I do a bit of both, working from my mind and sketching~ I like to draw out different angles/ views of a creature I have in mind and then begin the construction. Before I get into designing a character, like the goat, I tend to draw up a whole page of goats from photo/life reference to become comfortable with the anatomy.
I have been inspired by movies like Legend and Pan's Labyrinth, and thought I could see myself creating for a full production at some point in my life, possibly even being a part of writing the story line! I have done a few costumes for theatrical and dance productions- including a 9 foot tall puppet.