I’ve had many failed business ventures before getting to where I am today… now with a personal holding company that contains 5 revenue-producing businesses.
Whenever I’m looking to start or buy a business, these are the 9 things I always look for.
1. Is this a business I would be embarrassed to tell people about?
I’ve had a few businesses in the past that I am not proud of.
I resold ebooks on eBay back in high school making $500-$1,000 a day.
It was actually a pretty slimy thing to do because you would purchase an ebook with the “resale rights” and turn around and sell it to other people.
I also started collegepartyfinder.net while I was in college. From the name, I think you can figure out what it did.
Not really something I would be proud of operating as a 34-year-old. Kind of weird to me.
If your goals in life are at all similar to mine, you want to be successful and be able to share what you do with others.
And with pride.
This is why I’m very picky now when I start or buy a business. It absolutely has to be something I WANT TO SHARE with someone when they ask.
2. What are going to be the staffing requirements as the company grows?
It’s important to understand whether or not I want to manage:
- A large or small number of people
- Certain types of people (white collar vs. blue collar)
- Different roles (are you okay with having to manage technical employees like software engineers)
I have a certain lifestyle that I enjoy. I currently have a team of 8 different people working for me.
Everybody works remotely and everybody is working from another country. Primarily in Pakistan and the Philippines.
This is a much different day-to-day operation than a restaurant that requires a different type of person.
A restaurant would require very important scheduling duties and be very fast-paced throughout the day.
In a restaurant, service is very important and a lot of employees are handling the cash in the business.
Nothing wrong with one approach or another. But I know I don’t want to deal with the daily stress of scheduling, theft, etc.
So I have stayed out of these types of businesses and have stuck to online businesses.
3. Is this a fad, or will it be around for at least 10 years?
I always want to make sure this isn’t a business that is going GREAT and will be gone tomorrow. Following fads can be attractive, but they can also be fatal.
I learned this the hard way during the NFT craze of 2021-2022.
I started a scholarship program on the Axie Infinity game.
I would buy NFTs required to play, rent them out to other people to play, and keep a percentage of all the crypto earned during gameplay.
You can learn more about the game here: https://axieinfinity.com
Things were going really well for a while. Making some money and reinvesting all that money into more NFTs to get more people playing and more people earning.
However, it was a fad. Things came crashing down, and my thousands of dollars turned into pennies.
NFTs that I bought for hundreds of dollars became worth less than $10.
The crypto earned within the game went from $0.25 per coin down to $0.003 per coin.
Worth about 1% of the value it used to be worth.
I invested thousands, and they turned into practically nothing in a very short period of time.
Other industries, like the ones I operate in now, will be around for a long time.
I choose online communities, software companies that solve large problems for a lot of people, etc.
These are businesses that won’t crumble overnight.
At least, I would hope not!
4. Do people already search for this solution?
This was another hard-earned lesson that I learned.
Back in 2014/2015, I was selling many products on Amazon.
My first product was a sterling silver coffee ring.
I had it manufactured in China, and I sent it to Amazon’s warehouses to be sold on Amazon.
I tried many ways to sell that ring:
- Amazon ads
- Facebook ads
- My own website
It was just a really hard thing to sell. The problem was…
Nobody was searching for coffee rings!
Well, a few were… and I sold about 500 of them, but then sales dried up.
I went back to the drawing board… listened to some podcasts, and bought some courses…
And learned what I needed to know.
You gotta sell something people are already looking for!
Think about it. What’s easier?
- Convince somebody they should buy something
- Convince them to buy it from you
- Convince somebody to buy the thing they want from you
I’ll take option 2 over option 1 EVERY DAY.
My goal is to make money as easily as possible.
Option 1 is way harder!
That totally changed my success on Amazon.
I went on to sell more items and sold thousands of products.
So I always make sure the business is selling something people already want.
5. Is it a race to the bottom?
A race to the bottom is where there are a lot of other people doing the same thing as you, which leads to a massive drop in the price you can charge.
Another lesson learned from selling on Amazon.
Which eventually got me into software companies and where I am today.
I find this to be one of the more important things to consider.
If there are 100 other businesses doing the same thing as me and are targeting the same customers… I’m going to see prices drop dramatically.
Dropping prices means I am losing out on a comfortable profit margin.
This happened to me with one of the most successful products I sold on Amazon.
I was selling a USB WiFi adapter.
It is a WiFi adapter that you plug into a USB port on your computer, allowing you to use WiFi. This is, of course, only useful to people who have a computer that doesn’t have an internal WiFi component.
Basically, old-school computers.
I sold a TON of these and made about $4,000 – $6,000 a month in profit selling this one device.
But as time went on, more and more people started selling the same adapter as me and flooded the Amazon search results with identical products.
This was just a product I sourced from Alibaba, so other people were just doing the same thing as me.
Buying the adapter, having their logo put on it by the supplier, and selling it on Amazon.
This caused 2 problems for me:
- Retail prices had to drop to compete with the other sellers
- The cost of ads skyrocketed! More sellers competing for the same ad space.
It eventually reached the point where I was spending thousands of dollars on inventory just to break even.
I got discouraged not only because I was no longer making any money but because I knew it would happen again and again if I tried another product.
This wasn’t something I wanted to do.
I had to find a way to have a business that was harder to copy. That was harder to compete with.
This is what people call a “moat.” It’s a competitive edge that makes it hard for people to compete with you.
It’s something I always look for now.
6. How many potential customers are there?
Another way to ask this question is, “how large is the market?”
There are many opinions about this, and I currently believe there should be millions of potential customers if I expect to earn less than $1,000 a year from my customers.
This is because, in order to build a large business, I am going to need to either have a lot of low-paying customers or I am going to need a decent amount of high-paying customers.
Having a high market share (percentage of total potential customers that are MY customer) is very unlikely. It’s much more likely I will have a very small market share.
So I need to plan accordingly.
If there are 3 million potential customers, I might be able to get 3,000-6,000 of those customers in any given year. That’s generally my way of thinking.
If there are only 10,000 potential customers, I will likely pass on the business.
If there are 100,000 potential customers, I better have a good pricing strategy to pull a lot of money from each customer I earn.
7. Do I think I will be good at it?
Everybody has strengths and weaknesses, and I am no exception to that.
It’s important for me to feel confident that I will be able to excel as the owner in the business category.
I would never start a graphic design business. I suck at graphic design, and if I’m starting a business, I’m the one and only employee in the beginning.
I won’t be able to deliver.
When buying a business, I don’t necessarily have to be the talent if somebody else within the business already does that.
But I still have to be able to hire people properly and know how to assess their talent during the hiring process.
I MIGHT be able to do that for a graphic designer.
But I don’t feel very confident, so I don’t think I would ever try a business like this.
I always want to feel confident that I will be good at the business activities I’ll be doing within the business when I am starting or buying a company.
8. How long will it take for me to be successful?
If it takes a long time to start a business, I will not be very interested in it.
If I feel VERY confident that the business will be successful, I’d be willing to spend a few months building it up and getting it ready to start.
If I’m not VERY confident, it has to be something I can start within a month or less.
If I am buying a business, how long will it take for me to grow the business?
Is it a long sales cycle? If so, it is going to be a risk and take a lot of time to find out whether or not I’m able to grow the business.
I want it to be something I can grow right away.
9. Will I enjoy working on this business?
This is something I learned recently. I’ve heard a lot of people say, “Make sure you enjoy the type of business you are starting or buying” but I never really believed that.
I like winning. Winning is a lot of fun.
If I am winning within the business, I am going to have fun and I’m going to enjoy it.
At least… that’s what I thought. I’ve found out recently that, although that may be true, the challenges of running a business I don’t enjoy make it a lot harder to win.
I am constantly having to do things I don’t want to do in order to win. And I’m getting in my own way.
So moving forward, if I don’t think I will really enjoy the business, I will not buy it.
It has to be something I think is really cool.
In all honesty, there are probably 100 different things to consider when starting or buying a business. A lot of technical things like growth, and concentration of revenue in your customers.
But this post isn’t about due diligence in purchasing a business. I’ll probably do one of those another time.
This was to give an insight into the big-picture items I like to consider whenever venturing into a new business. Let me know your thoughts in the comments section below, and I’ll reply!