Ask any ten random strangers what the American Dream looks like, and I’m sure a good number of them will name business ownership as a cornerstone of their definition.
It's a noble ambition, and one that sees a considerable amount of money changing hands each year in the US. If you can believe it, more than half a million new businesses pop up across the country each month.
The thing is, there's more than one way to become a business owner, and each one has its own risks and rewards. To that end, let's take a look at five well-traveled roads to business ownership.
Build your business from the ground up
Let’s get the bad news out of the way first: Nine out of ten startups fail. This isn't good news if you've got aspirations of becoming an entrepreneur. The good news is that, if you've got a product that people want, and the ambition and knowledge to see it to market, you stand a pretty good chance of beating the odds.
But let’s take a closer look at that first factor: a product that people want. According to CB Insights’ research into more than 100 failed businesses, 42% of polled startup owners named a lack of need for their product as the #1 reason their business failed.
This, more than anything else, is the gambit an unseasoned entrepreneur must make. Then again, companies find success all the time marketing products that nobody really thinks they need. The difference comes down to whether you have good, old-fashioned confidence and showmanship. Think about it: the cell phone was thought of as a novelty in its early days, and now look at how completely it’s changed our world.
Still, it’s not just about cornering or creating a market. The number two reason for start-up failure? The company simply ran out of cash.
Take ownership of a family-owned business
In the U.S., we seem to instinctively value family-owned businesses. The phrase Family owned and operated is rightfully used as a badge of honor, and for some of us, knowing that a business is family owned can even steer our shopping habits and help us decide which companies deserve our patronage.
After all, some families can’t even get through Thanksgiving dinner intact, so it’s nothing short of a miracle that many businesses not only remain in the family, but also continue to thrive generation after generation.
Still, even family businesses are not without their pitfalls. According to the available data, around 70% of America’s family-owned businesses will fail outright, or end up being sold, before the next generation can take the reins. In fact, only around 10% of these businesses will remain intact until the third generation.
Why is this? There are a number of reasons. The first is the tendency of the younger generations to assume they’ll always have a place at the company. This can turn the exciting process of multi-generational baton-passing into little more than a fallback plan. In any other type of business, the passion you share with your partners is one of the most important factors in deciding whether your business will succeed or fail. Unfortunately, the inevitability of inheriting a business can be toxic to fostering this kind of passion.
Buy an existing business
Buying an existing business isn't just about minimizing risk; it’s also about knowing how to spot opportunity.
The primary advantages are that you'll already have a trained and committed staff, established supplier relationships, and a proven business concept and physical location. Best of all, the success rate for purchased businesses is quite impressive. Compared with the not-so-inspiring success rate of startups, some 70% of sold companies are still in business five years after the new owner takes over.
That five years is the true litmus test, and it’s one that AZ Family Dental, in Glendale, Arizona, has an ongoing familiarity with. Owner and lead dentist Dr. Matt Parker purchased the practice in 2012, and had to juggle the usual business challenges (growing the business by seeking out new clientele) with a host of new ones like retaining existing clients and learning how to work closely with his new staff.
Dr. Parker explored his transition from dental school to private practice ownership in an article that appeared on the ASDA blog. In it, he explores some of the challenges he faced along the way, such as the relative lack of business education in dental school and the importance of pacing, delegation, and passion.
Become a franchise owner
I saved this one for last, but don’t assume it’s a walk in the park. Becoming a franchisor takes every bit as much dedication and business savvy as becoming any other kind of business owner.
And in some cases, the challenges are unique. Take, for example, the challenge of contending with existing and deeply entrenched company culture. By way of example, I’ll mention Chick-Fil-A and their embattled, highly conservative company leadership. Chik-Fil-A has made news for all the wrong reasons over the last couple years, which may have given prospective franchisors reason to put their plans on hold or seek out opportunities elsewhere.
Nevertheless, becoming a franchise owner is a great way to take advantage of the stability and name-recognition of a brand. This relatively smaller risk comes with relatively smaller rewards, of course—some business owners may need multiple locations for a venture to become truly lucrative—but that's where the comparisons to the game of Monopoly come into play: you’re definitely playing the long game here.
Still, even seasoned franchisors can face significant hurdles. Recent years have seen steadily intensifying competition, particularly in the fast food sector. It’s a zero-sum game: there are only so many street corners in this country that need a Starbucks, after all. Even so, the right person with the right kind of vision could turn a single franchise location into a local or regional empire.
A land of opportunity
It’s been a tough last few years for new businesses in the US, but signs are coming in from across the country that things may be on the uptick once again. In Oregon, 2014 saw a welcome increase in the number of new businesses. Same goes for Illinois, where small business loans are rising again after four years of constant decline. Maybe we’re entering a new golden age of entrepreneurial greatness.
But whoever you are, and wherever you come from, I hope that you come away encouraged by what you’ve read here today. America is a land of incredible opportunity, and I hope you’re lucky enough to make the most of it.
Also on Forbes:
