Howdy folks!
Today we’re talking “no fail” businesses… or are they?
Then, I’ll give you my suggestions on what I’d do instead.
70% of small businesses fail by year 10.
That’s a tough pill to swallow. So what do you do about it?
Lots of people want to start a business. So they see that stat, and they start searching for “low failure rate businesses”.
In those lists, I see the same stuff come up over and over again. These five in particular I’ve seen a million times:
- laundromats
- self-storage
- real estate
- vending machines
- senior care
But here’s the thing: I think these are terrible businesses for someone starting out.
Here’s why. (And what I would do instead.)
1. Laundromats
Laundromats are fine for some people, but not for me. Two main reasons:
- The schedule
Sure, their failure rate is low. But you know why?
It’s because the owner is always there, often working for free, to keep the thing up and running.
So if you’re the one taking care of the place, guess who has to come in at 2am on a Tuesday when the toilet backs up or somebody’s shoved their bean bag chair in the washer?
It’s the same reason I wouldn’t want to own a bar — at any time, you might have to drop everything and clock in.
- The capex
If you’re starting a laundromat from scratch, the capital expenditure up front is massive. Look at this picture and think about how much all this stuff costs.
The washers, the dryers, the snack machines, the permits, the rent, the cable hookup, the dog food…
It’s hundreds of thousands of dollars just to get the doors open, before you can make a cent. (Not to mention the loan you’ll have to take out — and probably personally guarantee — to buy all this equipment.)
So laundromats just don’t do it for me.
Self-storage facilities
Self-storage businesses have the same capex problems as laundromats, except you have to buy way more land.
Then you have to do all the advertising and marketing before you even know if the thing’s going to be profitable.
My other issue with self storage: collecting is a pain. You’re constantly having to chase people down to pay their rent. And if they disappear, you’re left with a big pile of junk to get rid of.
So why the low failure rate?
If I had to guess, you could run an operation like this with pretty bare-bones staff, so it could limp along for ages.
Rental properties
Once again, you have to invest hundreds of thousands upfront. (Are you catching a theme here?)
And your reward is becoming a landlord.
There’s also the problem of scaling. If you want to up your capacity, you have to go out there and start from the beginning all over again finding a new business to buy. There’s practically no economies of scale.
What’s more, as you build your rental properties, your money is almost entirely tied up in land and assets that are very difficult to liquidate.
Don’t get me wrong — real estate is a great investment. They’re not making any more of it, and you get huge tax benefits from owning it.
But if you’re looking to start a business, it’s a bad way to get started.
Vending machines
Buying some vending machines is certainly cheaper than buying real estate.
But it’s definitely not nothing. You’ve got to buy the machines and the snacks, and then you have to hit the pavement until you land an agreement to place one somewhere.
Here’s the problem: landlords aren’t going to give you a spot for cheap. And if you’re doing well, it’s not hard for a landlord to raise your rent, give the spot to someone else, or just kick you out and do it themselves.
Plus, you’re going to spend a big chunk of your life driving around in a van full of chips and candy bars.
Senior care centers
Yes, these actually show up on lists of low failure rate businesses.
But — say it with me — huge investment up front.
Then there’s the huge karmic weight of being responsible for someone else’s invalid parent. If you’re running a laundromat, you can cut costs and your washing machines won’t suffer for it. But if your business is human lives, you have to put people’s health and wellbeing before your profit margin.
And yes, the baby boomers are going to make this a big industry for a while. But then comes my generation (Gen X), and we’re relatively small compared to boomers. So the long-term picture is less secure.
What I’d do instead
I’ve told you what I don’t like about these so-called “no fail” businesses. But I don’t want to just be a downer, so I’ll give you some alternative suggestions.
If I was a mid-career professional, with some expertise and some capital to deploy, here are some better businesses to be in.
I like these businesses because they have reasonably low failure rates, have low risk-reward ratios, can grow to $200K+/year, and you can have a nice life while doing them.
- Niche consulting. Narrow your expertise. Find your Zone of Genius. Then solve that problem for other people on a project-based or time-based system.
- Digital agency. Coding, SEO, digital ads, social media ghostwriting — there’s almost infinite demand for some of this stuff. If you have the skills, or know how to recruit people that do, it’s just a matter of finding your customers.
- Franchise ownership. Big chains like McDonald’s, Orange Theory, or Chili’s are super-winning businesses. They’ll tell you everything from where to open your location to how to run them day to day, and you just follow the playbook. Higher up-front cost, but lower risk than starting something totally new.
- Real estate private equity. You’re not becoming a landlord, and you’re not tying up every dollar you have. Instead you’re deploying investor money and earning fees and upside. If you have a nose for real estate, this is far more scalable than building a rental empire.
But don’t take my word for it. There are a million business ideas out there, and it’s all about finding the one you’re uniquely qualified to knock out of the park.
(If you’re interested in my method for launching and growing new businesses, I recently wrote an ebook called The Low-Risk Business. You can check it out here!)
That’s it for today! Have a great week!
Michael
