As an entrepreneur with four businesses under my belt and with a bunch of time on my hands after my latest venture, The Brighthouse, was largely taken down by Covid-19, I’m thinking about starting my fifth business. What business should I start? I’m testing ideas while I quarantine with my family in North Carolina, and am very much in the exploratory stage.
I recently got invited to join Clubhouse, the buzzy new Silicon-valley backed social media app. I found myself listening in on a conversation about “Bootstrapping Your First Million” and what to sell to get there. Indeed, what to sell has been the exact question I’ve been asking myself as I look to start my next venture.
This timely Clubhouse conversation was hosted by Gregory Jackson and Rohan Gilkes, a successful serial entrepreneur. His roster of businesses includes Lawn Tribe, Back Pack, Wet Shave Club, Maids in Black, and Launch27. Rohan has made millions of dollars along the way; and like most entrepreneurs, he has failed and succeeded as he’s forged his way forward.
Rohan distilled his learnings about starting, growing, and managing businesses into a list of 10 questions any entrepreneur should ask themselves as they embark upon starting a new business.
Are you wondering: “What business should I start?” Start here.
What Business Should I Start? 10 Questions to Ask Yourself
Each of Rohan’s 10 questions gets scored out of a possible 10 points. The idea? Of all the business ideas you might have, pursue the one that scores the most points out of a possible score of 100. Or, if you’re still exploring ideas or iterating upon them, then don’t get started until you’ve come up with a high scoring idea.
1. Is there a lot of competition in this space?
You don’t want to be the only one operating in your space. “You want to fish where other people have already caught fish,” Rohan explains. Sometimes, “nobody else is going there because nothing is there.” You want to go where people are successful.
“If it turns out that this [business idea] is unique, I’m either genius, or it’s just not a great idea. One of those things is far more likely than the other,” Rohan laughed. Then he quoted Nas: “No idea’s original, there’s nothing new under the sun. It’s never what you do, but how it’s done.” So you should look for a space where other people are already playing. Then look for ways that you can grab a piece of the pie and do things a little differently.
Competition serves to provide the validation that you need that your idea is good. Competition can also provide a roadmap for how to build a business. Look to your competition for how to build the business and what steps to take next. What products are they selling? What products are they not selling? How have they structured their team? (You can check their website to learn more.)
Duplicate or refine should be your strategy. Most entrepreneurs shouldn’t be looking to invent the wheel.
10 points for a lot of competition in your space.
A Note on Customer Service
When it comes to doing things better while fishing in popular waters, utilize online reviews to find out how your competition handles customer service. Pay special attention to 1 star reviews — what are customers mad about, and what does that tell you about how customers can be better served? Reviews can be a goldmine when it comes to learning how to better serve a customer base.
2. Are there businesses making millions in this space?
Just like you want to fish where other people have already caught fish, you want to go to a fishing hole where businesses are making millions (i.e., catching a lot of fish).
To provide an example, Rohan was looking for something to sell on eBay. He said that it was a long story for how he arrived upon the product he finally started selling, but that he landed on portable cement mixers. It was a product that had a high price point (#6 below), and it was not sexy (#7), but it was a product that people needed as but a lot of construction and development was happening in the area. He started the website portable-cement-mixers.com (it looks like the site no longer exists) — and the venture paid the bills while Rohan was unemployed.
10 points for businesses making millions in your idea space.
3. What business should I start? Service or software versus product.
When it comes to service and software business, you build it once and then sell forever.
Product businesses, by contrast, require capital. I’ll never forget when we started Norm’s Farms and I was at Polsky’s Summer Accelerator Program as the sole product business amongst a sea of software and service businesses. I had to lug heavy products with me to all of my demos and pitches whereas my summer colleagues showed up with only their laptops. I was so jealous and made a mental note to never start another CPG business.
Indeed, it’s a lot easier to not only pitch a business, but also grow a business without warehousing and product and fulfillment. Returns, leakage, packaging — all these things chip away at your profit margin.
Let’s say you sell all your inventory. Now you new need inventory. This comes out of your margin. Margin is decreased by growth at product businesses.
When it comes to service companies, when you’ve grown beyond your ability to fulfill demand for your services, you hire more people. Software companies? You do nothing. Growth is a lot more difficult for product businesses.
So — award 10 points if your idea is a software or service business; award less if your idea is a product-based business.
4. Can you get customers 60 days from now?
When it comes to business ideas and when you’ll get paid, Rohan says, if it’s going to be 2 years from now, and there’s no check, then no thanks. He has no interest in building the next Facebook, where the game is to acquire users and then finally advertisers and “maybe I get paid in 2028.”
“For me,” Rohan says, “business is risk.” How can you limit your risk by getting paid as soon as possible?
In terms of getting paid, Rohan says that 60 days is what he targets because he thinks about spending the first 30 days setting up the business. During the first month, he sets up his website, SSL, figures out how to accept payments, what programs to use for email, etc. In effect, he launches the business in the first 30 days.
The second month, or next 30 days, are spent on marketing and acquiring customers so that he can get paid by day 60.
10 points if you can get customers 60 days from now.
5. Is there a chance for recurring revenue?
Here’s a fun fact: Companies with recurring revenue will grow 3x as fast as businesses without them. (Recurring revenue simply means that when your customer signs up, they provide their credit card and that’s it. You have a system that automatically charges their credit card seamlessly and automatically, monthly.)
Rohan points out that recurring revenue allows you to have a higher cost of customer acquisition (CAC). In other words, if it costs $100 to acquire a customer but they pay you $100/mo over a year, that’s $1200 total and $1100 in margin. With recurring revenue and high margins, you can afford to make more mistakes in the beginning.
Rohan says about recurring revenue businesses, “these are the only businesses to build. Even when building a cleaning service, I ask: How do I get them to pay me weekly or monthly?” Recurring revenue is where it’s at.
10 points if there’s a chance for automatic recurring revenue.
6. Can you sell your product or service for at least fifty dollars?
$50 is a meaningful transaction. It’s also significant when it comes to the cost of customer acquisition; the more money you make per transaction, the more money you have to spend on marketing to new customers.
While $50 is a good number to target, Rohan notes that you can go lower than this if people are buying on subscription — because the real transaction total is the life time value of the customer. (For instance, for someone who signs up for a $10/month service and stays with you for 5 years, the LTV of that customer is $600.)
As a real example, Rohan’s business Trip Launch, which coordinates group trips, charges customers $14/mo plus 5% of the transaction fee for any trip-related bookings.
10 points if you think you can price your product or service at at least $50.
7. The thing is unsexy, but people need it.
Looking back at the companies that Rohan started, the ones that made the most money were the least fun and sexy.
He notes that he doesn’t build passion projects. His philosophy is that the purpose of any business that he starts is to give him more money and time to do his passion stuff. Business is simply a series of cash flows. There are no babies in business, only math equations. This philosophy keeps Rohan super disciplined. He knows that it won’t work for everyone, but he as far as he’s concerned, business is work, and it doesn’t need to be fun.
10 points if your business idea is for something unsexy and boring but people really do need it.
8. Is this something you’ve bought yourself, ideally multiple times a year, or even better, once a month?
Along the way, Rohan’s built businesses only to ask himself, do people actually buy stuff like this? He concludes that the easiest way to answer the question is to ask: “Have you bought this, Rohan?” So he implores you to ask yourself — have you bought this product or service? Would you? What do you spend your money on?
If you look at Amazon’s balance sheet from 7 years ago, the things they spent the most money on have become Amazon businesses in their own right. For instance, hosting services became AWS. Also look at freight — Amazon spent billions on freight. Take a page out of Amazon’s book and turn income statement things into balance sheet things. What do you or your business spend a ton of money on that you could turn into a business making millions?
10 points if this is something you’ve purchased yourself.
9. If you’re launching a product or service, does it weigh less than 13 ounces? And if it’s not a product, can you divorce the business from yourself?
When it comes to shipping products, USPS requires you to bring the item into a physical location if it weighs more than 13 ounces. Less than 13 ounces saves you the trip and saves on shipping costs. Cheaper shipping rates mean that you can seriously consider offering free shipping, which translates into more customers purchasing more often.
Keeping total product weight to 13oz or less is something that Rohan was able to do at Wet Shave Club. The razor blade box they shipped out weighed less than 13oz in most months. The items included were all small. Aftershave, razor blades, a postcard that said “see you next month,” and some filler — the monthly shipment usually came in under 13oz, creating operational ease and keeping overhead costs low.
Divorce yourself from the business’s day-to-day operations
You want to hire people, not work in the business. If you start a home cleaning business, you don’t want to be cleaning homes. Professionals can do the work.
Rohan started a home cleaning business — he also started a copywriting business, a lawn care business, and a software business. But he didn’t write the code, or mow the lawns, or the clean the houses. He hired people to do those jobs. He viewed his role as managing, running, and marketing the business. All the other little (or big) things are done by people who are much better qualified to do them.
10 points if your product weighs less than 13 ounces — or if it’s a product or service, you won’t need to deliver the service yourself.
10. Can you explain your business in 5 words or less, and in a way that a kid will understand?
Keep it easy and go after small, solvable, and easily understandable problems. Rohan explains this idea with a capital and funding example.
If you have 15k to start a business, he says, start by putting $14k in the bank! Only risk the 1k on a business you don’t know yet. His first and second businesses didn’t work out. Those failures were what Rohan needed to learn. It was a really cheap MBA. If you have capital, it’s dangerous. It makes you want to go after bigger ideas.
This goes back to the main point — pursue simple ideas that a child would understand. Keep it easy!
10 points for keeping it so simple that you can explain it in 5 words or less to a 5 year old.
What Business Should I Start? Who This Post is For
While some of you have undoubtedly started CPG businesses or are actively growing them, others of you are trying to figure out how to to start a CPG business — or perhaps you’re weighing whether or not to start a CPG business or pursue a different idea. This post is for you.
And for my ambitious readers who are already running consumer businesses but know that someday they may want to start another one, take these learnings along with your own to think about what your ideal next venture actually looks like.
If you’re set on starting a CPG business, or know what your next business probably looks like after scoring it out of a possible 100 points, be sure to check out Andreas Duess’s 2-part post on how to validate your business idea using data.