When you have made the decision that you want to start your own business the choices can be overwhelming. There are so many different things that you can do, so many people offering you advice, it can be tempting to fall into analysis paralysis. There are some basic concepts of new business formation that I have seen and thought about over the years that may provide you a starting point.
One of the most defensible businesses is a combination of product and specialized service that works with local customers who have a need. Retail examples are dry cleaners and restaurants. They each have special equipment like steam boilers or kitchens, have some level of consumables like dry-cleaning fluid or food, and expertise in the staff that make them into good, stable businesses. Although these are good businesses, they are not ones that I would choose to start. There is a lot of competition, profit margins are low, there is a lot of management involved, and there is no clear path to making enough money to fast growth. The combination of product and expert services with local customers is a good one, but it has to be in a more profitable arena
The things I look for in new business ideas are the following:
- Combination of product and service.
- Clearly and narrowly defined customer base that is willing to spend money.
- Ability to create a barriers of entry to competition.
- Repeating sales instead of one-time sales.
- Customer acquisition and servicing cost low versus profitability.
- Future growth prospects.
- Initial investment of capital and time.
It is also very important to know your own interests. Again, with a whole world of business ideas to choose from, you should pick something that you enjoy and already have an interest in. There are ways to make money in just about anything. If your interest is music, then you should start something involving music because it will be fun and you probably know what musicians and music lovers want and need. Don't make things hard on yourself, but also don't go down the path of mediocrity. It would be easy and simple to take a job as musician or music instructor, but that is just a job. It is harder yet much more rewarding to come up with an unfulfilled need and meet it.
- Know your own interests.
- Think about unfulfilled or poorly filled needs.
- With constant technology change, are there new and better ways to do things?
- Is there a new business concept in a similar industry you can copy?
Instead of striking out new in an entirely unproven direction, take stock of what you already do on a day-to-day basis. Some of the most successful new business were started by employees that saw an opportunity to address a profitable niche and were frustrated by their company ignoring it for so long. There are many great things about leaving the company that you work for and starting a niche business in the same industry, especially if it does not compete with your current employer:
- Existing base of potential customers that you already know.
- Your industry reputation will help you succeed.
- Focus on niche market allows for clear definition of mission.
- Potential partnership opportunities with companies in your industry.
After coming up with your idea, there are many things you can do with it. Realize that it may be valuable, so don't go around telling everyone that you are going to do it. Conversely, realize there are few people out there who are willing to take on the risk of starting a new business, so you can discuss the idea in general terms to test the waters. Then see if there is already somebody doing this, whether it is in your market or somewhere else. If it still seems like a good idea, start running through the profitability numbers. If it still seems like a good idea, great! You can start making preparations and plans to take it to the next step.
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