Don’t fall into the trap of starting a particular business just because someone tells you, “It’s a sure thing.” Potential customers will part with their hard-earned money only if you convince them that they’re getting their money’s worth, so you’ll need to know what you’re doing, no matter what the task.
Choosing a Business You Know
Starting a business in which you already have experience has many advantages: You can use your knowledge about the industry, your training and skills, and your network of contacts who might help you find financing, suppliers, and customers.
If you’re interested in turning something you know and love into a business, talk to people you’ve worked with about what it takes to run that kind of business. Learn all you can about start-up costs, overhead and expenses, and how much revenue you can expect to make. If you have several interests, but aren’t sure which would make the best business, consider how you can translate your strengths, education, and skills into business opportunities, and research the marketplace to see which types of business are presently needed in your area.
Starting a Business in an Unfamiliar Industry
Unfortunately, the lure of quick profits convinces many people to start businesses in areas they know little or nothing about. This is a sure recipe for failure.
If you don’t know much about the business you want to start, but are set on it, be prepared to spend enough time learning it before you begin.
Research and Evaluate Your Business Idea
Here’s a step-by-step guide to evaluating whether you and your chosen business are a good fit.
- Try it out. Before you start a business of your own, get some experience in the industry or profession that interests you — even if you work for free. Learn everything you can about every aspect of the business. For example, if you want to start a pasta shop, but don’t know ravioli from cannelloni, go out and get a job with a pasta maker.
- Evaluate whether you enjoy the work and excel at it. If not, find a new venture. It’s a lot harder to make a success of a business you don’t like, and it’s unlikely you’ll like something you’re not good at. If you enjoyed the work and determined you were skilled enough to base your own business on it, go on to the next step.
- Judge your ability and desire to handle every aspect of the business. If you don’t want to or can’t pitch in wherever and whenever something needs to be done — whether it involves manufacturing a product, dealing with customers, or keeping the books — you should think twice about starting that kind of business.
- Determine whether the business has a solid chance of turning a profit. After working in the field for a few months, you should have a good idea of whether the business is a potential moneymaker. To be sure, you should analyze your market and conduct a break-even analysis, a preliminary financial projection that shows you the amount of revenue you’ll need to bring in to cover your expenses (this amount is called your break-even point). If you’re able to bring in more revenues than your break-even point, you’ll be in the black (that is, you’ll make a profit). (For more information on determining the financial viability of your idea.)
- Evaluate the risk this particular business requires. Even the best-laid plans can sour if you pick a business that is unusually risky, vulnerable to competition, or subject to financial failure. For instance, the following businesses have higher than average failure rates:
- computer stores
- laundries and dry cleaners
- used car dealerships
- gas stations
- trucking firms
- infant clothing stores
- bakeries, and
- grocery and meat stores.