There are lots of kinds of businesses you can start. Kind of an obvious statement, I know. But one of the biggest mistakes I see people make is they start a business that is more like a job they own. Or something build out of straw instead of stone.
In the sense that a business is an asset, it must continue to appreciate in value even if you aren’t operating it. This doesn’t happen if your “business” is you consulting or providing a service.
Businesses come in all shapes and sizes, and one that works without you tends to sell products, or a productised service.
This post is going to dive into some rules of thumb characteristics of business that you can use to check against before you embark on the wrong path.
This advice comes from one of the most influential books I read on entrepreneurship: Millionaire Fastlane by M J DeMarco. As cringey as the title is, it offers some seriously practical and frank advice on how to build an asset that avoids pitfalls that most businesses succumb to.
If you're about to embark on starting a business, run through these checks to make sure you aren't going to make your life harder than it needs to be.
Remember CENTS:
C is for Control
Do you own the land you build your business on? Could someone slip the carpet from right under you?
Are you reliant on a single platform like Amazon, YouTube, Google Organic Search alone? e.g. Amazon could end their affiliate program or reduce the rates and your years of SEO writing and link building die in an instant.
If 90% of your sales are based on one single platform like Amazon, they could kick you off and kill your business. Similarly, Facebook could ban your ad account tomorrow without warning.
If 100% of your business comes from an organic Google algorithm and that algorithm changes, you are in trouble.
Are you building your business around reselling someone else's product? What happens when they decide to go with an exclusive reseller that isn't you?
‘A job’ violates control as well - as well as equity control over your own business if you hold a minority stake.
Are you building on a private technology platform (one that isn’t open source)? What if OpenAI decide to double their API call fees over night and kills your margin? Or what if a neurotic multi-billionaire buys the social media platform you’ve built your app around and bans you with no warning or reason?
E is for Entry
How easy or difficult is it to get into your business? If anyone off the street can start the same business by filling out a form, you are violating Entry. A business with zero entry barriers is a cattle call.
The essence of Entrepreneurship is problem solving. It must have a level of difficulty. If you are following steps on “how to build a [X] business” from a PDF, you are likely building something highly replicable.
If you think a problem is too hard, then you are not in the business of solving real problems - you are in the business of making “easy money” and this will not be as successful as the former. The latter creates money-chasing Wantreprenuers. That’s not you.
Leveraging your unique knowledge, network and skill set and combining it in a way that no one else can is a great example of what it looks like to have high barrier to entry (but it will seem obvious and easy to you!).
Your unique knowledge likely took 20 years to develop. Your network likely has unique access to deals and partnerships someone starting from zero simply doesn’t have. This is your starting advantage, always.
N is for Need
Solve a REAL problem. The only reason for a business to exist is to SOLVE A PROBLEM. If you are creating a business for any other reason (e.g. ego, status; to prove a point, because you want to impress your parents) - you are guaranteed to fail.
Examples:
Eradicate inconvenience that people didn’t realise was one. (Wheels on luggage)
Provide a service for something people are doing manually, or is currently underserved. (Buying books online).
Make things easier / optimise cumbersome processes. (McDonalds Drive-thru)
Satisfy human wants and cravings (elevate their status, make them sexier, help them make more money). Most fashion and lifestyle businesses fall into this bucket. The best ones hyperfocus their brand on a particular type of status. (Nike promising the fat lard that they too can be an athlete)
T is for Time
The product must stand alone without you operating it for the customer. Does it serve people while you are away? Are there systems surrounding the product in case it fails?
Your goal is to get away from the worst relationship ever created: your time for money. Your time must be divorced from earning money, it must be solely connected to growing an asset/system that works without you instead.
Time honoured business are usually involved in the act of creation:
Food products
Web software / SaaS
Games / info products
Anything that exist independent of you. This can include services, but product-based businesses will always be "easier" to scale because the limiting factor won't be human labour and training them up - the most expensive element of any business.
S is for Scale
Can it be scaled or replicated with ease? Your product scales but your work doesn’t.
Can you manufacture and ship more, faster? Does it get cheaper the more your produce?
Can you sell more without any additional cost? (e.g. software / info products)
Are there compounding effects? Will your existing customers keep coming back for more of your product? Or do you have to keep creating new ones?
Is there a recurring revenue element that doesn’t require the creation of new product or material?
Is the limiting factor to scale a matter of not having enough cash/product?
Have you created something worth talking about with network effects that will encourage natural exponential growth? (Have you created a virus with an R number greater than 1?)
That’s all for now. Some things to think about. Maybe it was useful. Maybe not. Let me know.
Cheerio, Charles.