I'm in a bit of a transition phase at the moment. After seven years I've been fortunate to achieve a number of things that most people would be happy with. I've significantly increased my income from my previous 'proper job' and I have managed to reduce the number of hours worked from 60+ to around 27. Not bad!
Now I am happy to maintain my income but I would like to further reduce the hours that I work each week so I am trying to move by business from something that requires less day-to-day work and instead relies on more automation and short bursts of activity on my part. As I do this, I have been thinking about what makes the ideal business and as I spend some of those saved hours, that I no longer have to spend working, walking my dog Bailey, I've been jotting down some of the major ones which I keep in mind every time I think about starting a new project.
Something niche but... not too niche
Business directories used to be real money makers with site owners able to charge large sums, and make significant profit, for advertising other businesses online. In recent years, user generated content sites like directories have fallen out of favour and now can be considered more of a niche way to make money. Let's face it, lots of people have tried to do this, heck I have even tried in the past (and failed!). The problem is that it's difficult to create something successful and it's a pretty boring way to make money but those two reasons make it a great opportunity because not many people will want to do it - it's just not very sexy.
If you combine this (a sector that is not in the popular consciousness a way to make money) with a large market of potential consumers, you could be looking at a way of making a significant income for not a lot of work.*
An ideal example of this is an online directory site focussed on UK owners looking for services for their dogs. The site could list everything from pet sitters to kennels, dog walkers to groomers and hotels happy to accept pets. One particular business directory was recently up for sale for approximately £80k with an annual income of £27k. The directory made money by selling premium listings (all dog related) and social media marketing services to their customers.
As a Brit, I know that our nation are massive dog lovers. There are approximately 9 million dogs in the UK with 26% of households owning at least one dog. This is a huge potential market.
I was tempted to buy the business but hesitated at the cost. That would be a lot of money to invest in a business for me - I prefer to keep my costs low and build things up myself. Instead, I've decided to try and set up a rival which I can do for £200 and a couple of weeks' of my time, just to test the water. If it is successful, I can then spend some more time on it until a point where I can employ a virtual assistant to run the business for me. Their role would be to liaise with existing customers and seek out new ones.
The worst case scenario is that I lose £200 buying software to run the site and a couple of weeks' of my time. Best case, I create a credible competitor and a mostly automated source of additional income.
When most people talk about 'finding your niche' they often mean an abstract subject or product which will generate some income. You will probably will need a few 'niche' sites like this to generate a good overall income but that doesn't matter in fact, I have always argued that multiple sources of income is far better as it provides you with a bigger safety net.
Of course a business directory is not going to work for everyone partly because of the above reasons however if you can find something that's niche (a product or service that isn't very exciting or people do not think has promise) but has a large potential market then I think it is worth pursuing.
*In the long run. Of course like everything there is no way to make money quickly, at least ethically. There will be a lot of hard work upfront but once up-and-running, you should be able to sit back and not spend 60+ hours a week working on it. In fact, a few hours of work a week should be sufficient to keep things ticking over.
Something people need but they don't need urgently
The idea is to reduce our working hours. Not only that, we want to ensure that we can take a week or two off without any interruptions. A quick way to ensure that you are never fully away from work is to create a business that requires you to be on call in case something goes wrong. Anything tech support related is an ideal example of this. I wrote about this recently in a post where in a previous job I was receiving calls at 3a.m. whilst on holiday, 4,000 miles away from home.
Any job that requires systems to be working 24/7 and that you are responsible for is an instant way to ensure you never spend a week away from electricity, the internet and your phone ever again.
I have found this too with my web site design business. Especially recently with the Coronavirus pandemic, customers have been getting in touch because they need urgent news items added to their site, letting their customers know that they are closed and then again a few weeks later letting their customers know that they are open again.
Ecommerce can have similar issues. I run a dropshipping site that sells mattresses. The business requires less than an hour's work a week but when an order comes in, it needs to be processed that day otherwise customers start generating me more work. The problem with mattresses is that they are expensive items and once people have committed to buying one, they want it quickly. They've made the decision because of health reasons - they can't sleep properly so they want a quick fix and they want it fast. This means that once an order comes in, it needs to be processed quickly. It's another thing tying me to my laptop.
What I need is a non-urgent business, like a business directory, because nobody expects an immediate response if they send in a query. It's just not that urgent. No one will die if there's a problem with the business directory, no one will be losing business because their web site is down, nobody is losing sleep. People don't expect an immediate answer so you can safely take a few days away from your laptop without needing to worry but the money will keep rolling in.
A recurring income
More and more businesses are shifting in this direction, offering a service that instead of charging a large upfront fee, is priced at a low, monthly recurring cost.
When I first started in web site design I met another guy doing the same thing at a local business meeting. I had been asked to go along by a friend to support her and was introduced to him whilst I was there.
The other web guy, Jack, charged large upfront fees, around £800 for a web site. I was charging £15 a month, with no upfront fees. A week after the meeting, I met my friend and she told me that Jack thought I was crazy - I'd never last in business charging so little.
Before starting, I had considered the various ways to set up by business and what I wanted to achieve. One thing I didn't want to be doing was chasing new customers each month to pay my bills. This was exactly what Jack was doing. He needed to make three or four new sales every month just to keep going. I needed a longer runway but once I had built up a solid customer base, I was able to sit back and relax whilst the recurring payments kept coming in.
Another problem with the traditional payment method which Jack was using was that he was limited to how many customers he could take on each month. Let's assume Jack can build three web sites a month. His maximum earning per month is £2,400. Not bad.
Let's assume I can do the same, build three sites month, each one bringing in £15 a month recurring revenue. £45 month an extra, ouch that sucks but wait...
Assuming we both get three new customers every month for 160 weeks (just over three years) we will both be earning £2,400 a month. The difference is, I can now stop. I don't need any new customers. Laptop closed, sunglasses on and off to the beach. Jack is still slaving away trying to find new customers each month, making sure he can pay his bills. I'm on the beach doing nothing but still earning the same as him. If I continue working, I just keep adding to my monthly income where as Jack is limited - he only has time to build three sites a month and so can never improve his earnings.
There is also security with recurring income. If you put all of your eggs in one basket, building a business that requires a certain number of new customers each month then if you fail to meet that target, your business is kaput. Coronavirus is a good example of this. I haven't kept in touch with Jack so I don't know if he is still going but I do wonder how many new customers he has been able to find whilst the UK has been in lockdown over the last few months. I can't imagine it would have been easy.
Able to work remotely
A blog post on The Business Backpack pretty much guarantees that this is a requirement.
Of course the benefit of having your business fit into your backpack is huge. You can work from almost anywhere in the world with what you can carry on your back and an internet connection. By having your business fully remote, it means that you will never find yourself having to jump into the car or on a plane, to head back to the office to fix something. There is no office, there's no where to head to.
From day one of planning my business, I made sure that being able to work from anywhere was a key requirement and yet I still made some mistakes. At one point I was running an ecommerce site where I was physically storing and sending the orders out to customers myself. This was a huge issue because it didn't fit in the backpack lifestyle. In the excitement of setting up my first ecommerce site, I had forgotten the backpack rule and had essentially tied myself to one spot because I was not able to carry all of the stock with me.
At the time I had just started dating my partner and we both lived in different towns, around an hour's drive from each other. When I was staying at her place for half the week, it meant that I was unable to post orders and that led to frustrated customers who were expecting a quick delivery.
That business didn't last too long. I sold it within a year of starting it up. I probably broke about even on the profits but it was a valuable learning experience - the key lesson being not to set up a business that limits my ability to travel around.
Since then I have gone on to set up another ecommerce site but this one is in full dropshipping mode, meaning that I never see the products. When an order is made, I pass the order on to the supplier and they deal with the delivery direct to the customer. From my end, all I need to do is send a couple of e-mails, something which can be done from anywhere.
Not something new
If you have an idea of something new, something that has never been done before you are going to require a huge investment in building the prototype, building the final product, advertising it and then you need to get people to understand what it is. These are massive upfront costs for something, that because it is new, you're not even sure whether people are going to buy it. Don't risk it.
I have never started a business that has not existed before - web site design, hosting, ecommerce sites, business directories - all of these are businesses that I now run but have existed long before I started doing them. Because they have existed before, I don't need to waste time explaining my idea or my business to people. My potential customers already understand what my businesses do and why the services that I offer would benefit them. All I need to do is explain why they choose my company over a competitor's.
Rather than trying to develop something completely original, with each of my businesses all I have done is take an existing idea and just tried to do it better than anyone else.
The cost of running the business
This needs to be as low as possible. Fixed costs for my hosting business are less than £10 a month (hosting for my own site and a telephone number). The costs only increase when I gain a customer - these are my variable costs.
Lots of manufacturing businesses don't succeed because there are lots of upfront costs - design software, manufacturing costs etc. before even getting a product to market. I have stayed away from manufacturing businesses because of this. I prefer service businesses which are generally much cheaper to set up and test to see if they may be successful.
Of course you want your business to be the best it can, to use the best software and equipment but start with cheap or free software. I still use the same invoicing program that I started out with seven years ago, something which I have written about before. It's free up to a certain number of invoices per year so you only pay once you start making a certain level of sales. From a customer point-of-view the invoices do not look quite as refined as those that other more expensive software produces but I have literally saved thousands of pounds over the years. If I was using one of larger, well known invoicing packages I would have spent around £10k just on invoicing software alone. Instead, I've spent less than £500.
I don't spend money when free alternatives are available. I would rather get my business into a stable position and then, maybe, only then look at most costly alternatives if needed.
It's not just service businesses that suffer from this though. If you are looking at starting a dropshpping business you may want to build a Shopify shop. That comes with a monthly cost. You may want to then link this to eBay and some stock control software. There's more cost. Invoicing software may be available to link the two. More cost!
I still use the same spreadsheet that I created seven years ago to list my customers, income and outgoings. It works fine for me and costs nothing.
Varied payment plans
With the majority of my businesses, they allow for monthly, quarterly, bi-annually or annual payments. The exception is the dropshipping business which requires a full, upfront payment before products are shipped.
The benefit of having businesses with different payment plans is that should disaster strike, such as Coronavirus, I am still expecting the majority of my customers to pay as normal. For the pay monthly customers, their monthly invoice from me is so low compared to their other bills, they will just pay it regardless of how badly their business has been affected.
Some of my customers have annual costs with me of £300, £400 or £500. One of my customers has an annual bill of £300 and this was due shortly after the Coronavirus struck and so this was a bit of a concern for me. His business is in the catering sector - all of his customers are pubs, restaurants and coffee shops - all of which had shut down and so he wasn't receiving any income.
Fortunately because most of my customers pay monthly, I wasn't really affected by the this however if all of my customers paid annually, I would have been in a difficult position.
Going back to the web site design guy who is always chasing big payment customers - his business, I imagine, must be severely affected at the moment. He probably also suffers at the best of times during certain parts of the year. At Christmas, when people tend to shut down for a couple of weeks so he will not be getting any income during that period. He's probably lacking work (and income) over other times of the year too. Any time normal businesses shut down for a while such as summer holidays or half-terms when lots of people go away on holiday, he will be struggling to find new business.
A business that requires as little of your time as possible
With my web site design business, I started off with charging a small amount each month. Lots of upfront time commitments but once a customer is onboard they do not require much work, in fact barely any on a month to month basis. The issue I now have is that I have so many web design customers that even if each customer needs one update a year, it provides me with quite a bit of work on a weekly basis and as already mentioned, when people need something changing they expect it to be done within a day or two so it means I am having to work most days.
This year I am trying to shift my main source of income from web design to hosting and businesses directories. Hosting is an excellent business because once set up, assuming you have invested in reliable systems, customers just run and run without getting in touch. The downside is that if something does go wrong, it needs to be fixed immediately otherwise customers' web sites and e-mails are inaccessible. This would mean that it fails the 'Something people need but they don't need urgently' test (above). Hosting is a fairly generic business in that there are a few standard platforms that most web sites run on and so I could hire a support company to manage the hosting support requests for me. I have had this in place in the past where I paid around $99 a month for a team to respond to all technical hosting enquiries, essentially running the day-today stuff for me.
At the moment I am down to working around 27 hours a week, a significant drop from my old job of 60+ however there's still work to be done to get this number even lower. Fortunately I am able to see some ways to further reduce this and because the number of hours worked per week is quite low, I am able to work more, temporarily, to shift my business in a different direction. If I was still working 60 hours a week, I wouldn't have the time (or energy!) to make the necessary changes in my business to free up more time. I need time to make time.
This is the bit where I have to say that I am seven years into my business and only now are I getting to a position where I can ease off and not work ridiculous hours each week. It has taken me an awful lot of hard work to get here. There is no quick and easy way to make money, online or otherwise.
How do you find a business that meets all of these criteria?
Now that is the The 64 Million Dollar Question. There are plenty of businesses that meet my criteria but any new business that I start also has to be interesting to me. There's no point starting a business that doesn't excite me in some way. I will quickly lose interest in it and waste my time.
When a new business opportunity comes along, either one that I want to start myself or a business that I am considering buying, it has to fit into what I already do, it has to meet the criteria above. I’ve broken those rules in the past with my first e-commerce business and it ended up causing me a lot of stress as well as disappointing plenty of customers.
I’ve also made mistakes with having an offline business. I had a property which I rented out. Bad tenants are mostly to blame but you only find that out after they have moved in. By then it’s too late.
I lived 200 miles away from the property so every time there was an issue I would either need to take a day out to travel down or pay someone locally who could fix it for me. Either way I’m spending time or money that I shouldn’t need to.
Now I strictly limit myself to purely online, low risk businesses that do not require any large upfront investment apart from my time.
Seven years ago I started off doing the right thing, listing everything that I wanted my business to do i.e. be completely mobile, low work and producing high return. Once I started, I broke my rules and it caused problems which I had already foreseen but still managed to catch myself out on.
Now I have my rules and I stick to them.