Introduction
Many first-time entrepreneurs pick the wrong type of business to start, making their life much harder than it needs to be. You can succeed with many types of businesses, but if you want to reach success faster, consider starting a business with these characteristics.
The Trusty Tripod
The Trusty Tripod is three characteristics that every new business should have.
- Narrow target market
Most entrepreneurs make the mistake of either not setting a target market (they think their product or service can help everyone) or they set it too broad. Both of these are mistakes.
- Compelling value proposition
Most value propositions are generic and non-exciting. Make your value proposition SMART (specific, measurable, ambitious, realistic, and time-bound) so the prospect knows exactly what you deliver.
- Can get your message in front of prospects quickly and cheaply
You can have the best solution for your ideal target market, but if they don’t know about it, it doesn’t matter. Is there a way you can get your business in front of your target market quickly and cheaply? If it is really difficult to reach your target market (because they are scattered around, difficult to identify, or difficult to contact) then you may want to revise your business idea.
Other Important Characteristics
The following list is simply a suggestion and you are encouraged to add/remove items as you see fit. Most entrepreneurs are so focused on how to change the world or how to sell their stuff, they don’t think about the type of lifestyle that they want to live. What good is being a millionaire if you hate the business you’ve built and you don’t like the customers you have? Figure out what kind of lifestyle you want and build the business model around that.
- Outsourceable
Once the business is up and running, can you get other people to do most of the work for you? In an ideal world, the business should be able to run itself so you can take a month-long vacation and not worry about anything. This is possible through automation and hiring employees. Certain professionals, like doctors, lawyers, TV personalities, etc. aren’t able to leave for a couple months because they are the main person and they can’t outsource themselves. Keep that in mind when designing your business.
- Scalable
Can you scale your business quickly? With the Internet, it is possible to turn your company into a multi-million-dollar organization faster than ever. Scaling a local brick and mortar store to a national presence could take decades, but scaling an online-based store to a national audience can now happen overnight.
- Target market has money
It is difficult making a living selling lots of low-priced items to people who don’t have much discretionary income. It is easier to sell a few high-priced items to a market that has lots of money.
- Can make a buying decision quickly
If it takes your prospects six months to make a buying decision (perhaps it has to be approved by several committees and a board of directors), that is going to make life difficult as a first-time entrepreneur. It is usually better if your customer can make a decision quickly so you can get instant feedback and make more sales.
- Emotional need to fix quickly
People buy based on emotion, not logic. Does your product or service solve a pain that the prospect wants to fix ASAP? Or is it a product that would be nice to have someday but there isn’t any emotional reason to buy today? The more emotionally motivated someone is to get your product, the easier it is to sell.
- Low startup and fixed costs
It usually takes longer to start making money than an entrepreneur expects. Having high start-up costs and high monthly recurring expenses will make you burn through cash quickly and put you in a difficult financial situation. Try to keep your costs as low as you can and consider using the Lean Startup methodology.
- Recurring revenue
It is difficult to get a customer. So once you get one, you want them to buy as much as possible (assuming you are doing it ethically and providing a good service that helps them). Monthly subscription services are good for this because you will keep generating revenue every month without doing any extra work. If you don’t have a subscription model, you want to have other products and services available that they can keep buying in the future.
- Similar successful companies/people can model
Are there other companies / people making lots of money doing something similar to yours? If not, that could be a warning sign. Many entrepreneurs look around and if they don’t see anyone doing their idea, they feel excited since that must mean they are an innovative thinker and they will have a monopoly on the market. But that is rarely the case. There may be no competition because other people tried and failed. That doesn’t mean you will fail as well, but you want to learn from history and see what caused the previous companies to not succeed.
If there are no competitors, you will have to educate your market which takes a lot of time. It is easier to explain your product when you have something to compare it to. And finally, you want some competitors so you can model what is working for them. You don’t want to have to create a business model from scratch since that will take a lot of time and money.
Now if you are passionate about doing something completely new, that is fine, just make sure you have lots of cash in the bank to last you a few years since it will probably take you a lot longer to achieve success.
- Work from anywhere
This may or may not be important to you. But being able to work from anywhere in the world is an exciting reality for many entrepreneurs today. The term “digital nomad” describes people living this lifestyle.
- High transaction rate and retention rate
It is nice to have a business where people buy or use your service often and for years to come. A reason smart-phone messaging apps are worth billions of dollars is because people use them multiple times per day. If you are thinking of creating a company where people only buy your product once a year and the product has a low price point, you may want to reconsider.
- Multi-million-dollar potential
Starting a business, any business, is hard. It is going to take a lot of work and sacrifice. So if the business idea doesn’t have multi-million-dollar potential, why bother starting it in the first place?
- Do you like it
Do you like the business you want to start? Do you like its mission? Do you like the customers you will have? Do you believe in your product? Or are you just doing it for the money? Starting a business is hard and you will fail many times. If you aren’t excited by what you are building, you may not have enough motivation to keep you pushing through the hard times.
