BUSINESSES, INDUSTRIES, AND SIZES
The objective of this chapter is to show all of your options for creating a business. Whether you want to create a $50 million heating-and-cooling company with a hundred employees that focuses on residential customers, a $500,000 marketing firm with five employees whose clients are companies that focus on selling products to women, or the next publicly held billion-dollar unicorn tech company with tens of thousands of employees. These and many other options are all available to you.
What’s most important to determine is which options you’re most drawn to. Three main factors will determine the business you ultimately choose:
1.Industry
2.Type of business
3.Size of business
As you read about each of these factors, I hope you’ll have a light bulb moment about what appeals most to you. The idea is to find a concept that fits with your passions and genetic code.
My passion, for example, is teaching. I love turning the light bulb on for people. My previous two businesses—both training companies—were in the education industry. I also prefer to run small companies. The first had about fifty people, my second around two hundred total. That’s my sweet spot. I have no passion for, on one end, a thousand-person company or, at the other end, a one-person show. One of the reasons I sold the second business was that it was getting bigger than what I enjoy.
In addition to being in the education industry, I also prefer selling services, so I lean toward service businesses. I have no real interest in product businesses. These are all qualifications that you’ll need to decide for yourself. As you place filters on what you envision, the picture of what you truly want will become clearer.
Let’s take each of the major factors—industry, type of business, and size of business—and break them down one at a time.
FIRST FACTOR: INDUSTRY
An internet search of industries will produce a list of hundreds of industries available to you. To expand the scope of your imagination, go ahead and do a search first. And to get your gears turning, below is a list of about fifty industries that I’ve worked with. Simply glancing over them will give you a sense of all the possibilities available to you.
INDUSTRIES
Accounting |
Legal |
Agriculture |
Logistics |
Architectural/Engineering |
Manufacturing/Fabrication |
Asphalt/Paving |
Mechanical |
Auto Dealer |
Medical/Dental/Chiropractic |
Auto Repair |
Mortgage Company |
Cell Phone Retailer |
Nonprofits |
Concrete |
Online Retail |
Contracting |
Pest Control |
Conveyors/Belting |
Physical Therapy |
Database Security |
Plumbing |
Diamond Brokerage |
PR/Marketing |
Distribution (hat & glove, ball bearing, beverage, food, etc.) |
Printing |
Electrical |
Real Estate Brokerage |
Equipment Dealer |
Real Estate Property Management |
Event Planning |
Real Estate Title Services |
Financial Services |
Restaurants |
Gen. Contractor/Construction |
Retail Service Providers |
Hearing Clinics |
Retirement Plans |
Heating and Cooling (HVAC) |
Software Development |
Home & Business Security |
Sports Facilities |
Hotels |
Staffing |
Insurance Agency |
Third-Party Administrator (TPA) |
IT (Information Technology) |
Trucking |
Landscaping |
Web Application Developer |
As you can see, you can choose from many more options than just tech companies. In fact, most aren’t high tech, although you may decide to apply high-tech innovations to them.
Now that you have the context of industry, let’s go a level deeper because, within each industry, there are many different types of businesses.
SECOND FACTOR: TYPE OF BUSINESS
Within each industry, “type of business” is defined by three different aspects:
1.Service or product
2.B2B (business-to-business) or B2C (business-to-consumer)
3.High end or low cost
Let’s consider them one at a time.
1. Service or Product
First, you need to decide whether you’re drawn to the service side or the product side. To explain the differences between these two types of companies, let’s start with service businesses. These firms typically charge a fee for the work that’s performed. For instance, attorneys and accountants charge an hourly rate, a landscaping company charges you each time they cut your lawn, and a marketing firm charges you a flat monthly rate to build your brand and increase your social-media presence. Service businesses basically sell the owner’s or employees’ time.
Examples of service companies include auto repair, IT services, project management, event planning, financial planning, medical practices, logistics, mortgage brokers, home cleaning, physical therapy, software development, architecture, hair salons, and spas.
On the other hand, product businesses make, sell, or distribute tangible products. That may be appealing to you, as many entrepreneurs like to touch, feel, and see what their business sells. It’s hard to do that with a service, because you’re selling an intangible. Many people prefer tangibles. If this describes you, then you’re probably more drawn to a product business.
Product businesses include agriculture, auto dealerships, retail stores, and companies that manufacture things, such as equipment, food, supplements, tires, watches, metal fabrications, or textiles. You can also choose among product distribution companies that distribute products, such as food, beverage, clothing, raw materials, furniture, and computers.
Some companies include both products and services. For example, construction companies provide both general contracting as a service and the building they construct, which is a product. Another example is a software company that sells accounting software, which is a product, and also provides a service to implement and support the product. A commercial heating-and-cooling (HVAC) contractor sells their customer both a $25,000 air conditioning unit for their building, which is a product, and a contract for a fee to maintain it, which is a service.
An example of a company that combines both is imageOne, a company founded by entrepreneurs Rob Dube and Joel Pearlman. The duo started their entrepreneurial careers by selling Blow Pops out of their lockers in ninth grade. After graduating college, they recognized a need in the printer industry for remanufactured toner cartridges. Their company now provides both a service—simplifying their corporate customers’ printing environments—and a product—printing equipment. Of their $18 million in revenue, 75 percent comes from the service side, and 25 percent comes from products.
2. B2B or B2C
The second aspect of choosing a type of business is deciding between B2B (business-to-business) or B2C (business-to-consumer). In other words, whether you choose a product or service business, you can sell to two types of customers, businesses or consumers. B2B companies sell services or products to other businesses. B2C companies sell directly to consumers: individuals or families.
Ultimately, you have to decide if you’re more passionate about working with businesses or consumers. I personally prefer selling to businesses, while a good entrepreneur friend of mine prefers selling to consumers. As an example, certain construction companies only build commercial buildings for businesses, and other construction companies only build homes for consumers. Some software companies develop apps for businesses, and others develop apps for consumers. When Verizon sells a hundred cell phones to a corporation, they’re B2B. When they sell one cell phone to a customer, they’re B2C.
Which do you prefer? Selling to consumers or businesses?
3. High End or Low Cost
Going another level deeper, the third aspect of business is high end or low cost. You need to decide if the product or service you offer will be high quality/high price, and typically lower volume, or lower quality/low price, and typically higher volume. Where do your passions lie? Deciding is important, because it’s extremely difficult and rare to succeed at offering both.
In everything I’ve ever done, my only option is to provide the highest quality at the highest price. I always want to provide a premium service. It’s how I’m wired, and that helps direct me to the types of businesses I’m interested in starting.
At the same time, I have clients who offer the lowest-priced product in their industry. Their customers love them, and they’re wildly successful and very passionate about what they do. There’s no wrong answer when choosing between these two options. There’s only the best answer for you and your company. What are you drawn to?
For instance, two leading companies, Walmart and Nordstrom, appeal to very different consumers. Some successful car companies sell economy cars without all the bells and whistles, and others achieve success by selling luxury cars with all of the accessories you could ever want.
Here’s a template to help give you a context for the difference between the two types of businesses. Let’s look at the automobile industry example:
Let’s look at another example: event planning. Certain event-planning companies specialize in high-exposure, premier corporate events, like the Super Bowl and the Academy Awards, and others specialize in everyday, business-as-usual corporate meetings. The high-end event-planning company charges a huge premium for their services, because they’re known as the best in the business. The everyday corporate event-planning company, which offers the best price, is also highly successful.
I don’t expect you to come up with that answer right now—although maybe you already have! The goal is to provide you with a context that will help you arrive at an answer. To recap the context:
It’s important that this context is clear to you before we move on. If not, please review what you’ve read so far in this chapter. Assuming this is clear, let’s move to the final option for the business you want to build: size.
THIRD FACTOR: SIZE OF BUSINESS
The final factor, size, is vital. You must know what you’re built for. Are you shooting for a million-dollar company, a billion-dollar company, or something in between? It might seem strange to be thinking about how big a company you want to build when you haven’t even started your business and don’t even know what type of business you’re going to start. Please suspend any disbelief, because I’ve learned that if you can begin your entrepreneurial journey with the end in mind, you’ll get there faster and avoid a lot of frustration. You’ll make better decisions and avoid many of the mistakes you don’t need to make.
Top-line annual revenue ($1 million, $10 million, $100 million) will be used as the gauge of size. Revenue is used as the gauge because it’s the most widely recognized measure of a company’s size. Bottom-line profits and number of employees are also important measures, and those will be addressed later.
All of the media hype about billion-dollar companies has almost every entrepreneur-in-the-making wanting to build a company that size. I beg you to reconsider. Building a billion-dollar company is not the fantasy portrayed in the press, and most entrepreneurs aren’t equipped to start and build a billion-dollar company every step of the way. The person capable of pulling it off is truly one in a million. Not only that, but also if you could somehow mentally put yourself in the actual CEO seat, at the helm of the billion-dollar company that you think you want ten years from now, most of you would likely say, “Holy shit, I don’t want that life!”
In Detroit, there’s an amazing entrepreneur billionaire, Dan Gilbert, who built Quicken Loans and owns over a hundred properties in the downtown area. He’s helped turn the city around. I have many clients who want to get to Dan Gilbert’s level and compare themselves to him. My response is always, “With all due respect, you aren’t Dan Gilbert.” They have no idea what it’s like, to live the life he had to, to build what he has built. The press, the competition, the personal sacrifices, the complexity, the demands, the microscope you’re always under—it’s all magnified greatly at that level. I know I couldn’t have done it, and most entrepreneurs couldn’t either.
You don’t have to shoot that high. A friend of mine is great at building and selling $10 million companies. He’s done it twice and is now on his third one. He tried to build a $100 million company once, and it failed. I told him, “I think your genetic code is building $10 million companies.” He looked back and realized that was true, and it’s what he’s done ever since. You can make a huge impact, become very wealthy, and help a lot of people by building $10 million companies.
You can take any type of business and build it to whatever size you choose. You can build a house-cleaning company to anywhere from $100,000 to $1 billion. You can build a million-dollar used-car dealership, or a billion-dollar network of car dealerships. You can build a software company that does $5 million, $50 million, or $500 million in revenue. The beauty is that you get to decide.
Let’s take an example: pretend you’re passionate about creating a high-end makeup line. Adding up the factors, you have chosen to be in the cosmetics industry, where you plan to sell a product to consumers, which will be high end.
Now pretend your cosmetics line is wildly successful. Now you must decide how big you want your company to become.
Some entrepreneurs would be very happy with a small, boutique business that sells a wonderful high-end makeup line online to a select set of customers—generating $2 million a year, employing only five employees, bringing in high profits, and you, as the owner, are having a great time at work every day.
Another entrepreneur might take the exact same product and create a $500 million company with their product in every high-end retail store, a huge online retail presence, and a worldwide brand. This company would also be highly profitable, with 1,500 employees and an empire to manage.
As you can see, the exact same product, two totally different businesses to manage. Which appeals to you? How do you want to be spending your time ten years from now?
Most entrepreneurs wouldn’t be able to grow that business to $500 million, nor should they, because they don’t have the passion or interest for a company of that size. You might decide to keep revenues at $2 million or sell the company for many millions of dollars once it hits $5 or $10 million in annual revenue. Again, you should decide what’s right for you.
Another factor to consider here is your company’s annual earnings. While we’ve been using top-line revenue to determine business size, revenue is essentially irrelevant when you take ego and outside forces (the public, the press, shareholders, competitors) out of the equation. What truly matters is profit. Some $10 million companies generate a 20 percent profit. That’s $2 million. Some $100 million companies generate a 2 percent profit. That’s also $2 million.
The $10 million company, generating a $2 million profit, with fewer employees and transactions, has less complexity. It puts the exact same amount of profit in your pocket as the owner, with a lot fewer headaches. For most entrepreneurs, this is a better scenario.
You might find it interesting to know that, at the time of this writing, Apple generated about a 22 percent profit. And Walmart has historically generated less than a 3 percent profit (as most retailers do). And incidentally, at the time we sold EOS Worldwide, we were generating about a 50 percent profit. You’ll find the average company profit benchmark to be about 10 percent, but every industry is different, as you can see.
In addition, the number of employees is as important as profitability. Some entrepreneurs only want five employees, and some are comfortable with a hundred thousand. Yours might be ten, or it might be a thousand. Companies become increasingly more complex as they reach certain employee-size stages—for instance, ten, fifty, two hundred and fifty, and a thousand employees. Each one of those employee sizes creates a new level of regulations and demands on you to oversee the operation. You really need to give this some thought. How many people do you want to be responsible for?
Let’s review the factors to determine what kind of business you want:
1.Industry
2.Type of business (service or product, B2B or B2C, high end or low cost)
3.Size of business
If you’re still not sure what’s right for you, that’s normal at this point. Again, what’s vital is that you understand the overall context. Knowing that will frame your thinking as you read on and as you learn about and see many different businesses.
The following is an exercise that might help you decide what business is right for you. Think about the type of people you like to work with, serve, help, and be around. Knowing this will help you clarify the business, because you’ll be clearer about the type of customers or clients you’ll be selling to.
For example, after a conversation with one entrepreneur-in-the-making, I came away impressed for two reasons. One was that he knew he wanted to sell services to consumers in their homes (among them, HVAC, plumbing, blinds installation, painting, carpet installation, appliance repair, roofing, etc.) Number two, it’s rare for someone in their midtwenties to be passionate about those types of industries. That creates a huge opportunity for him, as the entrepreneurs in those industries are getting older, which creates a huge void. Knowing that he likes selling services and products to in-home consumers will really help him narrow the field of what business he’s going to start.
That example points out another factor that can be used to narrow down your choice.
Who do you enjoy serving? It might be a client base of ultrawealthy people. So you start a jet-cleaning business, a chauffeur service, or a yacht-building company. You might love working with mothers of young children, so you create products and services to make their lives better. You might love beer-drinking, sports-loving thirty-year-olds, so you open a chain of craft-beer sports bars or an apparel business that sells them their favorite T-shirts.
I love entrepreneurs, and I’m going to spend my life serving them and solving their problems. It gives me great joy helping them realize total freedom. Therefore, the businesses and services I come up with will always serve entrepreneurs. Knowing this helps me zero in on the business that is right for me.
As Dan Sullivan puts it, “Who do you want to be a hero to?”
SUMMARY
When you weigh the different factors presented in this chapter, the possibilities for which business to choose are endless. If you’re an entrepreneur-in-the-making, you’ll discover the one that is right for you.
For some assistance in helping you pin down the right industry, business, and company size for you, go to e-leap.com and use the MyBiz Match tool.
If you aren’t sure, you just need to try a lot of stuff. When I was twenty-one, I thought I wanted to start a corporate travel agency. So I went to work for one. I discovered within a few months that I absolutely hated the travel business. It was low margin and highly competitive. I should add that while it wasn’t the business for me, it suits others just fine. The owner of the company I worked for had built it up into a $10 million corporate travel agency, loved operating it, and on top of that, he was revered in the industry. You too can experiment. Test-drive a business to find out how passionate you really are about it.
At this point, we’ve confirmed you’re an entrepreneur-in-the-making, and you now know the many kinds of businesses available to you. The next chapter will provide some real-life examples of what entrepreneurs did to reach where they are now. Of course, they started out just like you, as entrepreneurs-in-the-making.
Before we move on, please take a minute to write down any thoughts and ideas this chapter prompted for you. Write down the industries that appeal to you, the types of businesses—service or product, B2B or B2C, high end or low cost—and the size of the business, as well as any other additional thoughts you may have.
WORKSHEET
What Appeals to You?
Additional Thoughts
What action can you take in the next seven days to help you decide what business is right for you?
You can download MyBiz Match and all worksheets and tools at e-leap.com.