So you want to be an entrepreneur. You understand what it’s really like to be an entrepreneur and you’re ready to step up to the plate. You may already even have one or more ideas, identified market opportunities or decided what you want to spend your days doing. But before you get too excited about a business idea – or if you haven’t gotten past the “I want to be an entrepreneur” step – you need to stop and ask yourself what type of business you want to build.
This is not to be confused with the product or service your business will provide or the business model you choose: this is about discovering your why. Why do you want to be an entrepreneur? What do you want to get out of the business you build? Different types of businesses offer different rewards, and they all come with their pros and cons.
This type of business is set up with the goal of supporting a lifestyle or income level rather than building an empire. It is usually run by the business owner, often as a sole proprietorship or limited liability company, or at least starting out that way. These types of businesses are also frequently online business, and tend to be service or niche product oriented.
Many lifestyle businesses are started by industry experts or people with experience and specific skills that can be applied in freelance or consulting services. Others have found their fortune selling their expertise or their online traffic, while those on the product side may have a niche in import/export or selling items they either make themselves or source from third parties.
Lifestyle businesses typically rely heavily on the expertise of the founder, although there are business models that utilize outsourcing or even hire employees. The scalability of lifestyle businesses is typically limited, and with good reason. Generally speaking the larger the business becomes, the more time is required of the business owner, which is counterintuitive to the reasons why many lifestyle business entrepreneurs get started, like working less, being able to travel and low overhead.
- Flexible lifestyle: If you run a 100% online business, you can work anytime from anywhere.
- Low Risk: Unless your business idea involves pre-purchasing a lot of product or building infrastructure, your startup investment should be rather minimal, making it a low risk business venture.
- Be Your Own Boss: When you’re in charge you don’t have to answer to anyone.
- You’re Your Own Boss: It’s all on you. You are responsible for everything.
- Limited Scalability: Especially if your business is based on selling your expertise, it means you’re the one doing the work and you have a finite amount of hours you can – or want – to work.
- No Benefits or Income Security: This is something to think about for those considering transferring the skills they use in their current job to a lifestyle business. Your income is based on the work you can solicit and is likely to fluctuate, plus you’ll be responsible for your own healthcare and 401k. Oh, and forget holiday, vacation or sick pay. They’re gone too.
While the U.S. Small Business Administration (SBA) provides legal definition of a small business, it’s not one size fits all. Whether a business qualifies for small business status varies by industry, and the SBA has established a North American Industry Classification System (NAICS), upon which their Small Business Size Standards are matched. The size standards by industry are based on revenue and number of employees, and if you were to scroll through the standards, you’d likely be shocked at the thresholds. It turns out businesses with millions of dollars in revenue and hundreds of employees may be considered a small business, although for the purpose of this article, we are concentrating on much smaller operations.
In the smaller, small business context, small businesses include incorporated businesses and sole proprietorships that have a small number of employees and smaller revenue than large-scale business. What comes to mind when most of us think of small businesses are retail stores, restaurants, B&B’s and service providers like hairdressers, florists, tradespersons, lawyers, accountants, design studios and marketing firms, or small medical and dental practices.
In many ways, there’s not really a lot of difference between a small business and a lifestyle business. The difference is driven purely by the goals of the business owner. Lifestyle entrepreneurs start their business to attain a specific lifestyle or income, whereas small business owners are usually more focused on growth and revenue building. Small businesses are different again to startups though, which are high-growth business models that have much greater scalability than the average small business.
- Running Your Own Company: There’s nothing quite like owning your own company. Everything you are working for is for you, not for somebody else, and all of the profits are yours too.
- No Oversight: Most startups require investment from venture capitalists or angel investors, who are usually quite involved business operations, but this is not the case with small business models.
- You’re Creating Jobs: For many small business owners, this is part of the satisfaction they get from running their own business. Not only are you in charge of your own financial destiny, you’re providing opportunities for others.
- It’s A Gamble: If your business requires investment in infrastructure or product, there can be quite a high startup price tag, which will either come out of your savings, require a loan or investors. This outlay comes before you start earning a dime, which can result in cash-flow issues at the start, and if things go sour, a large debt. (The Bureau of Labor Statistics reports 20% of small business fail in their first year, and 50% within 5 years.)
- You Need A Lot Of Expertise: Unless you can afford to hire professionals, you’ll need to wear many hats. From accounting to marketing and operations, you’re likely in charge of everything, and without experience, you may end up in over your head.
- The Balancing Act: Because it’s your livelihood – and often your pride – on the line, you’ll be willing to do whatever it takes to ensure the success of your business. That means you’ll likely be working very long hours and your work-life balance will suffer.
Many people think a startup is any company that is just getting up and running, but a true startup is much more than that. What makes startups different from other businesses is that they are designed for fast, exponential growth. A startup is a business model for a product, service or platform that has high-growth potential, which means it is usually innovative, has a large market and the means to reach it.
The most important aspect of a startup company is a scalable business model. It’s not enough that the product or service solves a problem, fulfills a need or does something better than another company. It needs to be a viable business model that can grow very fast. Most startups also require financing, which traditionally comes from venture capitalists or angel investors.
- No or Little Personal Financial Risk: Because you rely on financing, you’re not completely wiped out if things don’t work out.
- Potential for High Profits: Fast growth potential means fast high profit potential. This is why you see so many wildly successful startup entrepreneurs grow a business quickly and then sell when it hits a certain value.
- Opportunity To Become The Next “It” Company: With a startup, you have the chance to take the world by storm with your innovation, be it in tech, medical, transportation or any number of consumer and business markets.
- Finding Investors Can Be Challenging: Without the right connections it can be hard to source funding.
- Investors Expect Results: Venture capitalists are looking for the highest ROI on their investment, which means more pressure to grow profitability.
- Startups Have A High Failure Rate: The rates vary depending on who you talk to, but for every Facebook and Uber there are probably hundreds or thousands of businesses that have failed.
Once you’ve decided what type of business best suits your goals, you can start thinking about the kind of businesses that will get you there. This is where you dig a little deeper into your skillset, interests, opportunities and ideas to start figuring out what your business should be. You should be asking yourself a lot of questions and spending time researching the industries, products or services that are of particular interest to you for your business venture.
Not sure where to begin? Here are a few questions to get you started.
- What do you love to do? While this is not always the route you should take when creating business ideas, it’s a good place to start. Doing something you are passionate about cannot only make your business life more fulfilling, it can also make you more successful. Many of the most popular products and services in the marketplace are so successful because the founders were really passionate about whatever it is their startup idea was built on. But with that said, if the thing you’re into isn’t something a lot of other people are into, or conversely, it’s very popular and the market is saturated, it’s unlikely to be a viable business idea.
- Is your idea new? If the answer isn’t yes, then you need to make sure you’re either offering a better option than what is currently available or you are well placed to compete in the existing marketplace.
- What needs are unmet or underserved? Have you identified things in your own world that would make life easier or better? What products or services would you use if they were available? What annoys you about some of those you do use? What are your frustrations? And even better, what frustrates others? Quiz your family, friends, neighbors, the store clerk – anyone really – and see if anything sparks an idea for an unmet or underserved need.
- Do you want to start from scratch? Many entrepreneurs want a unique business, but that’s not the only way to build your own business. If you’re looking for the independence that comes with running a small business with the support system of a large business, consider starting a franchise. Franchises generally offer a proven business model, training and best operational practices, not to mention an established brand, corporate advertising and a high success rate. There are disadvantages of course, but for those without any business experience, it’s an option to consider.
Your next step should be to grab your laptop or pen and paper (or both) and start making some notes about your ideas, wants and dreams. Spend some time researching your concepts. See what opportunities are out there. Check out the competition. And stay tuned for our next article in the series which will look at the pros and cons of some of the most popular business models.