What Makes The Ideal Business?

What Makes The Ideal Business?

Ron B. Gordon
The Bydand Group

Out of all the questions we should be asking ourselves, when we are starting a business; this is perhaps the most important. It is equally as important to starting a business that fits with your personal values, ethics, expertise, passions and your financial and life goals.
So what does make the ideal business? This question has been studied time and again by the greatest minds in entrepreneurial history. Let's examine this together to establish the definitive definition of the ideal business.

A business should be an entity to itself. Many new entrepreneurs are far too attached to their business or idea and fail to look objectively at it to make it better. My father told me early in my career, “Ron, work on your business not in it. Work smart not hard.”, even though he was quoting someone else, I thought my father was the most brilliant business man I had ever met. He was, in fact, very successful. He took his business from small, humble beginnings and turned it into one of the largest fresh fish and smoked salmon processors on the West Coast. When he retired he had over 250 employees and several locations. I have never forgotten his lessons.

My definition of a business is quite simple:

“A BUSINESS IS A COMMERCIAL, VIABLE, PROFITABLE, FOR PROFIT VENTURE THAT WORKS SO YOU DON’T HAVE TO.”

If your business requires your constant input or is dependant on your efforts alone to generate revenue, you don’t have a business. You have a job. If your business fails to be profitable or shows a loss for an extended period of time, you don’t have a business. You have a hobby. Being profitable means the business is self sufficient and pays itself and you. If it doesn’t pay you, you have a very expensive hobby. If your business is not a commercial for profit venture then you have a foundation or a charity. We need foundations and charities but it is important to understand the difference. That is not to say that a non-profit cannot make money. That definition always makes me cringe. I have worked with and have known many very successful non-profit organizations. Many non-profit directors are very wealthy indeed and make very nice salaries. The only difference is that the profit generated by the non-profit must go back into the organization to further its altruistic goals. A business can pay out those profits, if it chooses, to its owners.

To become truly successful in business you need to get to the point where you are making money in your sleep. Trading your time for money is having a job, having control over when, where and how you trade that time for money is being self employed. Trading someone else’s time for money is having a business. The final stage in creating a business that works so you don’t have to; is making your money work for more money.

Creating a dialogue on business success is one way we can build on the success of other to create the businesses and lives we want. Think of you and how you define yourself. You are not your business. You are not your job or profession. Stop working for a living and start creating a life.

It is true that many businesses will never achieve the ideal status, but it is worthwhile to know how the ideal situation appears. The following points are based loosely on the "Theoretical Ideal Business” in the DOW Theory Letters first published in the early 1970's and republished time and again. I have added and modified some points that I consider to be important. They are in no particular order; I leave that up to you to judge their importance.

The Ideal Business:

1. Sells To The World.
* Ideally you will not be limited to geography when you sell you products or services. There should be potential for a massive global market.
2. "Inelastic" Demand
* Product or service is needed, or desired almost regardless of price.
* Demand not affected by economy, price fluctuations, or other factors.
3. Consumable Demand
* Product or service is bought continually or is completely consumed requiring a repeat purchase.
4. Relatively free of supply and delivery issues
* Supply chain delays, delivery problems can be a huge problem requiring a great deal of logistical planning and investment.
5. Easily to Duplicate Your Successes
* The key to long term success is a business that is simple and profitable that can then be replicated over and over again. Do something that works and do it often.
6. Cannot Be Easily Substituted Or Copied By Competitors
* Original, unique products, services or processes
* Something that can be protected through copyright, trademark, or patent.
7. Cash Billings
* For anyone that has ever waited to be paid you know what I mean
* Cash flow issues often require a great deal of liquid operating capital and complex credit arrangements
8. Little or No Inventory Requirements
* The amount of capital invested in inventory must be manageable
* The inventory turn rate should allow for a much faster cash flow cycle
9. Low Overhead
* No expensive location
* No excessive utility costs like electricity, water, etc.
* Low operating budgets, low advertising costs, legal fees etc.
10. Low Staffing and Labour Requirements
* The fewer staff the better
* No expensive payroll
* No union or labour relations requirements
* No chance for employee theft or misappropriation
11. No Major Investment
* No large initial investment
* Low equipment and tooling costs
* Does not tie up capital or require a large debt service
* The leading cause of business failure is under-capitalization
12. Low Management Requirements
* The second leading cause of business failure is poor management
13. Free Of All Kinds Of Government Or Industry Regulations
14. Favourable Tax Treatment
15. Easily Portable
* A business that can be moved or operated from any location
16. Impervious To Environmental Conditions And Weather
* This may sound simple and for many businesses it is not an issue; but this has been the bane of several businesses including a couple of mine.
* For example a dog training business whose clients cancel because of a little rain or a flight school that cannot hold lessons due to poor conditions. I have experienced both of these examples first hand.
* A tourism business that is cut off from its clients by heavy snow or a mud slide, a ski lodge with low snow fall, a fishing charter that is affected by a small craft advisory or severe weather, a month of rain during a normally dry period can seriously affect tourism revenue
* There are many examples of how these conditions can have a devastating affect on a business
17. Revenue Is Not Limited By Your Personal Efforts
* Many professionals, Lawyers, Doctors, Accountants are all affected by this problem
* Ideally a business should be able to sell 10,000 customers as easily as it can to one
18. Limitless Production Capacity
* Same as number 17 except it applies to producing 1 unit as easily as 10,000
* For many businesses too much business is as devastating as not enough. Imagine having a production capacity of 500 units a day and getting an order for 10,000 units that must be delivered in ten days. What do you do?
19. Low Time Requirement From The Owner
* Many entrepreneurs believe they must work 16-18 hour days to be successful. That is simply not true. It is possible to have a work life balance.
* It can be difficult to achieve during the early days, proper management of time is crucial to long term success. Burn out is very likely.
* Work Smart Not Hard! Maximize your efficiency and delegate whenever possible.
* Many new entrepreneurs engage in what is essentially busy work that does nothing to help achieve their long term goals.
20. Satisfies The Intellectual, Emotional, Monetary And Life Goals Of The Owner
* If you are passionate about and love what you do, you will never work a day in your life
* If there is nothing about your business you love or are passionate about you are in the wrong business. You should be able to find at least part of your business that you love.
* I am fairly certain my father didn’t love getting cold and smelly in a fish processing plant but there were parts of what he did that were clearly evident he absolutely loved. He was exceedingly proud of his business and the products he made. He loved to see people enjoy his products. He also relished making the deal.
* My own businesses are a deep passion for me. I love watching a new entrepreneur become successful. In my dog training, behaviour counselling business, I am very passionate about helping people develop a strong lasting bond with their dogs. It doesn’t mater to me whether I am presenting a seminar, coaching a business owner, training a dog or working animals on a movie set. I love what I do and I don’t consider it to be work at all.

There are many other points to consider. This exercise can help you identify areas of your business that may require attention. Proper strategic planning and objectively looking at your business can help you get closer and closer to the ideal business. Feel free to add to this list if you feel you have something valuable to offer.

© The Bydand Group 11/06/2007 All Rights Reserved. No Assignment of Rights related to any other agreement.