What does “the perfect business” look like?

How do you know if your business is has the ingredients of greatness .. or is destined to be challenging and a struggle?

Over the last 20 years, I’ve been involved in starting, growing, buying and selling more than 15 different businesses — spanning a wide range of industries, markets and offerings.  And from this, I’ve had the chance to see the good, bad and ugly in a lot of different business models.

For the past few years, I’ve been making a list of ALL of the key elements and drivers that would be part of my “dream business”, if ever one existed.

And as I’ve refined the list, I’ve managed to break down the profile of my “perfect business” into 16 different items — 4 key elements in 4 key areas.

When I first started to consider writing about my “List of 16“, I was going to do it in one simple post – but given that this is a pretty meaty topic, I’m going to share the 16 elements over a series of articles, starting with this first one.

Plus, in an upcoming post, I’ll also share with you a new business that I’m in the midst of building that passes every element on my List of 16 (which explains why I’m very excited about it).

Onwards.

Why this list of critical traits is important should be obvious — you should consider this list of traits against the business you’re in, or that you’re thinking about .. and the hope is that your business meets most, if not all of these characteristics.

You may have other elements or considerations you think are crucial to business planning and evaluation.  God bless you.  But to me, these are the 16 most important things I now consider any time I am looking at becoming involved in a business — the guiding light of my investment and business building decisions today and in the future.

The List of 16 actually breaks down into 4 major areas, so I’ll share 1 of these areas today, and then the remaining ones in upcoming articles.

Area #1:  Industry Elements

These are the elements related to the industry in which the business operates.  An analogy of this high level view is to think of the industry as the pond in which you choose to fish  If  you choose a very small pond full of restrictions, then your business will always be restricted in size.  If you choose a pond that’s shrinking, or the fish are dying off (ie: a declining industry), then you’ll face an uphill battle building a successful company.  And if you choose a pond where the fish love to eat worms but you’re selling dog food, you’re in for a rough ride.  There are 4 key elements you need to consider about the industry, outlined below.

Element 1: Lack of Industry Consolidation

Are there certain industry participants or leaders that have entered the market and consolidated it, allowing them to dominate and control the industry conversation?  Or is it still a fragmented market dominated by a a lot of “mom and pop” operators? 

The more fragmented and less consolidated a market is, the better the opportunity for you to enter it and create a strong position, with the possibility of creating consolidation yourself.  Ideally, you want to be the first one to own and control a category — and yes, this is possible, even when you are not a massive corporation with millions of dollars in marketing budget.

Element 2:  Lack of Dominant Brand

Is the industry led by a small number of major brands that are “household names”, or is the industry still waiting for a leadership brand to emerge?  The company that achieves the first-mover advantage in a category usually gains a massive advantage.  For example, Starbucks became the first dominant brand in the coffee shop industry.  What store do you think of when you think of toys?  Probably Toys R Us.  Having that top of mind awareness is incredibly valuable, and finding a market where that “obvious leader” doesn’t yet exist is a huge opportunity.  Example: the junk removal business had no leading brand at all, until a guy named Brian Scudamore came along and created 1-800-GOT-JUNK?.

Element 3:  Moderate/High Barrier To Entry

How difficult is it for a new competitor or participant to enter the industry/market?  Barrier to entry is always an important consideration, because if your barrier to entry is extremely low, you’ll experience constant and consistent competition by those who are not committed to the long term.  No barrier to entry means that people can easily enter a market and attempt to compete on price, thereby driving prices and value down in the market and hurting everyone. 

Industries with high barriers to entry typically have higher margins.  The barrier can be the required capital to enter, and it can even be regulatory or legal restrictions.  Look at the pharmaceutical and financial industries as examples – the capital requirements and regulations allow a small number of companies to dominate and make obscene amounts of money because of the barriers to compete against them.

Element 4:  Existing Gap For Need

For a lot of entrepreneurs, this one is tough to be honest about .. because it requires you to be honest and objective about “your baby” and to recognize whether your great new idea is actually something the market needs and is looking for, as opposed to just another idea that you fall in love with .. but no one will give you money for. 

Being able to recognize a clear gap in the market is critical, because when you align with an existing gap, your market easily recognizes the need and welcomes your product or service.  On the other hand, when there is no existing gap, you have to educate, sell and convince the market it needs what you have.  It’s frustrating to try and “convince” people of a problem or gap they have that they’re not aware of – so identifying a clear gap that’s easy to demonstrate and communicate is key.

As a colossal example of this, think of when “New Coke” was launched by Coca-Cola and died a painful death.  There was no existing gap for that product, and the market said “no thanks”.  I would estimate that 80% or more of businesses fail because of this critical and fatal flaw – producing something the market doesn’t want or care about.

 Ok, that covers the first area and the first 4 elements from my list of 16. 

The Industry Elements are like a 30,000 foot view of your business, but in the next articles, I’ll swoop down to the ground and we’ll look very closely at the specific elements of your business that often determine success or failure.

** As a preview of what’s coming in the upcoming articles, here are the 3 other Areas that I’ll be covering in detail:

Area #2. Business Elements
After considering the industry (which we’ve done today), the next step is to think about the business itself, and the critical elements that define and determine your business.  For example, is the business model you’re creating one that is scalable?  Can it continue to grow without being restricted by a critical resource like a specific person, or a specific location?  These 4 critical elements will be covered in Part 2.

Area #3:  Financial Elements
The third group of elements looks at key financial elements of your business and its revenue model(s).  Again, thinking carefully about these 4 financial elements will allow you to determine the best business models to focus on, and where major risks are when it comes to the financial side of the equation.  Example: what kind of capital investment or expenditures are required to start, grow and maintain the business?  This set of elements will be covered in Part 3.

Area #4:  Marketing Elements
If you know anything about me, you know that I am heavily biased towards the value and importance of marketing in a business.  I believe marketing is the single most important driver of a business, and this is why I look carefully at the marketing potential and realities of a particular business and focus on 4 key elements as they relate marketing.  I’ll cover these 4 elements in Part 4 of this series.

I recognize that this is “heavy stuff” and that this article is longer than normal, but creating this “List of 16″ has been a fascination of mine for several years, so I’m really excited to be able to share it with you.

Sadly, most entrepreneurs NEVER consider most of these elements .. which explains why 90%+ of businesses fail in the first 5 years (and most of the remaining ones are barely surviving).

What I can guarantee you is that if you carefully think every one of the 16 elements through, you’ll be 100 times more likely to succeed as a business owner.

Please post your comments or questions below, and watch for Part 2 that will be coming in the next few days!