Evaluating Business Ideas
Are 2 Businesses Better than 1?
Written by Jay Shapiro for Gaebler Ventures
Often an entrepreneur who has enjoyed success with one business will see the potential of starting up another. But is it always as financially rewarding to do so?
Congratulations. Your first business is thriving, you've leapt the many hurdles and now it's a self supporting concern that earns you a good income. It makes sense to start another one. Or does it?
Things to consider when you're starting a second business:
Experience. If you're thinking of starting a second business in the same industry as your first one then you won't lack experience. What you might need to think about is what the benefits of having a second similar concern will be. Just because you have two shoe shops doesn't mean you will gain twice the amount of custom.
It could mean that your two businesses share the client bank. Therefore you'd make the same amount of money but with higher over heads. Running two businesses is always going to be more expensive than running one. And people only, on average, have one pair of feet each. Do the math!
Market flooding. You might actually be performing a self defeating act in having a second business especially if it is a close relation to your first one. The new business could actually have a negative effect on the popularity of your first one.
On the upside, it might be that you want to branch out into another neighborhood. This would make sense if your business is one that is location specific. If you provide house decorating services or gardening and feel you'd like to conquer the market in the next town then that would figure.
In addition, while we're on the positives, you'd have little difficulty procuring finance to set up your sister company. Lenders will be able to see that you have a viable business in operation and feel confident about assisting you. After all, you've proven yourself as a successful entrepreneur and it's all there on paper for them to see. And that's what they like; it carries great sway in the world of money lending.
Your reputation is already built in one town, so transferring it to another is made ten times easier. Ride on the coattails of all your initial hard work!
Further advantages to setting up a second related business:
- Existence of brand
- Logo design etc is already dealt with
- Operations are smooth, all wrinkles were ironed out when you started the first business – if they're not smoothed out, you don't want to start a second on just yet
- Existing client bank
Here we've looked at setting a second business that relates to an existing one. If you're thinking of starting up a completely new and unconnected business you need to treat yourself as a novice. Being proficient at say running a coffee house may not equip you to run a private dental surgery.
Second time around can be as hard, if not harder, than first time. Choose wisely when you want to branch out in this way and maybe stick with a formula you know works well.
Jay Shapiro is a freelance writer based in the UK. Jay has a particular interest in the emotive aspects of the entrepreneur's character. "Alongside the nuts and bolts of business, the character of the person is often the ingredient responsible for success."
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