When you are wondering how to start your own business, the first thing you do is picture yourself as a business owner. That being said, having your own business is a pretty broad concept. What three types of business are popular among newbies? A businessman and co-owner of a group of companies Ivan Kroshnyi shared his thoughts with us.
Option 1. Own business: Pros and cons
The number one option is to start your own thing. Many people associate it with success and financial independence. However, you need to think everything through at the early stage if you wish to reach your goals and not fail as you are halfway there.
How to start your own business?
- Scrutinize the niche you are planning to run a business in.
- Check out competitors operating within this niche, and see what their advantages and drawbacks are, and what goodies they offer.
- Become their customer if possible; this will help you understand their product better.
- Working as a hired employee in that specific industry will let you explore all of its aspects from the inside.
- Complete accounting and/or economics courses to get a better idea of the cash flow within your future company.
- Write a thorough business plan and take all preparatory steps.
- Break all projects into small parts.
- Keep a close eye on what is happening in the niche you’ve picked, attend relevant events, and make sure to stay on top of the latest developments.
Advantages of having own business. You are the sole decision-maker who is in charge of building and maintaining strong relationships with your team and partners.
Drawbacks. This is a huge responsibility you should be ready for. You also have to be able to adapt quickly to the ever-changing environment and always have a Plan B.
Hidden pitfalls. As evidenced by statistical data, 90-95% of newly-incorporated companies do not survive past their third anniversary. Why does this happen? The culprit is a lack of proper preparation early on.
- Wrong or poorly investigated niche and its prospects, risks, and possibilities.
- Poorly chosen partners with whom you haven’t properly discussed and agreed on areas of your responsibility or whose values don’t meet yours.
- Errors were made when planning the business budget and course of the company’s further development.
Deciding to start your own business is a very serious step. You should be a sensible person capable of carefully weighing every decision you make and quickly responding to the situation at hand. However, once you reach your goal, you will see that it was all worth it.
Option 2. Investing in someone else’s business: Benefits and hidden pitfalls
The second option is to become an investor. After all, you don’t necessarily have to invest solely in your own business—someone else’s work for it is just as good. This is an excellent solution for those seeking to diversify risks or those who already have a certain capital but aren’t ready to start their own business just yet. Another advantage is that investors have far less responsibility to carry.
There are two key options: you can invest in either a newly-emerged startup or an already existing business that is now scaling up.
Startups. Buying into the hype around Google and Amazon’s success stories, many investors dream about finding that one startup that will eventually evolve into an industry giant. But the sad truth is that 95% of startups fail before they even hit their first sales.
- Investing in startups is a high-risk affair.
- You need to be realistic and understand that you are investing in a new concept and a young team that has been recently formed.
- You have no idea how well the team will perform and whether it will be able to deal with the arising market challenges.
- Less than positive survival statistics.
- You can have an influence over the new business and become a co-owner.
- You may become gloriously rich if you manage to find a truly worthy idea and invest in it early on. But the problem is that finding a real diamond like that is not an easy task.
If you are still determined to invest in a startup, make sure to analyze the niche and its prospects thoroughly. Examine the roadmap, and scrutinize the analysis of the product-to-be, reaction, surveys, and profile of prospect customers, and meet the team. Before investing, you need to do thorough work because both the future of the startup and your capital depend on it.
Existing business. As far as existing businesses go, these are medium-term investments that can generate 15 to 20% returns per annum.
- There’s already a team that demonstrated sufficient performance that you can access.
- You’ve got an already formulated growth strategy in place, a success story, and an analysis of possible issues.
- The odds of losing your money are very low.
- The average annual profitability is not too high.
- You don’t have a major say in business management.
If you picked this investment route, you need to understand what, in addition to money, you as an investor can bring to the table. It may not be your own business per se but you can have an impact on what is happening inside the company.
Option 3. Franchise: What makes it so popular?
The third popular option is franchising. In essence, a franchise is an agreement with the parent company granting you the right to run a business under an already recognizable brand and agreed terms based on the company’s business model. The statistics say that about 80% of such companies are capable of standing the test of time. That is why the franchise is considered to be one of the safest investment options.
- You are investing in a ready-made business while getting your own.
- Little or no advertising costs involved since you will be dealing with a well-known brand.
- You will already have suppliers and/or partners. No need to look for anyone additionally.
In a nutshell, you have the competitive advantages right off the bat while being able to keep risks to a minimum.
- You must comply with the rules established by the given brand. What this means is that you won’t be able to change the color of the sign, the advertising strategy, or the recipe.
- You can work with specific suppliers only.
- There are restrictions on competition.
Despite the existing limitations and requirements, you must be able to make your own decisions if you decide to run a franchise.
How to start your own business using a franchise? Many well-known companies such as McDonald’s, Mucho Gusto, or Columbia you’ve definitely heard of have their franchises across the globe. There are also plenty of successful companies operating in the local markets. So, if you wish to buy a franchise, you will have loads of options to choose from.
How to pick a solid franchise?
- Figure out your investment opportunities.
- Choose the business that makes sense to you.
- Assess the market, and existing supply and demand.
- Look into the company’s history, in particular, check whether the company has been operating in your locality and what results it was able to achieve.
- Find out who the business owner is.
- Analyze what a franchisee is required to do.
- Talk to other franchisees.
To put things into perspective, let’s take a closer look at the emerging market of electrical technologies and the Kucher Eco franchise which demonstrates a return on investment in 13-18 months’ time. Lumpsum payment—franchise fee—is $5,000. Plus, there are no royalties. To get started in this niche, you will need at least $56,000 including the product itself—this is critical! The business can be launched within a month provided that you purchase the goods and find suitable premises quickly. Does this franchise have good prospects? Based on the figures, it definitely does.
On top of that, there is a sustainability trend that is only gaining momentum, not to mention the traffic congestion in the cities which electric vehicles will help address.
No matter what option you choose in order to start your own business, whether you will invest in someone else’s business or purchase a franchise, you must approach it in a responsible manner. As I’ve mentioned earlier, running your own business is a big decision to take.
How to start your own business and make sure that it survives past its first anniversary? Here’s a piece of advice I would give you—plan and think things through carefully. Don’t rush as your financial well-being depends on it. Analyze every subtle nuance because when it comes to running your own business, even the smallest detail matters.
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