4 Types of Businesses to Avoid as an Aspiring Business Owner

Succeeding in small business is no simple matter, let alone a sure thing. First steer clear of these businesses. 

Thankfully, America is moving past the worst of the Covid-19 pandemic, and the U.S. economy, while sending confusing signals, is coming back. So you may be dusting off your dreams to start, buy, or invest in a small business. And while that’s all well and good, there are some businesses you’d be smart to steer clear of.

Avoiding these businesses won’t guarantee you’ll succeed. It will, however, greatly improve your odds. So before you hone in on a particular kind of business, here are four types to avoid.

1. Businesses that no one else has done successfully
   Don’t hitch your wagon to something that hasn’t been done before. Chances are, with the exception of true breakthrough technology or a patentable business process, there’s a good reason it hasn’t done.

   But what’s wrong with being a trailblazer? For starters, since most successful businesses are iterations on a theme, there’s no blueprint to follow. It’s much better to execute an ordinary idea extraordinarily well than to futilely try to be a disrupter. It’s not only risky — it’s exceedingly expensive. And while this may suit billionaires like Richard Branson, who virtually have nothing to lose, it’s a nonstarter for everyday people.

2. Businesses that succeed in bigger cities
   You know that really cool, eclectic shop you saw on vacation in San Francisco? Forget about it.  Sure, with everything from vintage campaign buttons to rice paper kites, you fell in love with its whimsy and allure. So what’s wrong with replicating it back in your own hometown? Because odds are your city isn’t like San Francisco in size or type.

   Fact is, niche markets are rarely, if ever, a good idea. Not to mention that big cities like San Francisco attract tourists — people who, by their very nature, are predisposed to spending money on some pretty meaningless stuff, even an “I like Ike” button. It may be travel euphoria or too much day drinking, but whatever it is, it likely won’t happen in your town.

3. Restaurants
   Lots of people think they can run a successful restaurant simply because they love going to them. But lots of people love theme parks, too, and that doesn’t mean they should own one.

   Restaurant owners face every small-business issue to the extreme. To begin with, they are beholden to employees who see their work as merely a stepping-stone to something else or a last-ditch attempt to pay the rent. What’s more, this same workforce is the literal face of their business to an ever-demanding public.

   Then there’s the issue of inventory. While a clothing shop can put off-season or obsolete inventory on sale, there’s no such thing with perishables like food, much of which must be thrown out or donated at the end of the day.

   Finally, consider that with the exception of fast-food restaurants, customers nowadays expect a total dining experience. Where I live, in Cincinnati, the city’s preeminent restaurateur is Jeff Ruby, who opened the first of his seven award-winning steakhouses, The Precinct, in 1981. Once, while speaking of his namesake steakhouse in Cincinnati, Ruby said: “People don’t come here because they’re hungry. They can go to the refrigerator for that. Our guests come here to celebrate life.”

4. Failing businesses in need of a turnaround
   Buying a failing business to “turn it around” can be tempting, especially when it’s a good idea at a great price. After all, what couldn’t a little ingenuity, hard work, and new blood solve, right?

   But as they say, “Let the buyer beware.” Fallen angels make great stories, but so do zombies. By and large, failing businesses are the walking dead. It’s better to start a new business rather than try to resuscitate them.

   Now, if for some reason you just can’t resist such a losing proposition, be sure to at least change management teams. The people that got the business in trouble in the first place can’t, and won’t, get it out of trouble, even with their so-called “institutional knowledge.” I once committed this cardinal sin, and the tale had a tragic ending.

On the bright side

Beyond the doom and gloom, there is hope and positivity, and it starts with understanding and using your unique skill set. Successful businesses are three-legged stools: production, sales, and administration.  The smartest thing you can do is to start or buy a business that amplifies your strength in one of these first two legs. This isn’t to diminish the importance of administration, but areas such as accounting and HR don’t drive a business to its highest level. Moreover, they are cost centers, not profit centers. 

Years ago, a client of mine — an engineer by trade and a serial entrepreneur — bought a 42-foot catamaran sailboat with the proceeds from a business he sold. With his engineering background, he took an immediate interest in all the cool technical stuff on the boat. He was especially drawn to the instant hot-water device — a pump that provided hot water on demand for cleaning and showering — and became increasingly fascinated with its potential. Eventually he developed a heating device to hook up to blow-up tents, which he marketed to first responders and the military. The business was a huge success, and it began with Pete amplifying his strengths. 

So as you dust off those dreams to become a small-business owner, remember these four types of businesses — and then steer clear. Your success may very well depend on it.

Written by Patrick Burke.