How to Decide the Type of Small Business to Start

Having worked 10 years as a small business development counselor, I know how difficult the whole business development process can be. Most small businesses will fail within their first year of operation. Another large percentage of them won't survive beyond five years. One key for small business is finding the right type of business to start in the first place. That doesn't assure success, by any stretch of the imagination. However, it increases the opportunity to be successful by a significant margin. To determine the right small business for you and your community, certain consideration must be taken into account.

Instructions

Difficulty: Moderate

Things You’ll Need:

• Small business startup reference books
• A small business development counselor
• A business plan outline

How to Decide the Type of Small Business to Start

1. The first step is to determine in what industry or field you have expertise. Many small businesses fail because owners opt to enter into a field or industry in which they have no experience or real interest. That can be a recipe for disaster.
   
   While experience in the arena doesn't ensure success, it certainly makes it far more likely. And most people won't choose to remain in a business in which they have little or no interest.
2. Next, determine what type of small business you are interested in starting. Keep in mind that it should match with the industry or field in which you have existing skill. If it does, move on to the next step. If it does not, consider obtaining education or training in that business arena before proceeding. If that doesn't appeal to you, then you need to reexamine your potential business options.
3. Once you have settled on a possible small business option, it is time to research the competition. Do not think just in terms of direct competition, or those that would do exactly the same thing as your business. Also consider indirect competition, or those who would do pieces or parts of what your new business intends.
   
   If the area where you intend to start your business is already flooded with competitors, then you must make certain that the customer base is broad enough to support another. If, on the other hand, there is little or no competition locally, you may have stumbled onto something worthwhile.
4. Determine your potential customer base. This can be difficult for a business startup. Too many people tend to think that their business is "for everyone." In fact, that is rarely the case.
   
   Every business has a typical customer. In order to be successful in a business, you must be certain that you have enough customers.
   
   Scout out the competition. Observe who their customers are. A pattern will often emerge that will identify the typical customer for that type of business.
   
   Armed with that information, check local demographics to find out how many customers are available in the area your business will serve. Local chambers of commerce can be helpful in obtaining this kind of demographic information.
   
   If there are sufficient customers to support another business, then proceed to the next step. If not, you need to back up and start the process over again.
   
   It is possible to sometimes "tweak" your customer base by adding new or additional services. This helps to broaden the number of potential customers available. This is another option for ensuring potential success.
5. Decide whether you want to begin a business from scratch or purchase an existing one. Both options have pros and cons. Contact an SBA (Small Business Association)or other business counselor to help you explore your options and make a viable decision.
6. Next, determine how much capital you will need in order to get your business up and running. Most industries and fields have professional organizations that can provide information on the types of tools, equipment, and supplies needed for business start-up. These groups can also be helpful in determining how much overall cash-flow will be needed to keep the business afloat.
   
   If it seems feasible that you can obtain the money needed to start the business, then continue to the next step. If you will require capital that you don't already have, then talk with a local bank to find out if small business loan financing is possible.
   
   If you are purchasing an existing business, see if the the previous owner is willing to work out purchasing terms with you. Sometimes, it is advantageous to them not to receive funds in a lump sum. Therefore, they may be willing to finance all or part of the loan directly.
   
   Although we hear every day about all of the "free money" supposedly made available for small business development, those funds are generally strictly categorized and not typically open to the general public. If you are dependent upon free money for business start-up, you may have just encountered a major road block.
7. Also take a look at the number and types of employees you will need to keep your business operating. If the number is small or the categories limited, you probably won't have any problems. However, if it requires a lot of people or individuals with specific skills, then you need to make sure those types are available before proceeding. If they are not, then you might have to invest in some training, which could significantly increase your business start-up costs.
8. Finally, draft out a small business plan. Outlines for such plans are available on the Internet as well as through chambers of commerce and other business organizations. They can also be purchased at many bookstores.
   
   If, after you have drafted your plan, the business still looks feasible then you are set to proceed further. If it doesn't, then attempting to start the business, in spite of the warnings, is highly likely to result in business failure.

Tips & Warnings

• It is important to have skill, education or training in the business field or industry of your small business.
• When looking at the competition, you must consider both direct and indirect competition.
• You will have to put some capital into your own business in order to obtain any kind of small business loan.
• Always draft a small business plan. It will help you determine the feasibility of your business. It will also be required in ordered to obtain a small business loan.
• It is inadvisable to enter into a business venture for which you have no talent, experience, or training. While you most certainly can hire employees to offset your shortcomings, it gives them an upper hand over you, which isn't a good way to start a business. The one exception to that rule would be if you intend to purchase an existing business. Sometimes, the business's previous owner is willing to stay and work with the new owner until he or she is ready to stand alone.
• Entering into a business arena that already has too much or too strong competition isn't advisable.
• Do not fall into the trap that says "everyone is my customer." That is rarely, if ever, the case.
• There rarely is "free money" available for the typical small business owner.