Once you have made the commitment to become an entrepreneur, you will be eager to get started. It is important to take the time to find the best business for you. One of the most common mistakes made by new entrepreneurs is selecting the wrong business.
You should consider small business ideas that you are passionate about, but passion is just the beginning of the process. Here are a few tips that will help you choose a new business with the greatest potential for success.
1. Take your time
When you are starting a business, take the time to research and select the right kind of business. Make a list of the businesses that interest you and think carefully about the advantages and disadvantages of each one. Plan carefully and gather the information you need before making a decision.
MOBI provides a helpful template to evaluate small business ideas. In preparing the template, make sure that you avoid errors of omission – failing to see opportunities that are right in front of you. You should also avoid businesses that are unfamiliar. Invest the time to learn about the business and the business model. Bet on the business you know, not on the business you don’t know.
The selection process takes a lot of planning, so take your time. The resources available from MOBI can help.
2.Focus on profitability and growth
Your new business must be profitable if it is going to be viable in the long-run. It does not need to be profitable right away, but it must have the potential to be profitable soon.
What is a profitable business concept? Here are some positive signs that a business will be profitable:
- Forward-looking. The most promising businesses have potential in today’s and tomorrow’s markets. What will your customers need six months or a year from now?
- Specialized. Take advantage of your knowledge and skills to define a business that solves unique consumer problems. You will reduce the number of competitors and provide your customers with more value if you meet a unique need.
- Based on pricing power. Pricing power means people are willing to pay a decent price for a better product or service. Warren Buffet, the most successful business picker in American history, looks for businesses that have a “consumer monopoly” with pricing power and long-term growth prospects. The best example of a consumer monopoly is a toll bridge. Consumers who want to cross the river must pay the toll.
Instead of thinking about what kind of business you would like to start, think about yourself as a customer and evaluate the kinds of businesses you like to frequent. What are you willing to pay more for and when are you looking for the best deal? Answering these kinds of questions from the point of view of a customer will help you identify a business concept that is more likely to be profitable and experience consistent growth.
3. Know what to avoid
As you consider different small business ideas, you should learn to recognize business concepts that should be avoided. Here are some suggestions:
- Avoid commodity businesses. Commodity businesses require you to compete entirely on price. The only way you can survive is to have the lowest cost. As Warren Buffett once said, “In a commodity type business, you’re only as smart as your dumbest competitor.”
- Avoid businesses that you don’t understand. It is never a good idea to choose a business that you do not know and understand, no matter how appealing and potentially exciting. Give yourself a head start and opt for a business that you already know something about.
- Avoid businesses that require a large capital investment. There are many business ideas that require little or no money to start. Be cautious about investing your life savings or borrowing significant amounts of money. Invest only what you can afford.
If you are having a hard time understanding the difference between profitable businesses and businesses to avoid, use MOBI’s Starting a Business Checklist to evaluate your small business ideas.
Good advice is priceless. There is plenty of advice on the internet but the best information comes from small business owners in your area. Get to know local business owners and ask them about their challenges and opportunities. What is working and what isn’t?
Here at MOBI, we have plenty of resources for new entrepreneurs. When you have narrowed down your choices, follow our tips for creating a business plan. With the right business and a good business plan, your chances of success increase dramatically.