It may sound a bit backward, but many people actually know they want to be entrepreneurs without knowing what kind of business they should start. On the other hand, there are many potential entrepreneurs who have a vague business idea but aren’t sure how to hone it into something practical. Both types of entrepreneurs are faced with this basic question: “What kind of business should I start?”
Answering this question as early as possible is critical to your entrepreneurial success. However, deciding on what kind of business to start is much easier said than done. Read on to find out ways to determine what kind of business you should start.
What Kind of Business Should I Start?
Before you actually start working, you need to really ask yourself: “What type of business should I start?” You can take an approach to this that can be divided up roughly into two parts. One part consists of conducting a personal evaluation of your strengths, passions and skills — a mixture of both subjective and objective questions about yourself. The second part is more objective, focusing on conducting a business evaluation with preliminary steps like research, analysis, trend forecasting and actually getting funding for a particular idea.
Keep reading to learn how to conduct personal and business evaluations to determine what kind of business to start.
Conduct a Personal Evaluation
Before getting into detailed questions like, “Which industry should I start a business in?” you need to evaluate yourself. This self-assessment is critical as it will help you flesh out your capabilities before you get into actually starting and running a business. Without a thorough self-evaluation, you could start a business that may be decently profitable but could end up being quite different from your skillset and passions, leading to frustration or burnout.
Here are some of the questions you should ask yourself in the self-evaluation round of choosing which business to start.
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1. What Are You Passionate About?
An excellent starting point when choosing a business to start is to ask yourself: “What am I passionate about?” Nearly every entrepreneur and small business expert will tell you to begin with identifying your passions. You can use this tip when starting your own business as well as when looking for a job at a business.
In an ideal world, the best route would be to always make or sell a product or service that you are passionate about. People looking for a short-term gig might just think about an easy business to start or what the best side hustles are. However, if you’re looking to start a long-term business that feeds your passions, strengths and lifestyle, you should really choose a business idea you love.
There are some distinct advantages of choosing to start a business you’re passionate about. If you truly believe in what your business is selling, you’ll likely have a much better chance of making a sale. On the flip side, if the business is going poorly, your passion for it will help you persevere and discover new solutions to keep your company going.
2. What Work Experience Do You Have?
Just as a business idea should align with your passion, if you already have years of experience in a certain field, starting a business that aligns with that field provides you with key advantages. Many entrepreneurs utilize their previous training and skills learned on the job and off to help craft the business they want to start. What’s more, prior business experience also can mean an easier time building a network of contacts and customers. And, if the business you want to start is within the industry you already have experience in, then the daunting task of choosing a business becomes a bit easier.
3. What Problems You Can Solve?
Although starting a business that aligns with your passions, interests and experience is very important, making sure that your business idea constitutes real entrepreneurial opportunity is just as crucial. Creating a viable entrepreneurial opportunity means you’ve identified practical needs and problems that you can solve for your customers.
Problems, pain points and inefficiencies are all areas of frustration that you can use to craft great business ideas. Identifying what these difficulties and inadequacies are will help you work towards coming up with a business plan to solve them. Finding problems to solve is one of the best ways to zero-in on profitable business ideas.
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4. What Lifestyle Do You Want?
You often think about your lifestyle preference, like work-life balance, when applying for jobs. You should consider this when deciding what kind of business to start as well. You might be passionate about the kind of work your business would be involved in, but if it completely throws off your work-life balance, you may want to rethink your plans. Even as the boss of your own company, you can become trapped in an unanticipated, unhealthy lifestyle. Thus, it is critical you choose a business that fits the kind of life you’re leading or want to lead, be it one that offers flexibility or stability.
5. How Much Capital Do You Have Access To?
You don’t necessarily have to have the type of loan you want or the lender you want to turn to fully figured out in detail. But you should draw up a basic outline of what capital you have access to and potentially how much. You don’t want to risk your life savings on a business idea that hasn’t been proven out. Thus, it is critical that you have a general overview of ways to get funding. List out all possible sources, such as friends, family, partners, traditional banks, online lenders, among others. Asking yourself how you can find capital for your business will lead you to research different types of funding and how feasible it is for your company to get them.
6. Can You Test Your Business Ideas Easily?
Great ideas are always great on paper. It is when translating them into the real thing that problems begin to emerge. It doesn’t matter if you have tons of experience with your chosen business or none, make sure you can practically test whether your business ideas make sense or not. Testing out the viability of your potential business ideas early on can save you serious time and money that could be wasted on an enterprise that simply doesn’t work in the long run.
See: 7 Fears to Overcome Before Starting Your Business
Conduct a Business Evaluation
Once you’ve performed a thorough self-evaluation, it’s time to get into the more practical steps of choosing a business to start. Typically, the approach to choosing a business consists of researching the market, identifying a need or problem and creating a business address it. Here are some of the key steps to take to help you home in on profitable business ideas.
1. Identify the Industry for Your Business
The industry in which you choose to start your business is heavily dependent on the answers that emerged from your self-evaluation. Your expertise and passion should correlate with the industry you want to get into with your business. Ideally, the industry you’re targeting should be one that is on the rise or likely to not disappear within the near future.
If you’re not familiar with the industry your business is aimed at, try talking with other entrepreneurs who offer products or services that interest you. Small business owners tend to be very willing to discuss their knowledge if they think you will not compete with them, so ask around, but be discreet. Bear in mind, however, that even if you’ve caught up on the ins-and-outs of a particular industry, if you’re not passionate about it, then you should rethink your business plans.
Related: The 20 Fastest Growing Industries for the Next Decade
2. Conduct Market Research
As you investigate the industry for your potential business idea, conduct thorough research of the market and how it works. Research the kinds of businesses and business models within that industry. Market research will help you assess the realistic potential for your business ideas. In your market research, you should identify where there are unfulfilled needs that can be addressed by your business. A significant aspect of all market research is, of course, analyzing the competition. Competitors might have identified customer needs and problems, but they could be going about solving them in an inefficient manner. This is an area of opportunity for you to exploit.
3. Create and Revise Your Business Plan
Developing a business plan might sound like a step for after you’ve definitely chosen a business to start. However, developing a preliminary business plan can also help you choose your business by highlighting risks or lack of opportunity before you’ve settled on a set business idea. Running into roadblocks with your initial business plan is a good thing when you use it constructively. Your business plan at this stage should be iterative, going through various forms as you hone its contents.
A key part of developing your business plan is determining whether the business has a fair chance of turning a profit. If you’ve done your homework on the industry and conducted market research, you should be able to develop an answer to this question. By doing such analysis, you can create a preliminary financial projection for your business plan that demonstrates the amount of revenue you’ll need to generate to cover expenses. Lastly, really assess the risk that your particular business requires. A great business idea can be undermined by too much risk from sources like too much competition, oversaturation or high overhead costs, to name just a few.
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4. Find Lenders or Investors
This is another step that may seem like it should come after you’ve definitively chosen the business you want to start. Again, however, figuring out what lenders or investors you can tap can influence which type of business you want to start. Thus, it’s a good step in the process of how to choose a business to start.
Some businesses have very high startup costs, which usually requires some kind of loan to fund if you don’t have partners. Small business loans for startups are very difficult since the requirements often include a certain amount of time in existence and revenue. Such requirements could seriously derail your business idea if you haven’t anticipated and planned for it. Investigate as money types of business funding as possible, from business lines of credit to loans to using business credit cards instead, when deciding what kind of business start.
Related: How Hard Is It to Get a Business Loan?
The Bottom Line
Choosing the type of business you want to start is just as important as how you plan to run a business. In fact, since it’s such a critical preliminary step, you could argue it’s more important. Choosing the wrong type of business to start, whether because it disagrees with your temperament, lifestyle, skills or experience, can undermine even the best and most profitable business ideas. By evaluating yourself through a strict set of questions and following them up with the practical steps outlined, you can be on your way to deciding exactly what kind of business to start.
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