Which New Businesses Are Most Likely To Fail?
Who doesn’t want to start their own business, with no boss and your own hours? The problem is that people can be awful at choosing their new venture. Attracted to those businesses they like themselves, people often mistake hard work for fun.
Based on interviews with small business owners, here are seven enterprises that might seem attractive, but are (mostly) doomed to failure:
1. RESTAURANTS: Lots of people think that because they’re great cooks at home, it’d be terrific to start a restaurant and share those skills with the world. But fully 60% of all of them crash within the first three years.
The big problem with restaurants is that they run on such small profit margins that even a few mistakes can snowball into you hemorrhaging money. Not many people have the iron will required to micro-manage staff and keep a firm hand on the wheel.
2. DIRECT SALES: Work from your home and get commissions from cosmetics, kitchen gadgets, vitamins! But: What they don’t tell you right off is that getting MORE recruits under you is key to making money. It’s the only way your profit margin increases, by getting an additional percentage of the products your recruits sell, or from signing bonuses from the company. Plus, with others selling the same products, it’s harder to sell your own.
3. WEB-BASED RETAIL: It’s super-simple to start selling goods with online marketplaces like eBay. But as the internet gets older and more and more people are online doing the exact same thing as you, it’s hard to compete with the hordes and especially already-established retailers. To make any money, you have to score LOW prices on stock and be able to deliver cheap prices to the customer. You must have a huge online presence to stand out from the herd and that’s a costly proposition.
4. SPECIALTY RETAIL: It’s exciting to envision yourself owning one of the places you would most desire to frequent: a luxury spa, a high-end jewelry store, a designer clothes Shoppe. However, the simple downside is that these shops fail nowadays, because people don’t have the disposable income these days that they once did. They’re spending their money on rent and groceries and giving up the luxuries they were once able to afford.
5. INDEPENDENT CONSULTING: You might hear it around: stay with what you know. Go ahead! Start your own consulting business because you’re so knowledgeable about your field! But the pitfalls are numerous, including the time you’ll need to spend simply finding outsourced work and clients, and keeping enough work going out to keep the money coming in. You have to be your own marketing agent, worker, bill collector and time manager. It’s a task not many people are built for.
6. FRANCHISE OWNERSHIP: This idea can sound very promising because of the idea of owning a tried and true business with a proven record of success. But many people don’t read the fine print on their restrictive contracts, which oftentimes have new franchisees paying so much in operating costs, franchising fees and royalties that the new he can’t keep his head above water. Add to that the risk of the exact same company opening right down the street, and you’re hit with an over saturation of the market that makes competition impossible.
7. TRAFFIC-BASED WEBSITE: With the obvious popularity of huge sites like MySpace and Facebook, it might seem like the natural thing to do: open up your own website and watch the masses pour in and see your ads. Downside: You’ll need about $50 million in advertising and marketing capital and around a million page hits a day just to be a big enough presence to be noticed in the sea of web sites. And there’s very little chance of you recouping that kind of outlay.
