When starting a new business, you want to consider the following. Because this might save you years of time, money, and resources.
Here you are brainstorming your business idea, wondering if its possible that it can be successful and make you the money that you want.
But that’s not what you should be asking yourself, rather than ask yourself if it’s possible, rephrase the question and ask yourself if “is it probable?”
What are the worst businesses to avoid?
There are many businesses that have a high failure rate simply because most people who decide to start a business don’t commit and follow through!
According to recent a study, up to 90% of startups fail. Across most industries, the average failure rate is 10% for the first year and between years two through five, it jumps to a 70% failure rate. This isn’t to discourage anyone from starting, but to give you a comparative advantage by avoiding industries that have a higher failure rate than others.
Industries such as Restaurants, nightclubs, ATM machines, retail stores, and Amazon FBA are businesses that have a higher probability of failing.
Table of Contents
Some of the variables when analyzing a potential business that you may want to go after are:
- Barrier to entry
- Upfront capital needed.
- Is there a market for your product or service.
- Forecasting future relevancy. (Will the business still have demand years from now)
- Cash flow issues.
There are many businesses that have a high failure rate simply because most people who decide to start a business don’t commit and follow through! According to recent a study, up to 90% of startups fail. Across most industries, the average failure rate is 10% for the first year and between years two through five, it jumps to a 70% failure rate.
And according to the (U.S. Small Business Administration) each year around 600,000 new business are started.
This isn’t to discourage anyone from starting, but to give you an advantage by avoiding industries that have a higher failure rate than others.
Here is a list of 5 Businesses that I would avoid starting, not saying that you can’t make it work for you and that’s it’s not possible, just saying it’s not probable!
#1. Restaurants
I have to start this list with one of the worst businesses that you can start. The average restaurants profit margin is around 3-5% and with about 80% of restaurants closing within the first year of opening, this may be a business you want to avoid at all costs.
So here we have an unpredictable business, highly competitive, with low profit margins, high failure rates, subject to market changes and outside forces, like we experienced here a few years ago, and requires a large upfront investment to get started.
The risk vs the reward here doesn’t work in your favor.
The taste and quality of your Food, although important, will only play a part in the success of this business model. Most of the battle is in areas that you may not have thought of yet. Like forecasting demand, food and freezer storage, waste, theft, slow days during the week, shortages, staff, local competition, utilities and overhead. That’s a lot working against you for a 5% return.
On top of that, when you own a restaurant, especially during the growth stage. You will need to be immersed in this business. So forget about weekends and holidays off, time with the family and your social life altogether.
Instead, of diving into a brick and mortar restaurant business, maybe lean towards a food truck or a ghost kitchen at first, before taking the leap to start your own restaurant.
#2. Nightclub
I remember helping my friend’s parents clean up their nightclub the next morning on Saturdays and Sundays. It was pretty gross to be honest, but I witnessed them prepare each week hoping for a nice turnout so they can make money at the door and make money with drink sales.
The cost of opening your own nightclub will depend on the location. If you are opening a nightclub in a small city the estimated cost is around $100,000, while opening a club in New York City can cost millions of dollars.
On average, opening a nightclub in the United States costs between $240,000-$840,000.
You have upfront costs like the lease for the venue, alcohol permits, the staff, DJ’s and performers, security, because when people have too many drinks, things happen, utilities, interior design, and equipment.
Failure rates are around 75% and even 90% in some markets. Outside forces like the weather can destroy your weekend turnout and you would still have all the overhead regardless of whether people show up or not.
Look, when this business does work, the return on your investment is great. Just understand that this is usually a trend, and once it ends, so will your business. The key is marketing, constantly keep reinventing yourself and getting celebrities to show up.
#3. ATM Machines
This business and the fact that it’s even on this list may get some of you upset. But the main reason this is on here is for its future relevancy (will the business still have demand years from now?)
According to a recent study the U.S. may be one of the most likely countries to go cashless, considering that two fifths of American citizens used zero cash in 2022.
As we move closer and closer into a cashless society, we will want to choose businesses that will still be around years from now. There is no reason to start a ATM business if its on a downward trend.
This business may have been great a decade ago. Now, it is possible to start today, get some great locations and make healthy profit, semi passively. However, if you are thinking about starting a business you might as well choose one that will be around for a long time.
Also, the barrier to entry in the business is low, which means more competition and you can buy ATMS as little as a few thousand dollars to start, which makes this even easier for those considering this business to enter.
Remember you will still need to find a location that will allow you to place your ATMs there and these locations must have some foot traffic for you to make money. A good ATM placement can make you over $400 a month in profit. So the numbers and return on your investment may look ok, but again the future of this business is bleak.
#4. Retail stores
I grew up in the era where we would visit mom and pop stores all the time and we even had local pharmacies. That barely exists now.
Here enters Walmart and it destroyed a lot of small shops and they went out of business.
And it’s sad to see, but we’re moving more towards online shopping and most of these retail startups will not be able to compete with the large online companies.
More than a dozen large retailers closed their doors this year accounting for almost 2400 stores.
So why is starting a retail store on this list?
Well first there is a lot of competition around retail stores. Retails stores have a 60% failure rate by its 10th year. You are not only competing with other local brick-and-mortar stores, but you now have to think about the countless online businesses that sell a similar product at a much cheaper price.
Think about it, an online store doesn’t have the overhead that a brick-and-mortar retail store has. So they can charge less for the same products. Costs like utilities and rental leases for your store front can cut into your profits, and to make more of a margin means you will need to charge more.
Next is a business I’ve tried myself, and it didn’t work out for me and that’s…
#5. Amazon Private Labeling
I remember shelling out my only 5K many years ago, to start a private labeling business on amazon, where I created and ordered these sensory stress balls from China, put my logo on the box and branded it. Sent the items to Amazon and sold a whopping 2 units.
I went out of business fast and lost all my money.
Here’s what Amazon Private labeling is for anyone’s first time hearing this. Its when your work with a manufacture to create a item and then brand it with your logo and sell it on amazon.
The competition in this business is unreal, and if you do, by chance, happen to find a unicorn, miracle, untapped item that you can slap your brand on and sell for a profit then consider yourself lucky… for like a few months.
Because as soon as you your competitors run the sales of that miracle item through jungle scout chrome extension, they will jump on the wave and it will be a race to the bottom.
This business has low barriers to entry and there’s always going to be a ton of competition. A lot of gurus are pushing this and it’s creating more and more competition in the business niche.
In addition to that, overseas manufactures in China have practically taken over the platform. Which makes it very difficult to compete.
This business didn’t work for me but doesn’t mean it cant work for you. Its not something I would try to get into. I would rather you consider starting your own online store, brand it yourself and run traffic to your site. That way you own all the data and subscribers and not reliant on Amazon.
Also you may fly under the radar a bit more from your competitors running a chrome extension to analyze your sales data.
So we talked about some of the businesses that typically have higher failure rates, but lets remove that from the equation for a second and look at the.. WHY?
Why do most businesses fail?
The main reason is cash flow issues. More than 8 out of 10 businesses experience cash flow problems, which result in 82% of business failures.
Cash flow issues occur when a business doesn’t have the cash liquid in the bank to cover its expenses.
When the cash going out is more than the cash coming in, businesses may struggle to pay debts and other expenses.
This can become a major issue when you run out of cash. Another reason business fail, regardless of the business they choose to pursue is that the business they started simply has no demand in the marketplace.
A lot of new entrepreneurs and even some experienced businessmen and women have started businesses without first testing to see if there is even demand and customers for that business.
Close to 35% of businesses fail because of there is simply not enough demand for the product or service they are looking to sell.
Its important to spend time doing market research and testing to see that customers want whatever is you are selling. This simple step can help you prevent a lot of wasted time, energy and resources.
