Quick disclaimer. The following list comes from lessons I have learned in the last 5 years of being an entrepreneur. It’s largely guided by my bigger objectives. I don’t want to run a Forbes 500 company. I want a small, profitable businesses, that runs while I sleep and helps me pay the bills at the end of the month, gives me freedom to do what I want, when I want. If what you want, doesn’t align with that, then this list is not for you.
Some dos and don’ts
- Don’t manufacture anything
- It’s expensive to scale, and you require a lot of capital to manufacture high volumes and keep costs down
- The turnover from manufacturing to selling can be months (in other words, your capital is tied up)
- and quality control is death by a thousand cuts
- Don’t sell a commodity. For example — I sell wine. The issue is, everyone else also does. The majority of the wine on The Daily Wine, never sells, because people can buy it for cheaper at their local retailer. However, if you can manage to sell wines at considerable discounts (30% plus) — then you will sell loads, because people love a discount. So unless you are able to discount, I would stay away from commodities.
- Do sell products with high margins. If you have margins, you can run sales. See point above.
- If you have to ship a physical product, make sure it’s:
- Light — shipping is expensive
- Non-fragile — couriers are very hard handed, and breakages are expensive
- Do sell something people need, not something that is nice to have. If there is a gold rush, don’t start mining gold, start selling pickaxes. Your success is guaranteed regardless of how well the gold mining goes. Another way to see this is: sell painkillers, not vitamins.
- Do make sure it can be automated — don’t start a business where you require boots on the ground, or where you need to intervene the whole time. Avoid the following:
- Don’t start a restaurant
- Don’t build websites for clients (they want to make endless changes, have low budgets and poor taste)
- Don’t sell customised products
- Don’t sell your time — accountants, physiotherapists
- Don’t build a business which relies on the success of 3rd parties - independence is key - the last thing you want is where the failure or incompetence of one of your suppliers/contractors means your business suffers.
The irony
The ironic thing is, how did I come up with the list above? We’ll by doing exactly the things I am now telling you not to do. I’m not saying that you won’t be successful if you do something that falls into the criteria above, I’m just saying it will be much harder, than what it needs to be.
So what’s left?
That my friend, is the question. If you use the list above to kill your ideas before they even make it to reality, you will end up with very little left.
For me personally, I believe the best option is to run a Software as a Service (SaaS) business. Here’s why I say so:
- You can do it from anywhere in the world. All you need is a laptop. If something is broken, you can fix it and deploy it immediately.
- You don’t have to ship anything back and forth
- Every single business in the world has some problem that can be solved or process that can be streamlined with a piece of software. If you can solve it for one person, then you can take that solution and copy and paste it to 1000 others. Charge each one of them $20 and “Bob’s your uncle”
- It is possible to completely automate software businesses and literally make money while you sleep.
- If you focus on using open source software, not relying on paid 3rd party software and running your own servers, you can build an independent business with 90% + margins.
Show me the proof?
At the moment, I don’t have a software business that’s a runaway success yet. But I have started to dip my toes into it with:
- Daily Bulk Wine — a platform that streamlines bulk wine buying and selling
- Daily Sync — an app that streamlines online sales for The Daily Wine & Koelenhof Wine Cellar.
- SendKit - email marketing app which I have rolled out to Koelenhof Wine Cellar, The Daily Wine, Kiki & Co, Daily Bulk Wine and this blog. I have just started to make a bit of money from this one and I am very excited for what the future holds. From the start I built it to accommodate external clients and I am polishing it by using it every day and eventually I will start opening it up for other people to sign up.