Most budding entrepreneurs realize that you can never make it big working for someone else. Working from paycheck to paycheck and waiting for retirement might be safe and comfortable, but in the end, you’ll never be famous or fabulously wealthy. Most entrepreneurs give up at the first step – finding the right small business to start. It’s an overwhelming decision and that seems nigh impossible at first. Here’s some advice to help you clear your head and organize your thoughts.
Ideas for Small Businesses
First, you have to sit down with your business partners and brainstorm. Read inspirational accounts of other entrepreneurs, such as Steve Jobs, or Ben and Jerry, to get your creative juices flowing. Start out small – keep your ideas as simple as possible at first. Starting out with a tech idea can be extremely difficult at first, considering the research and development, materials and manpower needed to start out.
Inventing something from scratch can also be extremely demanding, considering the lengthy patent process and the likelihood that your idea will instantly be copied by better equipped competitors. You should stay focused on margins – the best businesses sell a high volume of high-margin products. Common high margin products tend to look and feel cheap – such as Chinese toys – so a good product design team is essential to refine your product and make it aesthetically pleasing. Nike and Apple have been masters of this concept.
Likewise, if you’re offering a service – such as auto repair – make sure that your company has something that sets it apart from its competitors. For example, tire chain Discount Tire carved out a grand reputation by offering free flat tire repairs.
Criteria to Consider
Once an idea pops into your head, you should test it against the following criteria. You should map these out clearly and thoroughly to explore all possibilities.
- How much cash do you have on hand to devote to your new business?
- How is your credit rating?
- How much more capital will you need from venture capitalists, angel investors, family, friends or the bank to get started?
- How many years are you willing to dedicate to clawing your way back to profitability?
- Will your business flourish in an urban or suburban area?
- What are the income levels of the average person in the area?
- Will they find your product too expensive?
- Are there similar businesses in the immediate area?
- What are the advantages and disadvantages your company has compared to its competitors?
- Are there any businesses that your company can complement (for example, an IHOP next door to a Days Inn)?
- Has there been a proven demand for your product or service in the area?
- Have companies offering the same products attempted and failed before you?
- Do market research – both qualitative and quantitative – to get an accurate gauge of demand for your proposed product or service.
- Will you business last more than five years?
- How long will it take to achieve profitability?
- Once profitability is achieved, how do you plan to grow? Through R&D, physical expansion, outsourcing or acquisitions?
Barriers to Entry
- How hard will it be for prospective competitors to chip away at your business?
- Can your product or service be easily mimicked, or is it a niche product possibly protected by patents or trade secrets?
- How can you build a protective moat around your company with side businesses, to insure that your primary business is protected?
If you’re unable to push your vision through all of these criteria, then you should seriously rethink your original idea. Your idea must be sustainable in the long run – after all, you don’t want to spend your life savings on a flash in a pan to goes under within a year. Shrewd planning, careful market timing and long-distance foresight are the keys to establishing a successful small business.