5 Significant Kinds of Businesses to Consider Starting
When deciding which type of business to start, it’s important to consider your skills, interests, and goals. While there are countless options, these five common types of businesses are a great place to begin your search.
Best Service Focused Businesses
Service companies are devoted to providing services rather than products. This type of business relies on skilled staff to deliver solutions to clients. Examples include accounting firms, marketing agencies, IT consultants, restaurants, healthcare providers, auto repair shops, salons, and more. The benefit of running a service business is you don’t have large inventory costs. However, you must invest heavily in talented employees. Service businesses have high profit margins when staff is operating efficiently. But inconsistent demand can lead to idle resources. Owners must master scheduling and capacity planning.
Most Profitable Retail Companies
Retail companies sell finished products directly to customers. This includes online stores, brick-and-mortar shops, grocery stores, car dealerships, clothing boutiques, and everything in between. Retail businesses require prime real estate for brick-and-mortar locations. Ecommerce retailers need robust online platforms and solid logistics. But selling directly to consumers means profits can be high. A retail business can start small and scale up over time. But you’ll need strong merchandising and marketing skills. Forecasting demand, managing inventory, and maintaining solid suppliers are crucial.
Big Manufacturing Corporations
Manufacturing companies produce tangible goods in factories. They turn raw materials into finished products. For example, automakers assembly cars, electronics companies make gadgets, and consumer packaged goods companies mass produce food, beverages, and household items. Manufacturers invest heavily in equipment, facilities, and inventory. Large manufacturers like Boeing or Mattel deliver products worldwide. A small local manufacturer can get started with less capital. But production expertise and process management skills are a must. Quality control and safety standards must be rigorous.
Most Important Construction Businesses
Construction companies provide building services for clients. They range from small contractors to massive international corporations. Tasks include architecture, engineering, renovations, demolitions, and brand new projects. Construction is capital intensive and highly regulated. Companies need lots of expensive equipment like excavators, cranes, bulldozers, and more. Profit margins are often low. But steady demand for infrastructure and buildings means consistent work. Owners must estimate costs accurately during bidding to earn profits. Managing skilled tradespeople and subcontractors is challenging.
High Growth Tech Startups
Tech startups use technology to disrupt industries and meet emerging needs. For example, companies like Airbnb, Slack, Uber, Pinterest, and more. Tech startups begin with founders solving a problem with an innovative tech solution. Starting a tech business requires strong programming and technical skills. Venture capital investment is often needed to fund growth. But digital solutions can scale rapidly at low marginal cost. And valuations can soar quickly from rapid user adoption. Patience is needed to achieve liquidity. Technology, especially software, changes rapidly so innovation is constantly required.
Less Common Types of Businesses
Beyond the most common models, there are many other niche types of businesses. For example, insurance companies provide risk protection services to customers. Hospitality businesses like hotels and resorts provide lodging and tourism experiences. Telecommunications companies offer phone, TV, and internet services. Transportation providers move people and goods via air, sea, rail, or road. Media companies create and distribute content like movies, TV, music, and publishing. Nonprofits serve social, cultural, educational, or religious missions. The list goes on and on.
Questions to Ask Before Choosing a Business Type
With endless options, narrowing down what type of business to start can be overwhelming. Here are some important questions to ask yourself in choosing:
- What excites me? Go with your passion and interests.
- What skills and experience do I have? Leverage your natural strengths.
- How much capital do I need? Calculate startup and operating costs.
- How much time will it require? Estimate the workload honestly.
- What differentiates me? Find an edge such as unique service, product, location, etc.
- Who is the competition? Research the competitive landscape thoroughly.
- What are the growth prospects? Some models scale better than others.
- What are the regulatory burdens? Heavily regulated industries require legal help.
- What is my risk tolerance? Certain types carry more financial risk than others.
- With careful analysis of these factors, you can zero in on the best type of business for your goals and abilities. Talking through options with business advisors and mentors can also help brings clarity.
Starting a Successful Business
While choosing a business type is important, execution trumps ideas. Plenty of restaurants fail while many technology companies never gain traction. Do thorough planning and preparation before launching any venture. Study your target market, draft a lean business plan, understand all legal requirements, build a winning team, learn sales and marketing skills, get finances in order, and beta test your concept. By laying this groundwork, you’ll set your new business up for success.
Surge in New Business Formation
According to the Census Bureau, over 1.6 million new business applications were filed in the first quarter of 2022 in the United States. This represent a 53% increased from pre-pandemic levels in 2019, showing that entrepreneurship and new business creation is on the rise. More people are pursuing their dreams of business ownership across many sectors from tech startups to local retail shops. New tools like ecommerce platforms and remote work capabilities have lowered barrier to entries. And tight labor markets is pushing more workers to strike out on their own. The data shows business formation is experiencing a major upswing.
Decline of Traditional Retail
While overall business creation grows, traditional brick-and-mortar retail is in decline globally. According to Deloitte, retail bankruptcies in the United States grew by over 50% from 2018-2019 with major chains like Sears and Barneys shutting stores. Consumers are increasingly shopping online with ecommerce sales rising 15% in 2021 according to Digital Commerce 360. And foot traffic to malls and shops dropped over 50% during the pandemic according to Placer.ai. Changing consumer preferences and the rise of ecommerce has traditional retail chains struggling globally as they closing stores and declaration bankruptcy at record levels.
Growth in Remote Service Businesses
Enabled by modern technology, remote service businesses are booming globally. Upwork reports that 59 million Americans freelanced in 2021, representing a 7% increased from 2020. And MBO Partners found over $1.2 trillion was earned by independent workers in America alone showing massive growth. Also, 99% of companies plan to permanently shift roles to flexible remote arrangements according to a Mercer survey. Remote work is fueling a boom in digital service businesses across IT, marketing, consulting and more. The data shows this trend is growing rapidly.
References:
https://books.google.com/books?id=antLdkMwxMwC
https://www.investopedia.com/terms/h/humanresources.asp
https://upwork.com/press/releases/freelancing-in-america
https://hbr.org/2018/07/the-different-types-of-business-entities
https://www.investopedia.com/articles/personal-finance/040915/how-choose-best-legal-structure-your-business.asp
https://www.findlaw.com/smallbusiness/business-structures/common-business-structures.html
