution like Shopify or WooCommerce or sign up for Stripe and connect your virtual POS there.

Okay, as soon as you’re ready to operate as a real business and know when and how to pay taxes, collect payments legally, and hire or outsource work, we can move to the scale step!

Scaling to $100K, $1M, $10M+

There’s no one-size-fits-all solution to growth - otherwise, everyone would be a deca-millionaire.

There are best practices on timing and effort and how to structure yours to scale. Here’s a simplified breakdown based on annual revenue generated (recurring):

• $0 - $100K: building and providing the business model. Usually a single founder and/or an assistant or a second intern at most. Proving the value and trying to generate any sales for product-market fit.

• $100K - $1M: establishing the business need. Proving that you can consistently find problems to solve with your business and there’s sufficient demand to make it anything more than a full-time solopreneur job. Hiring a few people to improve the product quality, value proposition, or marketing funnels.

• $1M - $10M: establishing a clear market and clearing out the ICP. Who is the ideal buyer, what is the most valuable portion of the solution, elevating beyond the founder-led sales process, building repeatable funnels and campaigns to generate leads and grow the pipeline, scaling key team members, and early stages of building a leadership team.

• $10M+: dominating at least two growth channels with strong playbooks for operational excellence, a strong leadership team for each business function, and a fully repeatable and scalable growth model.

There are different aspects to crafting valuable offers, building a product solving a real problem, identifying a unique selling proposition, developing strong marketing and sales channels, and growing the business further. And you will need help on the way.

Different statistics exist regarding team sizes and structuring a business - so no formal playbook here. But the average revenue per employee in US software companies reported in 2022 was $160K. The minimum reported is $43K and there are several cases over $1M per employee in big tech like Google, but you can use this benchmark as a rough idea (or scale down internationally depending on location.

Also, there’s the outsourcing element that I’ll cover next.

Hiring vs. outsourcing

The global IT outsourcing market was valued at $565.2 billion in 2022 according to Straits Research. There’s a good reason this segment is growing steadily and why outsourcing companies are popping up like mushrooms.

There are clear benefits to hiring full-time - complete devotion to the business (within the working hours) and lack of distractions or delays compared to working with freelancers or 3rd parties fractionally.

But there are legal requirements and protections for staff, maximum working hours weekly, paid time off, sick leave, employment responsibilities. And, for certain roles or departments, the founder is not the best suited manager of given responsibilities and skills.

If sales is not your core skill set, hiring a chief sales officer would be 5X the cost of hiring an SDR or a BDR. And an executive with 20 years of experience won’t be dialing - they need a professional team. Even a VP won’t be doing the hard work themselves - and only they can coach, mentor, set KPIs, establish software for calling and tracking, and control quality.

Moreover, top shots are likely not going to be interested in a small startup. There are larger corporations and enterprises hiring for these roles, paying more, and providing a complete team ready to go.

The same goes for tech, marketing, product. Working with junior people won’t yield maximum results and quality will be questionable. Hiring C-levels is expensive and doesn’t work without a team. Also hard to convince.

Outsourcing solves these problems with leased talent or service packages for different needs. Of course, quality can vary dramatically again. But this approach is more about vetting vendors, word of mouth, taking recommendations than going through the full recruitment cycle for each division.

Growing businesses present a blended model - starting with outsource or freelancers, hiring gradually, and supplementing with external help. Some functions stay external forever when they aren’t a core offering for the business. Others move internally as the business grows in revenue and can afford a dedicated team working closely together on a day-to-day.

And even in these cases, agencies are used for professional and niche services. At DevriX, we work with Fortune 1000s and SMEs who have their own marketing, tech, and design functions, but we operate and integrate in certain divisions, project lines, or niche areas of expertise we happen to know the best.

Once you’ve established the growth funnel, I’ll cover one last area of business I focus half my time on as a business advisor.

Automation, processes, delegation

What happened in 2024 and twice at 2023 was a surge in corporate layoffs and slashing corporate talent at large.

At a smaller scale, staff cuts happen when profit is negative and businesses have to break even and move to profitability once again. When the workload decreases, some people are benched, and the company cannot afford to retain the full team anymore.

And corporate leaders have dubbed 2023 “the year of efficiency”. Why? Meta, Microsoft, Google keep growing quarterly revenues consistently. They are cashflow positive and profitable - so it’s not about losing money.

2023 was the year of “permission” for companies to do cuts they were afraid to conduct previously. With a booming economy, everyone was growing and hiring, and competing for talent or measuring business success by headcount were more common than not.

In 2022, investors started to write angry letters to corporations for overpaying staff, benching expensive talent, or dragging products forever. Profitable companies could achieve the same - if not more - with leaner teams.

The broad adoption of GPT-driven tools like ChatGPT or Gemini helped, but it wasn’t the only reason (automation has existed for centuries and AI for 50+ years now). But solving core functions at scale with automation is an efficient way for businesses - small and large - to cut inefficiencies and save time in communication overhead or complex org charts.

The importance of “working on the business, not in the business” carries a lot of weight now. Executives who keep fighting fires instead of keeping track of the economy or innovations will stay behind and miss on opportunities. Overhiring to solve a problem instead of using a tool and an operator can be an expensive mistake - and one slowing you down (or even producing more mediocre revenue with mid-level talent compared to what AI bots do now).

So founders, as a last step - allocate time for learning and prioritize building SOPs and automating processes. This is more important than ever.

And beyond functions you should hire for in each corresponding core department, delegate as much as possible. Hire an assistant on-site or use virtual assistant services for scheduling appointments, travel plans, email management or admin functions. If you need help with bookkeeping or tax management, outsource to CPAs in the interim.

The more time you have to refine the ongoing strategy and work on high ROI activities (sales meetings with key stakeholders, closing long-term contracts, hiring leaders internally, looking for strategic acquisitions,TV appearances), the better the yield of your own time.

Your time is the most valuable asset - that concerns the business as well. Spend it wisely on the highest ROI initiatives you can.