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I live in Seattle. My girlfriend’s brother has a lot of expertise in the roofing industry and wants to start a business with me. Heres the catch – he doesn’t have citizenship so he would need me to form the business, get insurance, run the administrative side of things, and set it all up. I have a full time job so I’m looking to do this on the side. He wants to get 80% of the profits since he is doing the work and give me 20% for doing the setup.
Oh man this is Juicy. I love the roofing business.
Lets start with my concerns:
A couple things you should know – roofing has the highest workers compensation rate of any industry in America. Its the only one higher than moving and storage. Its an extremely dangerous job. People die on the job. You’ll pay upwards of 40% on top of payroll in the form of workers compensation. So if you pay guys $20/hr to do the work you’ll pay an additional $8 per hour in workers compensation.
Don’t do a single job without liability and workers compensation insurance. Make sure to form an LLC for liability purposes.
You need to talk to a lawyer about the concerns sharing profits and ownership with someone who doesn’t have a social security number. I don’t know if its possible for them to be a part owner. I’m assuming they aren’t here legally or they would have a work visa and a temporary social? This is all research you need to do.
A hands off role with 20% of profits doesn’t sound worth the risk to me. You need to either be involved and own the business outright and set up a profit sharing plan with him or you need to not do it.
You are basically partnering so sit down and have the hard talks with him. You can set up performance hurdles to make it fair. If no profit he doesn’t get paid. If the business starts to get profitable he is paid a fair salary for his work (based on revenue and commission). Everything above and beyond that salary you get until your initial investment is recouped. After that you split the profit based on value added.
There is only so much value in doing the roofing. You could get the best roofer in the world for $75k a year. The real value is in building the processes and bringing in the business. If he is a competent business manager and can build out training systems thats a lot of value. If you are doing that and he is just on the roof sweating and thats his glass ceiling then that should be considered when sharing profits.
If I were you I would want to be very involved on the quoting and selling side of things and take more of the profit. An 80/20 split is in no way worth your time, effort or risk. Sit down and have the hard conversations with him and how you see it happening.
Lets talk about what I would do if you did decide to move forward:
You aren’t going to compete on price. Your competitive advantage is going to be a quick turnaround, ultra responsive customer service, eager professionalism and quality work. If you are looking for the cheapest, we are not your company. If you are looking for great value and a quick timeline, we are your company.
You do not want to be a subcontractor. General Contractors only care about one thing – money. They will beat you up on price. Plus, acting as a sub does not put to use any of your competitive advantages. Your great website, your accessibility, your responsiveness, your professionalism, your customer service. You’re competing with the guys who don’t do any of that and its a race to the bottom. Don’t get involved there. Work directly with home and business owners who need a new roof.
Find your target customer. Homeowners? Business owners? Storm victims? Go and get in front of them with marketing. Find the homes in the high end neighborhood that are 20 years old and you know need a new roof.
Go and do some networking. Anybody who could potentially recommend your business you need to stop and see. Realtors. Home lenders. Insurance agents. These three could be huge. Go into their business and talk to them and drop off a card. Make friends with them. Try to refer them some business from your network and let them know you plan to do that. Get their cards and send them follow up emails. If you had great conversation with them send them a box of chocolates and a thank you card for referring business.
Consider working a niche. Maybe get really really good at working with insurance companies after storms. You can get customers a free roof if they sustain damage. That’s a good play and a skill most roofers aren’t interested in learning because it takes work.
Start a lean business and buy your equipment used so you can sell later if necessary without eating a ton of depreciation. Keep your expenses variable.
Do a market analysis and study competitors. Look for the best roofing company in the USA and model your business after them. Call them and play a customer. Learn how they charge and how everything works.
Get serious about content marketing and SEO. Nurture your google my business location. Build a great website full of amazing content. All the questions someone would ask when they are putting on their own roof, dealing with insurance, or whatever. Answer all those questions!
Make sure the employees are professionally dressed and have good manners when on the job. No smoking on the job. No using customers bathrooms. No untrimmed beards or showing tattoos. A collared shirt.
Quote high. Be okay losing most of the jobs you quote. Convert fewer jobs but make more profit on each. Make sure to do a phenomenal job and you’ll do great.
Show notes for podcast episode 26.
On one hand if someone is selling a business I’m immediately a little skeptical. it must have some problems. Why would they sell it if not? It might require too much of their time and energy. It might be stressful. It might be losing money. The future might be looking bad for the industry as a whole. You are often buying yourself a problem that you will need to fix. You are often buying yourself a job.
On the other hand if it is a very healthy business and it runs without the owner that owner will want too much money. It will be too expensive for you to buy. It would make much more sense investing in starting a company and growing it from scratch and copying that business model.
That said it might just make sense for you. I recently read an article that highlighted the fact that a lot of businesses are going to come on the market for sale as the baby boomers approach retirement. Baby boomers rule in the service area. They own the contracting companies. They own the home service businesses. I’ve designed this podcast around the fact that most of them run their businesses like its 1985 and you can out operate them, but still as these businesses either go up for sale or shut down I look at this as an opportunity. So lets discuss when I think buying a business might just be a great decision.
Lets look at a series of questions. No matter what business you are looking at you need to think seriously about these questions and answer them honestly.
Do you understand the business? Have you worked in the space? Do you know how each aspect works?
Have you done a complete market study? Do you know the competitors in the space like the back of your hand? Have you called them and played a customer and taken notes on what you’ve learned? Make sure to call the business you are considering buying as well, playing a customer and asking a laundry list of questions.
What are the barriers to entry? Do strong brands in the market have a serious advantage?
Is the service itself repeatable and scalable? Can you train others to do it? How long would training take?
What are the risks associated with the service or business? Do you have 18 year olds driving around box trucks? Thats the number one risk in my student storage business.
Is the industry in general growing in size? Is the service getting cheaper or more expensive? Are more customers coming on the market each day or are less?
Does the company have a good online reputation? Make sure to look at the customer service inquiries for the entire previous year during your due diligence. Look at online reviews.
Is the real estate it sits on included with the purchase?
How valuable is the human capital within the business? How long have the key employees been there? How skilled are the service providers? How likely are they to leave if the business is sold? Are they easily replaceable? Don’t count on buying key employees and having them stay. Businesses that rely on extremely talented people and fail without them aren’t the types of businesses I like and this is a risk if you are counting on this.
The big million dollar question is how does the business get their customers?
Does the business have infrastructure in place beyond marketing spend that brings in a lot of business? A top google ranking? A lot of word of mouth? Brand awareness in your area? A prime physical location? Or on the other hand are they spending money on new fresh leads each time they get clients? Obviously you are looking for the former.
Is the business repeatable or subscription based? Do they have a book of clients that come to them for service on a schedule? What contracts are in place with customers? How long are they committed? Do they have 50 accounts that are in place for eternity until they cancel? Thats serious value and you want this. On the other hand if a business spends marketing money to bring in every ounce of revenue thats a red flag. Low barriers to entry and not much value in the brand as it exists.
If I’m starting a lawn care company, a pest control company, or a cleaning company I would consider buying an existing one because they would come with a book of accounts. You would automatically inherit their scheduled customers and the revenue that comes with that. On the other hand if I’m considering buying a brick and mortar mechanic shop and the customers all come in off the street there isn’t much value in that to me unless you are also going to own the prime location and real estate associated with it.
What is the owners role? Does she personally know the big clients? Did she bring in the clients? What is her day to day at the company? What will happen when she leaves? Will she take the clients with her?
What will happen to the operations if she leaves? Is there a massive hole in the company? Would you be required to take it over and basically be buying yourself a job?
Okay those are the main questions to ask yourself. Now lets talk about situations where I think buying a business might be the best move.
If you own a competing business in the same industry and owning that business aligns with your strategic plan.
Lets give an example from my experience. We own a student storage company. Our strategic long term plan is to develop relationships with universities and sign contracts with them to be the preferred vendor on campus. We would consider buying another student storage business if they had contracts with universities. We know those contracts are critical to our growth so that would add serious value to our business.
Its worth more to you than it is to anyone else.
As you know we are in the student storage and the self storage business. In October 2018 we bought out a neighboring storage facility that was more valuable to us than it was to anyone else..
We built our facility in 2017 and had originally planned for a two phase development. We have a very high traffic location which is great for our business but the site has some geographical issues and we were required to build our building into the slope and make it two stories. So not only was there a ton of earthwork to do but we also had to build a two story building which requires a lot more infrastructure and steel. This makes it very expensive to build our second phase. We made a budget and it was going to cost us around $60 per square foot. We needed the space badly because we were about to fill up our facility.
There happened to be a neighboring facility that was around the corner and off the beaten path. It had almost no traffic and no sign so it was very hard to see from the road. But it was only about a quarter mile from our main facility. 12,000 beautiful square feet of rentable storage space. This was $10k a month in revenue if we could get our hands on it.
I reached out to the owners. They were interested in selling. The facility was underperforming. It was only about 20% full. The lack of traffic was killing it. Nobody was interested in buying it because it had no traffic. The buildings were in good shape and it even had a gate and fence around it.
We had the traffic and it could be rolled into our current operations easily because it was so close. We could direct customers from our main location over there easily and wouldn’t even need to rent the units at a discount.
We knew we were on the short list possible buyers so we came in with a low price. They countered. We stood strong. We came to an agreement at $400k. $33 per square foot. Instead of building more space on our parcel for $60/sf we purchased for $33/sf and this was a win win. They would have struggled to find anyone willing to buy at that price but it was worth more to us than it was to anyone else. We closed shortly after and rolled the buildings into our operations seamlessly. It was a huge win for my partner and me.
Another time I love to buy is when I’m one of a very very small group of buyers or possibly the only buyer.
I like to shop in a market that is small. That’s the problem with buying rental properties on zillow right now. If it’s on zillow you’re competing with thousands of other people looking to buy a rental property. Not ideal right? The person who is able to clean up tax liens or buy foreclosures is always getting a better deal because they are competing with a smaller market of buyers.
What makes the buyer pool smaller? Problems. Problems like the ones that come up when you ask the initial questions we started with.
Consider looking for a business with some problems with the business that you can solve but others can’t. That makes you the only possible buyer. That was the case with the self storage facility we bought. Traffic was their problem. We had the solution and we were the only ones with the solution. Perfect situation.
Don’t look for the perfect business to buy or you’ll be in a tough market and you’ll overpay. Consider buying the business that has some problems and being the only person to bring an offer at all. That puts you in the power position during negotiations and you can find some great deals that way.
Opportunities do come up. Maybe you work at a company on the management team and the owner (who is very involved) gets sick. Or maybe he needs to retire. You are in prime position to be one of the few people to buy the business.
The way the process works is you are first asked to sign a non compete and non disclosure. Basically stating that you won’t use what you learn to try to steal customers or share it to the public.
Then you get basic financial and customer numbers that can give you what you need to make an offer and go under contract to purchase. Then you will want at least 90 days due diligence to really dig in to the nitty gritty. Make sure the due diligence you want to do is explained in the contract. During due diligence you can often uncover things and then negotiate the price further and that is very common.
If you are going to buy a business make sure you do very in depth due diligence. Do extensive interviews with all key employees. If they don’t allow this then thats a bad sign. The employees should be in the loop with what is going on. Ask them all the same questions. Anything fishy? Do you they would leave when the company is sold? Do you need them at all?
Depending on the type of business consider interviewing key customers and talking about the business reputation and their experiences.
Make sure the accounting and bookkeeping is well organized and the record keeping is tight. Run the other way if the owner talks about taxable income in a different way than the amount he pulls off the business. This is a huge red flag. How are the books? Are the accounting practices solid and organized? Don’t give an inch here. If the tax returns don’t prove it it didn’t happen and discounts are coming.
Consider including a performance hurdle that the business must hit in the coming years to finalize the payout figures agreed upon. This is a way you can hedge risk but you’ll also end up paying more for this and it could complicate things.
Consider keeping the owner on board in a hired position during the transition. This can help you learn the business but is also complicated and you must realize they will not be very interested in working hard.
Lets talk briefly about the valuation of the business you are considering buying. This is extremely tricky. Owners often overvalue the work they have put in as well as the future potential. I’m not going to be able to give you 100% accurate advice here because all businesses are so different but lets go over the basics.
Before you even start you need to figure out what the business is worth to you.
Make a pro forma to estimate your cashflows. I have a sample pro forma on the website. Search cashflow projections. Spend a lot of time on this. Run them 5 different ways ranging from as expected to better than expected to worse than expected. You need to have the capital to make this fail proof. Even if things go as horribly as possible it won’t force you into bankruptcy. This likely means you need a lot more cash to make the purchase than you think you do.
If you take over the business how profitable will the customers that come with that business be?
Use your data to run the cashflow projections at your margins and come up with a projected profit figure. Now what return are you looking for on your investment in the business? I would think at least 20% for most service businesses. If you spend X on the business you are going to get a 20% annual return on that purchase. Now you have a price that the business is worth to you.
Now secondly you need to get a professional valuation. Pay for an appraisal to determine the market value. Consider paying for it yourself (or through your bank) and keep the numbers to yourself early on because you might not want to pay market value.
No matter how you do it you want to have a value in mind before the negotiation begins.
You want the seller to be the first to name a price. It will likely be a lot higher than what you’d like to pay. React accordingly with a short response email “this is much much higher than we had in mind and we are not in the market at that figure.” and let the days tick by. You can get more and more aggressive with the negotiations depending on the position of the sellers and the amount of buyers in the market.
A little off topic here, but while negotiating it helps to have some “partners” that need consulting, even if they don’t exist, between communications. You can use this to your advantage in a few ways as you play good cop bad cop and draw hard lines in the sand.
Should you use a business broker? If a business is already for sale you probably aren’t going to have much of a choice. But if I’m buying a business I don’t like going through a broker. They don’t have my best interests in mind. They just want to sell the business and take their 10% cut.
They also keep me from having initial conversations with the owner that I think are critical. I love to get on the phone with an owner and listen to them talk. Ask some open ended questions and just listen to them. I can learn so much about someone and the situation that way.
I call around businesses and ask the person on the phone to get me in touch with the owner because I’m a local business owner who is interested in a partnership. I say partnership because often a business owner doesn’t want his employees thinking hes going to sell the company. Once I get the owner on the line I begin the conversation about an acquisition.
Now just because I don’t prefer using a broker doesn’t mean I’m not going to enlist some professional help. I’m going to hire a great attorney and accountant to help me with my due diligence and with my contracts. I’ll also pay for a third party valuation of the business.
Funding can be tricky. If you are buying a service business without any physical income producing assets you will likely only be able to finance about half of it through a local bank. That means you’ll need some serious capital on hand.
Remember that you can get creative with the structure. You can do seller financing and have them hold the note for you. You can pay out over several years and the amount can change based on performance hurdles. You can keep the owner on board as a salaried employee and structure an earn out over a few years. There is really no limit to how it all can work so consider thinking outside the box.
Overall, buying a business can be great. Now lets look at the other side of the equation.
Generally speaking if you aren’t a business owner already and you don’t have extensive experience in the industry buying a business is rarely the right call.
Use that capital instead to start a business and pour rocket fuel on it in the early days to get it to grow very very fast.
If you aren’t an experienced business owner buying a business is often just buying yourself a job and taking a lot of risk to make it happen.
So many people buy businesses because of their own interests and their own passions and not the needs of the markets. I can’t overstate the importance of doing a serious market study and looking at this whole thing through clear non-biased eyes.
Put the principles in this podcast to work and build your own business. Start small. Add value first. Work on the stuff that is important but not urgent. Simplify the job for your employees so normal people can do really well with minimal training.
Think about your time in the early days of building a business as adding long term value in the form of appreciation. Not just an hourly wage based on your income at the end of the year but the value that you are adding to the business in the event of a sale down the road.
In year one you might only make $20 per hour of your time in income at the end of the year. A lot of reinvesting. A lot of marketing and equipment purchases.
But what if the business you started 12 months ago is now worth $100,000 on the open market. What does that do to your hourly pay? Now we’re talking.
I know every situation is complex. There are a million variables at play here. You might have a great opportunity to buy a business right in front of you and taking my advice might lead to a bad decision or a missed opportunity. Keep these things in mind but don’t think what I say is the golden rule. Its impossible for me to give accurate advice on every situation out there based on the generalizations I’ve made here.
It comes down to weighing the pros and cons, getting professional advice and looking at this stuff with a clear logical mind. Don’t let your emotions get involved. Don’t sort information and accept only the stuff that supports your personal directive.
If you are in this situation and want an outside non-biased opinion (for what its worth) I’d love to help out and give you some advice. Reach out to me by email at firstname.lastname@example.org.
Want more? Subscribe here to get short, concise emails from me once a week to help you build a better business. I also share a business idea like thiseach week to get you fired up and get your gears turning.
What skill is underrated or ignored that you think is and important key to success?
269 billion emails are sent and received every single day but nobody talks about email etiquette. The people who are good at it shine. The people who aren’t have a disadvantage and they often don’t even know it.
Nobody has time to read a novel. Keep your emails short, to the point, use bullets and other formatting if necessary and keep your paragraphs small. No email should be over 150 words.
If you are sending an important email to an important person spend just as much time reducing its size as you spend writing its contents. Sending a super concise email is a great skill so spend time and energy removing as much fluff as you possibly can.
If you draft and email and its too long go through it line by line questioning if each sentence or paragraph is absolutely necessary to get your point across. Nobody will read an email that is too long. Nobody will read an email with paragraphs more than 4 or 5 lines. Make it short and sweet.
It goes without saying that proper grammar and punctuation is important. Make sure it is well written.
Ditch the comcast, AOL, hotmail, etc. That shows everyone you are living in the stone age. Set up a professional email address using your domain name and setup “send mail as” and a forward to your gmail account. This way you get the professionalism of your own domain with the features of Gmail and the Google suite of tools like Drive, Analytics, Voice, My Business etc.
Set up a professional signature:
Don’t make your title CEO unless your company has 30+ employees. Its obnoxious and is not a good look.
Set up your phone email the same way with the same professional signature so nobody can tell if you email from your phone or your computer. Make sure to delete the “sent from my iPhone” at the bottom of the signature.
Carbon copying people is a great way to keep someone in the loop even though no action is required from them. I do this with my partner on nearly every email I send. Don’t overdo this. Especially if it is a sensitive email or corrects someone for a mistake they have made. Its similar to criticizing someone in public. Never acceptable.
When you receive an email with other people carbon copied it means that they want to keep someone else in the loop. Make sure to REPLY ALL. This is the most common mistake that I see people make. Replying to only the sender when the sender wanted to keep others in the loop on the communication.
I get hundreds of cold sales emails a year. Most of them are too wordy. Most of them put their hands out saying ME ME ME ME please help ME.
Set yourself apart by customizing it. Do a little online research on the owner. Read the about us section of their website. Add value first by offering to do a little bit for free or giving some real tangible advice without worrying about charging for it. Gain some trust and show the owner that you really can provide some great value down the road.
Use exclamation points and emojis. I know you don’t want to do this but its important. Too many customer service reps come off as cold and rude when its so easy to sound energetic and positive. Always thank them profusely for reaching out. Always end with a personalized touch.
Canned responses are great for this. Shortkeys can insert pleasantries before and after any message. Deal with the same customer service questions often? Develop the perfect canned response your reps can insert with a keystroke.
Emails are amazing at keeping a record. They are searchable. They are easy to bring back and forward.
If you make a deal with someone in person or over the phone follow up with them by email and ask for a confirmation response. If you don’t have a record of it it didn’t happen. CC your partner if it was a big deal and you want them to be in the loop.
Lay out tasks and have someone else agree to do something important for you? Confirm by email.
Somebody agree to help you with something and promise a date? Confirm by email.
I can’t tell you how many times this has come in handy when there was a disagreement later. Sometimes when I send an email after a conversation we disagree and have to clarify tasks that were just agreed upon! It saves tons of headaches and miscommunications down the road!
You can also send yourself emails to have in your records with attachments that are important.
Want more? Subscribe here to get short, concise emails from me once a week to help you build a better business. I also share a business idea like this each week to get you fired up and get your gears turning.
How would you start a service business where you have to have specialized knowledge? A business like yours anyone who can drive can start. But let’s say a business like HVAC or appliance repair, traditionally people that have a lot of experience working in that area eventually decide to go solo and start a company. It seems like these make up the majority of businesses.
First of all a steep learning curve and permitting process is not the majority of businesses out there. Looking at this list 90% of them you can do yourself with a few youtube videos, cheap tools, some practice. Obviously you will get faster and more efficient over time but thats part of anything.
Every business has some level of investment required. The greater the investments the greater the potential reward or potential loss. The investment in these skilled areas is more geared around TIME than money.
To start a waste management company you need a $240,000 garbage truck. To start a business based on a skilled trade you need experience, maybe some education, and likely some certification. You are really investing TIME.
Look at these as barriers to entry and investments. A certification is likely not that hard to get and keeps others out of the market. You want it to be hard remember? Everyone would do it if it were easy.
So its probably unrealistic for you to become a licensed electrician unless you are under 20 or already headed down that path. I get that. But should it be totally out of the question if you are at a dead end job in a dying industry working for the government when you would much rather be working with your hands? Maybe not.
Is making a time investment worth it for you considering all the factors? That is up for you to decide.
There are a ton of trades that you can learn on your own time while you have a full time job. Want to be a specialty carpenter and build home bars or wine cellars for people? Get into woodworking, join a local club, and find a local company that is doing it and is hiring evening and weekend work. Help your friend build one. Build one yourself. Before you know it you’ll feel comfortable doing it and you will be ready to get out and mix it up.
Remember that starting a company is a long game. We are making sacrifices right now so that we can design our life 5 or 10 years from now. We aren’t afraid to work for something even if the reward is a few years out.
The good thing about the this space is that most contractors or tradesmen who own companies are so short on staff that if you are a warm body and will show up you can get a job instantly. Go out and work in the field for a few weekends and see if it is for you.
You can get paid throughout the training process by doing this and it will supercharge your learning and experience as well as help you learn the industry overall.
Its all about risk and reward. You can choose to risk your time or your money. Do your homework and decide if a skilled service is right for you.
Housing is so expensive in America’s top 10 cities that only the wealthy can afford to buy a home or even rent an apartment. What factor is at play that everyone is missing?
I feel very strongly about this one and I have a bit of a unique opinion.
Housing is astronomically expensive because there isn’t enough of it. There are millions more people who would like to live in our top cities than there are homes available for rent or purchase.
So thats it. Not enough supply. If we could build more housing we would solve the problem. Why can’t we?
Developers are willing and able to build the housing. They can build high rise apartment buildings for $300 per square foot. So if they make a healthy profit of 50% it should cost a consumer $450,000 for a 1,000 sf 2 bedroom apartment. So why does it cost 3-4 times that?
The local planning boards and zoning laws in our major cities limit the density of our housing developments. They restrict the height of our apartment complexes.
Who sits on the local planning and zoning boards? Members of the town. Local property owners.
So the local home owners control the zoning and new development but they also own property in the city. What happens if they limit new development and new housing supply?
Their own home gets more valuable.
Why in the world would the planning boards and zoning boards make it easier for developers to build? They would lose money.
So they don’t. They limit supply of housing to protect their own investments. The local home owners win.
The city loses. The middle class loses. The lower class loses. Local businesses lose. Everyone else loses.
Have you ever been to a town planning or zoning hearing? You should go. Watch the home owners cry and send the developers packing. Watch the “not in my back yard” outcry.
Drive through the suburbs of Boston and look at the yard signs that read “VOTE NO on the Route 2 development”. Every 3 million dollar 5,000 square foot single family home sitting on 3/4 of an acre has one.
First of all my children have relatively zero chance of getting accepted into the Ivy League. They won’t have all of the extracurricular activities required to get accepted. They won’t volunteer 20 hours a week. They won’t have incredible test scores. They won’t have a sob story to tell in their application letter.
Lets assume hell froze over and they did get accepted. Would I send them?
The answer is no. I wouldn’t. Getting into a top 15 college is so competitive nowadays that its a full time job for the entire family to make it happen. They must push their children to do a bunch of stuff they have no desire to do. Stuff that has no utility later in life.
Lets think of the traits you need to get accepted. Very good at standardized tests. Very good at holding a position in student government. Very good at schoolwork. Very good at following the rules. Very good at fitting in. Very good at doing what everyone else is doing. Very good at complying.
Now lets think of traits you need to succeed in life, business and relationships. You have to be very good at communicating. Very good at socializing. Very good at making friends. Very good at doing hard work. Very good at dealing with failure. Very good at handling surprises. Very good at leading others. Very good at helping others succeed with you. Very good at holding down jobs when necessary.
People who succeed and lead happy lives have street smarts. They have experience figuring out life problems on their own. They have emotional maturity. They thrive in social situations and enjoy learning from and interacting with real humans. They can operate without a safety-net or helicopter parent.
Kids who get into top universities are horrible at all of these things. They can’t carry on a conversation. They can’t work with others. They can’t socialize. They can’t deal with failure. They have never been dealt a surprise. They have never dealt with a problem without leaning on their parents. They have never worked a summer job doing manual labor. They do not understand how money works.
They are zoo animals. They have been coddled and guided and fed their entire lives. They are great at doing as they are told.
They got into the Ivy League because their parents worked hard to get them into the Ivy League and they are good at complying.
When zoo animals get let out into the wild they starve or they get eaten.
Let me tell you that I am very grateful for my time at Cornell. I met amazing people. I met down to earth people. I met my wife and my business partner – the two most important people in my life. I learned a lot.
But I’m sending my kids to public school. The most important lessons in life you learn in the household. I’ll do my best to teach them those things. The rest is up to them.
If you had to start all over right now what business would you start? What sector would it be in? What sectors would you avoid? How about real estate?
I’ll tell you what I wouldn’t go into – and thats Tech. Its mature. Competition is strong. The market isn’t growing anymore like it used to be. Its getting cheaper and its a race to the bottom right now.
I also would avoid a new product. Again the competition is strong and the market isn’t there. You are spending tons of money to educate a market because nobody knows its out there. Not ideal and high risk.
Retail is also brutal. Online retail has boomed and flattened. You are competing with China and all goods are turning into commodities. Its a race to the bottom.
Online content and trying to become an online influencer and build a brand around that is also a tough business for those starting out right now. Everyone wants to be an instagram influencer or a YouTuber and its getting harder to carve out your niche. The amount of people on their phones scrolling or watching youtube videos is nearing its peak. The market isn’t going to grow forever. The people in that business need to double down and milk the golden goose while shes still there and start leveraging other opportunities and think hard about where the market is going and where they are headed.
America is a service economy right now. Its exploding. Specifically in the service businesses I would target those that customers sign on for scheduled service over and over again. The subscription model. Where a customer is going to utilize your service weekly or bi weekly or monthly for as long as you can keep them on board.
I think pest control is a great business. It would be relatively simple to scale and easy to train employees. Customers can stay with you for 10+ years so you could do creative things to get new customers in the door knowing they are very valuable in the long run. Same with lawn care and lawn treatment. I love the home service businesses that are not just one time hit and runs.
I also love businesses that are seasonal because you can plan and think ahead and rewrite your business plan in the off season and improve leaps and bounds based off the things you learned during the peak season. In our seasonal business we are really able to analyze our market and find our wheelhouse every year and focus on it. Its a common theme at Storage Squad that they pay us the big bucks for our work in November when nothing is happening and we aren’t servicing any customers. Thats when the real advances are made. We’re working in quadrant 2 and nurturing our wheelhouse.
I also love businesses with the opportunity to lead into specialized real estate. Real estate is the end goal because of the massive tax advantages and passive stress free income that comes along with it. However the real estate most people invest in is so competitive there are no deals left. If you are buying rental houses on Zillow you are competing with 1000 other buyers in any neighborhood. Everybody wants to own rental properties or buy and flip because its the sexy thing to do right now and the TV shows on HGTV glorify it and make it look easy. I hate that. If you are going to get into real estate and think you can just go on Zillow and find a good rental property you are sadly mistaken. If its on Zillow you are too late. You have to find a competitive advantage. Cleaning up tax liens or estates. Buying foreclosures. Doing your own repairs and remodels. You have to find additional ways to add value or its very hard to thrive.
I would also love to start a business that leads into real estate in a niche market where you aren’t competing with a lot of other players. That is where the real value can be gained. Examples of this would be warehousers or distributors because it leads into warehouse and commercial assets. Maybe a vacation rental management company that leads into vacation home assets. It was my experience in the storage industry that lead me to self storage assets.
But honestly. The number one business would be the trades. I’m encouraging my kids to be electricians. These industries are so far behind everything else when it comes to tech, customer service, marketing and sales that implementing these things I talk about on this blog would put you leaps and bounds ahead of everyone else in the industry. None of the owners of other companies work in quadrant 2 and think about their wheelhouse. They are all just running around working to keep their head above water.
I have a job that pays me well but I hate it. I think there is a real demand for rentable moving boxes in my town. If I can capture just 1% of the people who move every year in my city I’d be profitable. Should I quit my job to pursue this startup?
I would think hard before entering this space. Cardboard boxes are a cheap commodity. The market for them has exploded with the increase in online retail. There are a lot of packaging companies out there competing to do it extremely cheap. You’re trying to replace a cheap commodity and turn a profit + you are adding logistics to this scenario (eg. trucks, manpower, pickup, delivery, appointments). Not to mention a plastic box takes up 10x the space of a folded down cardboard box.
Some companies are doing this but you are largely going to be educating the market that your service even exists. Do not get wrapped up in overall move data to come to your market potential because 95% of people who move aren’t even going to consider renting moving boxes when it is only an $80 expense on a multi thousand dollar expense in the first place.
I do hate to discourage you. It can work and it might very well be worth a shot.
My advice to you would be to find a niche within the market. Do not compete on price. You can’t get cheaper than cardboard boxes and you don’t want to try to be. Find people who are wealthy and are into sustainability. Your service won’t be the cheapest or the easiest option so you need to find people who want to use it for other reasons.
The beautiful thing about entrepreneurship in certain areas is that you can start out as a freelancer on the side and test the market, learn, shift gears if necessary and not take a lot of risk.
I would hammer out nights, weekends and start to get a feel for the market. Start to sell. Start to get money coming in as a freelancer. The entire time you are doing this analyze the market – make sure it is a growing sector. Make sure you can add value by either making the product or service better, faster or cheaper. Ideally 2 or all 3 of those.
Do not quit your job right now.
Then when you are confident that this new gig could replace your job its time to quit with the goal of replacing your income as fast as possible. This entire time you can be investing in your website, your brand and your momentum will begin to pick up.
I started my company while a full time college student and athlete. My company is also in the moving space. You can do it on the side if you are willing to make the sacrifice and really get after it.
20% of my business out the door. I’m scrambling. I’m stressed. What do I do?
You may be expecting a lot of motivation here. A lot of encouraging words. Keep going. Keep trying. Stay determined and you can do it.
Be weary of this advice.
As a manager – you’ll try to work your way out of any problem. You care so much. A lot of entrepreneurs, when the shit hits the fan, just put their heads down and work and avoid looking in the mirror and accepting if something could be wrong with the big picture. They avoid nurturing their competitive advantages. They blindly throw more money at marketing to try to outspend the problem. They are unable to diagnose the problems and fix them early.
I’m not saying there is a problem. Its the natural growth cycle of most businesses. You lose customers and you gain customers.
But if there are signs out there don’t spend so much time putting out fires that you miss them.
Make sure you are still spending time on the areas of your business that are important but not urgent. Big picture analysis. Employee role changes. Operational methods. Market analysis. Advances in tech that your competitors may have. Overall health of the market you are competing in. Etc.
Don’t forget the most important step – the exit interview and a competitor analysis.
Why did they leave you? If you have a decent relationship they would return your call and give you details on what they found elsewhere. This is one of those times an email may be more likely to get an honest answer from them because there is less confrontation. The goal here is to figure out what is the competition doing differently?
Tell them you understand. Tell them it would be invaluable to you to know about everything that went into their decision. Don’t get offended. Thank them.
There are four reason they could have left you:
Do everything you can to find out which one happened and study the company they moved to. Get their prices. Figure out how they tick.
Ask yourself it is worth specializing and getting better or faster or spending more marketing dollars getting more businesses to come in to replace the losses?
Is your industry mature or is the market growing? It could be in a race to the bottom and the service you are providing is getting more widely available and naturally getting cheaper. You are in for a tough ride if this is the case.
My advice is usually to specialize further. Continue to look for, find, and develop a niche that gets you there better and faster so you don’t have to compete on price. Competing on price is how businesses die. It is usually what kills the 5-10 year old semi-successful business.
The ups and downs of entrepreneurship are what makes the good times so good. Stay positive and work smart!