Signals #11 – Low-Risk Businesses

Challenge

  • Building big and complicated products and services is risky. Upfront investments in time and money are large. Failing is expensive.

Opportunity

  • Aim lower if you’re just setting out on your own. Keep your day job, aim for slow and steady growth on the side. Forget the million dollar ideas: solve an everyday problem or improve on an existing business model.

Actions

  • Start in a proven market. You don’t have to reinvent the wheel. There are plenty of business models where the demand is already validated.
    • [Pro] Digital services. You only need your skills, a laptop, wifi and time. The market is out there, but so is the competition. Time is exchanged for money.
      Examples: graphic design, web design and tutoring
    • [Pro] Digital products uncouple time and money. You can build once but sell and infinite number of times. Building an audience and solving their specific problems is key.
      Examples: paid newsletters, online courses and micro-SaaS
    • [Pro] Local services. You (partly) rule out global competition. Upfront investments range from tiny to a considerable level. Local competition exists, but you can add value by better and faster services.
      Examples: lawn care, cooking, window cleaning
    • [Pro] Local products. Upfront investments range from small to huge. Global competition exists more than in services. Differentiate or improve on existing products.
      Examples: coffee, local beer, pet gear.
  • Keep your day job at first. Negotiate to work part-time. Or work on your own thing before/after the daily grind. Consider quitting only if your personal runwayis at least 12-24 months.
  • Start small. Go for $1 revenue first. Then $100, then $1,000. Start one step lower than you think you should. Achieving something constantly keeps you motivated and in the game.
    • [Pro] Designing websites? Design a one-pager for 1 client.
    • [Pro] A paid newsletter? Try to get $20 in as ad money.
    • [Pro] Local beer? Brew 10 bottles and see if you can sell them
  • [Pro] Stay lean in the beginning. You don’t need all the bells and whistles at first. A minimal amount of tools will take you a long way: a website, a laptop, access to wifi, 1-2 core tools and perhaps some cheap ads. Use time for your advantage: you have lots of it. Grow organically, provide excellent value and the word-of-mouth flywheel starts to spin.
  • [Pro] Follow a straightforward action plan:
    • [Pro] Pick a niche. Current industry or hobbies. Something you enjoy and have insights on. Bonus points if you’re good at it.
    • [Pro] Start finding problems in your niche. What are people complaining about? What is missing? Talk to your future customers. Ask 20-50 people if they would pay for $Z for a solution X solving the problem Y. If more than 10% say yes, you might be onto something (remember this doesn’t confirm demand, but might indicate it).
    • [Pro] Build a test version. Launch. Spread the word organically and place some cheap ads. Are people buying? That’s really the only real metric. Not followers. Not likes. Not email subscribers. 2-10% conversion rates are typical.
    • [Pro] If people bought: congrats, you have started a business. Time to crank up sales and marketing. Test different tiers and pricing. Test free trial vs. low-cost trial. Introduce scarcity and urgency into your offers. Track progress. Automate what you can. Decide how big you want to grow.
    • [Pro] If people didn’t buy: take a deep breath and analyze. Again, talk to your customers. Do they actually need your offer? If they don’t: scrap the original idea and start over. It’s OK to fail, but your goal should be to fail fast. Did you get actual sales but customers weren’t happy? Ask what was wrong and improve the initial version.

Tools

A basic toolkit for keeping things simple, low-cost and light-weight:

  • NameCheap – Cheap hosting and domains for websites.
  • Trello – Keep your tasks organized in one place.
  • Notion – Organize tasks and collect knowledge.
  • Carrd – Easily create websites on templates.
  • Plausible – Simpler website analytics.
  • Calendly – Book meetings without the hassle.
  • Gumroad – Sell digital products.
  • Welder – Host and record video calls.
  • TypeForm – People-friendly forms and surveys.
  • Wave Accounting – Accounting tools.
  • [Pro] EmailOctopus – Light email marketing.
  • [Pro] HootSuite – Social media marketing.
  • [Pro] Stripe – Online payments.
  • [Pro] DoorBell – Collect customer feedback.
  • [Pro] Less Annoying CRM – A simple CRM for small businesses.
  • [Pro] No-Design Tools – Bootstrapping your visual brand.
  • [Pro] LastPass – Never forget passwords again.
  • [Pro] HubSpot – CRM including marketing, service and content management.
  • [Pro] Grammarly – Less mistakes with an AI-writing assistant.
  • [Pro] HeyEmail with advanced features.
  • [Pro] Scribe – Turn your email signatures into marketing material.
  • [Pro] Ahrefs – All-in-one SEO tools.
  • [Pro] Linktr.ee – Link all your content into one page.
  • [Pro] Memberful – Manage memberships

Pros

  • Having many small bets in the validation phase covers more surface area. And lowers the risk of not finding a product-market fit. Increase focus on what works after you’ve found some traction.
  • Keeping the total risk low allows you to learn more over time. Failing doesn’t mean it’s final. You can start over. Just don’t quit completely.
  • [Pro] Making more money will not make you happier indefinitely: growth of happiness diminishes after surpassing a yearly income of $90,000*. You don’t need to be a millionaire to be happy. Decide what’s enough for you and work backwards to layout a plan. *inflation-adjusted from 2010 figures
  • [Pro] Launching a business is the real MBA. Getting to $10K/MRR gets 10x easier after reaching your first $1,000. Your first business will teach you more than any university degree ever will.
  • [Pro] Starting small gives you flexibility. You’re not working for investors, you’re working for yourself. You decide whether to grow it or kill it.

Cons

  • Lower risk can mean lower profits. But more is not always better. Staying small can also be a great goal.
  • [Pro] Lower risk means lower barrier-to-entry. Which means more competition.
  • [Pro] Some low-risk businesses will soon be automated. It’s worth not keeping all the eggs in the same basket.

Cases

  • Micro SaaS Idea – This newsletter grew to 600 free subscribers in 2 months. After 1,000 subscribers it was launched on Product Hunt and made already $800/MRR. Since then growth has picked up, today’s stats:
    • 3000+ subscribers (free+paid)
    • $1500/MRR
    • >$4k in total sales only after 100 days. The founder @upen946 shares his progress openly on Twitter.
  • Startup Without Code – Meisuleen made 11 presales within 2 days for her Notion dashboard after posting it on Reddit. She has a part-time job and is aiming ultimately at $4K-5K/MRR income while inspiring other women do the same. She believes strongly in picking trending and already validated ideas to keep the risks lower.
  • Ark Watcher – Stan Choi built up the backbone of his investment newsletter in 1 day while working full time as a software engineer. After leveraging YouTubers for shoutouts he was able to grow to +1,000 subscribers in just one month. Ark Watcher has now over 8,000 subscribers and is monetizing through sponsorships.
  • [Pro] The Lawn Squad – Andrew Huber started a lawn care company while still a student. It’s a foolproof model: grass grows, you cut it, it grows back. He made $11k in revenue during the first year. $39k in 2018. $106k in 2019. Here’s the full case study.
  • [Pro] Making > $10k/MRR from Web Design – From a drilling engineer to self-taught web designer. First $100 per site, then $200-500 and from there to $4k – 15k per site. The lesson: target B2B and make sure the benefits are 10x the investment.
  • [Pro] Place Card Me – Cory Zue’s first project was super simple and in a validated space: wedding place cards. In 2017 the company brought in a modest $800. Two years later it made $20,000. Cory shares openly profit and effort data from his projects.
  • [Pro] Donald Hutcherson’s problems with his own dog led him to start a $5K/MRR dog training business. He saw that the demand was there: others were already making money in the space. His twist was to create a 9-week training course when other trainers only did individual lessons.
  • [Pro] Michael Lynch is another founder who openly shares how his side projects are doing. TinyPilot is currently making $42K/MRR while ‘Is It Keto’ peaked in June 2020 at $800/MRR.

Forecast

  • More and more entrepreneurs will build micro-businesses and then sell them before moving on. DocTemple was sold for $10k; QuantMaps for $9k; One Item Store for $5.3k. See Microacquire for a marketplace.
  • [Pro] Microbusinesses will get easier access to funding: see Patreon Capital, PH Maker Grants and Smash.vc.
  • [Pro] Post-COVID big trends: e-commerce, remote work, sustainability, virtual events, online training, remote healthcare, automation and more. Big trends introduce every day problems to solve. Look for the problems and come up with simple solutions.

Resources

  • Side Hustle: From Idea to Income in 27 Days – The one book that got me started. How to earn the first dollar within a month step-by-step.
  • The Sweaty Startup – Nick Huber hates the “Shark Tank” -culture. He argues there’s a fortune to be made in trades and local businesses.
  • Side Hustle Stack – An aggregator of different work platforms and resources, ranging from gig work to help you start a small business.
  • [Pro] Company of One – Paul Jarvis explains how to build a business around your life, not the other way around.
  • [Pro] Jobs to be Done Theory – People don’t want to buy a quarter-inch drill – they want a quarter-inch hole. They’re paying to get the job done.
  • [Pro] FundStory – Track revenue growth of various founders.
  • [Pro] Side Hustle School – +200 weeks of notes and podcasts from businesses making anywhere between $500 and $100k a month.
  • [Pro] Founder Library – Dozens of articles spanning bootstrapping, co-founders, products, productivity sales and more.
  • [Pro] A List Of 70 Tools to Bootstrap Your Project – Compiled by @pavlosts.
  • [Pro] Lean Startup The classic book by Eric Ries discusses the importance of quick idea validation, A/B-testing and avoiding focus on vanity metrics.

Takeaways

  • Don’t aim big, especially on the first time. Go for proven business models. Concentrate on making the first sale, the first dollar and keeping the first client happy. Manage risks and be sure to have a plan-B.
  • [Pro] Proven markets exist. Competition just means that the demand has been validated. Don’t underestimate local businesses: plenty of potential there. Late-to-market is often just an excuse for inaction. Pick the right niche for you and solve your customers’ problems.
  • [Pro] Most founders will never be millionaires. But they don’t have to. Make enough to support your lifestyle and build the business around it, not vice versa.