If your anything like I was in my early 20’s, I knew that I wanted to start a business. The challenge was that I had no clue what type of business to start. I really had no experience with business ownership and no trade expertise. At the time, I had recently dropped out of junior college and was a valet at a local hotel and there was not a day that I didn’t think about being an entrepreneur. I did eventually take a blind leap of faith and started a landscape company, but if I could go back and sit with my 20 year old self today and share what I know now…these are a few of the top ideas I would ask my younger self to consider before picking which business to create…
1. Monthly Recurring Revenue (MRR)
Monthly Recurring Revenue or MRR for short, makes my pillow soft at night. Of course not every business must have MRR to thrive but I would highly recommend an industry that has a typical business model that included a good percentage of MRR. I personally prefer at least 80% of the revenue of any business that I invest in to be MRR.
There is a reason that even the biggest companies in the world are converting their model to MRR or subscription base (ex. Microsoft, Netflix, etc.). This is revenue that you only sell once, while billing twelve times a year. It is a no brainer!
When I owned a landscape company, we would sell the maintenance service contract one time and would bill them year around. You then become the trusted advisor in your industry for your MRR client and can advise and upsell them additional, higher margin services or products on occasion. Many industries are converting to this model as they see the amazing value of the predictable revenue. For example, in Florida we have tons of air conditioning contractors. In the past, when your a/c broke you would google a company, call them out to repair and you pay them for that one-time service and never see them again except for the fridge magnet they left for you. Now, you sign up to be a “preferred member” for a monthly fee. In return, they give you a no cost guarantee if something breaks before there next inspection. Then they schedule an annual inspection to remain a “member” and get the guarantees. And at that appointment they upsell you higher margin repairs that also qualify you to get the benefits of membership. It’s a win, win! The consumer gets the peace of mind and somewhat predictable costs, and the business gets the predictable revenue with low risk. Again, a win, win! In almost every industry and business you can find a creative way to structure and produce recurring revenue. Sometimes it just takes a bit of creativity!
2. What are you passionate about?
There are different theories about whether to follow your passion. When it comes to being an entrepreneur, following your passion can be a good and a bad thing. On the bad side, there are examples all over the place such as the lady that loved cooking, started a restaurant, got swamped by all of the responsibilities of being the business owner that weren’t actually cooking, and finds herself not cooking anymore and even somewhat bitter about cooking. This is the challenge of blindly following your passion into business ownership. It’s good to define and follow your passion but it’s imperative that you intentionally structure your business to ensure that you can spend a good amount of time actually doing it. There are practical solutions to this such as partnering with someone with business management as a strength to allow her to focus on the kitchen. It is important that you look for the deeper motivation and fulfillment behind our passions before you apply them to entrepreneurship. When you understand what really drives and fulfills your passions, you can better manage and direct them into the world of business ownership. Just don’t let your passion blind you from the inevitable responsibilities of being the owner of the business.
3. How much money do you need to get started?
I don’t have a problem with taking risks, I wouldn’t suggest that someone with little or no experience in business go out and take on massive amounts of debt to start or buy a business. I’d prefer that you keep working and save the capital to invest yourself in order to get the company off the ground and established. That way you aren’t caught with a pile of debt with no revenue should anything go wrong. Besides, there are plenty of businesses that can be started with little to no money. I started a landscape company with our entire savings of $3,000. Thankfully, we turned that into a seven-figure investment over the next decade. But if something would’ve gone awry, and it almost did a couple of times, I could’ve sold the assets, lost a couple of thousand dollars and some of my time. But if I had taken out a loan with no revenue to start, and it all went to nothing, I’d be back to delivering pizzas and passing that money directly over to the bank to pay off that debt.
Barries to entry
Labor forces health
Starting a business can be exciting! And as a business consultant in Tampa, I’m glad that you’re considering it. But make sure to take a few things like these into consideration before taking action. While we can always pivot and guess right on occasion, an educated decision is a good decision. So think about it…and get out there and start a business!
Read our other blog on Overcoming the Fear of Failure in Life and Business