Low-Risk Self Employment

By Marty Nemko

To succeed, do the opposite of what they teach in business school.

By Marty Nemko

Many people would like to be self-employed but fear the risk--with good reason. Within five years, half of new businesses are out of business.

Ironically, you’re particularly likely to fail if you follow such standard business school exhortations as “Innovate!” While such advice makes for interesting class discussions and may be appropriate for intrapreneurs in deep-pocketed corporations, it puts the average entrepreneur at grave risk of going broke.

The key to maximizing your chances of success is to do the opposite of what they teach in business school:

Don’t innovate; replicate. Being a guinea pig is so risky: Your idea or its execution could easily be flawed, or it can be so new that the public isn’t ready for it. Tivo, an unquestionable improvement over the VCR, lost hundreds of millions of dollars in its first five years as it tried to educate the public. Last I checked, you don’t have hundreds of millions of dollars and five years to become profitable.

Instead, clone a simple, small-investment business that, in multiple locations, is successful. How can you tell? Check out retail shopping areas. Which stores are busiest? When I did that recently in the San Francisco Bay Area, I found that burrito joints are booming. The Bay Area is very anti-corporate yet needs fast food--Burrito joints are perfect.

Don’t seek status; avoid it. Many business school case studies focus on high-status businesses, for example, biotech or high-tech. But the higher a business’s status, the tougher its competition. Instead, consider what Thomas Stanley in The Millionaire Next Door calls “dull-normal businesses.” Few graduates of prestigious MBA programs start sand-blasting, plumbing, mobile home park-maintenance, or truck brokerage businesses, let alone a chain of burrito carts.

A dull-normal business not only has less competition, it’s simpler to run, so less can go wrong. One of Superinvestor Warren Buffett’s axioms is to invest only in ventures he can understand. So, he’s in such relatively simple businesses as a paint manufacturer, a food distributor, and a furniture store. Fact checker: Source:/www.buffettsecrets.com/letter-to-shareholders.htm.

You’ll probably find that success--even in a grungy business--is much more satisfying than a high-flying failure. In addition to the money, it feels great to have lots of grateful customers--even if what you’ve sold them is a burrito.

Would you feel uncomfortable telling friends that your career is pushcart peddler? No need to. How about, ‘I’m the president of Bigshot Burritos,” with branches throughout the D.C. metropolitan area.”?

Invest little. Business schools intone: “It takes money to make money.” For the average entrepreneur, that’s wrong. If you’ve invested a bundle in starting your business, the nearly inevitable costly setbacks put you out of business. So, choose a business that requires only a small investment and then run it as cost-effectively as possible:

-- Minimize rent. For example, instead of renting a storefront, sell your burritos (or soup, soap, espresso, whatever) from a well-signed, high-foot-traffic cart or truck. Or choose a business you can run from home: inside sales, utility-bill auditing, or, my own endeavor: career coaching. With no rent and providing a service rather than a product, I have minimal expenses--nearly every dollar is profit. Plus, half my clients are by-phone so I’m often able to counsel in my tee shirt and shorts while enjoying my backyard’s flowers and trees.

-- Don’t take on a partner. Not only do they take half the profit, they deprive you of what you were seeking in self-employment: control. Besides, the self-employment battlefield is littered with partners who couldn’t stop fighting with each other. Want companionship? Hire a $10-$20 an hour assistant 10 hours a week. Need expertise? Hire a consultant by the hour or day. How to find one? For that burrito business, hire the owner of a successful one. Of course, promise not to open-up shop near their store.

You probably don’t want to spend your life selling burritos or sandblasting a building. So, when you get your business running smoothly, hire someone to run it. Offer profit-sharing incentive. If the resulting business isn’t making enough money to meet your financial needs, clone it in another location. Keep cloning until you’re comfortable.

Of course, it’s not easy to succeed in self-employment. You must be a self-starter, able to sell yourself, and solve business problems readily. But this article’s advice will increase your chances of success, perhaps more so than an MBA, It certainly won’t cost you $100,000 plus the two years during which you could have been earning money.