This is the final part of SBA's Becoming an Entrepreneur series.
As a quick recap, in the first post we discussed the questions you should ask yourself before deciding to become an entrepreneur. In the second post we listed some of the most common reasons small businesses fail.
If you still believe you have what it takes to become an entrepreneur – Congratulations, it’s time to get to work!
So now the next question is what type of business do you start? Here are five things you should consider when deciding on the type of path you want to choose.
1. Who Cares!?: Whatever you decide to do, your business
must provide something that customers are willing to pay for and the amount they pay (your revenue) must be more than the amount you spent (expenses). If customers don’t want what you’re selling, then you don’t have a business!
2. Passion: Find something you are passionate about and
enjoy doing. If your primary motivation is money, you will likely fail. Most likely you will not be making much money in the first few years of starting your business (in reality you will probably be in quite a bit of debt). If money is your only driving factor, then you will burn out. This is not to say that creating long-term wealth for you and your family can’t be one of your reasons for starting a business, but get-rich-quick schemes are typically illegal, immoral, unethical, or simply “too good to be true.” Make sure you have the passion that will help you overcome those long days, nights, weekends, and the seconds in between.
3. Build a business not a hobby: Your business is not your hobby. At first this may sound contradictory to the previous statement about being passionate and enjoying the business you run, but in reality they are complimentary. Don’t get this confused with passion and enjoying what you do. If you love making craft beer in your basement and want to start a brewery, ask yourself why? If all you want to do is come up with the next crazy concoction of pumpkin-spice, orange peel, and wheat lager; then keep your day job and continue your beer-making hobby on the weekends. However, if you are passionate about creating a beer that consumers love and you’re willing to go door-to-door to every local bar in the city marketing your beer, build a business. Too many times people try and start a business from their hobby and end up hating them both.
4. Lifestyle vs. Growth Business: Is your aim to create a
business that helps you sustain a particular lifestyle or do you plan on seeking some sort of professional investment in hopes of becoming the next “Mark Zuckerberg”?
Really, what it comes down to is what are your goals and reasons for starting a business. If you want to truly be your own boss (meaning, you answer to your customers!) and earn enough to support your style of living, then a lifestyle business is probably the path for you.
If your goal is to change the world or build a business that can grow annual revenues to $20 million (or more) in five years, then starting a growth business is more up your alley. There are pros and cons to both, but a growth business usually requires some sort of outside capital (angel and/or venture-capital investments), which means you are still answering to someone other than your customers.
5. Risk vs. Reward: No matter what, there are risks when starting a business, but how much risk you want to take may help you determine the type of business you want to start. There are many different levels of risk when starting a business, but the three biggest concerns include:
MONEY: It takes money to start a business, and the type of business you start will likely determine your financial risk. The starting capital could come from your savings, family and friends, investors, the bank, etc. While you should be optimistic, you also need to be realistic and understand that there is a possibility your business won’t succeed.
TIME: Starting a business is very time consuming. No matter what business you start there aren’t many ways around the personal sacrifices that both you and your family will have to make. However, the type of entrepreneurial path you choose can be a major factor in the amount of personal time you will have to give up. Before you quit your job and choose your path, decide how much time you are willing to commit and realize that it will likely take more!
ENERGY: Similar to time, energy is that amount of effort required to go through the learning curve, to stick it out through thick and thin. Energy is closely related to
COMMITMENT. Energy can mean the physical aspect of it or it could mean the emotional aspect. For example, if you start an e-commerce business and things are a bit bumpy with sales and product availability and deliveries you may not be used to dealing so many customer service issues, which can be very draining. Similarly, someone starting their business in their 50's or 60's may not have the energy to put into a business model that could take longer to build.
So when choosing your entrepreneurial path, ask yourself:
What you are willing to risk and is the risk (both financial and time) worth the reward? If you don’t think you’re ready to go all in, there are other options to get started without emptying your piggy bank. Many people will start a part-time business, while they continue working their day job. Here is an article from Entrepreneur Magazine, with 25 Part-Time Business Ideas, to get you started.
If you are ready to take the leap, there are many ways to mitigate your risk, number one is of course proper planning, but more than ever, technology has made it easier for you to test your ideas before going all in.
Whether you already have an idea or are still searching, we will explore in more detail the different type of business options, the benefits and how to get started. More specifically, in our next series, “Choosing your Entrepreneurial Path” we will look at some of the following business endeavors that you could pursue:
1. Government Contractor: Build a profitable business by entering into contracts with a department or agency of the federal government, where the government pays you for services rendered.
2. Franchising: A type of license granted to an individual or group to have access to the company’s proprietary knowledge, processes, goods and/or services. In exchange for the license, the franchisee pays the franchisor a hefty start-up fee and annual licensing fees or a percentage of profits.
3. Buying a Business: Purchase an already-established business (hopefully with a positive track record) that has a proven business model, meaning they have a customer base, a brand, and hopefully a positive revenue stream.
4. Startups: A startup is a temporary organization in search of a repeatable and scalable business model. Startups can be found across a variety of different industries (healthcare, consulting, energy), but probably most popular are those that revolve around some type of technology.
You should now understand that there is a lot to consider when choosing the type of business you want to start, now it’s time to explore the different types of entrepreneurial ventures you could pursue along with the resources available for your chosen path.