My top tip for business owners trying to decide which type of business to start is – Start a service based business (preferably professional services) as opposed to a product company or retail company. Product companies and retail companies are very capital intensive, meaning they require a large investment upfront and often aren’t profitable for many years, due to high loan payments and the cost of production. Service businesses are easier to start, require minimal upfront investment, tend to be profitable right away, and are easy to scale without having to take on a lot of debt. They also offer proven business models, so you know there’s a market for the services you’re selling. For instance, when starting an accounting company, the entrepreneur doesn’t need to figure out if people need accounts…it’s a given. Whereas when introducing a new product to the market, there’s a real risk that no one will want it, and the business will fail. The downside to service businesses is that they have less of chance of getting really big and being acquired or going public, so the upside isn’t as great. But the chances of any individual product company being a hit are extremely small, so you’re basically playing the lottery and hoping your product hits the jackpot.
David Jackson, CEO of FullStack Labs here. We’re a 50 person software consultancy / web design agency in Northern California.
Visit David at: FullStackLabs.co