I get this question – very often. What business should you start? Well, I tend to get asked this because people only want a business for a few reasons: more money, more freedom and more fulfillment. They see the posts I make on here and on social media and see something they like, want to be closer to or simply view me as a possible expert mentor on the topic. I’ve started many businesses and that makes me experienced, albeit “expert” is probably an over the top label for anyone.
I’m humbled by those that look to me for guidance on these life issues. In this post, I’ll share some of my thoughts in the hope they help you in your journey.
What is the right business to start?
Face it – the reality is that if you pick the wrong business you will be married to a devil. You really need to look inward to determine which business is right by first understanding some things. Look at what you are and are not willing to do with your time.
Startups
Do you want to trade a steady job for a risky startup idea? Do you want to leave a 9 to 5 for a 8 to 8? A funny, but often very true “meme” that floats around the internet is that only an entrepreneur will leave a 40 hour a week job for an 80 hour a week business – at half the pay.
Think about that.
Franchises
Many times I am asked if people should buy into a franchise. It simply depends… It depends on whether you want to buy a job.
Most entrepreneurs create a hobby from from an idea. Once that idea is fruitful it becomes a job with low income and then later a wealth generating machine. In a franchise scenario, you are buying into a model of systems that is supposed to be proven and scale-able. It can shortcut the ramp-up process and help you transition from a job to a role as an owner / chief bottle washer.
In my experience, unless you have the backing to own a major brand (McDonald’s) or multiple units of a smaller franchise to get scale, you wil l simply be the main employee in a franchise and you will have traded a 40 hour job with vacations and benefits to a job with unlimited financial risk and no vacations and few benefits.
Buying a Business Instead of Starting One
This can be an easier route. You can step into an existing operation and make it better. You can make a calculated gamble on the investment by reviewing the historical performance of the business. You can essentially buy cash-flow. It is easier to buy an independent business that is profitable and make it better with incremental improvement. It also has built-in people, processes and inertia.
A business is an investment
If you view a business as an investment, you are already way ahead of most owners. You see, the investment is to be part of an investment portfolio not the ENTIRE portfolio. If you view it as an investment it makes it easier to treat it as an asset class. Different investments have different risk profiles and reward potentials.
- Startups = high risk, high reward
- Franchises = moderate risk, moderate reward
- Existing Profitable Businesses = lower risk, lower reward
Entrepreneurial Risk Tolerance
My advice to people that want to start a business is to think twice about their real risk tolerance. If you have very high risk tolerance and a great idea, do a startup with your own cash as the seed capital. If you have a great idea and lower risk tolerance, use other people’s money and reward them for the risk.
If you are later career and have a family and financial minimums, you need to evaluate the level of risk you and your family can comfortably carry. Most head of household people are risk averse and yet this is juxtaposed to their misery of the 9 to 5 job. Consider the type of business and its inherent risks carefully and jeopardize only that which you can lose.
The simple facts are that 9 out of 10 businesses fail in the first few years. How many can you try before succumbing to security and grudgingly accepting a miserable 9 to 5 after wiping out your savings?
Personal Burn
I see this scenario all the time: a budding entrepreneur willing to risk it all, jumps in with very little financial runway and flames out. Back to the J.O.B. Sad. Very sad.
Here is the cure for that before you flame out with them – curb your personal burn rate (cost of living) as much as possible to give you as much time/cash as possible to get the business to positive cashflow. Cash = Runway = Safety Margin = Time to Sort Things.
How do you reduce personal burn to fuel the business? Look at everything. All recurring expenses. All discretionary expenses. All living expenses.
- Do you need cable TV if you are working ’round the clock on the business?
- Do you need as big a home?
- Do you need the car(s) you have?
- Do you need recreational vehicles or toys?
I know – I sound like the bearer of bad business news…the simple fact is that you can afford all of that when your business is thriving. Jettisoning some baggage will free you to fly.
The great news is that you can do it. You can be your own boss and have everything you want. It helps to go into it with your eyes wide open.
If you want to start any business, educate yourself about the investment you plan to make. If you are risk averse and have low levels of seed capital like $10k or $20k – don’t forget that this is $10,000 or $20,000. You already paid taxes on that money and that means that you had to earn far more to be able to invest that now.
If you have a much larger stash of investable cash, the same rules apply.
I hope this post helps you in your journey, reach out to me on my contact page and let me know. To your success!
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