Every year, more and more people are launching their own businesses. It would be an exaggeration to say that starting your own business is now a pillar in the American Dream, but it’s sure gaining steam as a symbol of personal, professional and, ideally, financial freedom.
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But unfortunately, most small businesses fail — it’s just a matter of time as to when they do. That said, droves of small businesses thrive. What’s the recipe for success? If only there were a simple and easy-to-follow answer to that question. We’d all be raking it in without ever clocking in.
Launching and growing a business is a complex, ever-evolving endeavor that requires discipline, expertise, ambition and more than a dash of luck. But first and foremost, you need an absolutely amazing idea and, from there, an understanding of how to execute it. In a recent email newsletter, personal finance expert, author and entrepreneur Ramit Sethi touched upon four types of business ideas that are primed to take off and actually make you money.
Your Idea Passes the Pay Certainty Test
This right here is the core of Sethi’s philosophy on what is at the root of a successful business: an idea that passes the pay certainty test.
The pay certainty test means you’ve determined that your business idea is profitable in the sense that people will want its products or services enough to purchase them. To figure this out, you need to answer more key questions:
“For each business idea you have, ask yourself: ‘Do people have the ability to pay? Do they actually have money?
Do people have the willingness to pay? Do they want to pay?’,” Sethi wrote, adding that though he loves ironing, launching an ironing business wouldn’t pass the pay certainty test for him because nobody would be willing to pay him for his ironing services (good thing he went into finance).
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You Have a Golden Goose Concept
Another signature trait of an idea for a business that could blossom into a thriving machine is that it’s a “golden goose.” We’re all familiar with that phrase, but it takes on a wider meaning in this sense.
Golden goose business ideas “have the potential to get a lot of customers and command a high price,” Sethi wrote. “Think Peloton and Apple’s iPhone. These ideas will be the most profitable for you.”
You’re Aiming For an Elite Market
Are you going to be selling, say, high-end leather satchels that are handmade in Argentina? That’s not the same as selling something tons of consumers will buy. It’s too fancy and too niche. But, if you charge the right (steep) price for your luxury products or services, you won’t need a ton of customers.
“Think Rolls-Royce and Prada,” Sethi wrote.
More boutiquey, upscale business ideas can work as well as any other, but you need to ensure you’re charging enough to be able to afford to sell less. This also means ensuring that your product is incredibly high quality so that consumers will know it’s worth the money.
Or, You’re Aiming For the Mass Market
We’ve all seen Stephen King books in an airport bookstore. But we’ve not all seen, say, “The Complete Short Stories of Muriel Spark” (a real book, by the way). That’s because the writings of Muriel Spark, though brilliant, do not have mass commercial appeal, whereas everybody knows of at least one thrilling tale spun by King.
Perhaps you want to create a product or service that the majority of consumers will consider buying. Though there is a caveat.
“You can still get a lot of customers, but you’ll only be able to charge a low price, like bestselling books,” Sethi said.
Whatever business idea you have, interrogate it and get to know it — and the precise ways in which it can or can’t pay off.
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This article originally appeared on GOBankingRates.com: Ramit Sethi: 4 Types of Business Ideas That Succeed (and Will Actually Make You Money)
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