Americans set a record in 2023 for starting businesses, according to the U.S. Census Bureau. A record 5.5 million new business applications were filed, up 20% from 2022. And this growth was steady: Each month of 2023 saw a new all-time high in business openings since 2019, according to the bureau’s business formation statistics. Growth touched all parts of the country, but the West and South continue to see the biggest lift, a continuation of what we saw in 2022.
Most of those businesses will fail within a few years, if historical trends continue. So that’s why the decisions that entrepreneurs make before starting out can be as important as those made when running a business.
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One key question is this: Once you’ve decided that the entrepreneurial life is for you, how do you choose the right business? What specific industry—or even what niche—appeals to you or would make the best use of your abilities, aptitudes and assets?
We show you how to sort it all out in these six important steps.
Follow your passion
The best option is always to make or sell a product or service that you know about and love. If you’re looking for someplace to score a short-term hit just for the sake of reaping a financial gain, that’s fine – get in; make your money; and get out. But if you’re looking to start a business for the long haul that suits your temperament, your strengths and the lifestyle you want, you must choose a business that you love.
The advantages of following your passion are many. For one thing, if you truly believe in what you’re marketing or selling, you’ll stand a much better chance of making a sale. And when tough times come – and they will – you’ll be much more likely to fight through them.
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Barbara Yugovich, for instance, was an enthusiastic high school teacher in metro Detroit who had been pondering the entrepreneurial life for a decade. So she founded The Homework Solution in 2004 in Waterford Township, Michigan, and she and her staff tutor kids in subjects from English to computer skills.
Be real
While starting a business with your individual interests and expertise in mind is crucial, so is the necessity of making sure that this enterprise represents a concrete entrepreneurial opportunity.
Take a bloodless look at the relevant marketplace. Is it trending toward a real need or even a collective desire for the business that you want to start? Better yet, is America or the world screaming for someone to do this? Make sure your product or service not only addresses this opportunity but does so in the best way.
How else could David Dean come up with his idea for Breast Implants 411, a web site designed to educate and inform patients and provide information on qualified plastic surgeons? He also picked a great location for this idea: Los Angeles.
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Reckon with competition
Survey the landscape for established competition. Don’t do it with one eye closed, either: You really need to know if someone has beaten you to your brilliant idea or not.
But if you find that some other business already has occupied your chosen space, don’t necessarily let it scare you away. Actually, existing competitors can be good indicators of a business opportunity that makes sense. If others already are doing well at it, that could be a good sign for you. Learn from them. And then, most important of all, differentiate yourself from them in the product or service itself, or perhaps your geographic market.
John Lillegren, for example, knew full well that candy apples weren’t a new idea. But the cofounder of Amy’s Candy Kitchen in Cedarburg, Wisconsin, figured that he could create high-end candy apples that would have gourmet appeal, based in part on trends in the candy business. And now, Amy’s $14 high-falutin’ candy apples – with names like Gourmet Pecan Turtle Caramel Apples with Dark Belgian Chocolate – have been featured on Food Network and are flying off the shelves.
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Make a lifestyle choice
If you love the kinds of activities your business would call upon you to perform but it would require 24×7 commitment from now as far as you can see into the future, you may want to think twice. Don’t let that Life Plan get put on hold for a business plan. Your dream business could quickly become a nightmare.
At the same time, make sure you choose a business that fits the kind of life you lead, or would like to lead. If you enjoy being solitary, select something that allows you to work at home. If you enjoy community activities and interacting with strangers, a retail operation of some sort might be for you.
Be aware of your risk profile
Your tolerance for adventure in a new livelihood is an important component in choosing a business.
If you create a truly revolutionary concept, the upside of your business could be tremendous – but with the potential for success, the risk involved goes way up as well. There are usually fewer variables and risks involved in replicating a business idea that’s already in the marketplace and just needs a little tweaking for differentiation.
This risk reward scenario is perfectly illustrated when you purchase a franchise. This is one of the lowest risk approaches to sowing your entrepreneurial oats, but also may be have a capped potential reward. As we describe in our book, StartupNation: Open for Business, being a franchisee means the franchisor will typically be skimming profits from your hard work.
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Respect the Internet
Figure out how you can put this game-changing resource to work for you. It can help you start a small business for less money and faster than ever before. Just remember that while there’s little infrastructure and no bricks and mortar required to launch an online business, there are other basics you must know or be able to learn — such as search optimization for your site.
Also keep in mind that the Internet can cut both ways. While opportunities seem exciting and enticing and perhaps even limitless, potential competitors are seeing that same picture in greater numbers than ever before. That means you will have the fundamental marketing challenges that any business has, no matter which business you choose.
Originally published in 2005.
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