What does “the perfect business” look like? How do you know if your business is has the ingredients of greatness .. or is destined to be challenging and a struggle? Over the last 20 years, I’ve been involved in starting, growing, buying and selling more than 15 different businesses — spanning a wide range of industries, markets and offerings. And from this, I’ve had the chance to see the good, bad and ugly in a lot of different business models. For the past few years, I’ve been making a list of ALL of the key elements and drivers that would be part of my “dream business”, if ever one existed. And as I’ve refined the list, I’ve managed to break down the profile of my “perfect business” into 16 different items — 4 key elements in 4 key areas. When I first started to consider writing about my “List of 16“, I was going to do it in one simple post – but given that this is a pretty meaty topic, I’m going to share the 16 elements over a series of articles, starting with this first one. Plus, in an upcoming post, I’ll also share with you a new business that I’m in the midst of building that passes every element on my List of 16 (which explains why I’m very excited about it). Onwards. Why this list of critical traits is important should be obvious — you should consider this list of traits against the business you’re in, or that you’re thinking about .. and the hope is that your business meets most, if not all of these characteristics. You may have other elements or considerations you think are crucial to business planning and evaluation. God bless you. But to me, these are the 16 most important things I now consider any time I am looking at becoming involved in a business — the guiding light of my investment and business building decisions today and in the future. The List of 16 actually breaks down into 4 major areas, so I’ll share 1 of these areas today, and then the remaining ones in upcoming articles.
Area #1: Industry Elements
These are the elements related to the industry in which the business operates. An analogy of this high level view is to think of the industry as the pond in which you choose to fish If you choose a very small pond full of restrictions, then your business will always be restricted in size. If you choose a pond that’s shrinking, or the fish are dying off (ie: a declining industry), then you’ll face an uphill battle building a successful company. And if you choose a pond where the fish love to eat worms but you’re selling dog food, you’re in for a rough ride. There are 4 key elements you need to consider about the industry, outlined below.Element 1: Lack of Industry Consolidation
Are there certain industry participants or leaders that have entered the market and consolidated it, allowing them to dominate and control the industry conversation? Or is it still a fragmented market dominated by a a lot of “mom and pop” operators? The more fragmented and less consolidated a market is, the better the opportunity for you to enter it and create a strong position, with the possibility of creating consolidation yourself. Ideally, you want to be the first one to own and control a category — and yes, this is possible, even when you are not a massive corporation with millions of dollars in marketing budget.Element 2: Lack of Dominant Brand
Is the industry led by a small number of major brands that are “household names”, or is the industry still waiting for a leadership brand to emerge? The company that achieves the first-mover advantage in a category usually gains a massive advantage. For example, Starbucks became the first dominant brand in the coffee shop industry. What store do you think of when you think of toys? Probably Toys R Us. Having that top of mind awareness is incredibly valuable, and finding a market where that “obvious leader” doesn’t yet exist is a huge opportunity. Example: the junk removal business had no leading brand at all, until a guy named Brian Scudamore came along and created 1-800-GOT-JUNK?.Element 3: Moderate/High Barrier To Entry
How difficult is it for a new competitor or participant to enter the industry/market? Barrier to entry is always an important consideration, because if your barrier to entry is extremely low, you’ll experience constant and consistent competition by those who are not committed to the long term. No barrier to entry means that people can easily enter a market and attempt to compete on price, thereby driving prices and value down in the market and hurting everyone. Industries with high barriers to entry typically have higher margins. The barrier can be the required capital to enter, and it can even be regulatory or legal restrictions. Look at the pharmaceutical and financial industries as examples – the capital requirements and regulations allow a small number of companies to dominate and make obscene amounts of money because of the barriers to compete against them.Element 4: Existing Gap For Need
For a lot of entrepreneurs, this one is tough to be honest about .. because it requires you to be honest and objective about “your baby” and to recognize whether your great new idea is actually something the market needs and is looking for, as opposed to just another idea that you fall in love with .. but no one will give you money for. Being able to recognize a clear gap in the market is critical, because when you align with an existing gap, your market easily recognizes the need and welcomes your product or service. On the other hand, when there is no existing gap, you have to educate, sell and convince the market it needs what you have. It’s frustrating to try and “convince” people of a problem or gap they have that they’re not aware of – so identifying a clear gap that’s easy to demonstrate and communicate is key. As a colossal example of this, think of when “New Coke” was launched by Coca-Cola and died a painful death. There was no existing gap for that product, and the market said “no thanks”. I would estimate that 80% or more of businesses fail because of this critical and fatal flaw – producing something the market doesn’t want or care about. Ok, that covers the first area and the first 4 elements from my list of 16. The Industry Elements are like a 30,000 foot view of your business, but in the next articles, I’ll swoop down to the ground and we’ll look very closely at the specific elements of your business that often determine success or failure.** As a preview of what’s coming in the upcoming articles, here are the 3 other Areas that I’ll be covering in detail:
Area #2. Business Elements After considering the industry (which we’ve done today), the next step is to think about the business itself, and the critical elements that define and determine your business. For example, is the business model you’re creating one that is scalable? Can it continue to grow without being restricted by a critical resource like a specific person, or a specific location? These 4 critical elements will be covered in Part 2. Area #3: Financial Elements The third group of elements looks at key financial elements of your business and its revenue model(s). Again, thinking carefully about these 4 financial elements will allow you to determine the best business models to focus on, and where major risks are when it comes to the financial side of the equation. Example: what kind of capital investment or expenditures are required to start, grow and maintain the business? This set of elements will be covered in Part 3. Area #4: Marketing Elements If you know anything about me, you know that I am heavily biased towards the value and importance of marketing in a business. I believe marketing is the single most important driver of a business, and this is why I look carefully at the marketing potential and realities of a particular business and focus on 4 key elements as they relate marketing. I’ll cover these 4 elements in Part 4 of this series. I recognize that this is “heavy stuff” and that this article is longer than normal, but creating this “List of 16″ has been a fascination of mine for several years, so I’m really excited to be able to share it with you. Sadly, most entrepreneurs NEVER consider most of these elements .. which explains why 90%+ of businesses fail in the first 5 years (and most of the remaining ones are barely surviving). What I can guarantee you is that if you carefully think every one of the 16 elements through, you’ll be 100 times more likely to succeed as a business owner. Please post your comments or questions below, and watch for Part 2 that will be coming in the next few days! ]]>
26 Responses
Great list and a great way of thinking, Greg. I really like the way you organized your thoughts. Can’t wait to see what the other 3 x 4 elements of a great business are.
I appreciate this article more than you know Greg….am anxious to see the next part. I”m in the midst of starting a brand new idea to my business and so far can see that I’m on the right track (according to the 4 you’ve posted). Keep them coming!
Interesting, gives a person who wants to start something new to consider these aspects. Thanks for your effort to educate the masses!
Awesome insights Greg as always! You deliver the goods! I believe your core values of integrity, honesty, and accountability resonates within this article. It’s important for everyone to get their head out of the sand, and do some due diligence in their field, and see how fast it’s changing, or what that particular market needs to survive or move ahead. The gap will be evident!
Thank you for sharing, I’m looking forward to the additional posts.
Like!
I like the information and it has given me some things to think about in relation to the struggling business we have .
Great biz coaching advice for us all to do this strategic reality check and adjust quickly. I’m very excited to hear about your new project Greg. Thank you!
Thanks Greg. This has opened my mind to how to get into the right kind of sector and reflecting on the points you raised.Will look out for your next article on this.
Ok I have reasonable to large size pond and I believe my bait has something to appeal to most fish although have yet to thoroughly test this. There is an old favourite but many dislike the taste or just cannot digest it at all so my bait fills a gaping hole in the market and has the potential to become the new leader in its industry. Currently the production barriers are high and this is what is holding me up.
Thank you for the analogy it has been very helpful already. Sooo looking forward to your next article Greg!!!
Thanks Greg. A reflection of your clear concise thinking – as always! Question? Do you consider the Online Training arena to have arrived at your No. 1 above. (consolidation of the leadership)? E.g. the Brendon Burchard’s? (My niche is a trusted authority for absolute business beginners who are wanting to focus online!)
No I don’t – but the size of the industry is something to consider for online training. Ultimately, it’s a small pool if you add up all the people serving that marketplace.
Whoops! only just found this when I read your great part 2. Thank you again. Greg, Your answer to me challenges a belief I have developed that I would like your opinion on. I see online business as a way of the future – an underpinning of so much that happens offline as well. It seems to me it is a huge and growing pool. What am I missing? You say a ‘small pool’? I am utterly passionate about serving those new to business. I’d be very grateful for your perspective here. There are so many serving that niche offline as well.
Cheryl I would say that overall it obviously certainly is growing rapidly, but the quantum of the online info products / services / experts market is still quite small in comparison to many other much more mature markets.. Also if you’re micro niching, it is possible to hit a ceiling to some extent with online marketing and then you need to look further afield, but having said I think its a big enough pond for many tens of thousands of us to be multi-millionaires! So I wouldn’t worry about it!
Hi Greg. This is fascinating for 3 good reasons:
1) It isa topic that you are fascinated by.
2) it is a topic that affect most (if not all) entrepreneurs and busniness owners.
3) Once we are wealthy we can use this formula to buy businesses.
Nice! Thank you for this!
Best regards,
Christo
Yes, this is ultimately a great list of things to think about when considering the future potential and value of a business.
Great share, Greg. Whether we’re able to articulate these environmental factors, I would guess most of us experience them in our businesses at one point or another along the way. This article helps codify the dynamics in a clear, concise manner, and hopefully provide the framework to perpare and move through each in a much more effective manner. Looking forward to round 2!
Karl Schroeder
rocketmob media
As a small business broker, I am always keen to get insight on any business strategy that can help me look at selling “saleable” listings and I hope your discussions in the future involve your thoughts and comments on business valuation. What factors do you consider when buying or investingf in a business venture. Thanks again for your insight>
Greg, my heart skipped a beat when you said:
“I believe marketing is the single most important driver of a business…”
I want to build the website tools that drive marketing systems — for consultants. I don’t know if there are others out there like you who “believe in marketing” so boldly. But this is the business direction that’s calling out to me. Do you think your Element #4 exists for the “marketing system setup” for consultants? I would love to know how to check this out.
My job is to identify the factors, and then yours is to consider and validate each one! 🙂 “marketing system set up” is still far too vague and non-specific to be able to really dive into as a specific business so it’s hard to provide much in the way of feedback – but I do believe that implementing marketing is a major headache and fear for business owners.
Greg – thanks for the personal reply. You rock. Yes, thanks for identifying the factors — keep up the awesome work.
I have read a lot of your material for the last year. Being in a very specialized industry our company has done well. I can say after much research my company has the capabilities of doing so and compling a list of 110 names of individuals and companies providing online mone making oppitunities I can say with a high degree of accuracy most do not deliver and are a total waste of time and money. Our list rates Dan Kennedy and Joe polish and yourself at the top of the food chain. Many so called experts in their field who claim to be rich and successful are totally misrepresenting themselves. Sincerely Dan New York City.
Hello Greg, good day where can i look up to find part 2 and i love to read more about it.and i would like to thank you for these great tutorial method you provided for us,as an entrepreneur.
Part 1 is here: http://www.simplewealth.com/2013/02/13/profile-of-the-perfect-business/
Part 3: http://www.simplewealth.com/2013/02/28/profile-of-the-perfect-business-part-3/
Part 4: http://www.simplewealth.com/2013/03/21/profile-of-the-perfect-business-part/
Part 2 is here: http://www.simplewealth.com/2013/02/20/profile-of-the-perfect-business-part-2/
Thanks
very thoughtful and considered content and a refreshing change from the usual biz coach fare of “Do what you’re passionate about”, and “take action” (true though those are!). wish I’d read these 20 yrs ago too LOL