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.