No announcement yet.

7 highest risks in Starting a Business

  • Filter
  • Time
  • Show
Clear All
new posts

  • 7 highest risks in Starting a Business

    This popped off the screen today at me when I went to Yahoo's front page.

    The read is important for those caught in the crossfire of wanting to break out on your own and have a go at doing for yourself.

    The 7 Most Overrated Businesses

    By Kelly K. Spors and Kevin Salwen
    With roughly 6.7 million jobs lost since the start of the recession, it's tempting - and often a great idea - to launch your own business. That way, of course, you can take matters into your own hands. No more rolling your eyes at the boss; it's your show.
    But many people do a lousy job of picking businesses they can realistically turn into a profitable operation.
    "There's this very sad pattern about how people start businesses," says Scott Shane, an entrepreneurship professor at Case Western Reserve University in Cleveland, Ohio. "People are most likely to start businesses in industries where start-ups are most likely to fail."
    The problem: Many would-be entrepreneurs are drawn to businesses they like to patronize or the ones that are cheapest and easiest to start. Instead, experts argue, aspiring entrepreneurs should create firms in which they have professional experience so they have a competitive advantage in the market.
    So, what are most overrated businesses out there? We spoke with small business experts to find out. Here are seven you might want to think twice about - and then maybe twice more.
    1. Restaurants. Dining out and cooking are among Americans' favorite pastimes. But "restaurants are among the toughest businesses to run," says Donna Ettenson, vice president of the Association of Small Business Development Centers in Burke, Va.
    Far too many people assume their culinary abilities will lead to success in the restaurant business. Instead, about 60% of restaurants close in the first three years, according to a 2003 study at Ohio State University. That's quite a bit higher than the roughly half of all start-ups that close in the first five years.
    The reason: Restaurants typically have low profit margins and need strong managers who can run an ultra-tight ship through seasonal fluctuations and other struggles. Most people don't have that kind of intense managerial ability to pull it off. By the way, the pitfalls are quite similar for restaurants' cousin – the catering business. In other words, Chef Emptor.
    2. Direct Sales. It's a tempting pitch: Work from home and earn commissions by selling cosmetics, kitchen knives or cleaning products. But companies that recruit independent sales reps tend to attract new team members by pointing to the success of their highest earners.
    A harder look shows that those high earners are making big money in large part by recruiting new reps into the organization and getting bonuses or a cut of their recruits' commissions, says Ken Yancey, chief executive of SCORE, a Herndon, Va., organization of current and retired business executives who volunteer time counseling entrepreneurs. The new reps then have a much harder job because they need to recruit more people on top of selling product even though the number of reps out there is increasing.
    The result, Yancey says: "Most of them wind up with a bunch of jewelry or kitchen equipment sitting in their basement that they can't sell."
    3. Online Retail. By far, one of the easiest businesses to start is selling items through online marketplaces such as eBay or Amazon. But as online commerce ages and these sites fill up with more established retailers, it's much harder for new, small sellers to compete for attention and generate a viable income.
    "A lot of people are thinking it's the Web of five or 10 years ago and you stand out simply because you're on the Web," says Rieva Lesonsky, chief executive of GrowBiz Media, a content and consulting company for small businesses based in Irvine, Calif.
    Instead, successful online retailers today must have a handle on sourcing their products at a low enough price, then layering on clever online marketing and fine-tuned logistics. These businesses won't generate much income if they can't be easily found in searches, maintain a good reputation among buyers or add enough value so that sellers can build profit margins high enough to take on bigger players and physical stores.
    4. High-End Retail. Many people dream of opening a day spa, luxury jewelry store or designer clothing boutique – businesses they feel good patronizing. But specialty retail businesses close at higher rates than non-specialty stores, according to the Small Business Administration's Office of Advocacy, and are even riskier now that consumer discretionary spending has dried up and people are no longer spending money on little luxuries.
    "It's going to be a long time before we return to the days of conspicuous consumption," says Ms. Lesonsky of GrowBiz Media. High-end retailers often suffer from poor locations and lack of understanding of how to source and market their products in an effective way. In today's economy and in coming years, she says, retail entrepreneurs should be looking to sell non-discretionary consumer goods or offer items at a value rather than high-end products.
    5. Independent Consulting. Common advice for aspiring entrepreneurs is to stick with industries they know. So, for many looking to escape the corporate treadmill that means turning their professional expertise into a one-person consulting firm.
    It seems practical – more companies are indeed relying on independent contractors and freelancers these days – but it's not as easy to pull off as many imagine, says Dennis Ceru, an entrepreneurship professor at Babson College in Babson Park, Mass. Many consultants struggle with time management problems, spending so much time scouting work that it's very difficult to earn steady income. "The difficulty many face is they go through peaks and valleys of having work," says Prof. Ceru. "When the engagement ends, they are frantically looking for work," which may take weeks or months.
    A possible solution: "A successful consulting firm needs people to find the work, grind out the work and mind the work. Unless you know you can do all three yourself, you potentially expose your business to great risk."
    6. Franchise Ownership. The idea of being handed a proven business plan without the uncertainties and headaches that come with building a business from scratch is understandably alluring. But too many people don't understand the risks associated with franchising and sign restrictive franchise agreements without thoroughly researching their franchisor and their contractual obligations, says SCORE's Yancey.
    Some franchisors, for instance, allow franchisees to open stores too close together, oversaturating the market. Or they simply require their franchisees pay so much in royalties and fees or other operational costs that it's very difficult to be profitable. Beyond that, when a franchisee fails, a franchisor may make it extremely difficult and costly to get out of its contract.
    It's a myth that franchises are far more successful than independent businesses. A 1995 study by a researcher at Wayne State University found that 62% of franchises were open for business after four years, compared with 68% of independent businesses. And franchises were also found to be less profitable in those early years.
    7. Traffic-Driven Web Sites. Everybody has witnessed the success of social-networking sites like Facebook and popular blogs that generate all their revenue off advertising. But as the Internet ages, that's much harder to accomplish, says Martin Zwilling, a start-up consultant in Fountain Hills, Ariz., who specializes in helping entrepreneurs find angel investors.
    Zwilling says he hears pitches for new social-networking sites about once a week, but actively deters people from starting them. "I say, skip it," he says. "You need to invest $50 million to get any presence" in the social-networking space right now and it's very difficult to get people to leave established sites. What's more, he says, the amount of traffic needed to build a lucrative traffic-driven Web site is far more than most new Web entrepreneurs realize: "Until you get to the point where you have a million page views a day, you're nowhere."


    Some of this content pretty much represents that "the big guy snuffs out the little guy" in most respects.

    Still, if you are driven, you can consider your risks and go from there.
    Northern Kentucky Plumbers Twitter Feed | Plumbing Videos

  • #2
    Re: 7 highest risks in Starting a Business

    Thanks Dunbar, interesting read. Just a few points that seem to always surface in writings such as this:

    They are asking people's opinions that don't really produce anything tangible. I may have missed it but I don't recall one of the 7 points having a person commenting that owned a business that someone could buy and "take home".

    I find consultants in the majority to be a joke. Almost any business owner or person with reasonable intelligence can look at something, identify problems, and give options for solutions.

    Then, professors. They can also gather the information and give deductive reasoning for good/bad and why/why not. But do they have practical experience owning say.....a sporting goods store? Without hands on knowledge their opinion is greatly lacking to me.

    I've checked SCORE before. At least they've had some responsibility (in theory) in business. But how many "executives" have started something from nothing and bring it to great success. I dare say many on the forum could be put in an "executive" position and do very well or sometimes better than those put in that position regularly.

    I've learned more from the guy that started a sawmill in his backyard and turned it into a multi-million dollar business.

    Good post to make you think again.




    • #3
      Re: 7 highest risks in Starting a Business

      I've been referred to score as well, but have been very hesitant as I don't want to reveal all my cards. Talking about it on the internet and then talking about particulars are two different things...and then the reality against perception model plays into the majority of what armchair opinions can be.

      Now in regards to what people do,

      I've seen too many times, including myself where the mindset of what you're doing and being "too deep" into your process will put blinders on your perception...and most times people will tell you that you are not opening up horizons around you to understand that you need to apply different/more methods to accomplish your success.

      The talent, especially now is not to become a statistic.

      Remember that the fail rate is 90%, 90% for all small businesses. None of us are resilient to this, no way.

      That number has to be around 98% at this point given the state of the way it cannot be.

      Government doesn't mind because they know you usually dump a lot of money into the front end of the equation, reality sinks in within the first 18-36 months of whether you've got the nuggets to stay afloat, and even then, 7 years in business is usually the threshold they put out there that you've got what it takes to keep operations going.

      There are so many factors that enable a non-profiting business to stay afloat, like a spouse/family money/other job/sell off of assets.

      The water gets murky on how many really make it....and just because a company doesn't make millions does not mean it isn't profitable.

      I've seen many larger companies work inside large numbers I'll never see.......and the boat has more leaks in revenue killers than anyone wants to talk about. Get lots of people into that equation and you soon find out you're paying strategists how to tighten up the process, patch the leaks before you find yourself being a statistic.

      It happens even without the economy being a deciding factor. The economy just ups the ante that it is more probable.
      Northern Kentucky Plumbers Twitter Feed | Plumbing Videos


      • #4
        Re: 7 highest risks in Starting a Business

        i think i'll start selling k-60's, seesnakes and propress machines from the back of my sprinter

        with every sale, you get free training and unlimited support.

        all i need to do is start with some inventory and hit the road

        doesn't ridgid already have their ridgid reputation roadshow sprinter

        i guess i could be a franchisee then

        joey, load the truck, we're going on a road trip

        next stop,

        400 clark st. elyria, ohio. 44035.

        for restocking the truck. fill her up fred

        see you in a week

        phoebe it is


        • #5
          Re: 7 highest risks in Starting a Business

          1st stop my house!
          the only dumb question is the one that is not asked!


          • #6
            Re: 7 highest risks in Starting a Business

            Originally posted by Jerad View Post
            1st stop my house!
            first 12 hours in business and i have a sale

            joey, go load the truck and don't forget the willey nelson 8 track " on the road again" and sammy hagar cassette "i can't drive 55"

            jered, i load up the proven rick-3500 18 h.p. 3500# 5.6 gpm jetter.

            you also want to team that with the proven k-60 and seesnake

            you'll have the 3 best drain cleaning and inspection system on the market

            joey, mark will explain what's an 8 track. p.s it came after a 4 track

            phoebe it is


            • #7
              Re: 7 highest risks in Starting a Business

              i think Santa had an 8 track on his sleigh. isn't that right Santa?
              they were popular when i was on the kid.
              the only dumb question is the one that is not asked!