A fellow business colleague at Richmond SCORE pointed out an interesting article he found on Yahoo’s “Small Business Answers.” Kelly Spors and Kevin Salwen talk about the 7 Most Overrated Businesses. Here’s excerpts of the story with the link to the full article text:
The 7 Most Overrated Businesses
By Kelly K. Spors and Kevin Salwen
With roughly 6.7 million jobs lost since the start of the recession, it’s tempting – and often a great idea – to launch your own business. That way, of course, you can take matters into your own hands… But many people do a lousy job of picking businesses they can realistically turn into a profitable operation.
"There’s this very sad pattern about how people start businesses," says Scott Shane, an entrepreneurship professor at Case Western Reserve University in Cleveland, Ohio. "People are most likely to start businesses in industries where start-ups are most likely to fail."… So, what are most overrated businesses out there? … Here are seven you might want to think twice about – and then maybe twice more.
1. Restaurants. Dining out and cooking are among Americans’ favorite pastimes. But "restaurants are among the toughest businesses to run," says Donna Ettenson, vice president of the Association of Small Business Development Centers in Burke, Virginia…Far too many people assume their culinary abilities will lead to success in the restaurant business. Instead, about 60% of restaurants close in the first three years… (full story here)
2. Direct Sales. It’s a tempting pitch: Work from home and earn commissions by selling cosmetics, kitchen knives or cleaning products. But companies that recruit independent sales reps tend to attract new team members by pointing to the success of their highest earners.
A harder look shows that those high earners are making big money in large part by recruiting new reps into the organization and getting bonuses or a cut of their recruits’ commissions, says Ken Yancey, chief executive of SCORE, a Herndon, Va… The new reps then have a much harder job because they need to recruit more people on top of selling product… (full story here)
3. Online Retail. By far, one of the easiest businesses to start is selling items through online marketplaces such as eBay or Amazon. But as online commerce ages and these sites fill up with more established retailers, it’s much harder for new, small sellers to compete for attention and generate a viable income. (full story here)
4. High-End Retail. Many people dream of opening a day spa, luxury jewelry store or designer clothing boutique – businesses they feel good patronizing. But specialty retail businesses close at higher rates than non-specialty stores, according to the Small Business Administration’s Office of Advocacy, and are even riskier now that consumer discretionary spending has dried up and people are no longer spending money on little luxuries. (full story here)
5. Independent Consulting. Common advice for aspiring entrepreneurs is to stick with industries they know. So, for many looking to escape the corporate treadmill that means turning their professional expertise into a one-person consulting firm.
It seems practical – more companies are indeed relying on independent contractors and freelancers these days – but it’s not as easy to pull off as many imagine, says Dennis Ceru, an entrepreneurship professor at Babson College in Babson Park, Mass. Many consultants struggle with time management problems, spending so much time scouting work that it’s very difficult to earn steady income. (full story here)
6. Franchise Ownership. The idea of being handed a proven business plan without the uncertainties and headaches that come with building a business from scratch is understandably alluring. But too many people don’t understand the risks associated with franchising and sign restrictive franchise agreements without thoroughly researching their franchisor and their contractual obligations, says SCORE’s Yancey.
Some franchisors, for instance, allow franchisees to open stores too close together, over-saturating the market. Or they simply require their franchisees pay so much in royalties and fees or other operational costs that it’s very difficult to be profitable…It’s a myth that franchises are far more successful than independent businesses. A 1995 study by a researcher at Wayne State University found that 62% of franchises were open for business after four years, compared with 68% of independent businesses. (full story here)
7. Traffic-Driven Web Sites. Everybody has witnessed the success of social-networking sites like Facebook and popular blogs that generate all their revenue off advertising. But as the Internet ages, that’s much harder to accomplish, says Martin Zwilling, a start-up consultant … (full story here)