Monday, June 25, 2012

Shoestring Businesses: Low-Risk, High-Payoff Ideas



I thought you might enjoy an advance look at my next column in the Mensa publication, The Intelligencer.  

It is an adapted excerpt from my book, How to Do Life: What they didn't teach you in school.

Shoestring Businesses
No-Brainer Businesses that Can Make a Smart Person Rich

When I look back on all my clients, two things most often keep smart people from succeeding in business: the urge to innovate and the desire for status.

Don't innovate; replicate

Smart people love coming up with ideas. Alas, even Mensans' new ideas are more likely to fail than are proven ones because, for example:
  • The market doesn't like it
  • The market stops liking it before you've recouped your investment, let alone made enough money
  • The new product or service works less well than you'd hoped
  • The R&D costs of an innovation eat too much profit.
That's why guinea pigs so often die, why the leading edge so often turns out to be the bleeding edge. Deep-pocketed corporations can afford to risk innovations--they make profit even if only a fraction succeed. But last I checked, your pockets aren't that deep, so you need to maximize your chance of success on Try One. 

You're more likely to do that by replicating a proven business that costs little to start, what I call a shoestring business. That way, even if you fail, you may have money left for a second shot. It is an MBA-program-promulgated canard that you need money to make money. Below, I'll offer a half-dozen examples of proven shoestring businesses that require only a small investment.

But you protest, "When you replicate, you have lots of competitors!" That's okay. Take, for example, gourmet food trucks. There are a zillion already but here's how you could well succeed with number zillion and one: Play detective at a half-dozen that have long lines: Incorporate their best features into your truck, buy your equipment used, for less than half price, from one of the many failed food truck businesses, open up shop it in a great location, and your chances of success are far greater than if you try to come up with a winner out of thin air.

Note: In choosing a retail business, you accrue the advantage of being able to see which ones are successful and incorporate their best ideas into yours.

Status is the enemy of success

If you choose to start a high-status business, for example in high-tech, biotech, etc., you're competing with very capable people. In contrast, if you start what The Millionaire Next Door author Thomas Stanley calls a dull-normal business, your competition is more likely to have a two-digit IQ. That, of course, makes you more likely to succeed. 

Here are examples of low-cost, weak-competition businesses that also bear little risk of going out of style. Of course, you needn't do the low-level work yourself. These days, you can hire good people for $10-15 an hour.
  • Diesel repair shop 
  • Help singles write relationship ads. Photograph them for their profile.
  • Mobile home park cleaning service
  • Clean out basements and garages, then install shelves and cabinets. 
  • Install and remove home-for-sale lawn signs
  • Place and maintain laundry machines in apartment buildings
  • Own well-located carts selling food, flowers, scarves, knockoff- designer purses, French soap, sandwiches, or coffee.
Let's flesh out the latter. Let's say I wanted to start a business selling soup from a cart emblazoned with a catchy name like Souper! I'd take the time to find a great location: next to a train station, stadium, big-box store, movie theater, office high-rise, or other high foot-traffic area. Or even better, I'd make it mobile, for example, park it in front of a high school or college at lunchtime, move it next to a movie theatre for the evening, and near a stadium on Game Days. A cart business requires minimal rent, offers high profit margin, is a simple business, and isn’t a fad--soup, nor soap, nor flowers, nor coffee, are going out of style. Worried about its lack of status? You can tell your status-impressed friends that you're the president and CEO of the California Cappuccino Corporation, with branches throughout the state.

The secret to wealth: cloning

You may be thinking, "But I can't make enough money from such a simple business." You certainly could. Key is to clone it. For example, the simplest business I can think of is a shoeshine stand. Of course, I'd locate the stand on a high-foot-traffic street where people wear lots of leather shoes, for example, San Francisco's financial district. The stand would have prominent signage with a catchy name like Dianne FineShine. Once I learned the art and business of shoeshining, I'd set up a trusted friend with a clone of that shoeshine stand, asking for a small percentage of sales. I'd keep cloning Dianne until I was making enough money. 

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