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Small entrepreneurial businesses can be broken into two categories: Low-margin businesses and high-margin businesses.
You can analyze your best and most efficient path to attain your goals and choose your next business with greater understanding. Often, the primary difference is in the DNA of the business model itself and is readily apparent to any business analyst, but many entrepreneurs ignore any analysis and go for their passion or convenience.
People go into low margin businesses because they love the type of work, or because they unexpectedly fell into it or because they followed in the footsteps of someone they admired, usually without consideration of the financial consequences.
Yet, exemptions to this rule abound! Times change, market size changes, the needs and desires of people change, and administrative and “tax” costs – in the broadest sense -- continue to rise without an accurate way to gauge them.
One thing is for sure: If you choose to engage in a low margin business your path to financial success (and longevity) will be more challenging than if you choose a high margin business. To put it another way, it’s just easier to succeed if you select a high margin business to pursue.
Most of today’s new entrepreneurs ignore the difference between high margin (HM) and low margin (LM) businesses when they start their first business.
Today’s entrepreneurs are attracted to the freedom to pursue their passion as a primary reason to start their own business. Second is their desire for the freedom to control their own schedule. Taking third place is the desire to make more money than working for someone else. And, lastly, in fourth place is the desire for an extraordinarily high monetary reward. From what we have seen since 1981 at HBS, most people starting a business want to do what they want, on their own time, that allows them to live well, as compared to working for someone else, IF they can make more money doing it.
Does that describe you? If so, there is a strong chance you’ll be going entrepreneurial some time in your future on your path to your ultimate success.
I can’t prove it, but I’m betting there is an “entrepreneurial gene” that is a part of the makeup of a good percentage of the people of all cultures and countries. Individuals who desire to start a business will start a business because the gene is there. The decision as to what kind of business to start, and especially the analysis of the potential margin of the endeavor may determine how successful a person becomes, but is too seldom considered beforehand.
Photo courtesy of gotcredit.com
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