Whenever someone asks me how to start a profitable business, I always give the same answer: “Tell me what you know how to do, and focus on that or, at most, on what’s around it”
This may seem obvious, but it isn’t applied that often.
Look. I’m from a small town in Asturias called Grado. When the 2008 crisis hit, many people started losing their jobs.
For many of these workers, finding a job similar to the one they’d had was very difficult, so the government thought it would be a good idea to let people who lost their jobs receive their unemployment benefits as a lump sum and use them to start their own businesses.
Well, in my town, many of them decided to open bars. Maybe in yours too, I don’t know, but in mine they sprang up like mushrooms. Many of them barely made it past their first year, and the people who had taken the plunge were left with no unemployment benefits and no business.
That’s one of the first mistakes… underestimating how hard it is to get a business off the ground and make it sustainable over time. The market is very competitive, with sharks everywhere ready to steal your customers.
The vast majority of these people may have come from other industries, such as construction or factories. People with no experience of the hospitality world.
Mind you, I’m not saying that having been a waiter in another business guarantees your new venture will be successful, but you’ll probably know more about how to run it.
I want to warn you that this post may be a bit chaotic at times, but I really enjoy talking about profitability and business, and as I write, new things come to mind that I want to tell you, so sometimes I’ll throw in things or examples to help you get the most out of it.
What is a profitable business?
This concept is a bit tricky, and I say tricky because having a profitable business is very relative. What’s profitable for one person may not be for another.
For me, as a business consultant, a profitable business is one that generates enough income to pay all the expenses associated with its activity and also keeps its shareholders satisfied.
In my opinion, profitability is a term that should be used almost exclusively for a business’s shareholders or partners, because for there to be profitability, there has to be a return on an investment, and the ones who usually invest in businesses are the partners.
And I really like talking about this, because being self-employed is one thing, and having a business is quite another.
Self-employment is about making the most of your knowledge of a specific technique or a specific profession. A business gets a return or profit from all the operations and processes carried out together with all its resources.
There are painters, architects, hairdressers, doctors, engineers, etc., who are very good at what they do. The problem is that, because they’re good at what they do, they get more and more work and have to bring more people onto their team, and that’s when you start becoming a business, since part of the work your clients pay you for is done by people other than you.
I’m talking about self-employment and businesses because, when we talk about self-employment, we’re generally talking about freelancers or people who barely need to invest large amounts of money to launch their entrepreneurial activity.
In this case, your return will come from the salary you manage to earn from your work as a professional.
Businesses, however, are more complex, with staff, offices and so on that we do need to get a return from, because in general they’ve already mobilized many more resources. Here your return will come when the profits left over after subtracting expenses from income are shared out.
Characteristics of profitable businesses
Sustainable businesses have only two characteristics:
1- There are profits after doing the profit and loss statement.
2- They have a clear business model.
In 99% of cases, for point 1 to happen, point 2 has to happen. I don’t know of any company that doesn’t have a clear business model and still manages to make a profit at the end of the season.
However, you may have a clear business model but not yet have more income than expenses. This is very common in the world of startups. They need external funding to reach the point of profitability that will make them sustainable over time.
One thing I want to make clear is that there are no good or bad industries for starting businesses that are sustainable over time. Nor should you fall into the oversimplification that starting a profitable business with little money is better, but I’ll talk about that in a few lines.
I say there are no good or bad industries because history keeps proving it.
For a business to be profitable, it only has to improve on what’s already on the market. And most importantly, it doesn’t have to improve it for everyone.
BlaBlaCar is the evolution of hitchhiking 20 years ago, and Glovo is the evolution of the messengers who started as apprentices in companies 60-70 years ago.
These are two examples of different forms of transport, but the same thing happens in healthcare, banking, hospitality, accommodation and marketing too. Although the underlying sales and marketing triggers are the same as 100 years ago, the channels and ways of setting them off are different.
30 years ago it was catalogs sent to people’s homes; today it’s email.
The only thing you need to keep in mind is how to improve on what’s currently on the market.
Steps to start a profitable business
I told you earlier that there are two main characteristics a business needs to be profitable.
And one depends on the other. So yes. The first thing you need to do is build a solid, sound business model.
A model that lets you stand out from the competition (be clear about your competitive advantage) and, of course, does something that matters to your customer.
If what you improve compared with the competition doesn’t matter to your customer, you’ll almost certainly fall flat on your face in your entrepreneurial venture. If something doesn’t matter to us, we don’t pay attention to it and it won’t influence our decision-making process. The same happens to your customers.
Once you’ve structured and thought through your business model, everything should revolve around it. Every decision should pass through the filter of the business model; if something doesn’t fit, discard it or change the model.
If environmental sustainability is especially important in your business model, we can’t have our business full of single-use plastics.
What I’m telling you is important. You need to shield yourself from fads: if you chase every fad, your project, your business and even you yourself will become unrecognizable to your customers.
And on top of all that, you need to execute your business model in a precise, well-structured way.
You’ve surely heard that what matters most isn’t the idea, but how it’s executed. A good example is Google.
Google wasn’t the first search engine in history, nor was it among the first 10. But it was the one that did it best, and the rest, as they say, is history.
What profitable business can I start?
I have no idea. If I knew, I wouldn’t be telling you on this blog; I’d be offering it on the market and making money from it.
What I can give you are ideas about industries on the move where it could happen, as well as examples that have happened or are happening and have been profitable for their founders.
But before I get into it, remember: the best thing is to do something in the business or industry you know about and/or have experience in. Ventures into the unknown tend to go wrong.
Here are some ideas for starting a profitable business:
· Streamer
Maybe I’ve started strong, but it’s a profession that has emerged very strongly in recent times and has the added ingredient that you can start a profitable business with little investment.
There are people with a strong position in the streaming world, but I’d like to highlight Ibai Llanos.
Why?
Because he’s building a very interesting business around himself. He started with live streams, but little by little he’s moving into other very interesting professional areas that are building his personal brand much more.
One example was his interview with Leo Messi at his presentation with Paris Saint-Germain, or when more than 500,000 people watched him ring in the New Year on New Year’s Eve 2020.
As I was saying, he’s making very interesting moves around his business model that are making it more and more solid as a business.
· Offline professionals
It seems like everything has to happen on the internet, but that’s not the case. You only have to look around to see how many professions still aren’t digital and aren’t done by a robot either.
Carpenters, plumbers, bricklayers… these are professions you can practice as self-employed, or freelance if you prefer, that are in high demand in their markets and from which you can earn a good return through your income.
· Social clubs
The sense of belonging is deeply rooted in our subconscious. We like to belong to something, and a good way to channel that is through social clubs.
A good example is Club Matador in Madrid.
It grew out of the magazine Matador and stands out for putting art at the center of its activities.
Painting, films and gastronomy are considered art, and its members can enjoy the best of them within its four walls.
This type of business requires larger investments, since you need the space and must be able to fund the early days of operation, but if it’s done well it can be a very profitable business.
· Services for older people
Spain’s population is aging, and however up to date you want to be, the reality is that as the years go by new things and changes become harder to take in.
But this group isn’t housebound: they like to travel, go to the movies or eat out, but they don’t always know the processes or how to do it, so a little help could come in handy.
· Car repair shop
Electric cars are more and more present in our lives. Is their maintenance the same as for fuel cars?
Probably not, so specializing in this type of car could be a good way to create a new business, and it probably wouldn’t require a large investment.
· Marketplace
I also want to give you examples of things that are very saturated and where it’s now very hard to stand out.
Marketplaces are already very saturated. Both online and offline.
This type of business depends on balanced growth between buyers and sellers. If one of the two grows much more, or critical mass isn’t reached, it’s very hard for them to succeed.
I personally tried one in 2016, and it didn’t get enough traction to become profitable.
With these ideas and examples, I hope you’ve seen that profitable businesses can be created in very different industries and that there’s no such thing as a bad industry, only businesses that are well structured and have defined models.
Conclusion
If you want to start a business, do it in something you know well and where you clearly add value to your business. Don’t think that being a good customer of a bar means you’ll be able to run one.
You also need to think about how you want to get a return.
For example, if you know a lot about email marketing and as a freelancer you can earn the same salary as if you worked for a company, it may not be very appealing in the long run to keep fighting as a freelancer if the reward is the same as working for a large company.
The same goes if you’re going to take part in a larger business. The return on your investment will come through the distribution of profits at the end of the year.
If you want a business (whether as a freelancer or something more complex) that’s sustainable over time, you need a business model of your own that’s distinctively yours.
I say a business model of your own because imitating things that work in other businesses is very, very good and helps reduce the chances of failure a little. However, if you overdo the imitation, you’ll end up becoming a crude copy that passes through the world unnoticed, and you’ll be a completely dispensable or replaceable business or professional.
If, after reading this post on how to start a profitable business, I’ve managed to keep you from getting carried away by things you hear over and over, like the idea that only teachers make a living from art (tell that to the people at Club Matador), or from thinking that ideas are the most important thing and not wanting to tell anyone for fear they’ll copy you, I’ll be satisfied.
A business’s profitability is the result of how good or bad its business model is.
Thank you so much for reading, and good luck on your journey.
If you’ve already taken the step of starting your business, it’s a good time to also learn the keys to becoming self-employed without risking money, and to review what digital marketing is so you can promote your business from day one.
