- Ask Yourself These Key Questions
- Reverse Engineer Your Goals
- Choose the Right Business Model
- Study The Mistakes Of Failed Businesses
- Start Something You’re Passionate About
- Weighing The Risks And Rewards
Deciding what type of business to start can be an exhausting process but a critical one. Choosing the right business idea now will be nothing compared to the time you’ll waste in the future if it’s not thought through.
Ask Yourself These Key Questions
The most important thing you can do when starting a business is starting the right one. What does this mean? Well, start something that aligns with your overall end goals. Or else you risk wasting years of your time, money, and energy going in the wrong direction.
To avoid this, the first and most important question you can ask yourself is, “Why do I want to start a business?”. Maybe you’re doing it because you want to make more money? Or maybe you’d like more free time to travel, spend with family or both? Answering this will really layout the direction of where you go from there.
Here are some types of questions you may want to ask yourself:
- “What am I already skilled at/have expertise in?”
- “Is this business just going to be a side hustle for extra money or do I plan to replace my job with this someday?”
- “Do I want to grow this business into a large company? If so, it must be something scalable.”
- “Do I plan on hiring employees or will I be doing everything myself in the beginning?”
- “Do I want to be able to operate this business out of my home?”
- “Am I starting this alone or will I have partners to help with funding or business know-how?”
- “How much startup funds do I have and how much will I need?”
- “What are my expectations for this business?”
Tip: Start a business that aligns with your end goals.
Reverse Engineer Your Goals
Aside from asking yourself questions, you can also use the “reverse engineer approach” to find the right business idea that aligns with your end goals. Elon Musk talks about how he reverse engineers’ problems by, first, identifying the problem than working backward from that problem to find the solution.
This also works with goals. So, identify what you want in life (i.e. happiness, financial freedom, etc) then work backward to find the solution. In this case, the solution is the type of business you’re going to start. Which in turn, will help get you a little closer to your end goals.
Choose the Right Business Model
Now once you have an idea of the type of business you want to start, you’ll want to start thinking about how’s it’s going to make money.
So first, identify what your business offers: Are you selling products, services or both? Next, find a few small-size companies that already do what you want to do and study what their business structure is like.
How many revenue streams do they have? What’s their marketing look like? How many employees are there? Is there a big demand for what they sell? ..So on and so forth until you have a good understanding of how they run their company.
Tip: Ideally, you’ll want a business model that draws multiple streams of income. This will boost revenue and improve cash flow. (i.e, if you sell products, you can sell them B2C online and also wholesale them to retailers to carry them in-store)
Study The Mistakes Of Failed Businesses
You can get a better understanding of what type of business to start by understanding what NOT to start.
Learn from other businesses that have failed to help avoid the same mistakes and pitfalls. According to the Small Business Administration (SBA), only about half of small businesses that start make it passed the five-year mark and only about 1 in 3 make it to their 10-year anniversary.
These numbers are intimidating, yes. Therefore, focus on the third that survive and ask what they did right? More importantly, what did the 70% do wrong? Just google ‘why businesses fail’ and you’ll see the top 5 most common reasons are:
- Lack of Capital / Cashflow Issues
- Not Enough Demand
- Marketing Problems (Can’t get the ACoS down)
- No Systems, Structure or Leadership in place
- No Clear Business Plan
Tip: Study the most common reasons why 70% of small businesses fail, and have a firm grasp of each. This will drastically improve your chances of business survival.
Start Something You’re Passionate About
In the early stages, be prepared for it not to go your way for some time. You’ll lose money, make it back, mess up again, have to re-pivot the plan, etc..etc. But it’ll work out if you stay the course and love what you do. That’s a big part of it.
Besides picking the right business – once you get your business going, staying consistent and not giving up is ultimately what decides success and failure.
The lights go out in a lot of small businesses way before the surface level problems, like cash flow or marketing issues, bubble up. A big underlying root cause is that they simply didn’t love it enough and found out it wasn’t what they thought it would be. Because if they did, they’d find a way to fix those problems, if and when, those problems bubbled.
Reminder: If you love what you do, you’ll find a way to make it work.
Weighing The Risks And Rewards
As an entrepreneur, you should always approach each goal with a risk mitigation strategy. In short: what are the risks involved and how can I lessen them?
Step 1: Identify the risks
Some of those risks might include: losing all of the money you invested into the business, unable to repay borrowed money back, creating a product or service that leaves you open to liability, etc.
Step 2: Brainstorm how to lessen the risks you identified
Example: you borrowed money and are now unable to repay it back. What do you do? Well, to avoid that possible outcome, you may want to consider self-funding yourself or raising money through friends and family.
Example: Someone wants to sue you for harm caused by your product. What do you do? Well, to avoid that possible outcome, consider getting product liability insurance or business liability insurance, add warning and safety labels where necessary, and/or consider selling something that doesn’t have lots of risky liability.
[ Related Article: How to Start a PROFITABLE Business With No Money ]
Starting a business is risky – and as with any risk, you’ll want to weigh the risks and rewards of each scenario.
So to sum it up, the plan and preparation can only take you so far. Those are just to set a solid foundation and to guide you. The entrepreneur makes the business, the business doesn’t make an entrepreneur.
After you have thought through what you’re going to sell and how it’s going to make money. It’s now time to take all of that due diligence and jump in.
“The entrepreneur makes the business, the business doesn’t make an entrepreneur.”
- Brainstorm business ideas through questions. (question ideas above)
- Make sure the business idea aligns with your end goals. If not, brainstom more ideas.
- Choose a proven business model that fits your business idea.
- Do your due diligence and study the top reasons why businesses fail in your nitche, and make sure you’ve got them covered. (top 5 reasons above)
- Make sure you love the business and field it’s in.
- Weigh the risks and rewards.