A while ago after a networking meeting, a few of us went to a pub for a steak, and ended up solving the problems of the world on beer coasters.
As you do.
Given we all owned and ran small businesses, the main topic of conversation was around the nature of the perfect business, the one none of us had.
The depth of intellectual effort that had gone into the discussion deserved preservation, so I collected the tattered and somewhat wet coasters at the end of the night.
The next day it took a greater than anticipated effort to decipher what had been very clear just a few hours before. However, following are the parameters of the perfect business we arrived at.
- It has a wide demand area, not just the local area, the world. This is now a possibility whereas a decade ago it was still fantasy.
- You have a ‘monopoly’ in a niche, with inelastic demand. To achieve this the business must be very specific, and very good at what it does. So good, and so specific in fact, that it is simply not worth the investment and risk of competitors coming after you, but customers need your product and are prepared to pay for it. (A former client sold a highly refined chemical into a high end niche in the professional photographic market. A tiny, narrow world market, where the users needed the product in very small quantities, so price was not an issue, but the challenges for a competitor were significant. Perfect.
- Substitutes are hard to find. In the example above, there were substitutes, quite acceptable ones at average levels of output integrity, but at the really pointy end, there were none so he could set his own prices. This is, until digital took over, making his business one of the bits of disrupted post digital debris.
- Labour costs are minimal, the fewer personnel the better. Contractors undertake the recurrent processes, often in lower cost locations.
- As above with overheads, which just anchor you to a place.
- Investments in inventory, which chews up working capital, are minimal.
- The business is mobile, in the sense it really does not matter if the HQ is in Sydney, Melbourne, or under a tree in Port Douglas.
- There are limited regulatory regimes that interfere in the running of the business. The opposite is also true, where the regulatory impositions are so high that they discourage competition.
- There is some element of cash, not for tax evasion purposes (although this angle did have some attraction) but to minimise the working capital necessary to run the day to day operations.
- It is not bricks and mortar retail. Sounds specific, but in retail there are always long hours, and problems with personnel and customers, that just get in the way of making a profit. Besides, B&M retail is in the early stages of disruption, and Amazon had just opened their warehouse in Melbourne.
- It is a subscription business of some sort, where the revenue just rolls in without the necessity to go through the sales process again and again for every dollar of revenue.
- It is not a straight trade of your time for money, there has to be leverage involved. The web with its opportunity to leverage content has opened up a host of opportunities not around a few years ago.
- The business has some value to your ‘internal’ life. It is something you love, it feeds your intellect, gives you the time you need to chase a dream, whatever it is, it delivers more than just the financial rewards.
None of this allows you to be successful in the absence of real marketing understanding, a product that fills a genuine need in ways not easily replicated by others, and a bit of being in the right place at the right time. Being able to see an opportunity when it knocks is critical, as it rarely knocks twice.
Additions to the list are very welcome, and it may serve as a scorecard for your business!!
