Repost from June 2015 from my old blog.
What ideas make a good business?
What kind of ideas translate into good businesses? It’s not clear cut, because it depends on a range of factors, but look at providing a product or service that people don’t currently have (but don’t stop there), then you need to look into whether there are people willing to pay for this product or service, who have enough disposable income available to spend on it. Example: $2500 a month condos for homeless unemployed families is never going to take off.
Which businesses make money? Which don’t? Read on to find out.
Good evergreen businesses include: Anything to do with computers and small consumer electronics, anything to do with weddings, publishing/editing, website design, and skills that people need such as mechanic, hairdresser, beauty therapist/cosmetologist, plumber, electrician, IT solutions (because that’s anything to do with computers AND a special skill that people need), some of the complementary therapies (but not others), catering, accountancy.
These are businesses that represent your best chance of success because they are in demand from people. Customers always need people who have skills that the customer doesn’t have to fix things that the customer can see or hear.
The challenges with these businesses are that you need to finance your training, then you need to spend some time actually doing the training and getting good at what you do, before you can start trading. Customers don’t need people who don’t have skills and try to fix something and do a bad job then charge them money. Financing training is a huge investment, and you need to make sure you’re right for the job you’re going into. For example, I could never be a plumber, even though I’d love to, because I just don’t have the right personality or outlook on life, and I know I’d try to explain how boilers work to customers, etc, which wouldn’t endear me to people.
Less lucrative or less steady businesses include: Counselling, psychic/tarot, life coaching, personal trainer, freelance careers adviser, consultancy (unless you’re established in the field), most “WORK FROM HOME, EARN $$$” type ‘opportunities,’ legal practice, pub/bar ownership, interior design, tutoring, dog walking, most of the complementary therapies, photographer, driving instructor, outdoors instructors (rock climbing, diving, kayaking, mountain leader etc).
These are businesses that can work out really well for some people, but the main problem is skills threshhold – anyone can do these, or training is minimum (albeit usually expensive), and so the market is saturated. The other problem is enthusiasm; for example, there are too many kayaking instructors because it’s the logical step for a kayaking enthusiast, and there’s more people who CAN kayak than people who WANT TO learn to kayak (even though there’s more people who can’t kayak in the world than there is people who can kayak) so there’s not much call for more of them. I’m not saying, for example, that anyone can pick up a camera and be a good photographer, but anyone can call themselves a photographer, there’s no regulation of the industry, so it’s hard to break into. Law is a special exception – it isn’t very lucrative to start your own practice these days because people who need lawyers generally can’t afford to pay them, and if you specialise in corporate, they generally keep work in-house with a payrolled legal team. And there are a LOT of law school grads. Look into any industry you want to get into before you make the leap; don’t just read the purple prose that fills the websites of people offering driving instructor training courses, don’t just marvel at the websites of the only three successful whale trainers before becoming one; find out if people want this service and how many people offer it. THEN and ONLY THEN pay for a training course. These are not businesses that you won’t be able to make any money off, they’re just unlikely to make enough money to be sustainable.
Beware of trends:
It’s also worth being aware of whether your idea is a trend; for example, if you want to sell plastic wires for children to weave into bracelets, you need to check how long this has been a thing. Chances are, if you saw it somewhere else, you’re catching onto the tail end of it. Hitting the end of a trend is awful because you will have the dual problem of having loads of stock to get rid of and at the same time you have already paid for it. Dealing in trends is not a sustainable business idea, because you have to keep switching them. This is also why fashion design businesses are very difficult to get off the ground. If you have a market stall and have a very cheap supplier, this model (of constantly switching trends) can work but not otherwise.
Risk is an important concept in business, if your industry is high risk, you won’t get investors, bank loans or other financial backing. If your industry is low risk, you might not make very much money but what you do make should be steady and you will have hardly any problems getting investment. The lists of businesses above represent different levels of risk – the “good” list is low risk, the “less good” list is higher risk. When deciding how much risk to take, you need to think about whether the financial reward outweighs the potential losses if it all goes wrong. The “less good” list of businesses I mentioned above don’t provide a great financial reward, despite being high risk, which is why they’re not great business ideas. Buying into trends can represent a greater financial reward, but is extremely high risk, so it isn’t a great business idea unless you have a lot of capital (the money you put in or borrow at the beginning) to waste if it goes wrong.
How many customers do you really have?
Beware of confusing the number of people who don’t have a thing with the number of people who want one: Not everybody wants what you’re offering. For example, if you were trying to start a business as a dolphin trainer, it’s no good saying “there are 100 million Americans in the U.S. who don’t currently use dolphin trainer courses to train their dolphin, so I have 100 million potential customers.” It’s not even any good saying “there are 200 Americans in the U.S. who own a dolphin who don’t currently use dolphin trainer courses to train their dolphin, so I have 200 potential customers.” The chances are, of those 200 dolphin owners, a good proportion have either already trained them (for example because they work at a Sea World) or are happy to let them splash around in a pool. What they really need are pool cleaning services, so your dolphin training business would, in this example, be doomed to fail. Change “dolphin owners” for any other thing (dog owners, parents, computer owners, damsons in distress, men who wear socks) and you can see the problem of over-estimating potential customers.
Being realistic AND idealistic is crucial to business success. Obviously if you’ve got your heart set on becoming a photographer, crystal healer, or a kayaking instructor, go for it, just be mindful to the possibility that you’re probably not going to make a great deal of money out of it and you may need to have a second job to pay the bills.
So how do you go from idea to up and running business? First, do the perspective test – run your idea past another human being and see if they agree that this has a snowball’s chance in hell of actually working. Don’t run it past someone whose job in life is to tell you that you can’t do something, but do run it past someone who either knows you or knows the industry that your business is in.
If your business passes the perspective test, you’re good to go. Here’s some practical questions you need to ask at this point:
1. Can you work from your home (check the terms of your rental agreement if you need to)?
2. Do you need specialist premises? For example, a catering company may need a professional kitchen.
3. Do you need any equipment?
4. Do you need stock or product samples (e.g. demonstration models)?
5. Do you need additional staff right away for this to work?
6. How are you financing this?
After you’ve answered these, you need to put together a business proposal package, which is what you will show to other people (financial backers, banks, investors, partners) then it’s time to do a SWOT analysis. We’ll look at those in future posts.