All businesses require dedication, determination, enthusiasm, flexibility and perseverance. Consumers today have a tremendous sense of well-being and wealth, but you should be prepared for a sharp or prolonged decline on Wall Street, a rise in interest rates or signs of a slowing economy, which could cause Americans to curb their buying. There are all sorts of things that can turn people away from shopping, so plan for good times as well as rocky ones. If you want to get into a retail business because times are good, you may want to think again. If your passion for going out on your own and dealing directly with the public is not extinguished by the prospect of difficult times, read on.
Will you launch your own business or buy an existing one? Perhaps you're thinking about buying a franchise or a business opportunity. Whichever way you decide to go, keep the following in mind.
Buying a Business
The kinds of businesses you can purchase include franchises, business opportunities, network marketing systems, and existing independent businesses. Here are some facts and figures you can factor into your decision-making process.
- Franchises. Essentially, a franchisee pays an initial fee and ongoing royalties to a franchisor. In return, the franchisee gains the use of a trademark, ongoing support from the franchisor, and the right to use the franchisor's system of doing business and sell its products or services.
In addition to a well-known brand name, buying a franchise offers many other advantages that aren't available to the entrepreneur starting a business from scratch. Perhaps the most significant is that you get a proven system of operation and training in how to use it. New franchisees can avoid a lot of the mistakes start-up entrepreneurs typically make because the franchisor has already perfected daily operations through trial and error.
- Business opportunities. A business opportunity is similar to a franchise in that you get to market a known product or service, but you don't open your business as an extension of the franchise. This is less expensive than buying a franchise. Some business opportunities have no startup fees. Hallmark stores and Stride Rite children's shoe stores are examples of licensed dealerships. You get national marketing support and use the product signs and logo of the parent company, but you operate as your own business. Some business opportunities offer a turnkey business package that gives the buyer a business plan and operations support.
- Network marketing systems. The third form of business you can buy into is a multilevel marketing company (or network marketing system). These are direct-selling companies in which you sell specific products provided by the company based on your personal contacts rather than on the reputation of the brand. With network marketing systems, you get a percentage of the sales of all the new salespeople you bring into the distribution system. The buy-in is usually just a stock of inventory, and there generally is no equipment. But you probably won't receive support in the way of protected territory, product promotion or operations training. Some network marketing systems offer sales and motivational seminars and will sell you videos, audiotapes and marketing materials.
- Existing independent businesses. Acquiring an established business requires a greater financial outlay than starting one from scratch, but buying a business allows you to realize profits faster and receive a quicker return on your initial investment. A major advantage to this approach is that the business you're considering spending a chunk of money on has a track record to review. Obtaining outside financing may be easy, and projections should be more accurate because of known historical trends. The business already has its financial and marketing plans in action. You are paying for it having an established location, inventory, customer base and trained staff.
Entrepreneurs wanting to buy an existing business will have to do as much--or more--research and careful analysis as is required when starting from scratch. Carefully evaluate the opportunity cost of entering various industries through acquisition. Do your due diligence and make sure there aren't any hidden reasons for the sale of the business--for example, the opening of a major competitor within your market area, a scheduled road widening that would take part of your parking lot, or increasing crime in the area.
Launching Your Own Business
You may believe you have a distinct concept that is different or better than anything else out there, and you want to create your own business from the bottom up.
Most successful small businesses provide something attractive or advantageous by taking what's already there and developing some innovative features. Have you developed an improved technique for delivering goods to the market? Drive-thru coffee and juice bars situated near freeway onramps offer added value for commuters. Or, perhaps you have an idea that will fill a market niche. A few entrepreneurs have started up successful ventures in ecotourism and other forms of adventure travel for those with money, social consciousness and a desire for educational value to be added to their leisure time. What is your unique proposition?
Another reason for wanting to go your own way without the safety net of an existing business model is that you have developed new markets or promotional techniques for existing goods and services. For example, several years ago, Lenox Inc. aggressively promoted its bridal registry. Today, this promotional tool is now widely imitated in stores everywhere and online for weddings, graduation, Christmas and baby gifts.