ComplianceFinanceLegalSeptember 02, 2020

Finding the right small business for you

Choosing the right small business to start - one that will succeed - requires market research that matches unmet customer needs to your unique skill set and product/service offering. But you must avoid some common mistakes.

Finding the right small business to meet your individual strengths, needs, and goals has two components. First, what kind of business should you start? Many people who want to start a small business have a pretty good idea of what type of business they want to own. But some only have a general idea, while others don't have any idea at all. Second, should you buy an existing business or build a business from the ground up? A business or franchise that's already operating can save time and, sometimes, money.

Choosing a Type of Business

Most of the books on the subject of finding a small business will tell you that the best place to start is by matching your skills and experiences to a business that requires those skills. For example, if you love to cook, they'll suggest you open a catering business or a restaurant.

If you have a strong interest in something, think about the needs of other people who share your interests. Is there something you can provide? It may help to think in terms of goods versus services. Most businesses involve a mixture of both, but this dichotomy can help narrow the focus.

Ultimately, considering doing something you love is a start, but it has to be further analyzed by examining the market potential, competition, resources required to enter the market, consumer/buyer demand, and uniqueness of the idea.

Work Smart

The best place to start in picking a small business is with consumers (including other businesses that may want your product or service). What do consumers or businesses want that's not being provided to them? Ultimately, whether you succeed will depend upon whether you are able to meet some unmet need in the market.

In fact, if you love to cook, you're more likely to succeed if you open an interior decorating service — even if you know nothing about interior decoration — than you are if you open a catering service, if there is a demand for interior decorating services but not for another catering company in your area. It's far easier to hire someone who knows something about interior decoration than it is to sell consumers something that they don't want.

Of course, you don't necessarily have to sell a new or different product or service in order to succeed; you can succeed if you can improve what is already being sold. In the above example, you should open a catering business if you can provide a better service than other catering businesses, such as a wider menu or lower prices. But that's still a function of what consumers want. Your research would have told you that there is a demand for a new catering business if prices were lower or if the menu were more varied.

Common Mistakes When Choosing a Business

Although there are many reasons why small businesses fail, one of the most common is choosing the wrong small business. To help you avoid that error, here's a look at three of the top reasons wrong choices are made:

  • Error #1: Converting a hobby or interest into a small business without first finding out if there is sufficient demand for the product or service to be provided.
  • Error #2: Starting the business without adequate planning. Your success is not guaranteed just because you've found a market opportunity that also takes advantage of your skills and experience. There are many other considerations. For example, you still have to figure out if you can raise enough money to get started and whether you can withstand periods in which little or no revenue is coming in.
  • Error #3: Resisting the urge to ask for help. Since you're reading this material, you may have already avoided this pitfall. A lot of people, however, are reluctant to ask others for advice in choosing a business, either because they're too proud or because they don't know that help is available. Help is out there, and, if you shop wisely, it won't cost you an arm and leg to get it.

Now, consider the ways to avoid making a bad decision.

Talk to others who operate the same or similar businesses.

You may be surprised how many small business owners will be willing to share their insights with you. Provided that you're not asking for trade secrets - and especially if you won't be a direct competitor - you may pick up some valuable information. The local Chamber of Commerce or other business associations may provide access to business owners who you can talk to.

If you don't make any headway by attending association meetings or by directly approaching business owners, you may wish to offer a business owner a consulting fee. This may seem like a dubious expense to pay, since you're not yet in business. But, if you are able to find out what you need to know about the day-to-day operations of your prospective business, this one-time expense might be money well spent.

Work for someone else for awhile.

A time-honored way of learning a business is to work in a similar business as an employee. Not only will you be getting on-the-job training, but you'll be getting a paycheck, and will be avoiding overhead expenses. When scouting out potential “employer-trainers,” it's best to look for one that is successful and well run.

Even though you may be able to learn as much about your particula industry from a poorly run, inefficient, business - the idea being, “see their mistakes, and don't repeat them” - this can be frustrating and time consuming. Although there may be a few different ways to do any job successfully, there are probably a thousand ways to mess it up! You need not learn all of these “don'ts” in order to figure out the “do's.”

Using Market Research To Make Your Choice

If you have the funds available, you may want to contact a market research firm and ask them to analyze your community and find out where small business opportunities exist. However, if money is an issue, you'll have to gather the information yourself.

A good place to start is with the mainstream press: your local newspaper, The New York Times, The Wall Street Journal, Time, U.S. News and World Report, and USA Today. You should also look at the business press: Fortune, Forbes, Business Week, or any of the other business periodicals to which you have access. Because of the shift to electronic delivery of newspapers and magazines, don't limit your search to print products. The internet is uniquely able to provide the type of information you'll need with a local slant.

Look for trends.

When reading business periodicals, look for trends that may be emerging, not just in business, but in our culture at large. To give you some idea of what you should be looking for, here are three examples of current trends and how you might parlay those trends into a small business:

  • Trend #1: In today's economy, both husband and wife are wage earners. This means that many couples don't have the time nor energy to perform tasks that were most commonly performed by the wife. How can you fill in the gap? Some business ideas are child care provider, grocery delivery service, house-cleaning service, interior decorator, dog walking service, household manager, and gift purchaser and delivery service.
  • Trend #2: In an effort to cut costs, many companies have laid off employees. This means that companies might be looking outside of the company to perform tasks previously performed in-house. In business-speak, it's called outsourcing. Ask yourself: Which tasks are businesses most commonly outsourcing? Some business ideas are copy writing services, legal and paralegal services, billing and other human resource-related services, public relations services, and meeting planning.
  • Trend #3: Technology is now everywhere. Many businesses, however, lack the in-house expertise they need to take full advantage of the emerging technologies. How can you meet the need? Some business ideas are web site developer, graphics designer, desktop publisher, and database consultant.

In addition to reading newspapers and magazines, you should talk to friends, relatives, business associates, and other small business owners about ideas they may have or needs in the market they don't believe are being met. Lastly, don't forget the often most overlooked resource - yourself. You're a consumer. If you've wished that a particular service were available, chances are that others have too.

When you think about market opportunities, think about how you can improve upon a product or service that is already being provided. Be aware that there are at least two potential stumbling blocks here.

The first problem is the tendency to believe too readily that you can improve upon an existing product or service. This is just old-fashioned overconfidence. Be sure that you've thought through the specific things you can do to improve what's already out there.

The second problem is the fact that being able to improve upon a product or service is no guarantee of its success. In other words, you must be sure not only that you can improve what's already there, but also that there is also a demand for the improvement.

Finding a Market Niche for Your Startup Business

An approach that is perhaps even more effective than tackling existing businesses head-on is called niche marketing. Look for ways that you can perform a service or provide a product that is similar to, but not quite the same as, a service or product already being provided. One example of this approach is to look for a special niche within a given field.

Betsy Mirkin was an accountant in a large accounting firm. Among her duties, Betsy would occasionally do work for film companies that came to town for a shoot.

Betsy did a little research and found that there weren't any other accountants who specifically served the film market. She also found out that there were enough film companies that came to town each year for her to make a nice living serving only them.

Betsy quit the accounting firm, and started her own firm, specializing in accounting for the film industry

To develop a niche, you should be looking for anomalies in the market. An anomaly, in marketing terms, is an unmet need whose time has come to be filled. To support a profitable business, the need must be fairly widespread or growing rapidly.

Although people wanted to be able to send letters and packages overnight anywhere in the country, they didn't think it was possible. Enter Federal Express and - presto - a $500 million startup business serving an anomaly.

Social trends.

One great way to find market opportunities for your product or service is to study social and business trends. The challenge for you will be to see if you can find business opportunities in any of these trends:

  • Baby boomers entering their 60s. This group has the largest amount of disposable income in history! They're driving growth in many areas, including services, recreation, and general retailing. Consider what that means for opportunities in travel, recreation, vacations, entertainment, food, and clothing.
  • New boomer crop of children. While the original boomers had fewer children per household than their parents, their children seem to be having more, thus creating a new crop of boomer grandchildren. Consider what that means for opportunities in child care, toys, educational and specialty classes, and clothing.
  • Growing disparity between rich and poor. The middle class is shrinking. Consider what that means for opportunities in home ownership, cars, entertainment, and restaurants.
  • Increasing globalization of business. This should continue to accelerate in the coming years. Consider what that means for opportunities in emerging world markets, particularly in China, South and Central America, Russia, and southeast Asia.
  • Reinvention of religion. As people continue to cast off traditional beliefs and find new ones, others return to them even more vigorously. Consider what that means for opportunities in products and services that cater to either the older or newer beliefs.
  • Yearning for high-touch products and services. This includes the nostalgia induced by high-tech solutions to everything. Consider what that means for opportunities in antiques, older homes, home delivery and pickup businesses, and any business owned by friendly, service-minded proprietors.
  • Mass customization. This is not an oxymoron but a response to global homogeneity. Consider what that means for opportunities in businesses that provide products or services individually tailored to each customer.

For additional information on how to get market data, see market research to fit your needs and budget.

Matching Your Skills to Market Needs

You should begin by listing what you enjoy doing, what your hobbies are, what skills you've acquired, what your work experiences have been, and what your goals are for the business.

Tools to Use

In the Business Tools area is a business selection checklist that will help you match your skills and experiences to business ideas you've developed. It should help you make a choice or at least narrow your choices.

Although making such a list might seem at first to be a little simplistic, you'll be surprised how much being forced to write down your ideas will help you crystallize what it is you want from a small business.

Compare the list you've just made with your list of what the market wants. Do any obvious matches leap out at you? If not, don't give up. Next, you need to narrow the potential choices:

  • Look at the list that you compiled from your market research; eliminate any of the businesses that you don't believe you'll really enjoy owning. As a small business owner, you'll be living, sleeping, and breathing your business - if you don't enjoy that type of business, your chances for success are slim.
  • On the other hand, be wary of relying too heavily on your list of interests when making your choice. Don't forget that most of a small business owner's time is spent on tasks such as managing employees, dealing with suppliers, meeting with lawyers or accountants, etc.
  • If you don't have a lot of money to start with, look for a business where you get paid up front and you don't have a lot of startup costs.

Suppose you love photography. If you open a store that sells photography equipment, you'll have to rent retail space, purchase inventory for the store, and probably extend credit to customers. That will cost you a lot up front, and you won't see any money coming in until your customers pay you.

If, on the other hand, you hire yourself out as a photographer, you can probably operate from home, and you should get paid at the time of the shoot.

  • Look for businesses where you will have a lot of repeat customers or where people will need to keep buying supplies from you.
  • Avoid seasonal businesses unless you are willing and able to get through the slow times. These businesses - such as beachwear shops, ski shops, farm produce, Christmas-related stores and services, and anything to do with schools and colleges - can provide you with a lot of time off.
  • Avoid competing with discount businesses or well-established businesses, since it will be just about impossible to compete with their prices. Instead, you'll have to compete in service.
  • Service businesses are the easiest and cheapest to start because you don't have to buy a lot of equipment and you might not need any employees, at least at first. If your goal is to someday sell the business and retire, you should be aware that these businesses are also often the hardest to sell because the primary asset is often you.

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Category: Planning Tags : Starting A Business
Mike Enright
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