It’s not enough to know how to start a business. You must select amongst the profitable business ideas and choose the right one for you. It’s always best to critically evaluate your business idea to avoid going down a road you’ll regret. There is a right choice! Let’s see if we can find it.
You’ve done your homework, you’ve sought advice before starting a business of your own. You have thought about whether you can actually do it or not. You followed a methodology to brainstorm ideas for business opportunities suitable for you. Now it’s time to learn how to find profitable business ideas that are right one for you.
The process will require an analytical set of criteria for evaluating a business idea and then applying it. Never get emotionally married to an idea and hang on to it no matter what. I’ve seen far too many businesses fail for that very reason. Be objective! It will save you heartache and dollars down the road.
One client years ago had their heart set on owning a resort. One became available and they asked for help looking at the deal. I explained that this particular resort wasn’t likely to be successful. The advice wasn’t listened to because they were already emotionally married to this opportunity. They put their life savings into it and a year later lost it all.
You must be committed to finding profitable business ideas. It seems like a simple concept, but too often it’s ignored. Don’t you go there!
Start with a great business idea.
You must be sure that you have found profitable business ideas. Whatever the idea, it may involve building a business from the ground up, buying an existing business or acquiring a franchise. At this point that does not matter.
What does matter is evaluating the profitable business ideas to find the right one for you.
Build with a solid value proposition.
Your business idea is based on your passion and dreams, your gifts and talents. These factors led to you to the selection of a business opportunity that you could bring value to. It’s important to look at your business idea and state clearly your value proposition. What of value are you going to provide your customer? What makes you unique? What differentiates you from your competitors?
It is very important to spend the time necessary on this step. If you can’t identify a value proposition, then your business idea will fail. There must be a reason why someone would want to do business with you. Don’t even think about how to start a business at this point but rather how to bring value to your future customer.
If you can’t state a solid value proposition the you are not finding profitable business ideas. Do it right, take the time.
Example: for the bookkeeping service, a value proposition might be – you will maintain their books and utilize an online accounting system to give them real time access to their accounting data. In addition to the traditional services you will give them a ratio analysis comparing their business to other similar ones and track how their business is improving or failing using a trending analysis. To make this beneficial you will meet with them monthly to review that data teaching them what to look for so they can respond to the rapidly changing financial and economic issues facing them in today’s business climate.
This sample value proposition brings the customer something few bookkeepers do for their customers and is of great value, especially in uncertain economic times. Do not move forward until you create your value proposition. Go over it with your spouse or others that you trust. Ask them to be objective in telling you whether you have developed a value proposition people will buy into. Then visit with some potential customers and ask if they or others like them would be interested in a product or service that provided that value proposition. A little market research here is vital.
Is this really right for me?
Now that you have selected from those profitable business ideas a really great business idea and value proposition you need to make sure it’s the right one for you. Either it is a fit for you or you stop right here and look for other profitable business ideas.
You already determined that the business idea fits your passions and dreams, gifts and talents. Going a little further, you need to think about and ask others, especially your spouse, whether this business opportunity is a good fit for you personally. Does it fit with your personality?
Another way to see if it is right for you is to look at your past experiences. Do you have the experience that it will take to make this business idea work? If there are weaknesses, do you have a plan to shore them up with additional experience, a partner, a key employee, or other advisors?
What about your time resources? You need to be sure that you have the time to fully pursue this business. It will always take much more time than you think. Until you’ve been there and done it you really can’t understand what it takes. Be sure to build in a cushion.
Are your capital resources sufficient to accomplish this project? Just like never having enough time, capital always seems in short supply. You need to understand what your capital needs are and find some creative, hopefully debt free ways to meet your funding needs. My article on business planning looks how to determine what your needs are. My article on funding alternatives gives some ideas on how to fund your profitable business ideas as debt free as possible.
What’s your market?
How big of a market is there for your service or product? How well is that market being served? How have you differentiated yourself from your competition? These are all vital questions to answer before deciding to pursue a business opportunity.
If you can’t answer these questions then you haven’t found any profitable business ideas. Keep looking!
You need an adequate market to sell to and your value proposition ought to differentiate you from your competition. If it doesn’t, think twice before proceeding.
Consider whether your business will sell to a new person every time or has built in repeat business. For example, selling new cars depends on finding a new buyer each time. Some buyers keep coming back every few years, but the time between sales and the likelihood of the repeat buyer is lower.
Consider the grocery store owner. There is an element of loyalty there that once a buyer is obtained you are likely to see them every week. Each new customer you bring in, if treated well, will be like an annuity that keeps paying off regularly. The more your business model caters to repeat buyers the easier it will be to succeed.
The market you serve needs to be evaluated on a big picture basis also. In difficult times you will find it easier selling necessities than selling discretionary items.
During this economic crisis I see clients who are serving the necessities market rather than the discretionary market doing well. Theirs are profitable business ideas.
Examples of necessities would include products and services people can’t be without: food, medicine or basic heath care, shelter, basic business services, and repair services.
Examples of discretionary items are things people can defer or even put off permanently: a new car, a second home, some types of elective surgery, higher end clothing, new furniture, and anything that depends on credit to sell.
Further, if your market or industry is growing it is easier to succeed. In a growing industry you will benefit from the overall growth as you are carried along with it. In a declining industry you will sink a little with everyone else.
Take the housing industry as an example: in 2008 the market contracted significantly for a number of reasons. If you were a home builder, no matter how good you were, you didn’t do as well as when the markets were booming.
How can you use leverage to your advantage?
Normally the concept of leverage refers to how much debt you are using to start and run your business. The idea many promote is to use as little of your own money as possible, count on a good economy and under control inflation to increase your profits.
This is NOT what I’m talking about. Truly profitable business ideas don’t need debt. Remember my warning against being a Debt Slave. Debt increases your risk significantly. You are much better off not going there.
So what am I talking about? We’re looking for creative and profitable business ideas. Let’s look at some other types of leverage that can work well for you.
One type of leverage in a service business is to avoid getting paid only for your time. There is a limit to how many hours you can work. You should look for opportunities that will allow you to leverage your time. There are many ways to do this.
Failure to leverage your time will make you a wage slave. Don’t just do something where you only get paid for YOUR time. You need leverage to build value. Can you hire people and train them to do what you do at a lower cost and then leverage that? In family businesses, sons and daughters can be this leverage with the further future benefit of a transition of the business to them. There are many opportunities to leverage your time. Spend the time now to determine how to do this in your business.
Another valuable type of leverage is in your customer relationships. It is said, and rightly so, that it is much easier and less expensive to keep an existing customer than to find a new one. In my business it costs 11 times as much to get a new customer as to keep an existing one.
That being the case, are there other products or services you could sell or bundle together to increase your sales per customer. Perhaps it would involve adding value to what you are already doing. Brainstorm ideas in this regard.
Leverage through technology has always been another great way to go. Today there are many more options available. You can “automate” away a lot of tasks through the use of specialized equipment or software. You can also “automate” lower end tasks through outsourcing.
Outsourcing has become a key cost reduction strategy in many larger organizations. Small business has begun to participate in outsourcing either in selling outsourcing services or buying outsourcing services. Buying outsourcing services allows you to maintain your pricing structure while reducing costs making your business more profitable. Look for ways to take advantage of this.
The last area of leverage I’ll discuss is looking at the things your company will own that may be under utilized. It might be cash reserves in the bank that are earning no interest. It might be a piece of equipment that is only being used four hours a day. It could be excess space in a building that isn’t being used. How can you take advantage of those under utilized assets to generate further profits? This may take some brainstorming, but the first thing is simply to identify the under utilized asset.
On to the business plan.
After you have addressed the issues above and are confident to move forward on your business idea, the next step is to develop the business plan. The business plan is the subject of my next article and will require you to document the start up and ongoing operations of your profitable business ideas. This plan should be the final step in the decision to go forward or not. DO NOT skip this step! It is vital to the success of your small business idea.
Are you planning to buy a business?
If your attempt at finding profitable business ideas leads you to buy a business instead of starting one from the ground up there are other considerations.
One set of considerations is covered in my article on how to evaluate a business, its people, its products and services, and how it is managed.
For the other consideration, please read my article on how to evaluate a company’s cash flow and determine the value of the business.
If you aren’t sure where to look to find the business to buy, then read this short article on how to begin your search.