If you were going to start a (non investment) business today...

[blainehodder]

If you were going to start a (non investment) business today, what would you do?  What are some industries or small businesses known to have high returns on capital (other than software), pricing power, and could be started with less than $1 million?

 

 

 

 

[BG2008]

Fast Food Franchisor.  Always wanted to do one with Chinese food.  Simplify the menu and offer it similar to Chipotle style (yes, I'm aware that they've got a concept going) 

 

Got another idea for a seafood shop, Most seafood shops (including supermarkets) are way over priced and do not offer enough value add, heck, what do you do with a raw piece of salmon fillet?  How long do you bake it? How do you grill it?  How do you season it?  What about side dishes? 

 

The first few would have to be built out.  They can be high ROICs.  After you perfect the model, start photo copying it and franchise them. 

[Palantir]

I see a serious market opportunity for an Indian food chain in the vein of Olive Garden.

[ItsAValueTrap]

I would stick to my circle of competence and start another software business.  I know that you specifically disallowed software in your original post.  :)

 

But seriously... software is a good low-risk business.  You just need to add time and your other expenses shouldn't be more than $10k.  The reality is that most peoples' software businesses fail.

 

2- Starting a restaurant would scare the crap out of me.  You have to put a lot of capital at risk.  The restaurant business is very tough and competitive... just watch the UK version of Kitchen Nightmares.  Even really successful restauranteurs had a tough time.  McDonald's made very little money when it started (and one franchisee was barely staying afloat). 

 

David Chang of Momofuku was not successful when he first opened his first restaurant and was about to go out of business (until he changed the menu away from "authentic" food).  His opening of his second restaurant was also a disaster.

 

3- Execution may be far more important than having a good idea.  Sam Walton didn't have a lot of original retailing ideas... he stole almost everything.  He became one of the world's richest people (at one point #1).

 

A lot of software businesses had not-so-great ideas that evolved into something else, e.g. Paypal was originally into phone-to-phone money transfers between cell phones.

[fareastwarriors]

Property management.

[sethatk]

I would start a wholesale bonded warehouse business i.e. HVAC or the like.

[GrizzlyRock]

High-end day care center providing multiple language learning and academic instruction.  High demand with many dual income families striving to put there kids on the right path. Probably $200K give or take to get going

[ragnarisapirate]

Pawn shop. I used to work in 2.

 

In my state, you lend 1/3-1/2 of what gold will scrap for (or, 1/3 the value on other stuff) and charge 20% interest per month. They don't pay and you still make money when you sell the stuff in 3 months...

 

As with Grizzlie's high end daycare, $200K would get you going really well.

[mikazo]

I would stick to my circle of competence and start another software business.

 

I've often dreamed of starting a small software company, but haven't come up with any ideas that I think would be good enough. Can I ask what company you were a part of/what the main idea was?

 

If this is off-topic for the thread, maybe we can send PMs.

[DCG]

I would stick to my circle of competence and start another software business.

 

I've often dreamed of starting a small software company, but haven't come up with any ideas that I think would be good enough. Can I ask what company you were a part of/what the main idea was?

 

If this is off-topic for the thread, maybe we can send PMs.

 

I'm curious about this as well.

[ItsAValueTrap]

I started a one-man band.... see http://www.colormancer.com.  I made software tools to help photographers make their photos better.

 

Starting your own business is a rollercoaster ride of emotions.  Most of the time things don't go your way and it's depressing when you aren't making money and succeeding (in the beginning, you will not make money... very very few people do).  Sometimes things do go your way and you are elated.

 

Because I didn't have a lot at stake, I did not break down and cry like the people on Kitchen Nightmares.  To some degree, KN is a TV shows and the producers may try to instigate drama to make a compelling story (e.g. using Gordon Ramsay, finding people on the brink of bankruptcy).  But I would break down and cry if I was about to lose virtually all of my net worth.

 

2- There are a lot of people who sit around and dream.

Some of them actually go and start their own businesses.  The majority of these people get brutalized by reality.  A small minority of people will go on to make most of the money in their given industry.  These people are really good at what they do and tend to work like crazy.  (Unfortunately I lack the latter... I enjoy image processing but I don't enjoy writing software.)  Our capitalist system is pretty Darwinian and the rewards tend to be unevenly distributed.

 

3- I don't think that starting a software business is a bad idea.  It's not so bad if you fail.  Many people with failed software startups end up finding work for another company doing related software.  (This is my situation... sort of.  Sometimes I freelance.)  You end up with employable skills.

 

4- Some really good books to read to understand small startup companies are interviews with founders.

Founders at Work (the interview with Paypal's founder is great)

Micro-ISV / Bob Walsh

 

I found those interviews to be the most helpful.  Founders at Work covers larger companies.  If you want to understand software startups, I would definitely read those books.

[eclecticvalue]

High-end day care center providing multiple language learning and academic instruction.  High demand with many dual income families striving to put there kids on the right path. Probably $200K give or take to get going

 

That sounds like the rival daycare from the movie "Daddy Daycare" starring Eddie Murphy

[BG2008]

I want to clarify that I don't intend to open a restaurant.  I intend to open a concept that can be scaled.  I have no desire to open the next Momofuku or Per Se.  I believe that despite the QSR, Casual dining, fine dinning, etc there are still concepts that can be scaled very profitably into a loyal brand of say 50-10 locations regionally.  The focus isn't on doing one restaurant so well, the focus is on perfecting the next Chipotle by creating a great menu and minimizing complexity.  Perhaps, it's a philly cheese steak joint made with premium ingredients like hangar steak.  Think in-and-out burgers etc.  Obviously very tough to build a great brand like in and out burger, but the initial concept is important as well as the execution in the roll out.   

[JSArbitrage]

Probably something in home healthcare whether it be HH, hospice, telehealth, in-house PA's, medical machine leasing, etc.  If you aren't opposed to provide service to those with bad credit, pawn shops, leasing cars, etc.

 

I think a software company would be difficult.  There are tons of software engineers that do freelance work for pretty cheap all over the world.  You aren't competing against the local operator, you are competing against a Ph.D in India.

[oddballstocks]

I think the idea is to find a niche area and write software for it, of course I've worked in software so I'm biased but follow the logic.  The key to software isn't the coding, it's really the business-domain knowledge.  As JSArbitrage noted anyone can code, but someone needs to have the vision, and know how to direct the code into products.  For anyone who's never worked in the software industry all those brilliant developers are incredible executioners but terrible visionaries. 

 

Once software has been written once it can be resold over and over with almost no additional marginal cost.  Prices for software are often arbitrary and based on what a consumer will pay, not a fixed profit margin over cost.

 

Whatever you do avoid a business model that is built on you or people selling their time.  Time is limited, and while you can bill high hourly rates you need to continually find quality employees to grow the business, this is harder than it might appear.

[ItsAValueTrap]

I think a software company would be difficult.  There are tons of software engineers that do freelance work for pretty cheap all over the world.  You aren't competing against the local operator, you are competing against a Ph.D in India.

It's probably because you don't do software.  ;)

 

Generally, you get what you pay for when you hire a software engineer.  There may be labour arbitrages available.  These arbitrages usually exist because they are hard to pull off (language, culture, experience, talent).  I think the tricky part is (A) finding a good programmer who (B) you can communicate with.  It's very hard to find good talent... even in your own country.

 

If you want to start a software business, it really doesn't matter where you start it.  The world is global nowadays and you can write software from anywhere. 

 

If you know what you're doing, you can start a software company in the US and do the labour arbitrage between US and some BRIC country.  You can simply connect American companies to cheaper offshore labour and collect the arbitrage (which can be significant).

[ItsAValueTrap]

The key to software isn't the coding, it's really the business-domain knowledge.

There are a lot of software startups without business-domain knowledge.  Paypal for example had zero domain knowledge since they didn't set out to do online payments in the first place.  Ycombinator funds a lot of startups where the founders don't have business-domain knowledge.

 

Whatever you do avoid a business model that is built on you or people selling their time.  Time is limited, and while you can bill high hourly rates you need to continually find quality employees to grow the business, this is harder than it might appear.

Hmm I think that there are examples of businesses selling their time.  In the Internet bubble days, consulting companies made a lot of money.  Right now there is a mini-repeat as you can make money doing smartphone/tablet apps for people.

 

A lot of companies don't have somebody who knows how to setup a software division.  They may try to do software in-house only to find that it has turned into a huge disaster (the government is usually a great example of this).  There is demand for outsourcing.  IBM is a good example of a software/IT company.

[Junto]

junkyard operator / consolidator....extremely high margins, fragmented, technology could improve but not make obsolete...

 

mobile home park owner - not manager

 

some form of drop shipping business...

 

Feel free to run with any, I have my hands full in banking.

[mikazo]

4- Some really good books to read to understand small startup companies are interviews with founders.

Founders at Work (the interview with Paypal's founder is great)

Micro-ISV / Bob Walsh

 

I found those interviews to be the most helpful.  Founders at Work covers larger companies.  If you want to understand software startups, I would definitely read those books.

 

Thank you for this! I will add those books to my list. I also agree that you get what you pay for when it comes to software developers. In addition, you want someone that not only can write code, but can write good code. And on top of good code, you need good test cases, good documentation, etc. I work full-time in professional software development and I probably only spend about 10% of the time coding, the rest is testing, reviewing, fixing, documenting, communicating, designing, etc.

[VAL9000]

The key to software isn't the coding, it's really the business-domain knowledge.

There are a lot of software startups without business-domain knowledge.  Paypal for example had zero domain knowledge since they didn't set out to do online payments in the first place.  Ycombinator funds a lot of startups where the founders don't have business-domain knowledge.

This really depends on how you slice it.  There are lots of different kinds of software companies.  Here is how I break it up:

 

PayPal, Google (pre-IPO), Facebook, LinkedIn, Twitter, etc. are all in the "new idea" class.  For this class, the software coding is probably extremely important because the idea is only new for a short time, and you want to outpace your potential competitors as quickly as possible.  This class is also a much riskier business.  For every Facebook there are a dozen Friendsters, a hundred "TagWorlds" and thousands of "never heard of it".

 

The other style of software, which is what I think oddball is referring to, is the incremental improvement model.  Find a business problem or market niche with weak competitors, develop a solution, then market and sell the hell out of it.  It's less risky, but still risky.  The rewards on the software side are not as grand, the markets are smaller and more niche, but the risk is also adjusted accordingly. For these problems the quality of the solution is less important than the ease of the sale.

 

Worth pointing out is that companies from group 1 tend to become independent entities or they completely implode.  Group 2 are less predictable.. many are acquired, some IPO, and most hobble long for quite a long while.

 

Whatever you do avoid a business model that is built on you or people selling their time.  Time is limited, and while you can bill high hourly rates you need to continually find quality employees to grow the business, this is harder than it might appear.

Hmm I think that there are examples of businesses selling their time.  In the Internet bubble days, consulting companies made a lot of money.  Right now there is a mini-repeat as you can make money doing smartphone/tablet apps for people.

 

A lot of companies don't have somebody who knows how to setup a software division.  They may try to do software in-house only to find that it has turned into a huge disaster (the government is usually a great example of this).  There is demand for outsourcing.  IBM is a good example of a software/IT company.

 

The professional services business cuts both ways. 

 

On one hand, you get your money now.  Services are executed and so long as you didn't completely blow it, you'll see the payback in the next 60-90 days.  That's almost immediate.  Software is different.  For group 1 above the payback period is somewhere between "we don't know" and "never".  For group 2, it's usually 2 years minimum to get traction, 5 years to become profitable.  This is why most software businesses require venture capital - few people can bankroll a team for 2-5 years (or forever) without outside money.  You get diluted as the founder, but your pie grows much faster (if executed well).

 

On the other hand, with services you can't scale well.  Since you're a services business you are probably bootstrapped, so even if you come out of the gates making 40% margins (which you will because you'll pay yourselves only 20k a year), it would take you about 6 months before you can afford your first hire.  But then you need to sell that new hire to a client, so you're now only making 10% margins because half of your team is now selling, which means it'll take you another year before you can bring on another person.  Oh and you don't know how to sell, and nobody trusts you.  Now you're at 3-4 people after 2 years, you're slightly profitable but you won't be making huge bucks for another 5 years because you will keep running into similar issues over and over again.  Such is the nature of services businesses.  Much lower risk, but also lower reward.

 

So all told, if you're young and green you should either do group 1 or services because you have no money, no experience, no connections, and no knowledge of business.  When I am old and crusty (or older and crustier), I will probably do group 2 because I will have resolved most of the barriers associated with succeeding in group 2.  Plus I will be too old to succeed in group 1, and I won't have the energy to run another services business.

 

I have done group 1, group 2, and services, with varying degrees of success.  Services being the most successful for me.

 

[mikazo]

So which is easier as a one-man show, Group 1 (new software idea) or Group 2 (incremental in niche market)? Is the objective to get bought out and use the cash to do something bigger and better, or to be the next facebook or, or rinse/repeat small companies/ideas/projects indefinitely, or what?

 

As a side note, freelancing in software development seems to be pretty difficult, from what I've looked into so far. It's hard to compete on price and make sure you get paid for the time and effort spent. Hard to agree on price before you know how much work something is going to be. (This is based on sites like oDesk and e-lance in my own personal experience).

[mikazo]

As another side note, here's a cool example of a company that makes niche software: oil reservoir modelling and simulation. They're kind of too pricey to buy right now for my tastes, but I plan to keep an eye on them.

 

Computer Modelling Group Ltd. TSE:CMG

 

https://www.google.com/finance?q=TSE%3ACMG

[VAL9000]

So which is easier as a one-man show, Group 1 (new software idea) or Group 2 (incremental in niche market)? Is the objective to get bought out and use the cash to do something bigger and better, or to be the next facebook or, or rinse/repeat small companies/ideas/projects indefinitely, or what?

Neither of these are easy, but there is less risk associated with Group 2.  Group 1 is a crapshoot.  If you're going to do it, just take your best idea and run with it.  Chances are extremely high that you will fail as a one man show.  Chances are extremely high that you will fail anyway.  Group 2 you will probably not be able to do successfully as a one man show unless you happen to be both a sales genius and a technical wizard.  Most people are not this.

 

As a side note, freelancing in software development seems to be pretty difficult, from what I've looked into so far. It's hard to compete on price and make sure you get paid for the time and effort spent. Hard to agree on price before you know how much work something is going to be. (This is based on sites like oDesk and e-lance in my own personal experience).

 

Well that's because you're using the wrong channel and selling time instead of value.  oDesk and e-lance are commodity sales.  You are getting commodity prices.  If you are lazy about selling your services then you are not providing a "value add" to your customer.  You deserve to earn less this way.  If you are educating your customers, provide a unique service, have skills that exceed your peers, then you can command a higher price.  oDesk doesn't say that.  oDesk says you are the same as the other guy and therefore can't charge more for what you're doing.  This ties into the yin-yang of services though..  More time spent selling means less time spent billing, and vice versa.  Finding the right balance is how you generate true returns.

 

If you want to make more money with services, pile all your experience into the same group, and wrap it up as a unique offering.  Here's an example: create a business that only focuses on facebook page development for businesses.  Learn how to make nice custom pages, partner with wildfire etc. to drive ads and analytics, and then take your solution to your target market.  Fix the price to something they can swallow and you know is fair.  e.g. $2000 for a facebook page from these features.  It'll take you 2 days to do when you're good.  So you get paid a rate of $125/hr, instead of $20/hr if the client bought the service on oDesk.  Plus you can charge them $150/hr when they call you back to make custom changes.  Or you can go back and sell them the twitter account package, too.  That's how you make rate on a services business.  Touch oDesk and die.

 

The thing that's scary is that you will get rejected more.  Everyone needs tech help.  Not everyone needs facebook pages.  But tech help pays $40k per year, and facebook pages pays $200k a year once you outsource the development to oDesk and focus entirely on selling facebook page services ;)

 

 

[mikazo]

There's an idea, come up with a highly modular software project and outsource it all to oDesk, then sell the complete package, haha. Would still be hard to do though.

 

Thank you for the advice! And sorry for de-railing the thread topic.

[VAL9000]

There's an idea, come up with a highly modular software project and outsource it all to oDesk, then sell the complete package, haha. Would still be hard to do though.

That was mostly a joke, but also is a good lesson when you're thinking about this stuff - where does the value come from?  For services it's about 1/3rd from the sales process, 1/3rd from the delivery, and 1/3rd from the market niche.  The sales process involves everything between identifying prospective customers and closing the sale.  The delivery is doing the work better/faster/cheaper than your competitors, and adds credibility to the sale.  You need to do both, which is why having a partner makes a lot of sense.  One pushes up the value on the sales side, and the other pushes up the value on the delivery side.  The market niche is just where you operate.  Social stuff, mobile stuff, these are hot/new markets so you will get lift from working in this space because people are interested in the new new thing.  Microsoft .Net custom dev is much harder because the market is established, the offerings are commoditized, and it's boring as hell to talk about, but you can still do it.  In any case, you should do what you really love because you will need to be excited about doing "the same thing" every day for the next 5-10 years.

 

Thank you for the advice! And sorry for de-railing the thread topic.

Nah at least we're still talking about business and not politics or the merits of a 4" vs. 5" smart phone. ;)