How I Choose A Business To Invest In Or To Start Up
Some of the most common questions are about my various businesses - and, specifically, how I choose which business to start or which business to invest in.
Let’s look at investing in a business first.
The Person Or The Business Model?
It’s often more about the person(s) than the business, which may surprise you.
I mentioned a few weeks back that I was close to investing in a really good start-up.
However, late in the proceedings, I and the other investors pulled out - purely because the man behind it was looking to double his “salary” (plus a substantial profit-share) instantly.
We took the decision that he was just looking for a pay rise and that his participation in the day to day running of the business (his knowledge and experience were perfect) could be detrimental to our profits and growth.
(“Corporates” like to add assistants and nicer desks (always walnut for some reason, incidentally) when Ikea desks do exactly the same job!).
So, the first thing I look at is the person - what have they done?
It does’t matter one iota to me what their actual work history or education is - I look at whether they’ve shown an entrepreneurial streak at any stage.
Now, I know and accept that entrepreneurialism is difficult to spot if someone has been working for a company - but you can do this.
I look at how they did their job - were they looking at improving the procedures they were involved in, for example - procedures that made their work easier and / or improved the business.
One of the best ladies I ever invested in had worked out a way to reduce her entire daily workload to about 30 minutes a day by a rather clever use of spreadsheet tracking (Excel is wonderfully clever if you take time to learn it!).
Now, yes, many people would think she was being lazy.
I thought that the complete opposite was true.
And the returns on my investment prove I was right.
And her employer was, rightly, delighted when she left as she fully explained to them how simple her job NOW was.
And they were immediately much more profitable, as a junior could now do her well-paid job!
Obviously I do consider the actually business model that people suggest, too.
But here's an interesting thing.
When you’re “in love” with business generally, you can quickly see how to vastly improve any start-up.
And, conversely, you can point out the flaws.
And when I do the latter, point out the flaws, I can learn a lot about the person, too.
You see, if they listen and learn, they’re a good person to invest tin.
If they argue, they’re dismissed, unless their argument is carefully considered and though out.
Just saying “I’m wrong” is a really bad idea, unless they can show a flaw in my thinking.
Can you see why I look at the person first, then the business model?
The TV show Shark Tank (and its international equivalents - Dragon’s Den in the UK, for example) uses this technique all the time.
You’ll see the question “what have you done before?” crop up all the time, if you watch carefully!
Investing in doctors is always good, they and I find - because doctors are inherently analytical … and will never do anything unethical.
Just as you need to be in business!
(Aside: I’ve done a few podcasts about the Shark Tank investors and they’ll be broadcast from this week).
Now, How Do I Choose Which Business To Start And Which Business Models To Recommend To My Readers?
Now, how do I choose which business to start and which business models to recommend to other people?
Well, mostly, I use the acronym “CRAP”.
I’ll explain what that stands for as I go along!
For almost any “close to perfect" business, this is something you need to always consider.
Firstly, you see, the hardest part of any business is going to be getting customers.
And if your constantly looking for new customers, rather than repeat business, your prospects for growth diminish.
(Aside: it really winds me up when I see otherwise well-established companies constantly chasing new customers, but not looking after their current clients!).
So, always look for a business with repeat customers, customers who will buy from you again and again, preferably automatically.
So, a business must ideally be:
CONSUMABLE - people use your product and repeat buy it or similar from you.
REPEATABLE - repeat customers are essential.
What ever you’re selling must be
Now that doesn’t mean cheap - far from it.
The “haute couture” and perfumery businesses are prime examples of high prices and high profit margins.
Every business should sell a dream - be it better dressed, smelling better - or a product that just works - and has good customer service.
Because that’s why clients and customers actually look for.
And, lastly, it should be really easy to get the product or service into the customers hands, cheaply and quickly.
So we have
If you can easily post a product that’s great - even better if you’re not handling the products yourselves and have a warehouse doing all of the work for you.
The international “packet” systems isn’t well known, yet handles millions of small panels around the world every day - for pennies!
Publishable should be self-evident.
If you can publish a book online, deliver a course online, blog online, life is even easier!
Can you see now where “CRAP” comes from?!
It fits almost every business model, if you want to have quick success.
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