Competitive Advantage Is Crucial
Almost any business you start will have competition. When choosing a small business idea, take into consideration what you will be able to offer customers that provides a significant advantage over your competition’s offering. Stress this advantage in your sales and marketing strategy from day one—whether it’s faster service, better selection, lower prices, better quality, or whatever else potential customers for your product or service may really care about.
Choose Your Competition
How tough is the competition in the market you are considering? Maybe the same concept would fare better in a nearby market or in another related product or service niche. Remember, the only time you can “choose” your competitors is before you start a business.
Can the Market Support You?
You need to think about the size of your potential market, especially if you are considering a local, specialized business. Are there enough dollhouse collectors in the vicinity to support a specialty store? Is the local market large enough to support another full-service Mexican restaurant?
Hobbies Often Stay Hobbies
A lot of people may advise you to consider hobbies when looking. According to them, they make the best small business ideas. Do this cautiously. Although there certainly are exceptions to this rule, many hobby-based businesses fail to realize the sales or profitability that their founder-hobbyist anticipated. One reason for this is that many hobbies have very narrow and extremely segmented audiences. Another is that there is often an abundance of talented people in any hobbyist industry, people who are content to sacrifice a higher potential income in another field just to be able to work at something they truly enjoy. In other words, your competition may be stiff.
Avoid Businesses Where Economies of Scale Matter
Unless you plan a major public offering on a public stock exchange, you will probably be starting a relatively small business. Avoid industries in which you would be competing directly with firms that have a significant market advantage in terms of their size alone.
Increase Your Odds by Entering a Related Field
If you don’t go into business in a field that you know extremely well, you may be in for a long uphill struggle. Not only will you be facing a problem all start-up businesses face—established competition—but also your competition will know the business a lot better than you will. However, experience is only one factor. Sometimes you may find another opportunity that you don’t have related experience for that is a better bet for you.
A perfect example of this is setting up a consulting business based on your previous professional experience. It can even be a great business idea you can start at home.
Beware the Internet Gold Rush
I’ve seen a bunch of entrepreneurs start Internet businesses with mixed results. It’s kind of like the California gold rush all over again. Yes, some people are getting astronomically successful and wealthy, but many, many more are failing completely. It is hard to build traffic and awareness on the Internet. It is notably harder to build revenue.
Furthermore, with so many areas of the Internet overflowing with competition it is difficult to charge decent prices and make any money. Why is the Internet so difficult to make money at? Generally, the barriers to business entry are low, so market positions are not defensible, competition is intense, prices are low, and profits are all too often nonexistent.