— August 31, 2018
After spending nearly a decade as an entrepreneur, I have learned that there are many romantic beliefs people have about starting a business. Many of them are not compatible with the challenging and often cruel reality that entrepreneurs face. While being your own boss can be one of the most rewarding things that you will ever do, you are going to have to accept that there are going to be risks and challenges along the way. You are also going to need to accept that you won’t get everything that you want, including the chance to become a millionaire playing World of Warcraft like some people envision.
The biggest challenge and compromise that you will need to make is choosing the right type of business. This is the single most important decision that you are going to make as an entrepreneur. Numerous entrepreneurs fail, because they don’t get this part right. After cash flow management, this is probably the biggest reason 50% of businesses fail in the first five years.
Here are some common mistakes that entrepreneurs make when choosing a business. If you need inspiration, you should find out what ideas have worked for other business owners.
Believing that you can turn your biggest passion into a business without any objective evidence to support it
Almost every business coach I have ever heard of tells people to “focus on doing what they love.” This can be good advice, but there is an important element that is always missing. The context should be “do what you love, as long as there is a lucrative market for it and you have a reasonable chance of competing.”
Everybody has favorite hobbies. Many people also found an activity from their previous job that brought them a lot of enjoyment. Unfortunately, a lot of those passions don’t translate into profitable businesses. Carol Roth, a renowned entrepreneur that wrote The Entrepreneur Equation, points out that “the best businesses don’t care about you or your passions.”
My first business school professor shared a great anecdote to make this point. He said that his brother had an affinity for parrots, so he opened a store selling them. He quickly discovered that very few people shared his interest, so his business never took off.
After it failed, he started a dog washing business. While he wasn’t as passionate about dogs at first, he learned to enjoy it and discovered that there was a lot more potential for growth.
Focusing on the global market, not the local one
Entrepreneurs often discover that the market for certain goods and services is much higher in some areas than others. One woman I consulted with from Northern California discovered this the hard way.
She practiced gyro tonics, a service that helps people affect their balance while doing weightlifting exercises. She found that there was a fairly strong market for those services in California. However, when she relocated to Arizona, she found that there was not nearly as much interest for some reason. She had to pursue a different business model to make a living.
It is very important to understand the local market before choosing a business. You may be surprised by how much demand differs regionally.
Choosing an idea that is too ambitious for your resources and level of expertise
Most of the businesses that I have launched or partnered with are online. Many online businesses have a tremendous amount of competition and require a massive amount of resources.
Some entrepreneurs aspire to be the next Facebook or eBay. You would need hundreds of billions of dollars in seed capital just to have a chance. The overwhelming majority of business owners don’t have those kinds of resources.
Being too generalized with your business model
Successful businesses are recognized for standing out in a sea of competitors. It is very difficult to do that by offering the exact same services. Is also hard to create a successful business model if you are spreading yourself too thin by focusing on a wide range of products and services.
You were going to have a much better chance at succeeding if you take a much more specialized approach. You are going to have a much better chance at succeeding if you take a much more specialized approach. Narrowly defined your market and the solutions that you offer.