My Five Requirements For Investing In A New Business

1 – The Business Must Have Low Start Up Cost

I don’t like spending $1 million (or even $100K) to start a new business. I just don’t enjoy taking that kind of risk. If you look at the average B&M business that takes hundreds of thousands to start, you’ll see that none are profitable for at least a few years and the owner have to have enough reserved funds to live on because he can’t draw from the business (so he’s working 14 hour days for free). And to top it all off, there’s an 80% chance the business will fail within five years. What that tells me is most people would be better off putting that spare $100K into investments and keep working.

The ideal business requires very little cash to start. This is why I like the Internet so much. My total investment to start this blog was $8.95 for the JohnChow.com domain name. The software that powers the site is free and so is the template. Until recently, the blog was hosted for free as well. When something cost that little to start, it’s not that hard to break even or turn a profit.

2 – The Business Must Have Exclusive Rights

If you’re selling the same stuff that Walmart is selling, chances are you’re not going to do well against them. To give your business the best chance of survival, it must have an exclusive right to some of the products or services. Remember, there is always going to be someone who is willing to sell the same thing cheaper than you. I don’t want to deal with that.

Having an exclusive protects you from market price pressures. If the customer wants your product and can’t get it anywhere else, then you can charge pretty much what you want. This is where terms like branding and private labels come in. In the tech sector, very few companies actually manufacture their own stuff. They are all subbed out to ODMs who make the products with the client company name on it. Want an OCZ power supply without paying for the OCZ name? I know where to get it.

A content base site or blog fits this requirement perfectly because your exclusive right is your content – it’s protected by copyrights.

3 -The Business Runs Itself

For most business owners, having their own business doesn’t mean freedom. If anything, it means more hours than when they were working. Owners of a new business are the first to open and the last to close. The hours are long and there’s a high chance of losing all the money you’ve invested.

The ideal business should run itself without you having to be there. If you have to be there all the time to run the business then you lose one of the biggest potential benefit a business can offer you – freedom to sit on your butt and do nothing.

Look at Markus from Plenty of Fish. This is a 100% user generated content site. Markus’s only job is to make sure the servers stay up and he can easily hire an admin to do that. The site makes over $10,000 a day and Markus runs it out of his apartment. To put that into perspective, Markus makes almost as much as the busiest McDonald’s in Canada, which cost millions to start and employs over 100 people. I’m sure once you account for operating expenses, Markus makes way more.

4 – The Business Has To Be Global

While start up cost has to be low, the market has to be big. I don’t want a business that is limited to just one market. I want the business to reach every corner of the world. The Internet allows anyone to be global.

5 – The Business Has To Be Portable

Being global is great but I also want a business that I can run from anywhere in the world. I used to run TTZ from a commercial office building until the landlord kicked me out because he thought I was a drug dealer. Now, when people ask me where I run my business, I say, “Out of a notebook.”

I do more volume running TTZ out of a notebook than when I had an office. I looked more like a “real business” when I had the office but it was really more a place to hang out than to conduct business.


82 thoughts on “My Five Requirements For Investing In A New Business”

  1. don’t we all love internet?

    1. Yup, but I love the blogsphere more 🙂

      1. Mubin says:

        I take it you would be more inclined to buy a running business?

        1. No, I would be more inclined to start a business online…that business being a blog 🙂

          1. “I used to run TTZ from a commercial office building until the landlord kicked me out because he thought I was a drug dealer.”

            John, that sounds like a story with more to it. If there is more, it might make a good future blog post. 😉

            Thanks,
            http://WesleyTech.com

      2. Marc says:

        The blogosphere is awesome. I’ve yet to break out of the small-time bubble, but I’m getting closer every day.

        1. it’s ok, just keep at it and crack that 3 month mark, then it get’s a little more rewarding having the proper tools on your site

      3. i’m not sure about that, i love it all

    2. Kumiko says:

      You’d have to! With those five rules, you’re pretty much limiting yourself to the internet.

      1. Moulinneuf says:

        Advertising , Computer selling , photograph , cellphone vendor etc … there is a couple of other *legal* paying job that fit that bill too that are not really directly related to the internet.

        1. Marc says:

          John never said anything about legal…

          1. now that’s evil..hehe 😈

      2. I agree. What will you do when the scientists come around and say that electrons cause premature death? It could happen. 😈

    3. Entrepreneur says:

      Yeah, right now, it really is the great equalizer when it comes to starting a business 🙂

  2. wow, markus makes 10000 a day?

    that’s how much you earn a month john!

      1. like the term, google whore, sound so erotic… not…

    1. Entrepreneur says:

      I’d imagine a LOT of that money goes back into promotion.

      1. when a site can generate 10000 a day, you don’t need to spend much to advertise it anymore

        for a small fish like me anyway

  3. how much do you pay for your hosting john?

  4. Paris says:

    How does Markus earn revenue off of his site?

  5. i’m quite disappointed with the look of the site plenty of fish

    as a site that generates 10000 a day, you’d think it looks a lot better than it does now

    1. Dave says:

      Yeah that site almost looks like it’s one of those fake landing pages with all the Google ads on it.

      Goes to show you how some of the worst designs make the most money (prime ex: myspace, craigslist!)

      DavePit.com

      1. This is where the whole features vs service comes in…I would rather have a site that offers great services rather than a site that has great features…I just wrote about that actually.

        1. Yeah, if I had to choose I’d go for service, too. A healthy balance of the two is the key though. But since balance is so relative and hard to measure, inevitably as the owner of the site it’s up to you to give your readers what you think they want/need.

      2. Marc says:

        Those sites are all about being slippery. Everyone seems hell bent on having sticky sites, but sticky sites aren’t god for ad revenue.

  6. Great Top 5. I’m all up for the low cost start up, all or nothing is not for me. This one’s going onto my del.icio.us 😉

    1. Marc says:

      I’m fiscally wedged into low cost projects 🙂 Even if I did have funds to back a bigger project, I don’t think I’d be willing to risk it while there are low cost opportunities left.

      1. Entrepreneur says:

        Yeah, it’s really hard to justify spending a lot of money on a risky endeavor when you can under-take low cost options that can do quite well for you 🙂

      2. If you are creative you can do it. If you are committed you can do it.

        “If [insert excuse here]” sentences will only delay you from achieving your goals. If you don’t have money. That is an issue. Figure out how to resolve the issue and move forward.

        I don’t mean to be harsh, but I see too many good, smart people rationalize their dreams away when all they need is to change their perspective.

    2. I’m not much of a risk-taker myself, especially when it comes to business. Low-cost start ups are a definite advantage. Some people think you can’t earn a lot without risking a lot — I guess that’s only applicable to people who can afford to be that adventurous.

  7. Sabrina says:

    Good guidelines to follow….ensures not investing in a loser I’d say… 🙂

  8. green says:

    10000 a day? That’s awesome 😥

  9. Rich Minx says:

    Good advice. Do you invest in other people’s businesses as well, John?

      1. Marc says:

        Agreed. I have been involved in other communities where there were a handful of people who did actively invest in other people’s projects. I’m quite curious if John does though I’d be surprised if he’d announce it publicly here lest he be bombarded by thousands of solicitations.

        1. yeah, something that happens behind closed doors…amongst other things 😉 hehe

  10. Greg Butler says:

    I’m about to invest $15K in a business here in South Carolina where I live that has huge growth potential. It is run by great business minds and I think it will bring me a huge return.

  11. I can’t believe we lived without the internet decades ago. How did people ever do business? Mail, the Pony Express, and telephones must have taken forever.

    1. Slaptijack says:

      I think it’s the evolution of the World Wide Web into a social network that has made so much of this possible.

    2. The world can only get smaller, D…unless one of John’s posts come true (Internet crashes) then we’re back to square one.

  12. Dollar Short says:

    I can’t believe someone thought you were a drug dealer. What were you doing in there?

    1. Moulinneuf says:

      Just watch the previous movie , its a dramatization , reenactment of the scene 😉

      :mrgreen:

      1. Moulinneuf says:

        In the second movie Pearl ( john former landlord ) even gave John a lesson on trowing rocks 😉

        :mrgreen:

    2. Similar thing happened to someone I know. He was in the car buying/selling business, hardly ever did any real work himself. Neighbors and friends speculated he was into drug trafficking — I mean, can’t people make profit without having to resort to anything illegal?!

  13. Internet is fantastic because, just by itself, it fulfils the two final topics. Internet is global and Internet is portable. Anyone disagree? 😉

    1. couldn’t agree more

    2. Here, here…I also think more and more people turn to the Internet for even the most basic things: buying clothes, picking out paint, getting the day’s news. It’s become a booming marketplace where everyone and anyone can make or spend money.

  14. James says:

    I was hoping you would do this post. It is good advice for any type of business.

  15. Nick says:

    Yep, you can’t beat an online business for small budget start up.

  16. Sounds good, hire me.

    But where shall we eat and what shall we wear if everyone goes on line for ad money?

    Could you keep this a bit quiet?

  17. “For most business owners, having their own business doesn’t mean freedom. If anything, it means more hours than when they were working.”

    When you are owners of a business, it is probably something you love doing, thus you are never working a day in your life. My dad recently started 2 businesses (both highly profitable), and he says that it is better than going to work for someone. He said that he loves what he does, works harder, and puts in more hours. To him it’s not even work.

    1. I don’t think anyone really wants to be an employee forever. If given a choice and enough resources, most people would give up their 9-to-5 for something they’re really passionate about, something they can run themselves. I’ll drink to your dad’s work ethics. We all should whistle while we work, whatever kind of work it is we choose to do.

  18. blogdinero says:

    How much portable?

  19. While it may be minimal to start up I still think the lazy plague is infecting those around us so the competition is really only ourselves and the limits we place on ourselves.

    Time management and working ON your business is the secret. You do have to be able to recognize what you are doing. Working on or working IN your business. Treating it like one is also a good first step.

    Michael Gerber writes a series of books entitled the E-myth. Great stuff.

    Great post. 😎

    1. Well said stephen…the biggest challenge in a bloggers path is most often themselves…

    2. So true, even in other aspects of life; we are only capable of doing what we think we can do.

  20. Wolf Stone says:

    wouldnt everyone like to start a business with low start up costs, that can run itself and can be global and portable…i sure do. now if only i can make my blog earn some money!!

    1. Moulinneuf says:

      The *title* of your blog is shooting you in the foot.

      :mrgreen:

  21. Mark Rosner says:

    While I agree with the majority of what you’re saying, is it really necessary to have exclusive rights. There are many people that have found ways to innovate without exclusivity, etc… I comment a bit more on this at my blog over at http://www.capitalai.com/blog/2007/05/17/personal-finance-entrepreneurship/

  22. Matt Huggins says:

    Every one of these reasons is why I love trying to make things happen on the Internet. I love the freedom of being able to see how things are working out for me no matter where I am in the world!

    1. Matt Huggins says:

      Oh, and not to mention the minimal start-up costs! 😉

    2. So true; I travel a lot and I can’t possibly stay in one place for too long or else I’m going to self-destruct. Working while enjoying the limitless possibilities of the Net is liberating indeed.

  23. Hari says:

    I am sorta like this too. But i am not as rich a Chow :mrgreen: so i think a lot before buying even a domain name. Recently i launched this business : http://kontactr.com after deep thinking. It is doing pretty good and i am working on implementing AJAX into the forms.

  24. congrats hari, keep it up

  25. The net is a beautiful place

  26. What are your thoughts on existing businesses? I do brokerage and I find that some good businesses can be bought. If you are creative there is alot you can do with an existing business takeover. I’m helping one right now get listed in your home country of Canada right now.

  27. John what return do you seek when you invest? You mention you wouldn’t like to invest $100K in a business in another post.

    I’m assuming you want something for nothing? 😯

  28. I could only wish that everyone’s business ventures, whatever they may be, skyrocket to great heights. Thanks for the very insightful post, John — it has definitely given most of us a little more boost toward the right direction.

  29. Scott says:

    One thing that’s missing here… I want to hear more about John’s former landlord’s assumption that he was a drug dealer…

  30. I can’t really think of a single business that matches this description.

    The only thing that comes close are internet related businesses, either a web publisher or software publisher.

    The toughest requirement to manage is the “exclusive rights”. The content from most sites while copyrighted and specifically unique is generally available from many sources.

    Most B&M businesses fail for the other 4 requirements.

  31. cylai says:

    You wrote:
    “Markus’s only job is to make sure the servers stay up and he can easily hire an admin to do that.

    I strongly disagree. I follow Markus’s blog and interview closely, aside from ‘making sure the servers stay up”, his other tasks include:

    – detele the large number of fake profiles of his sites;
    – analyze his competitions;
    – analyze his traffic data and what to do to improve the sites traffic;
    etc etc…

  32. InvestorBlogger says:

    Having run a business myself, I’m beginning to think John’s ideas are far more practical than airy-fairy.

    Kenneth

  33. Wahlau.NET says:

    you are talking about more blogs and websites then

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