Here is a five-step approach to choosing the right business for you. More detail about each step is provided further below.
Step 1: Decide if you really want to own a business.
When you start a new business, you will be putting your own money at risk, working long hours to make sure your business is successful, and spending less time with your family and your friends. You can also expect to experience higher stress as a business owner because you will be responsible for customers and employees as well as vendors and suppliers. The first step is to decide if you are willing to accept the challenges and opportunities of starting a new business.
Step 2: Make a list of business options.
You have many options for the type of new business you will create. The second step is to make a list of your options. You should describe each business in writing. The written description should include a short description of the products or services you will sell to your customers and an estimate of the price or prices you will charge. Remember that this is just a short description and you will add more details later.
Step 3: Focus on the best options.
What are the best options on your list? It will be important to narrow down your options to those that have the greatest potential for success. If you have the money to start a business, the skills and knowledge that you need, and you can compete effectively for customers, then the business is one of the better options. Below, we present six different questions to ask to identify the best options for you.
Step 4: Evaluate the best options.
The final evaluation of your options depends on your preferences and the business’s potential for success. This step is challenging for two reasons. First, you will need to think about your personal goals and preferences for working in the business. This step requires careful reflection about what you want as well as your capabilities for this business. Second, the business’s potential for success can be very difficult to predict. Making an informed prediction is better than an uninformed prediction, so you will need to collect some information and do some research about the business, the market, and the customers to assess the business’s potential.
Step 5: Make a Decision.
Finally, you will choose the right business for you based on your preferences and the potential. As mentioned earlier, we also identify two things to watch out for when you are making the final decision: impatience and overconfidence.
Step 1: Decide if You Really Want to Own a Business
An important consideration when deciding if you want to own a business is that being a business owner is a different jobthan working in a business. This may sound simple and obvious, however, imagine you are a very skilled baker. You have worked in many restaurants and bakeries and are now starting your own bakery business. While your previous jobs involved baking and perhaps even managing inventory, equipment, and people, owning a bakery includes many additional responsibilities. Your main job as an entrepreneur is running the business and making sure that the business is successful by carefully managing money, sales, partners, and people while complying with all the laws about licenses and permits. You may find that you actually do very little baking, depending on the size and type of your business. It’s important to consider that entrepreneurship is its own type of job, more than the job of producing the product or service that the business sells.
Step 2: Make a List of Business Options
As described above, once you have decided that you want to start a business, the next step in choosing the right business is to make a list of options. There are several ways to generate the business options for your list. One way is to define a business by what you love to do or for which you have specialized experience. Another way is to define a business by customer needs that are unsatisfied in the market, or that are poorly satisfied by other businesses. Below are several questions that will help you make a list of candidate businesses.
What activities do you enjoy that are a part of a business? For example, do you like to bake or cook for others? Do you enjoy working with your hands? Do you enjoy working with numbers, creating content, or graphic designs? Are you good at managing projects or people? Do you like to build long-term relationships with clients? Do you enjoy working in an office environment or being outside most of the time? There may be businesses where you can do the things that you enjoy.
Are customers getting what they want from businesses in the market? For example, is there an opportunity for a food truck park in your community, or perhaps a neighborhood daycare could provide a convenient service for working parents. Would an errand service be beneficial, or would a fruit stand give shoppers more options? Research the market for your business ideas and try to understand whether current available services are overpriced, difficult to access, or unreliable. Is the quality of some products or services less than the customers would like? By studying the market, you might be able to create a new business that meets customers’ needs better than other businesses.
Do you have special skills that can be turned into a business? Do you know how to play a musical instrument or use special computer programs? Have you been trained as a bookkeeper, electrician, landscaper, caregiver, or medical assistant? Do you have a talent for organizing, shopping, or cosmetics? Are there emerging industries that would allow you to pivot your career into a new business? For example, career musicians may decide to pivot to teach music lessons or design music for podcasts. There is almost no limit to the types of skills that can become new business ideas!
By asking yourself each of these questions, you can create a list of potential new businesses. You may even find potential businesses that fit into all categories. For example, perhaps you like to bake, you are very good at baking, and the community needs a new bakery. That is a business with tremendous potential and should be included in the next step: focusing on the best options.
Information to Gather
Choosing the wrong business instead of the right business is a mistake. One way to avoid this mistake is to collect as much information as you can about potential businesses. Before proceeding to the next step, you will need to collect information about yourself and the business options on your list. Here is a list of topics and questions that will help you gather the information that you need.
Money. How much money do you have to start a new business? Some businesses require a significant amount of money just to get started and some require very little initial investment (here is a list).
Skills and Knowledge. What special skills and knowledge do you have? Some businesses require significant training, experience, or skills. If you don’t have them yet, perhaps you should wait until you can develop the knowledge and skills that you need.
Customer Needs. Is the business focused on a defined set of customer needs? Focusing your products and services on the needs of a segment of customers is a more successful strategy than trying to meet all the needs of all the consumers in the market. What customer needs will your business satisfy? Also, if you have a great idea but there is no customer need, the business is unlikely to be successful.
Market Size. Is the market large enough for your new business? Are there other companies meeting the needs of the customers in the market? What will make customers come to you instead of the competition? You might need to guess at the size of the market.
Competition. Will your new business be competing on price, quality, or service? A commodity business is a business in which customers go to the seller with the lowest price. It can be difficult to compete only on price because you run the risk of reducing profits if you have to continually adjust your price to be the lowest. In other more specialized markets, you can attract customers who are looking for something unique or higher quality or for products combined with customized services.
The best businesses on your list will be the ones for which:
You have enough money to launch.
You have the skills, experience, and knowledge you need to operate the business.
The market is large enough for your business to enter and compete for customers.
Your product or service is focused on satisfying a defined set of customer needs.
You are competing on more than just price.
Where to Get the Information You Need
To make a good decision about the right business, you will need to collect information about customers, the market, the competition, as well as your own goals, skills, and resources. There are many sources of information about different business options. Here are some key resources:
Potential Customers: If possible, talking directly to potential customers is a great way to collect information about customer preferences and market opportunities. Ask about what they want and if they are currently getting it in the market.
Other Business Owners: Depending on the business, many owners are happy to talk about their business and what is going well and what is going poorly. You should consider talking to business owners who will not be competitors so that they will be more comfortable talking to you.
Community Development Resources: Depending on your location, there could be many different community resources available to you. For example, many cities, counties, and states have economic development offices. Here are a few examples among MOBI’s partners: The Community Economic Development Fund, the Minority Business Development Agency (MBDA), the Bluefield WV Economic Development Authority (BEDA), and the South Carolina Business One Stop. In addition, there are several international organizations committed to small business development like the Inter-American Development Bankand SBDC Global.
Bankers and Other Lenders: Lenders who work closely with small businesses may have useful information about local markets and opportunities. Examples include WIDU and Accion Opportunity Fund.
Industry Trade Groups: Industry Trade Groups are organizations that represent the businesses in a specific industry, for example Independent Electrical Contractorsprovides support, training, and advocacy for businesses that provide electrical work. Here isa list of Industry Trade Groupsin the US.
Small Business Administration:In the US, the Small Business Administration (SBA) offers support to small businesses across the country. Through their Small Business Develop Centers (SBDCs) the SBA offers training and information to aspiring small business owners.
Step 3: Focus on the Best Options
After you have made a list of options, and collected the information described above, it is time to narrow down your list by focusing on the best options. You can focus on the best options by asking several questions about each business alternative. These questions are arranged in the MOBI Focusing on the Right Business Worksheet (PDF)thatcan help you assess each option and compare it to others.
In the worksheet, you are asked to answer yes or no to six questions for each new business option you identified. If all the answers are yes for an option, then the business is an excellent candidate. If some of the answers are no, then you need to decide if you can take action to change those answers. For example, if you answer no to the question: “Do you have the skills and knowledge that you need?” then you need to decide if you can acquire the skills and knowledge that you need through school, specialized training or through experience (and change the answer to a yes).
If you cannot change a no to a yes, then you should consider excluding that business from the set of options.
Here are some suggestions of how you might change a no to a yes in the evaluation for six of the questions:
Question | How to change a no to a yes |
Do you have enough money to start this business? | Save more money. Find investors. Borrow money. |
Do you have the skills and knowledge that you need? | Learn the skills from a mentor or experienced professional. Get a similar job to gain experience. |
Do you understand the customers’ needs? | Talk to potential customers. Interview other business owners. |
Will your product or service satisfy the customers’ needs? | Change your product’s design. Change how you deliver your service. |
Is the market large enough for your new business to get customers? | Expand your business territory. Broaden the customer definition. |
After you have narrowed down your list to the best options it is time for the final step: evaluating your list to find the right business.
Step 4: Evaluate the Best Options
Now that you have made a list of businesses and focused on the best options, it is time to evaluate the options and make a decision. There are a number of ways to evaluate the options. One way is to rank the alternatives based on two criteria: preference and potential. This MOBI Preferences and Potential of a Business Worksheet will help you.
By preference, we mean the level to which the work fits into your preferred lifestyle and satisfies your personal goals. Personal goals and lifestyle include things like how much you want to work, where you want to work, and will you have enough time for family. Some of the questions to ask yourself about each business option:
Will I be working outside, in an office, or in a co-working space?
Will I be working regular hours with weekends off?
Will I have time for family and holidays?
Will I be working with people (customers) that I like?
Will I be at one location or on the road every day?
These are just some of the questions you might ask yourself as you consider each option. You may have other preferences that you want to include, and it’s a good idea to brainstorm these preferences.
By potential, we mean the potential for success of the new business. Success depends on many internal and external factors. External factors are things that you cannot control, like natural disasters, economic recessions, and pandemics. Internal factors are related to how well you run your business. Internal factors include how well you are meeting the needs of your customers and managing your business’s operations and finances. Some questions to ask yourself about each of the business options:
Will I be able to fulfill my promises to my customers?
Will I be able to adapt to changes in the needs of my customers and the market?
Will I be able to compete against other businesses?
Will the business make enough money to pay me, my employees, and my suppliers?
Evaluating preference and potential is not easy because you might not have enough information to answer every question. You might have to guess and make a prediction. With the information you collected earlier about the customers and the market, you can make an informed prediction about the business’s potential.
Avoid Impatience and Overconfidence
While you are analyzing your options, you should watch out for mistakes that can reduce the chance of success. The most common errors in selecting a business are the result of impatience and of overconfidence. Impatience can lead you to make decisions before you're ready, and overconfidence can lead you to overlook important information, especially information about potential obstacles or problems with your business idea. Here are some ideas to help you avoid impatience and overconfidence:
Consider more than one business. Impatience may lead you to consider only one business. There are many different new business opportunities everyday. Take the time to consider all your options.
Perform a thorough analysis. The step-by-step approach described above takes time to do well. Impatience may lead you to skip steps and start before you are ready. Take the time you need to perform a thorough analysis.
Start small and grow. If possible, start with a small version of the business and grow over time. Impatience may drive you to try to start big and grow too fast.
Understand the basis for competition in your market. Do you really understand what customers want in your market? Overconfidence may lead you to make a decision without a complete understanding of this important aspect of your business.
Control your financial risk. Don’t invest all of your assets in the new business. Limit your investment to a predetermined amount that you are willing to lose. Overconfidence may lead you to think that you can risk more than you can afford.
Discuss your decision with experienced business owners and friends. Learn as much as you can from the experience of others. By sharing your business idea with others you may discover new resources, information, or tips for success. In general, business owners are kind and willing to share their experiences with you. Don’t repeat their mistakes!
Step 5: Make a Decision
It is time to make a decision. You have made a list of options and focused on the best options. Finally, you considered each option in the context of your preferences and the business’s potential. Now is the time to choose the “right” business. The right business is one that is consistent with your preferences (makes you happy) and that has the greatest potential for success.
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