Show notes from podcast episode 79.
This is an analytical approach to identifying and exploring new business opportunities. This is designed around service based businesses but the concepts can be applied to any business.
In order to compete you need to have a competitive advantage in one of three areas: speed, price or quality. The goal here is to look for holes in the market in these areas so you can find a way to carve out customers and earn business.
You should not need to steal customers from other companies to carve out your piece of the pie. Look for services that are in higher demand today than they were yesterday and are expected to be in higher demand tomorrow than they are today.
Choose your competition wisely. Who do you want to compete with? Walmart? Amazon? Chinese manufacturers? Silicon Valley based companies? Big data? Big money? Coders or developers working for $7/hr on Upwork? A mom and pop with a fax machine, yellow page ads and a filing cabinet?
Consider the trajectory of your service or product. Don’t sell something that is getting cheaper all the time. This killed RadioShack (along with a host of other things) and is putting a hurt on a lot of software development and tech firms.
Avoid markets that are targets for hobbyists and dreamers. These people don’t use common sense and make unwise financial decisions. You don’t want to compete with them. This includes restaurants, bars, blockchain, personal training, health coaching, social media app development etc.
Now make a list of 10 possible services that you could offer. Use this list as your resource but don’t be afraid to stray from it. To help with this keep in mind the following questions and considerations:
Now we will form our list of 10 services that we would like to analyze for possible opportunity. The first 5 will be low skilled, low upfront cost and low barrier to entry businesses. For example:
Some people say these are commodity services. They say its a race to the bottom. This is simply not true. Its only a race to the bottom if you try to compete on price. You can always find customers willing to pay a premium for the other two factors: speed and quality.
The next three businesses should be specialty niche services that only a few companies or no companies do but the customer pool is still relatively large and the work is relatively low skilled and upfront time and money investments are relatively low. Examples include:
The larger your city the more specific you can get here. Remember, you don’t need millions of potential customers. You can often create a viable escape from the rat race and even a scalable company with 50 monthly customers. Find a niche and focus on it.
The last two businesses should be high skilled and might require significant training or investments in equipment. Examples:
I love these opportunities. There has been a massive shift away from labor intensive professions as more millennials opt to study marketing or liberal arts and less go to trade schools.
This space is great because the market is drastically growing, the competition is weak, nobody enters these professions because of passion and there is often a multi week lead time to get services like this signaling more demand than supply.
If you put systems in place and simplify the jobs for your employees and get the service to the consumer quickly you can name your price and build a great business.
Now for each of your 10 businesses you are going to study the three main companies in your city that offer these services based on the following criteria:
The most important factor by far. Call each company and play a customer. How busy are they? How long would it take to get a quote and get service? Ask a ton of questions about their busy seasons, how many customers they service annually, etc.
How hard is it to find the companies online? Are they buying adwords? Do they have any digital marketing? Do they have a social media presence? Online reviews? Is their business all word of mouth? What is their quality of customer service on the phone? Do they follow up with you? Do they try hard to get the sale?
How much are they charging for the service? An arborist might charge $800 to take down a tree that takes 2 guys 45 minutes. Are the margins high or is it relatively affordable? Try to estimate the margins.
As you go through this process you will find holes. You will find areas you can provide the service better, faster or cheaper. Thats your opportunity.
When you spot the value add and the problem you can solve its time to get serious about research. Dive into industry trends on IBIS World. Study trends.google.com to analyze busy seasons, competitor size and search terms. Read everything you can read about the service. Study the companies that do the exact thing in every major city in America. There is a company out there that does what you want to do really really well but they do it somewhere else. Perfect. Study them and model your business off of them.
Naming your company and securing the web domain is critical. Give my method a shot if you need some guidance here.
Build a pro forma financial projection model. Use it to estimate the monthly income and monthly expenses. Do a lot of research to properly estimate these costs. Don’t forget to pay someone $15 per hour it really costs you closer to $20 after payroll taxes and workers compensation.
Work to keep your overhead low. Most businesses you can operate with very little in the way of equipment. If you need equipment purchase it on Craigslist. If you need a cargo van buy it for $5k off craigslist or rent one at first. Here is my van buying guide. If you need equipment buy it used or lease it. Minimize your risk here.
Now its time to build your website and get your google my business location operational and get a few reviews on it. Here is my guide to get started quickly and cheaply.
Reach out to me if you have questions or want to get my opinion.
A few things to keep in mind:
Be ready to sacrifice your free time and your hobbies in the near term. Be prepared to play the long game. Be prepared to put away your ego and work smart and hard for 3 years straight before the momentum really picks up.
Remember you will never find the perfect opportunity. There will always be reasons why you shouldn’t do it. If it were easy everyone would succeed. You want it to be hard.
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.