Once again you have done a great job by getting Stephen L. Nelson to post on the blog. The post does a great job of of explaining and guidance for owning a small business.

The biggest challenge is not striking a good buisness idea, but how to go about executing it and make it viable in a competitive market.

I like the early bird formula, makes lot of sense, and guess applicable universally.

Thanks for great insights.

Regards,
prashant

I so agree with you on the “Early Bird” business approach. In any type of business, let it be online or offline. Being first will often make a person an instant expert.

I think this is a really good question. But let me break my response into two chunks…

TRANSITIONS: I think, ideally, one should transition from formulas 1 thorugh 4 to formula 5. In other words, ideally, you maybe start off as a job or leverage or early bird or external solution business… but at some point, when you get into competition with large, well-run competitors, you probably HAVE to use the “secret sauce” approach. At some point, your business model has to stand on a firm foundation of proprietary knowledge, well-engineered business practices, unique insights about your industry, etc. All this said, however, in my experience people don’t regularly transition from to formula #5. Maybe partly the lack of transition probably stems from fact they don’t feel any immediate need to transition when the “leverage” formula, say, or the “early bird” formula is working well? And maybe partly the lack of transition stems from fact that if you’re making a “job” business work or an “external solution” work you don’t have much time? (In a “job” business, you’re probably selling all your hours to maximize your profits. In an “external solution” business, the short lifecycle of the business doesn’t give you much opportunity to accumulate a bunch of specalized knowledge.

HYBRIDS: This is an interesting idea. In my practice, as odd as this may seem, I really pretty easily classify most small businesses using the classifications provided above. But there probably are people combining “formulas”… Also, I would wonder if a “hybrid” approach probably (using my very simple taxonomy) almost automatically and very quickly looks like a “secret sauce” formula. E.g., a wee bit of financial leverage might be one of the tools you use in a secret sauce business to jack profitability.

Good questions, Per.

I assume that #1 may grow into include additional people and develop into a consultancy co in the IT space; or as a contractor in the building industry.

Which brings me to what are the transitions or hybrids you see that works well? What are the risks?

In general are there books – “dummies” are ok – or other sources you would recommend on how to be successful? My son is looking into either #1 or #2.

Let me also specifically respond to a couple of things that Praveen shared… Apologies to you, Praveen, if I’ve been corrupted your points in any way through my editing (see italics below) of your words…

…Formula #2 is interesting [but] feels all too comfortable.

For the record, I agree. I sometimes tell people that making “leverage” your secret formula is a bit like saving time by skipping the work of fastening up your car seat belt. Most days, of course, not “buckling up” has no downside. At some point, however, you’re likely to experience catastrophic consequences from your decision to save time by not using a seat belt when you drive.

All that said, however, and this sort of bugs me in a way, leverage does work most years. And if you’re not over-leveraged, you may even survive a serious internal or external shock.

Formula #4, Aren’t all Service and Solution providers “External”

Yeah, good point. Perhaps what I should call Formula #4 is the “single customer” or “single vendor” business. Or maybe the “dominated by a single customer” business.

I was just trying to find a “handle” to use to refer to these small businesses you commonly see that are really all about solving, e.g., one customer’s problem. I am amazed at how many small businesses look this way once you see “inside” the business.

–Kevin