Starting a Business? Don’t be a 95% Loser

July 22, 2007

It is common knowledge that 5% of the world’s population control 95% of the wealth. So, it stands to reason that by doing what 95% of the population do, you have little chance of becoming successful.

You have a far higher chance of winning in business, if you start something that the vast majority of the population are not interested in starting, and sell it when everyone wants to get into that type of business.

Business ownership is much the same as any other market, such as the stock market and the housing market. Before a crash, the majority will be rushing to do the same thing - eg. buy shares, before the stock market crashes and buy houses before the housing market crashes. The problem is, far too many people are influenced by “follow the crowd mentality” and by what they read in the popular press. Don’t be one of them - especially when it comes to starting a business.

So how do you know when this is happening in business? What are the signs that tell you when to buy and sell? It’s not too difficult - just observe what is going on in your local area and in the media. Let me show you an example from my own experience:

Until last year, I owned a fire and flood restoration business. The area I lived in wasn’t in massive demand for this type of business, as it didn’t have a history of widespread flooding. I knew that the global climate was beginning to change, and other areas of the country that hadn’t experienced much flooding in the past were beginning to suffer bad floods.

It wasn’t long before the area I operated in began to suffer widespread flooding. We were rushed off our feet, and this flooding continued in various areas for a long time. Then my home town was flooded badly - bad enough that it even made the TV in Japan.

Of course the business did well in the floods, but after that, the risk of flooding was being discussed all the time in newspapers, magazines and on the Internet, and the message was that it was going to become much worse. Suddenly, everyone was an expert on floods, and more and more flood restoration companies were springing up everywhere.

At the same time, the amount of money that insurers were willing to pay restoration companies to carry out flood restoration was rapidly decreasing. As in any other business, when you have hundreds of companies all doing the same thing, they run out of things they can compete on, and they have to compete on price. Once you start reducing your prices, it will affect not only your profits, but alsoÂ the quality of service you are able to offer.

So for me, it was a good time to leave, and of course it was easy to sell, because everyone was wanting to jump into what was becoming a saturated market. I knew that the floods would continue, but I also knew that the competition would become intense, and that the profits would continue to decrease.

So before you start any type of business - do your research and consider the following:

How many people are starting a similar type of business in your local area?

Have you read a lot of stories in newspapers, magazines, and on the internet, about how your particular type of business is booming? By the time that anything is described as booming in the popular newspapers and magazines, it’s a good sign that it’s about to take a downward turn.

Are you noticing a lot of price competition in your chosen business? For example, are the bigger players always advertising sales and the lowest prices? If they are, the chances are that the industry has become so saturated that they have nothing left to compete on but price.

So don’t be a 95% loser. If everyone is doing it, don’t be afraid to go against the crowd, because the majority of the time, the majority are wrong.

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Comments

3 Responses to “Starting a Business? Don’t be a 95% Loser”

Ian on July 22nd, 2007 9:30 am

So true! Have a similar business - lots of competition, but difficult to sell. Clients remain loyal, value is in the relationships and personally. Rather than compete, we are looking at sideways diversification to areas with fewer rivals, but remaining in the same generic market. We are looking to respond to the various server farms Google and Microsoft are quietly erecting at a rate of knots. Localised IT infrastructure such as servers, back-up etc will dwindle and perhaps die out once you can “rent a network” for a smaller monthly few than owning one. For now, there’s not enough bells and whistles, but it’s on its way! S step-change in broadband reliability may act as the catalyst and therefore tipping point. As soon as service level agreements and guaranteed uptime start emerging, we’ll use that as a trigger to put the plans in place.
cathlawson on July 23rd, 2007 10:52 am

It sounds like diversifying will be a smart move for you Ian, and you’ll have a major advantage over competitors who fail to plan ahead.
Don’t Add This Poison To Your Business Cocktail | Catherine Lawson on September 26th, 2008 9:09 am

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