7 Small Business Ideas Most Likely To Fail

In an article on Yahoo! Small Business this morning, 3 of the 7 small business ideas mentioned were work-at-home or web-based.

The article states that "many people do a lousy job of picking businesses they can realistically turn into a profitable operation."

The co-authors go on to say that most aspiring entrepreneurs consider small business ideas that are cheap or easy to set up, or start a business based on a love for the product or service - instead of basing their decision on true profit potential...

Here is the quick list of the 7 small business ideas they consider "overrated":

  • Restaurants
  • Direct Sales
  • Online Retail
  • High End Retail
  • Independent Consulting
  • Franchise Ownership
  • Traffic-Driven Web Sites

I've highlighted the 3 business models that are "work at home" options, but we could easily add Independent Consulting as a 4th model that can be done from a home office and/or as an online operation.

I have no experience with running a restaurant, a high-end retail shop or owning a franchise so I'll hold comment on those and focus on the other models on this list. My first business was a service-based company that I originally started as a home business and quickly moved to a 5000 sq ft showroom in a commercial building - but not what I would consider any of those 3 models.

Of the four web-based options, Direct Sales and Online Retail require a higher initial investment. Consulting and Traffic-Driven Websites have a lower level entry and are very inexpensive start-ups.

Direct Sales - I agree with the authors that it is the Top % that performs well in direct sales. To some extent the model itself supports this, because as the company grows the top tier stands to profit most. However, the closing statement on this model didn't sit well with me:

The result, Yancey says: "Most of them wind up with a bunch of jewelry or kitchen equipment sitting in their basement that they can't sell."

That they can't sell... or that they don't sell?

The fact is, direct sales companies attract people who aren't willing to invest time and energy with their marketing message of "get rich quick". Those who do work the system, reap the rewards.

From my point of view, most direct sales companies don't offer a high enough quality product, at a reasonable enough price. Or better said: the product sucks and it's priced too high, making it hard to sell. I say this from my experience with 3 different direct sales companies that I worked with in the 90's.

Online Retail - The article focuses on selling retail product through popular marketplaces such as eBay and Amazon. I agree that was highly profitable back in the late 90's, however most merchants are now selling below retail or even at wholesale in these marketplaces, making it difficult to break in with a decent profit margin.

That said, there is still room to take advantage of these marketplaces - or at least, the amount of traffic they pull as household names. They key is to set up an online store outside of eBay or Amazon, and then use creative and strategic means to funnel traffic from there to your own website.

This would require an investment in product, or a solid relationship with a dropshipper. It's also a very active business model which would ultimately require employees to avoid 80 hour work-weeks for marketing, customer service, inventory management and product delivery.

My solution? Affiliate Marketing. Online Retail is alive and thriving, but you can tap into the billion dollar industry more easily by becoming an affiliate for popular online retailers. This cuts out the need for inventory, shipping, and customer service - and allows you to simply focus on the market.

And cashing checks - which is hard work ;)

If you want a sneak peek into how Affiliate Marketing works, see these videos by Rosalind Gardner.

Traffic-Driven Web Sites - The authors focused on Social Networking Sites competing with the likes of Facebook, and also popular blogs, saying: But as the Internet ages, that's much harder to accomplish...

He goes on to say, "Until you get to the point where you have a million page views a day, you're nowhere."

Pfft! Whatever :P

Okay, so trying to be the next Facebook or Twitter is shooting high for your first internet-based business model. That's not to say there aren't plenty of creative ideas or market slants yet untapped. But you do not need a million page views a day to earn a nice living from home with "traffic driven websites". Speaking of which, aren't all online business models or websites... traffic-driven?

None of my web properties get a million page views per day, and I make a very nice living online.

Independent Consulting - The small business ideas for people who have a particular in-demand expertise could fall under titles like consulting, coaching, mentoring, training, etc. The article knocks it as a viable idea because independent consultants have to spend far too much of their time scouting for new clients or marketing their services.

Um - solution: market smarter. Position yourself in the exact place your ideal clients are searching for you. Let them find you at the point that they need you most and are actively searching for your services and you'll never hunt for work again.

Overall the article had a very negative and discouraging slant, which I assume was the intention. I'd be curious what these two authors consider to be small business ideas that do hold high profit potential.

Obviously I disagree with much of their reasoning for why these 7 small business ideas are overrated, or most likely to fail. Personally I feel the biggest reason for failure has more to do with lack of planning, and lack of follow-through - along with the mistake of working hard, instead of working smart.

I quit my last real job in February 1997. I was working 40-50 hours a week and still fell below the poverty level in terms of annual income. I was feeling major burn-out, didn't have enough time to spend with my family, and was getting nowhere fast.

I had major incentive to make my first business a success. And I did. And here I am, almost 13 years later, making more money and having more fun than I ever could have imagined - in a business I absolutely love!

Don't believe everything you read ;)

Success, or lack of it, is up to YOU.

Best,

p.s. If you would like to brainstorm small business ideas, or are interested in starting your own successful online business, join us at my Internet Marketing Forum. I'd be happy to answer any questions you have, and help you get started on the right foot.

About Lynn Terry

Lynn Terry is a full-time Internet Marketer with over 15 years experience in online business. Subscribe to ClickNewz for the latest Internet Marketing trends & strategies, Lynn's unique case studies, creative marketing ideas, and candid reviews...more»

Discussion

  1. Great post Lynn, very informative I must say, the more i visit and learn from you the closer I feel to fulfilling my dreams. Thanks!

  2. What a great post! I think it's very easy to be negative about the "start your business" conversation. My first thought reading this article was "I bet this person has never tried to start their own business."
    I hate mindless cheer leading, but it's true that this whole thing depends on your own attitude and desire. I have my ups and downs every week.
    Thanks for the encouragement! Very timely. I am a new reader, and am really enjoying your work.
    Andy

    • Thanks Andy. I had the same thought reading the article - wondering if perhaps either or both of the co-authors had been entrepreneurs at one point... and failed at their own small business. That are they are permanent bitter employees. Who knows. It certainly isn't the tone you get from the happy self-employed type of folks that I know!

  3. Scott Lovingood says:

    Small business is business. It takes work, effort, energy and skill to be profitable. But those are the same things that make a good employee too :)

    To be successful as a small business start up, you have to have
    1) A solid plan
    2) consistent work ethic (just because you are working from home doesn't mean you can sit around all day and dream of money. You hav to work)
    3) Reasonable skills - marketing, sales, phone, accounting, etc. or the ability to find those with such skills.
    4) Desire - this is what drives it all. If you have enough desire you will work until you make it successful.

    I think most people fail in small business because they don't have enough desire and they don't have a good understanding of what is involved in the process.

    • Hi Scott,

      I would say hard work and desire are the top 2 in that list. I started my first business on a half baked business plan I wrote on a legal pad at my kitchen table - with zero biz experience. I walked into it clueless, flew by the seat of my pants and figured everything out as I went, and the business did 6-figures the first full year.

      Hard work & consistency trump good ideas and solid plans all day long ;)

      • Scott Lovingood says:

        Very true. But for many people having a solid plan makes everything easier. Much like finding a good mentor can make it all easier.

        Ideas are a dime a dozen. My favorite quote from recently (I think it was John Morgan though not sure) You are either in the excuses business or the execution business. You cannot be in both.

        Maybe you should auction off that half baked business plan :) Would make a nice ebay auction.

  4. Brooke Higgins says:

    Well stated, Lynn!

    I found the article to be very negative. We don't need more doom and gloom at this crucial time. We need solutions.

    Glad to know you are providing some amazing solutions. I've just plugged into your site, but I can tell you provide tremendous value.

  5. Probably written from "negativity sells" stand point. Unfortunately bad news pulls more views and that is why all standard media always jumps like a pack of jackals on anything like that.

    Now I know I will not read THAT article :-)

  6. So much easier to write about what will probably fail, no doubt, and people love hearing that it's too hard to succeed so they have an excuse not to try. Or so it seems sometimes when I talk to others about working at home.

    Sure it's a risk. Sure most businesses fail, no matter the industry. But when you find what works for you and what you love doing, no job will ever compete.

    • "and people love hearing that it’s too hard to succeed so they have an excuse not to try."

      Very good point, Stephanie. I wonder how many people felt 'validated' by that article, and their choice to quit - or not even start. Sad.

  7. I have had excuses and excuses for why I have not started a blog. I got tired, now I want no talking just actions.

    I can talk big all I want or dream small dreams, but all that will ever show is actions.

    People do not understand the online business and they think you are so dumb to think you can make anything out of it.

    Like you say."Hard work & consistency trump good ideas and solid plans all day long". I will repeat this ten times today and let it sink as I work on my blog.

    Thanks Lynn for the encouragement.
    Grace

    • You're doing great, Grace - I've enjoyed working with you on your blog :D . Just keep on keeping on! And if it helps any, people I've known for years STILL start a conversation with "so, are you still doing that internet thing?" - of course, with a strange tone in their voice. I just laugh :P

  8. I think you summed it up in one line:

    "Pfft! Whatever :) "

    There are plenty of people reading our blogs who are proving this article wrong.

  9. I also saw this article before you posted it on your blog. I remember thinking to myself that it was sort of a downer, a real bummer.

    I noticed that some of what the writers based their article on was information provided to them by entrepreneurial professors. I then wondered, as another poster stated, if any of these "professors" had ever started their own business online or off. Maybe so...maybe not.

    Anyway, I couldn't help but be reminded of the statement "Those who can DO", and "Those who can't TEACH".

    Apparently, the writers needed to talk with people who are actually walking the walk and then talking the talk. Sure, there are downsides to almost any business, but there are upsides too. It's unfortunate that they chose to emphasize the downsides.

  10. MMA Shirts says:

    If you think about, thought, they'll only discourage those that aren't willing to put the time in and LEARN everything they need to know. I'm a very successful online store owner and I can vouch for the fact that it's hard, but doable!

  11. I have to disagree with the statement that traffic driven websites are most likely to fail. The main reason that websites fail is that they don't get enough traffic.

  12. I read this yahoo article as well. Yeah, it's pretty discouraging for people who are thinking to start in those "7 types" of business.

    In fact, you DON'T need a million views to make a nice income (as you mentioned). You just need SOME traffic. To be more precise, you just need SOME TARGETED traffic.

    As for ALL businesses, only 5% will succeed. So, to me it doesn't matter which business you are in.

  13. Patty Gale says:

    We saw this article, too, via Ben Settle's post on Facebook, and thought that this was THE most small-minded thinking we've seen in a long time.

  14. I wonder how many businesses the writer has run successfully online or offline? :-) I didn't read the reporters bio. I believe you hit the underlying issue right on the head. Get rich quick without working...yep more than likely won't happen. People need to separate the equation of getting rich quick without serious work with running a successful REAL business online. As to needing millions of page views that reporter is stuck in pre-Internet bubble burst days. I'm pretty sure Twitter gets more than a million page views and they're not making money :-) I have a friend who has a very popular site. Over 4 million page views per month...they're running it at a loss while waiting for the big corporate conglomerate in their niche to buy them out...so millions of hits doesn't magically equal online riches.

  15. Everything you guys are saying is so true you must have the passion and commitment to work and be successful thanks for the post and im going to keep reading on all your tips and suggestions thanks guys

  16. I'm still figuring out how to really earn a huge amount of money. It's true, hard work and consistency are two keys to success in all works. I believe a solid plan will be the next thing once you're already starting your own business, only if you don't have enough idea about the business, and if you need to provide a small amount for your starting capital. Otherwise, you need to carefully evaluate your business plan.

  17. Excellent points Lynn! Just goes to show that we need to be careful of what sources we're reading for information, especially if we're seeking validation in our choices.

    There is not one single thing/topic/issue on this planet where everyone will all agree. Daily there are things touted as impossible - until someone goes out and does it.

    Just because a majority of folks will not succeed in those business models mentioned in the article; doesn't mean the business models themselves are bad. Like you said Lynn, it's all in the action taken with planning beforehand that determines success or failure.

    Failure to plan = planning to fail; and without action, you'll never get off the starting line.

  18. There's never any shortage of people who will try to discourage you from going into business for yourself.

    Usually they are employees who think everything is too hard!

    Drive and careful planning is all it takes to succeed. You may not get filthy rich but nothing beats the working for yourself.

  19. Yes Lynn, it would be interesting to see which industries prove to be most profitable; then again it would also be interesting to see where these conclusions of the least profitable businesses came from. Are they generalizations or true results from detailed research and trend analysis? It seems as if their point was to send out a cautionary message to those interested in starting a business for the wrong reasons, and ended up stereotyping industries such as traffic driven web sites and online retail as sure fail options.

    -Greg Mesaros, CEO eWinWin

  20. Great insight! Online business becomes more and more affordable nowadays, so is the competition. One must breakthrough in order to stand out among others and avoid failure..

  21. This is a great article. It does come down to getting your mind out of the "get rich quick" mode. I do feel that if your heart and energy are focused in your business you will do very well.

  22. Online retail really does not surprise me as being linked to high failure rates. I think that people frequently believe that they can throw up a site and see a stream of money come fluttering over to them. The truth is that you have to really understand the market that you want to enter and then target a suitable niche. In addition it is so easy to undercut a retail business so you have to develop a strong customer base by offering a unique selling point that brings visitors back to your site for repeat purchases.

  23. I think a lot of the failure is a result of the person not truly knowing what they are getting into and the resources and effort needed to make the business a success.

  24. Great read Lynne and well done on your affliate business success! I have to say I think that in an increasingly crowded online marketplace... those who are ahead of the game will most likely do the best. Affiliate marketing is great but its all about traffic and conversion at the end of the day and it takes hard work and effort to build a successful web presence. As Allen says before me, I think the majority of businesses fail because the business owners simply don't put the effort in. It takes hard work to build a business (as a business owner myself) and you can't expect customers to turn up on your doorstep breaking down your door with cash in hand... you have to go out and get them, then usually convince them on why they should spend with you rather than a competitor!
    Joe

  25. Home Based business and internet marketing are great models to start earning passive income as a derivative of hard work. The cold hard fact is that 95% of people who attempt to make a livable income through IM or WAH businesses will fail. The reason is people think it is a magic bullet when the truth is…. There are no magic bullets!

  26. I couldn’t agree more. Tenacity and desire to succeed are top two for me. I think a good chunk of the failed businesses (regardless of what type of business) are due to laziness and impatience more than anything - this is what gets us looking for the “get rich quick” button.

    I think desire is a very powerful force which can overcome laziness and bring about tenacity – a workhorse of success.

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