I hate the term “serial entrepreneur”. It reminds me of a joke where a guy invents a breakfast cereal and calls himself a “cereal” entrepreneur. Anyway, rather than use that term, let’s just say I’ve had my fair share of small business ventures. And if I’m being honest…some successful, but most not.
The focus of today’s article is to cover what I consider to be “essential” or “advantageous” attributes. Said another way, I have found that there are certain aspects to certain business that can make it easier to succeed. I’m not saying that no business can function or succeed without them, but they can certainly help!
Recurring Revenue
My “day job” is my consulting business. I help borrowers who cannot afford to repay their SBA debt to negotiate settlements (aka Offer In Compromise). For almost 10 years, my sole source of business has been internet searches.
What sucks about depending on the internet for business is that I’m at the mercy of the legendary “Google algorithm“. If I slip to page 2, it hits me in the wallet because people can’t find me.
What’s worse is that my clients are of the “one and done” variety. By that I mean that once I complete a settlement negotiation, there is not additional business to be had.
If I were to start a new business, I’d look for one with recurring revenue. Something that didn’t require constantly attracting new clients. Not knowing when the next client will sign up gives my cash flow a certain amount of lumpiness.
If I had 20 fixed clients at $500 per month, I’d have a dependable $10K per month. Sure, there would be a little turnover, but not the 100% turnover I experience now.
No Critical Mass Required
Businesses that require a certain size before it can work are best left to the the big money venture capitalists.
I’ve tried my share of these types of businesses, and they are a slog. Starting something like a dating site, a message board, or anything that requires lots of people to function can be expensive and take lots of time to build.
If I build a dating site, I need lots of girls to sign up so that I can get lots of guys to sign up. The problem, of course, is that guys won’t sign up if there are no girls on the site.
Rather than try to solve the chicken and the egg problem, I’d recommend a business that you can offer a product or service that doesn’t depend on a critical mass. Being able to LOOK like a bigger business than you are is easier than actually being big.
If I have a good website with helpful information, it doesn’t matter have many other clients I have. In other words, having LOTS of client’s is not a pre-condition of having a single client. Compare that to my dating site example where having LOTS of users is imperative to attracting new users.
Obviously, it’s much easier to attract one client than it is to attract hundreds, or thousands,
Minimal Capital Requirements
If you look at the track record of even the most successful investors like Y Combinator, the majority of their portfolio consists of failed ventures. The lesson I take from that is that nobody, not even the worlds smartest investors, can really predict the outcome a business venture.
So, if the odds are stacked against you when it comes to entrepreneurship, doesn’t make sense to wager as little cash as possible on each venture? If you have cash to burn, you can afford a setback. But most startups are strapped for cash from day 1.
That’s why, historically, my ventures rarely require significant cash to start. My largest investment ever was a food truck for $30K. I got lucky the first year and made my money back, but had that bit of good fortune not fallen in my lap, I most certainly would have lost most or all of that investment.
I live in a town that has lots of restaurants and shops. Year after year, I watch the stores turn over. And every time if happens, that represents some one who put their life’s saving into their dream. And it reaffirms my belief that a service business is the way to go. No rent or heavy equipment to pay for.
Fill A Need, Not A Want
I quit a cushy corporate job to open an Italian ice and ice cream shop. Why? I was bored, I guess. I was desperate to try something different, be my own boss, and not stare at spreadsheets all day.
Within 6 months, I closed it. It was disappointing because I tried really hard to make it work. I did magic for kids, knew all my repeat customers by name, put pictures of happy customers on the wall, etc. None of it was enough.
On one of the days I was supposed to be at the store, I went golfing with my dad instead (don’t judge the business was already in the toilet!). We were talking about my failing store, and he said “Personally, I like businesses that people need.”
My dad made a good point. When you provide goods and services that people can easily cut out when times get tough, your business is going to suffer.
But if you have a business that people need regardless of the state of the economy, you have a recipe for success. Tax preparation is a good example. The IRS requires you to file no matter how good or bad you are doing. My consulting business is actually a good example to. People hire me because they not, not because it’s a discretionary luxury.
Niche
There is a steady drum beat throughout the internet that “niches make riches”. And I agree.
Distressed Loan Advisors is a perfect example of niches making riches. In the first 4 years of consulting, I made more in each of those years than I was making in banking.
So what niche do I fill?
In the lending universe, there are many types of loans. Conventional small business loans, merchant cash advances, payday loan type loans like these, credit cards, home equity loans, auto loans, residential mortgages, and SBA loans.
SBA loans are a big business, but still represent a small piece of the overall pie. Do you know what’s an even smaller piece of the pie? Business owners who have SBA loans that they can’t repay. And even smaller than that are those business owners who can’t repay their loan and want to hire someone to help them.
And that’s my niche. There are lots of other types of loans I could help with, but I only focus on one. It has allowed me to focus on every aspect of SBA loan default. As a result, I’ve been able to carve out a corner of the internet for people who need help with that exact situation.
