Tuesday, May 25, 2010

The “Perfect Business”

Everyone thinks of a perfect business. A business with no loss. A business where income continuously flows. But is there really such a perfect business?

For me, I think there’s no perfect business. We can see a lot of huge businesses but even the most admired and established one can be like a building that can one day collapse. This is what happened lately to one of the largest securities firm Lehman Brothers.

Nevertheless, I gathered some ideas to at least minimize the possibility of loss in your business. If you are thinking to establish a business, then these can be very useful. These are not the rule of thumb so it does not mean that if your current business does not meet these ideas, then you have to abandon it.

Universal Product or Service - This should mean that products or services that your business offers should be appealing to the masses. It is very advisable to have a product or services that is not limited to your locality or to your country but can be sold in other countries as well. It must have a huge potential market.

Inelastic Demand - This means that the market demand of your product or service is not very sensitive to the changes to its price. In other words, when you have a slight change in your price, say for example, you decided to increase it because of inflation, then your customers will still be there to support your products or services. I think that examples of these products are our basic needs such as foods and household products. No matter how high the inflation is, people will still buy products from Procter & Gamble or Unilever.
Basically, I think that any consumable product is an ideal product. There will always be a steady cashflow in these businesses. This is very important since cash is the lifeblood of a business. A company producing toilet papers makes more money than the company producing toilet bowls. Why? Since toilet paper is consumable. On the contrary, there are some businesses whose products are seasonal. And so you cannot sell much ice cream during rainy or winter season.

Low Labor Requirement - Of course, a business must have employees. And definitely this is a huge expense of an owner. All you can do is minimize the need by capitalizing on machineries or subcontracting your products. A perfect example of this are Business Process Outsourcing (BPO) companies. They outsource their services in other countries where labor costs are low. Another perfect example of this is an entrepreneur who subcontracts his products in Multi Level Marketing (MLM) companies. They have instant sales agents with the help of the MLM company without incuring much labor costs.

Low Overhead - It shouldn’t only be the labor costs that should be minimized but also the overhead costs. This means the lesser the maintenance fees are, the better. Nowadays, people come to virtual businesses in the Internet. Why? Because there is not much expenses except for the low maintenance costs in maintaining your website. A perfect example of this is the owner of the largest google adsense check which is the owner of the large dating website named Plenty of Fish. A lot of webmasters say that he can easily earn around US$1 Million per year yet he only maintains two employees - himself and his girlfriend maintaining the business at the comfort of his own home.

Unique Product or Service - Make a difference! Be unique and innovative! There would always be competitors. And in order for you to survive stiff competition, your product or service must be unique. A unique product or service will drive customers to your business. You should have something that is difficult for a competitor to copy or duplicate. Set the trademark. If you had a unique product or service, then try to have it patented to avoid being copied by others. Many services are unique though such as singers or surgeons.

Portability - Basically, this means that you can carry your business anywhere you go. And still be able to continue to operate profitably. If you started a business and then suddenly decided to migrate to another country, then you will still be able to continue your business. Today, there is a growing number of businesses in the Internet because you can operate it just about anywhere in the world where there is an Internet connection.

Low need for inventory - There are some inventory-related problems that can prop up if you have a business with huge inventory such as grocery or supermarket. Some of these problems include a possible theft from your employees, the hassle of time-consuming balancing of inventory against your sales, the time constraints to quickly sell perishable inventories with expiration dates, etc. As much as possible, choose a business with low stock up of inventory.

These were just some of the ideas that a perfect business can possess. Assess the business that you want to start before you invest your hard earned money. Minimize your losses.

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