Growth March 30, 2016 Last updated September 18th, 2018 606 Reads share

3 Criteria for Starting the Perfect Business

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Back in the 1980s, I had a good engineering job working for a major company that paid me well and pushed me hard. Yet, every night, when I came home, my mind raced with ideas about running my own business. I was an entrepreneur at heart, and no matter how good my job was working for someone else, I was still working for someone else.

I was a risk-taker— all entrepreneurs are—but I wasn’t reckless. I knew that if I was really going to leave a good job to be my own boss, I needed a sound business plan for the perfect business that wouldn’t implode, run out of cash, or get trampled by some larger player doing the same thing.

Doing my research

How desperate was I to start my own business? So desperate I even considered starting a business to paint the lines in parking lots! Not a good long term prospect …

If you’re a young, aspiring entrepreneur, you need to understand that all your vision for a bright future can be a stumbling block if you don’t find a way to back stop it with solid business reason. In a way, it’s like house hunting. You want the best house in the best location with the best fit and possibility of return. You don’t want to be the person who walks into any house and sees limitless potential, providing you have a limitless supply of time and money.

My research was simple by today’s standards. When I built my first start-up in 1986, there was no Internet, no Google, no Bing. I would frequently pore through the phone book’s Yellow Pages, line by line, looking for business ideas. Unfortunately, most of the ideas I came across were very traditional and repeatable—line after line of the same business models doing the same thing, competing for the same workspace.

Three criteria for starting a business

While fumbling through the Yellow Pages, it became clear to me that I needed to establish some criteria of what I wanted in a business in order to focus my search. I hadn’t read any business books, and I went to college for engineering, not business. But I had a gut feeling about what I needed to do, and what I came up with made such practical sense that I still use it to this day.

My business had to be:

Significantly difficult 

When I say difficult I don’t mean so difficult that I couldn’t do it–like a business where I teach people how to speak Chinese. I have no idea how to speak Chinese, so, just because it’s difficult doesn’t mean it’s a smart decision.

When I say difficult I mean that there should be a reasonable level of complexity involved so that your business is not easily copy-able or repeatable. This ensures that you’ll have less competition. After all, there is nothing worse than starting your own business just so someone else can copy your idea, syphon off your customers, and erode your market share. If the business is complex for the general public but easy for you, so much the better.

Potential for unlimited earnings

I didn’t want a ceiling on what I could earn. This ruled out any services where I would charge for my time by the hour. Since there are limited hours in a day, there’d be a ceiling on my earning potential. I wanted something that could scale up infinitely

Full disclosure, I didn’t think of this immediately. I thought of it after one day of my toiling at an hourly wage with one of my other startups— a custom software and computer-building company. I built and coded nearly 40 computers in 1986, and preloaded them with custom software. Back then, 40 custom PCs made for some hefty returns, but it also took forever to do it! I realized that the big money was in writing software once that everyone needed, selling it to everyone, then adding to it.

Write it once and scale it to a limitless height. This simple idea is what ultimately led me to the Software as a Service (SaaS) industry, where I work today as the CEO of Patriot Software.

The limitless criteria may not be for everyone. At least not to start. But that doesn’t mean you should stop looking for ways to do it. Even if your work is something that’s obviously paid hourly, like say, a private sports instructor, consider videoing yourself teaching and selling access to the videos online.

Steady cash flow

Two words: recurring revenue. They are a business owner’s best friends. The power and value of recurring revenue is that you can calculate projected cash flow without expecting a lot of peaks and valleys. This stability lets you make secure-base decisions on your next business moves. You can accomplish this through options like rent, or monthly service fees, etc.

I wanted my business to offer a product or service that was repeatable, sustainable, and measurable. Instead of selling something one time and then starting all over, I wanted my business to grow bigger and bigger like a snowball with every sale that I made. I’m an engineer, so I say it is like a flywheel on a motor. It takes a lot of energy to get a flywheel spinning at first, but once it’s spinning, it’s easier to repeat the process over and over, and make it go faster. Same way with cash flow. One of the main benefits of a business plan centered around SaaS is the ability to generate recurring revenue… and do it quickly. Once the money started coming in, I wanted to keep that momentum going.

I tried to start several businesses in the 80s with varying degrees of success. In 1988, I managed to find the business model that met my three criteria above. That business, Top Echelon Network Inc., is the second oldest of my five successful companies and is now the nation’s largest and strongest network of recruiters. And that business today still meets all three of my criteria!

Images: ”Business development concept, light bulb as a symbol of the new idea and different stages of business development. Businessman holding a flowchart.. ,  /Shutterstock.com

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Mike Kappel

Mike Kappel

Mike Kappel is the president of Patriot Software, LLC., which develops online accounting and payroll software for small business owners. He has also founded four other successful small businesses, and he is passionate about helping other entrepreneurs find their way to success

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