Thinking of starting a business to build passive income but are not quite sure what to do and how to go about it? This article may help give you some framework or train of thoughts on this topic, which is becoming more important in an age of tecnnological disruptions where many middle-aged professionals and executives might be displaced from the workforce in the next 10 years, as we move into more and morea gig economy.
In Singapore, you have often heard of businesses complaining of rising costs of doing business here which can come in many forms – shortage of workers. difficulties in meeting quota to hire more foreign workers, rising levies, utilities hike, rents going up, etc. This problem is especially acute in retail with the perfect storm of rising e-commerce trends and escalating rents thanks in no small way to REITs which has been blamed by many as a culprit why many mom-and-pop stores are fast disappearing both in Hong Kong and Singapore and indeed everywhere else. The trend is global in nature.
The point here is this – unless you are big brand company with deep pockets, it is going to be very costly to have a brick-and-mortar presence in any major cities especially in an area with high footfall. So much for the “I want to start a café business”, an almost universal theme people almost romanticizes. In fact, more practical business ideas could come in the online world where the internet has opened up many more possibilities in the new millennium.
In our Top 10 list of the most cited business ideas in Singapore by middle-aged executives, many are web-related:
- Retail shop selling products/services or Café/F&B
- Professional services like accountants, clinics, etc.
- App creation or some technical product/solution like an IT/web design vendor
- Events management
- Consultancy (in business, marketing, analytics, etc)
- Network marketing (or MLM) as a business
- Training and coaching business
- Online shop selling products: e-commerce store, baking cakes/tarts, etc
- Online shop selling services: curtain, courses, training, google adsense, etc
(Note: A business is defined as what generates a cashflow through a set of activities and which the business owner need not trade his time for money, hence the following common jobs are not considered businesses: grab driver, stock/forex trading, property agent, fitness trainer, freelancer, etc)
We believe that anyone can start a business today with the power of internet. Of course, as you can see from the list above, there are many popular traditional businesses which may not require much internet knowledge like retailing, consultancy, etc. Still, almost every business needs a website. And business owners who knows a thing or two about digital marketing tend to have greater success in getting clients.
With that, let us give you our basic framework for how to start a business which comprises of 6 steps:
1. Business Idea Generation
At StartWise, one key factor why we love internet-related businesses so much is that it allows anyone to monetize his or her area of interest and knowledge from cupcakes to big data.
If you have a specialised skill or knowledge like coding, data analytics, accounting or marketing success, your business idea may be quite obvious than most, or if you have a specific product or passion like art classes or a secret recipe. But let’s face it. Most people who like to start a business may not have a unique skill sets or product, neither do they have the capital or knowledge how to start. Some will take real action and convince some friends to start something new, others may shop around for an existing business for sale. But most would just talk about it without taking real action.
We think it is better to start a business in a niche that you are most passionate about, naturally. Where you like to read up or stay abreast of the latest news and developments in that specific niche of knowledge. Where you can call youself an expert! There is no boundary here and everyone’s interest is different. It can be as cliché as baking or gaming to idiosynchatic pursuits like figurines or bungee-jumping.
2. Demand Analysis
Most people would have more than one area of interest in life. Next step is to do a demand analysis and the amazing thing about the internet is that it can give you instant answers how many people are there in Singapore (or for that matter any specified location in the world) searching for the solutions in that area of your interest. You can do that via Google keyword planner.
Bettter yet go through some of the seach results page and see who are your likely competitors. Are their anyone already offering what you intend to offer. Fret not even if they do, it can be a good thing as it shows healthy demand. How much will someone pay for your product or service, and how do you intend to differentiate yourself from competiton. Many a times, it is better to enter a market where there is real demand (people already paying) than unchartered territory for a totally new product or offering.
3. Do you want to be a service provider or a service intermediary?
Now that you have ascertained there is real demand for your product or service. The next important question to ask is – do you want to be service provider or a service intermediary? Most people will just jump right into providing the service, for example starting baking cakes, coding for games, or organizing bungee-jumping trips around the world.
A service provider runs the actual business, which comes with the full works of hiring staff, running the operations, marketing for leads, and inventory management if you have goods. Not to mention paying for overheads from rent, utilities to transport and shipping costs. If the business idea is spot on with red-hot demand, the business owner laughs all the way to the bank especially when there is huge profit margin to be made. To be successful as a service provider, one often needs to decide if he wants to compete on margin (sell fewer items but with high gross margin) with differentiation or compete on volume (sell many items with low margin per sale) with cost competitiveness.
A service intermediary, on the other hand, does not run or provide the service. In simple analogy, think of it as a broker or a referral platform. In the internet age, the website that best organizes the information buyers are searching for, and continuously provide new information in that product category, and positions itself successfully as the domain expert or “go to person” in that niche, will command the highest traffic. What you do next is to establish a network of service providers who would want to pay you a small referral fee which can range from 10% to as much as 50% depending on your niche. And which business owner would not want to pay you upon confirmation of an order? If there is, just refer to his closest competitor.
Even though this referral fee could be just 10%, but because there is little inventory, manpower or overheads involved, it can be construed as a high product margin business! And guess what? It can also be a high-volume business. Yes, you can have the cake and eat it.
4. What is the differentiator? How can you succeed when others fail?
If you choose to become a service intermediary, you will still face immense competition. First you have competition at the primary level where the service providers themselves would be marketing aggressively both online and offline. Bewarned, some can come with huge marketing war chest. Next you also have to compete at the secondary level with other service intermediaries in your niche. And you can bet there will be many if this is a very profitable niche.
So as in all businesses be it a service provider or service intermediary, you will need to differentiate yourself which means you need to answer the question “Why should I choose you over the rest?”
5. Financial plan – how soon can you breakeven and start to generate a profit?
This step needs no elaboration as it is covered in almost all entrepreneurship readings on how to start a business. You will need to know your investment budget, your breakeven period, break up annual target into meaningful and achievable milestones, track the sales funnel and conversion rate, etc.
When it comes to financial planning for starting a business, the old adage of “over-budget and under-spend” would still be useful. If you think you will breakeven in 6 months, double that. And if you think you can tide over 12 months without drawing a salary, double that too.
The good news here is – if you are starting out on becoming an intermediary first, there may be no need for you to quit your full-time work. You just have to work extra hard after office hours. It is always a more prudent path to start off first as an intermediary, and when business becomes so good and overwhelming, take that plunge then to assume the service provider role where you would have gone up the learning curve in the industry and be in a better position to compete.
6. How to increase your chances of success?
The is the last step in our framework for starting a business, nonetheless an important one. There are of course many things you can do to increase your chances of success in startups, for example rope in a partner or hire someone who comes from the industry to give you an edge. To this end, there will be many advice from people close to you.
We will just add what we know from our own experience starting two successful businesses in Singapore, and we believe these same qualities will benefit those looking to take some serious action:
(a) Learn to build your own website
If you need to pay someone $5,000 to build a website for you and pay another few thousands a year on retainer fee just to maintain and update the website, you may not go that far. Chances are you will be too slow to respond to changing needs and demands of businesses today.
It also means most likely you have not heard of WordPress or CMS (content management system) which is what even mid-sized companies use to build their websites today, running on open source. That would also most likely be what your web design firm will be using – pre-built WordPress themes and templates, to build that professionally-looking website with all the bells and whistles you asked for. You can actually D-I-Y and pay yourself.
(b) Learn the vital skills of digital marketing and lead generation online
Cashflow is lifeblood of a business, hence traffic and conversion is everything in business! Your ability to genenerate an endless flow of quality leads online, and your ability to convert them will be crucial. The same goes for offline retail store where it is about creating awareness and getting people to take action to visit your stores and make those purchases!
If you want to succeed as a service intermediary online, you need to become a savvy digital marketer deploying a combination of both paid media and organic search (SEO) strategies for optimal results.
(c) Acquire copywriting skills or hire those who are good at it
Even if you can get a tonne of traffic to throng your online store, if your website copy (plus all elements of user experience) does not convert them, your customers will just go somewhere else.
The same goes for a retail store or service organization. If you have sales force is unable to persuade prospects to commit, there will be no business.
A business owner with strong copywriting skills will have an advantage, otherwise paying for good copywriting that converts is absolutely non-negotiable. Of course, the pre-text in all this is that you must first have a good product, or some great content to share as an intermediary.
We hope you find our framework on “how to start a business” useful and beneficial.
At StartWise, besides offering office spaces that give businesses what they really need, we extend our mission of helping new businesses thrive and succeed by offering a basic 1-day Wordpress course on website creation. The course is created specially for novice in the internet business who has neither any programming knowledge nor any slightest idea how does WordPress work.
For a very affordable price equivalent to attending a 1-day talk/workshop where you may learn something new for a day or two only to throw away everything after a while, participants of our Wordpress training will walk away with a fully-functional website at the end of the class, ready for them to be launched as a part-time service intermediary business online!
Speak to us today if you are keen to find out more details and we look forward to welcome you to the StartWise family.