Business Discovery - Part 2
A guide for entrepreneurs to discover their first or next business
This is Part 2 of a series to help budding entrepreneurs create a business discovery roadmap. Subscribe to stay in the loop:
For budding entrepreneurs being "open to anything" is a recipe for disaster.
There's thousands of different types of businesses and directions to go in. With no direction you will feel lost and most likely never get started.
In Part 1 we covered:
Financials
Lifestyle Integration
Internet/Service/Retail
Today we're covering:
Business Model
Staffing Model
Business Model
To help narrow down the business selection develop a "business model checklist". Once you develop a list, rank them in order of importance. Here's a few of mine to get you started:
Business to ____
To consumer (B2C)- deal with the public
To business (B2B)- deal with other business owners
There are pros & cons for here for each:
When selling to consumers you will have a larger customer base and more competition. Get ready to spend on marketing and deal with customers who are sensitive to price changes.
When selling to businesses you will have a smaller customer base who could become very loyal. The challenge is convincing them to switch from the current vendor. There's generally less price sensitivity unless you are in a commodity business.
Sales Cycles
Not seasonal or weather dependent
Recession resistant
If you're going "all in" on the business and it's not a side hustle pay close attention to the sales cycle. Better to have a stable sales cycle vs. one that's feast or famine.
Weather-dependent businesses can be very lucrative but also inconsistent.
Avoid weather-dependent businesses unless they compliment another component of your business. Hard to make money snow plowing when it doesn't snow.
Recession resistant businesses provide a product or service that people need in good and bad economies. If your toilet is clogged you're calling a plumber. If you're brakes don't work you're getting it fixed so you can go to work/grocery/pickup kids. If your family pet gets sick you're taking them to the vet.
10 Year Outlook
What is the long term outlook of the business? Will it still be viable in 10 years?
"Boring businesses" with a slow rate of change are the best for stability.
A few years ago Froyo was all the rage and shops were popping up all over the place. When was the last time you visited one?
I also don't want a business that can be replaced by a robot 🤖.
Sales or Operations Driven
Businesses are either sales driven or operations driven
In the solar business there's tons of door-to-door sales company who are excellent at selling and sub out the actual work to an installation company. The problem for the sales company is they have no control of the quality or reliability of the sub.
Many of the other installers also do their own door-to-door sales and prioritize those higher-margin customers over the "wholesale" sub work.
I've a friend who's taking advantage of this by creating an installation company that's 100% dedicate to the sub work. He partners with multiple sales companies that feed them work every day. These relationships allow him to focus on consistent execution.
Find a business that matches your skillset. Are better at driving a sales team or ops team?
Staffing Model
There is nothing more important than the staffing model of a business -- unless you're a solopreneur.
Skilled vs. Unskilled
What type of people do you want to hire, train & manage?
Skilled
Higher pay
Smaller applicant pool
Harder to hire
Easier to retain
Better margin
Plumbers, mechanics, carpenters, contractors, etc.
Unskilled
Lower pay
Bigger applicant pool
Easier to hire
Harder to retain
Lower margin
Cleaner, landscaper, cashier, fast food worker, driver, etc.
Management
Can the business afford to pay a good manager $70k to 100k per year?
If the business can only afford a less experienced manager at $40-50k you, the owner, are going to have step in and deal with more issues.
Sales Per Person
To generate $1,000,000 sales per year would you rather have:
20 part-timers ($50k per person)
5 full timers ($200k per person)
Years ago we were looking at buying a pizza franchise until we learned you need 20 part time minimum wage kids to operate a below average store. For me, that sounds terrible.
TLDR;
B2C or B2B
Recession resistant, not seasonal
Stable, long-term business
Sales or Ops driven
Skilled vs. Unskilled
Management: $50k or $100k
Sales per Person
Coming Up:
Buy vs. Build
Franchising
Operations
Scaling
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Business with Beers
Every week on my podcast I bring you the stories of entrepreneurs about building their business, wealth & passive income.
See you again next week!
Cheers
- Brian