The most important step in starting a business is choosing the right business. There are an endless number of business ideas to choose from, but which one will make money, and which one is right for you? Do you want a restaurant, a travel agency, an online store, a tech startup, or to provide B2B (business to business) services? Do you want to follow your passion, or follow the money? And if you have a basic idea, how do you get started?
There are three basic ways to start a business. Each has its strengths and tradeoffs, and we’ll go into that in more detail.
- Start a business from scratch.
- Buy an existing business.
- Buy a franchise.
Start a Business From Scratch
The sky’s the limit when you start a business from scratch. You can do any kind of business you want, from teaching Yoga classes to doing a high tech startup. Whether based on a hobby, professional interest, or a family business, you can organize it around things that you’re passionate about. You have total control, get to make all the decisions, and can be as creative as you want. As long as you pick something that’s profitable and scales, there is no limit to how much money you can make!
| Advantages | Disadvantages |
| Total control Make all decisions Room for creativity No predetermined rules Large upside potential Build a business from your passion | Must create systems from scratch Too many decisions Slow ramp-up Long learning curve Limited financing options High failure rate |
That said, starting a business from scratch has the highest risk. You have no structure or support, and you have to make every decision yourself. There is a long learning curve, both for you to learn how to run the business as well as your competitors, as well as for the business to grow and become profitable. Any mistake could be catastrophic.
If this is the path you want to take, here are some steps to get started:
- Do your research. Find books or case studies about similar businesses, and try to learn from their success and mistakes.
- Make a business plan. Develop the business model on paper, and make sure it makes sense. Come up with projections to see if you can really make money with it.
- Get professional help. Find a mentor, such as from SCORE, who can review your business plan and provide guidance.
Buy an Existing Business
If starting from scratch sounds like too much work, you can also buy an existing business. It will come with existing customers, business systems, and employees. It will have established financial results, so you know how the business is doing. It may even be profitable and have a good reputation in the community. If the existing owner has moved or is disengaged, you may be able to take the business to the next level and make it even better.
| Advantages | Disadvantages |
| Established financial results May be profitable Established market Existing customers Good reputation Employees Systems in place Owner or lender financing | Limited options May be losing money Bad reputation May be overpriced Poor training and support Hidden seller motives Employee defection Higher debt service |
There limited options when you look at businesses for sale. What’s worse is that many of them aren’t doing well, and you don’t want to buy a lemon! The first question you should ask the owner is why are they selling? Most listings say “owner is retiring” or “personal reasons” which is often an excuse for a business that’s not doing well. It could be losing money, have a lease that’s ending, have a bad reputation in the community, or be in a market that’s declining. If it’s profitable, it may be overpriced.
If you’d like to explore buying a business, here are some steps to take:
- Explore business listings. A couple sites that list businesses for sale are BizBuySell and BizBen.
- Do your homework. Talk with the owner to find out why they are selling, and what the biggest challenges and opportunities are. Secret shop the business, secretly if the employees don’t know it’s for sale, and compare it to its competitors both online and in person. Review the financial statements. If it’s a struggling business, make sure it’s something you can turn around.
- Work with a business broker. Like a real estate agent, they can help you navigate the issues when buying a business.
Buy a Franchise
The easiest and fastest way to go into business is with a franchise. Here you are buying the rights to use an existing brand with a proven business model. They have already worked out the kinks and are profitable in other locations, and have business systems that help you ramp up faster. Most franchises have a higher success rate than a starting a similar business on your own. You also don’t need any business or industry experience – they provide training and ongoing support to make sure you succeed. A franchise should also give you a lot of information up front, before you make any decision, on the costs associated and what’s expected of you, and even let you talk to existing owners to get their unbiased opinion.
| Advantages | Disadvantages |
| Brand name recognition Proven business model Upfront research process Business systems Training and support More financing options Owner network Higher success rate | Fewer industry options Structured operating system Territory restrictions Can only sell their products Ongoing royalty payments |
The primary downside of franchising is that you are purchasing an existing business model, and you have to follow their systems. That doesn’t mean that there isn’t room for creativity, but you can’t start selling pizza at a McDonald’s franchise (unless they change the menu, and then you may be required to sell pizza!). Franchises tend to thrive in existing and growing industries, so there are fewer industries and not many options in areas like high tech. There are also costs associated with a franchise such as an initial franchise fee and ongoing royalty payments, though a good franchise returns that value in training and support.
If you’d like to explore franchising, here’s how to get started:
- Work with a franchise consultant. Like a real estate agent when you’re looking to buy a house, a good franchise consultant will help find the right opportunities for your lifestyle and financial goals. There are too many franchise out there and not enough information online to find them on your own, and a local franchise consultant can also provide expertise for which ones are growing in your area. (Full disclosure: I’m a franchise consultant and offer a free consultation if you’d like to learn more.)
- Do your research. Any good franchise will want you to make an educated decision before you decide to sign with them, and will have an in-depth process to teach you about the business. However, this information is not generally available online (where their competitors could see it), so you will have to work with them through their process. They will share things like the business model, costs, financial results, contracts, and even existing owners to talk with! Take your time with this process, get professional help when needed, and make sure you understand all of the information. This is another area where a franchise consultant can help you out.
- Be professional and follow the process. When exploring a franchise opportunity, make sure you follow their process. Be professional and don’t skip calls with them. If you’re too busy, just let them know. It’s better to say “no” or “not now” than to disappear while they are trying to get ahold of you. Remember, they are also evaluating you as a potential owner, and they may turn you down if you don’t follow their process.
Choosing What’s Right For You
So, if you’re still asking what’s right for you, here are some thoughts:
- If you want to follow your passion, like do a tech startup or build a business around a hobby, then it’s best to start from scratch. Just be aware that the failure rate is higher.
- If you don’t have business experience and want the lowest risk, explore franchising. Even if you don’t go this route in the end, you can learn a lot from talking to a few franchises.
- If you want to buy a business, you’re limited to what’s available, and watch out for lemons. As a side note, there are sometimes franchises for sale, and that can be a great way to get a head start, but I recommend to pick the franchise brand first and then see if they have any resales.
- If you want a part-time business where you can keep your job, spend time with family, or semi-retire like I have, there are a few options. You can start something as a side business, such as a travel agency or Airbnb, or there are franchises designed for part-time ownership.
I hope this article was helpful, and please feel free to reach out if you’d like to have a free consultation to talk about your options!
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