What Is The Best Business For Me To Start?
I can't blame you for wanting to be an entrepreneur. In fact, I proudly consider myself one as well.
Despite the increased risk, entrepreneurship makes a lot of sense: research in Thomas Stanley's groundbreaking book The Millionaire Next Door shows that self employed people are over 4x as likely to be millionaires as people who work for others.
But that raises a question: with failure so rampant in the startup space and knowing that a majority of businesses don't last more than 5 years (source), what is the best business to start that both guarantees a high income (let's put you at millionaire status) and won't fail on you?
The purpose of this post is to help you find and refine your ideas of which businesses to start. If you already have an idea you like and are looking for the more practical, nitty gritty of "Well what do I do next?" then I recommend this post, as it's more practical.
But if you're still looking for ideas, wondering which one is best... well here's the answer.
Passion, Purpose, And The Story Of Survivors
If all the pieces of business advice in the world were written on pieces of paper, put in a jar, and you had to pull a few of those pieces of paper out, there's a pretty good chance all of the ones you pull out would say "Follow your passion."
Among all the business advice in the world, none is quite so prevalent as the advice that you should do what you love and what you enjoy; the money will come.
Even in Steve Jobs' famous commencement speech, he tells graduates "I'm convinced that the only thing that kept me going was that I loved what I did. You've got to find what you love."
So what does the science say?
Following your passion makes for great life advice. In fact, passion is basically your superpower and following it in your life and free time will probably make you a whole lot happier.
Research by Morten Hansen in his book Great At Work shows that among people who follow their passion in the office, they were likely to work harder and with more intensity, but contrary research shows that when we are told to "follow our passions", it can make us less effective when obstacles arise. (source).
So what causes the difference between being more or less effective when following our passion? It all comes down to a sense of purpose.
In Angela Duckworth's grand slam book Grit, she says that the most important thing is seeing the master scheme of the work you're doing. Seeing "how it's important to other people, not just interesting to you," forms the basis of how we need to look at following our passion:
When it gives us a deeper purpose, it is helpful. When "following our passion" means pursuing something that only feels good in the moment, we will give up when times get tough.
And finally, in full circle, here's how this matters for the business you're about to start:
"Follow your passion" is great life advice. It may be good career advice. It can't be good business advice unless you pair it with purpose.
In MJ DeMarco's fantastic business book The Millionaire Fastlane, when speaking of a failed business near his home says:
"The obvious problem here is selfishness. The owner is following his passions, and his love for hip-hop music and culture. Maybe a life coach told him 'Do what you love.' Whatever the motive, the need is internal and not externally based on the marketplace. I predicted this business would last 12 months. After 18 months, the business disappeared. The road was paved with sand because no need existed."
In fact, to DeMarco, the overwhelming majority of businesses fail not because the owner wasn't tough enough or didn't work hard enough, but because the business didn't solve a marketplace need. (By the way, MJ DeMarco's book is so good it landed on our list of best entrepreneur books and best self help books)
So when figuring out what business you need to start, don't look at what you're passionate about; look for something that solves a real world need and that you see a larger purpose in doing.
Your business should help people and encourage you to help people even more than you are already doing. Your business should provide a continual feedback loop of being excited for your contribution to the world and wanting to contribute even more.
On the importance of solving a real world need instead of chasing the biggest and easiest business, Zig Ziglar's famous quote says "You can have everything you want in life, if you will just help others get what they want."
And according to Mark Cuban, businesses shouldn't be founded on passion because successful businesses create passion. He says:
"When you look at where you put in your time, where you put in your effort, that tends to be the things that you are good at. And if you put in enough time, you tend to get really good at it. If you put in enough time, and you get really good, I will give you a little secret: Nobody quits anything they are good at because it is fun to be good. It is fun to be one of the best." (source).
So don't follow your passion. Create what the world needs, work hard at it, and the passion will come.
But that raises a question: when I think the market needs more than one thing, what do I do?
Valedictorians And The Death Of Business
Valedictorians are the pinnacle of success in school. Characterized by good grades and a great school waiting on them to graduate, we usually expect these over-achievers to go on, do well in college, graduate, and land a nice corporate job somewhere.
Karen Arnold's research in the book Lives Of Promise shows that our expectations are pretty much on point. She followed valedictorians after high schools and just as we expect, valedictorians usually go on to succeed in college. Not only that, but after 14 years nearly half of the valedictorians who were surveyed had landed in a top-tier corporate job.
Her research shows that valedictorians are often strong, dependable rule followers that hit most metrics of success in our modern world.
But Eric Barker asks in his book Barking Up The Wrong Tree, "how many of these valedictorians in the study went on to change the world, run the world, or impress the world?
The answer seems to be clear: zero."
There are probably a couple of reasons for this.
First, valedictorians in school are most likely subscribers to the belief that the best way to succeed is to follow the system, not break free of it. If you are an entrepreneur, you probably do not subscribe to the same values.
Second, and most importantly for our purposes, valedictorians are taught that the best way to success is to be skilled in several different areas instead of being a superstar in one area.
This leads to what the research shows: valedictorians are good at several different tasks and jobs. They are rarely superstars in any of them.
As a generalized group of people that is good at a lot, excellent at a little, and never truly stands out, valedictorians are the exact opposite of what entrepreneurs need to be and do when starting a business.
Entrepreneurs need to be the grand hero in their niche, the saving grace that people want to buy from; generalization and diversity is the great enemy of a successful entrepreneur.
So what do you do when you think the market has several needs or you have tons of ideas floating around in your head?
Ignore all of them but one. Take the remaining one idea and give it 100% of your effort. Cal Newport's book Deep Work takes this idea to the extreme: Newport argues that it is only when we eliminate busy work and focus on what matters that we accomplish more and have less free time.
Newport is not the only person making such an argument. The 4-Hour Work Week by Tim Ferriss often cites the Pareto Principle, a theory that 80% of effects often come from 20% of causes.
Newport and Ferriss agree: people are better off maximizing the things that work rather than wasting away time with the things that don't produce as much towards your life and your dreams.
When presented with this idea, a question should arise. If diversification is so harmful, why in the world do people talk about it so much?
Baskets And A Good Old Mom Story
On her first trip outside the US, my mother was a little distraught. Simply put, she had brought a lot of stuff.
The luggage for her relatively short trip included three times as many outfits as she needed, medicines for every fathomable scenario, chargers, four different pairs of shoes, different types of makeup ("We're going to be at a lake next to a jungle, Mom"), and all the food seasoning she could stuff into her carry-on.
My poor 5'3" mother ended up needing all sorts of help with her luggage throughout the trip... and you can guess who ended up taking her suitcase (hint: it wasn't my brother) while she carried my measly little backpack.
My mother was ready, packing everything she could possibly need. Her greatest fear was that we would find ourselves overseas and she wouldn't have something. Telling my mother that we could definitely buy that in the new country didn't do much good; her greatest fear was not having enough.
This is actually a popular concept in the realm of economics and psychology called loss aversion. It seems that humans are genetically wired to be more afraid of losses than excited by gains.
For example, let's say that losing $5 gives you a little anxiety. On a scale of 1-10, we're gonna put this anxiety at a three.
In contrast, gaining $5 gives you excitement. It makes you happy. But on the same scale of 1-10, gaining $5 only gives you one level of excitement.
From a survival standpoint, this makes sense: it's better to not have the risk being eaten by a wild animal over a scrap of food. Loss aversion definitely saved some ancient lives. (source 1) (source 2).
Yet what is so helpful for early humans often proves unhelpful, or downright dangerous, to humans alive today. Loss aversion is where a love of diversification comes from; and just like my mother, when entrepreneurs diversify too early, they end up weighed down and unable to move and act how they really want to.
Diversification is popular because it protects people from losses. It scratches our loss aversion itch. And established businesses must diversify; often an established business reaches a "soft limit" of what is available to be gained from a certain venture that limits their gains in that arena.
But new businesses must avoid the desire to spread themselves too thin at all costs.
MJ DeMarco, author of The Millionaire Fastlane, says this:
"A scattered focus leads to scattered results. Instead of having one business that thrives, the polygamist-opportunity has 20 businesses that suck... When you segregate your effort among assets, you build weak assets."
When it comes to what business ventures you should pursue, don't be a valedictorian, don't be my mother, and don't be a business with 20 weak assets that all independently suck your time dry like your personal vampire.
Don't be a generalist "specializing" in a whole slew of different things. Pick a good arena where there is a need and master that arena. No more.
If you still don't believe me, ask Andrew Carnegie, steel tycoon whose wealth eventually reached about $372 billion. He famously said, "The way to become rich is to put all your eggs in one basket and then watch that basket."
So here's to all of us with only one basket.
How Remembering A Penny Can Make You A Billionaire (No, It's Not By Saving It, You Cheapskate)
We've established that your business should solve a need and that, when starting out, you should put all your effort into one thing. But is that really all it takes to start a business?
Well, not really.
MJ DeMarco, the best selling author mentioned a few times previously, believes that all successful businesses have a few things in common.
In fact, these characteristics are so important that DeMarco calls them "The Commandments".
Every successful business applies one of them. The most successful businesses apply them all. And you can remember them just by remembering a penny: think "CENTS".
Commandments and descriptions taken from The Millionaire Fastlane:
Control: Franchises and network marketing companies make for weak businesses since they lack the aspect of control. Businesses need to be able to set their own prices and control which products are created, marketed, and sold.
The ideal business will be able to control both price and expenses (more on this and how it affects the value of your business here) and will be able to determine its own profit line. Because your skillset and business is unique to you, the best product for you will be different than the best product for other people and their businesses.
When you lose control of things in your business, you lose competitive advantage.
Entry: Ever wanted to pursue a business and been turned away by a price tag that's a fuzz higher than what you were looking for?
That's a good thing.
When your business is easy to get into, you have lots of competition. This is another reason why I'm not a big fan of franchises or network marketing companies (and I have been a part of both).
The higher of a barrier to entry your niche has, the more difficult it will be for others to compete with you. Ask any lawn care business, insurance franchise, accounting firm, convenience store, or any of the seven coffee shops in your town and you'll hear all about the dangers of too much competition.
Make it difficult for others to compete with you.
Need: The sad truth of the world is that people do not pay us for doing what we love. The world is an incredibly, incredibly selfish place and will only pay us for giving it things that it wants.
Make sure your business isn't a passion, a pipe dream, or a hot recommendation from your seemingly-savvy Uber driver. It needs to be something that your target audience needs, whether your target audience is your town, your country, or the world.
Time: Even though people who are self employed are undeniably happier, as demonstrated in the book The Illusions of Entrepreneurship, they work.
In fact, out of 25 countries surveyed, self employed people worked more than regularly employed people in all countries except two.
While you should expect (and enjoy) the hard work while the business is getting going, being a slave to your business is not a good situation to be in.
According to MJ DeMarco's CENTS, your business should ultimately be able to separate your time from your income. While early on this means you won't make as much, in the grand scheme you never want your time to be traded for dollars.
The Millionaire Fastlane calls that wage slavery and time prostitution. Both are avoidable.
Your business should be able to be automated or you should be able to hire tasks out to the point where your input is completely unnecessary. It may take time to get to this stage (it will definitely take time) but there's no need for you to simply create a new job for yourself with your business.
Scale: Finally, we reach what may be the biggest and baddest of them all.
The ideal business is able to reach far more than a few hundred people. It is able to reach thousands if not millions.
Because if you can make a million people feel or have something, you will be a very rich person.
Scale takes different forms: for restaurants, one of the only ways to scale will be to open more restaurants. For internet business, increase your users. Whether your version of scale involves opening different branches or maximizing how many users are in love with your product, scale is where the big money happens.
Make sure your business isn't crippling you before you get it started. Don't allow yourself to open a business with inherent limits. Start a business that can reach the world.
All of these are important because these things all impact the most exciting part of any successful business: escaping.
The Escape Plan
If you're trying to nurse your slowly dying dreams of retiring in the Caribbean or buying a private island, I have good news: there's a way.
And it's not even illegal.
It isn't found in the selling off of your 401k or going into ungodly amounts of debt. No no no, this way is much smoother, much more clean.
It makes you a whole lot wealthier too.
You can engage in your escape plan and sell your business.
While get rich easy is a pipe dream best left to the realm of hopeful children, get rich fast is very, very real. And when your business solves the needs of a whole lot of people, it will have a whole lot of value that you can cash in on by selling.
In fact, the value of a business is one of the most desirable traits about a business. Unlike your stock market investments where you have little to no control of the value of your companies, your own business has multiple variables that you can control, each one with the potential to skyrocket the value of your business.
Here are just a few, with brief descriptions.
With each of these variables comes a chance to exponentially (yes, exponentially) increase the value of your business.
Yet I haven't talked about the most important variable of all: your industry multiplier.
Just as different customers and income sources affect the value of your business, your industry multiplier determines roughly how much you can sell your business based on your profit.
And when doing the math, industry multipliers make stock market gains seem like a tea party.
Even if your industry multiplier is 2x (very, very low - sources later), this means that for every extra dollar you earn in profit, you can earn two extra dollars in selling. That represents a 200% return on your dollar.
Some businesses earn less than a 2x multiplier (many franchisees tell me that their businesses earn closer to 1 or 1.5x and my father verified that number for both of his franchises), while publicly traded companies can trade as high as 50x.
The average multiplier from the statistics I found was somewhere around 4 or 5x for most businesses.
One source says that the average for companies under $1M in revenue is 4.5x. (source).
Another source says that the average is 4.51x. (source).
Meaning that selling an average business will net you a 450% return on every dollar you made in profit in that business.
Know your industry, learn your multipliers, and leverage big ones. You won't get rich easy, but you will definitely get rich fast with an excellent escape plan.
Practical Step-By-Step And Tip Sheet
With all that out of the way, let's get rid of theory and get down to the nuts and bolts of this thing.
We'll go in logical progression.
What is the best business for me to start?
-What is something that is annoying/frustrating/needs to be fixed? Can this be fixed?
-If no ideas, ask a friend or relative: what is something you experienced today that you thought could be improved?
-If no ideas, go on Reddit or other forums and search for words like "Frustating/Horrible/I hate". A careful search should bring you many ideas for opportunities
Narrowing Down Ideas
-Once you have an idea, ask: can this be fixed, improved, or created? Would I pay to have this problem eliminated?
-Ask friends and relatives: would you pay to have this problem eliminated?
-Ask whether or not people who don't know you would pay you to fix this problem
Finding The Perfect Business
-Use CENTS evaluation
-C: Can this business be controlled? Will I be able to set my price points, control my expenses, and determine what products will be created or not created?
-E: Does this business have a barrier to entry? Can anyone start this business without a significant financial, knowledge, or time investment? If so, pass and go to another idea.
-N: Is there a genuine marketplace need for this product? Can I create more value than other similar products on the marketplace? How can I be better than the competition?
-T: Will this business eventually separate my time from my income? How passive can this business be? How easy is it to hire or train others to take over my job so I don't have to worry about it? How easy is it to automate this business? Remember that automating a system is almost always better than hiring when you are able.
-S: Can this business scale in new customers, new products, or both? If so, how? Will scaling require significant investments of money, time, or knowledge or will it be fairly easy? Remember that businesses should be difficult to start, but simple to scale.
Exiting The Business
-What is my industry multiplier?
-Am I able to manipulate profits by changing price and expenses?
-Is there a way for me to have higher quality customers or higher quality products than competition?
-How easy is it to sell companies in this space? This question may take a bit more research to answer - consider research a knowledge barrier to entry. Having to research before starting the business is a good thing.
These metrics above will allow you to sort out unfavorable businesses and, if you're left with multiple ideas, will help you decide which one you prefer.
You may find that one business idea will definitely be able to make more money, but another is more passive once you get going. This checklist will help you narrow down which one you want and which one is best for you.
Starting a business is a risky proposition. And although your business can bring you a nearly unlimited amount of health, wealth, and wisdom, the failure rate for those who are self employed is staggeringly high.
Statistically, you have a high chance of not making it on your first venture. There's a healthy chance that you will mess something up, but you can learn from it.
Silicon Valley, land of the thousand startups, has an expression:
Fail fast. Fail cheap.
The masters of world changing businesses want to offer you some advice: take an honest look at your business once you get going. Think with your head, don't feel with your heart, and ask yourself is this is truly a viable venture.
When the excitement dies down and the motivation is starting to slip, ask yourself if this is really the business that the world needs. If not, end it.
Failure is a valuable process in the world of business. When your business fails, it is undoubtedly a tragedy. It is sad, painful, and embarrassing. But failure doesn't mean that you should give up.
It means that you should learn.
And don't be afraid, if you fail, to give it another shot. The payoff is worth it. Achieving financial and personal dreams has no equal in the world.
So if you do fail at a business, instead of moping, ask yourself: What can I learn from this and apply to my life and my next business?
Thanks for reading!
It may be difficult to start a business, but the payoff for your personal and financial life can be almost unlimited.
If you've now got an idea and are looking to really get going with it, check out this post How To Start A Business That Will Make You A Millionaire. It's a lot more practical and really gets down into the nitty gritty of the details with step by step instructions.
Let me know in the comments: what business are you considering?
Stay awesome. Have a great day.
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