Starting your own business comes with a lot of planning. But there is one aspect which most entrepreneurs never even consider: what kind of business to start.
Whether it’s because of a passion for a particular business idea or simply not having experience in other kinds of businesses, entrepreneurs tend to take the leap into small business ownership without considering the difficulties of that market, or whether there are better alternatives.
To illustrate our point, let’s look at different kinds of businesses and their likelihood of success.
Retail and e-commerce
It’s tempting to think of opening up a little storefront and connecting with your community, or creating a small boutique fashion store of all your favourite clothing styles. It’s not that easy, however.
Attachment to brands means that large chain stores are smothering smaller retail competitors with ease, with competition from digital storefronts – who can deliver products to their customer’s door – making things even harder.
Another aspect of retail is location. Without the right one, no store can survive. And unfortunately, big chains tend to have the best spots.
As an alternative, you might consider e-commerce. However, online retail presents its own difficulties:
- Being seen is harder than you think. Either you need to rank on the first page of search engines through organic methods – difficult for a new site – or you need to invest in paid advertising, drive costs up
- Converting visitors is much harder than in a brick-and-mortar store. With no interaction other than a webpage, it’s hard to convince someone to take the leap and make a purchase
Who hasn’t dreamed of owning a restaurant or bar somewhere?
In reality, restaurants have an astronomical failure rate, making them a poor choice. They also demand long hours and benefit from a great deal of experience.
The costs of running a restaurant, along with the regulatory hurdles that need to be dealt with, make it a business choice for only the experienced or truly passionate.
For those with a great deal of specialised experience and industry contacts, consulting can be very lucrative.
Given the experience requirements, you’re more likely to find success later in your career, as you’ve had time to establish contacts and develop a wealth of knowledge that can be brought to bear when needed.
This doesn’t mean that you can’t become a consultant early in your career, but you’ll most likely want to focus on lower cost options until you develop the expertise you need.
Product focused businesses
Producing and selling a product has the potential for enormous rewards, but also comes with great risks.
Developing a product, finding a manufacturer, and marketing and selling it comes with high costs attached. This means that if your product isn’t successful you’ll quickly run into problems.
Aside from this, the chances are your product will face high competition from established brands.
On the flip side, if you find success with your products your potential for profit is massive. Not only that, but creating a product can often be an incredibly fulfilling experience.
A service business is a good bet for those who want to start a business, but aren’t sure what they want to do.
Service businesses are often local, with greater parity in competition with larger firms – this is because cost in service businesses tend to be similar.
Beyond that, a local owner tends to be an advantage in service industries, at least from a perception point of view.
On the financial side, service businesses are less costly to start, needing no inventory, and it’s easy to avoid having to extend credit.
This makes it a safe choice for younger entrepreneurs and those looking for an early break-even point in their business life cycle.