Why Businesses In Specific Sectors Are More Likely To Succeed – II
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(Written by TIB co-founder)
In the February of 2015, I was part of the 3 Day Startup Bootcamp at University of North Alabama, Florence. The boot camp taught me about the power of sheer numbers and spreadsheets. As an avid Economics grad, I had my own ways of zeroing down on the sectors to invest in. I will let some light on it now.
The most important rule of starting a business is to never go by the gut feeling. Remember to ‘always know’. Not easy as the word that is said, the phrase calls for data backed decisions. Bureau of Labour Statistics is an excellent place to start off looking for economic data ( https://www.bls.gov/home.htm ). Let’s do a small exercise for easier understanding using data from BLS.
Goal: start off a small business with as little money as possible
The requirement for the goal is few dollars for a maxed out returns, meaning, invest in a business where the demand for the service is exceeding the demand for other heterogeneous and dissimilar goods. Therefore, high net gain sectors are the areas that will fetch us what we want.
Look for the following indicators to determine the financial attractiveness of the sector like a job
- Business Employment Dynamics ( https://www.bls.gov/news.release/cewbd.toc.htm ) to check the growth rate of jobs in particular sectors
- Production measured as the cost of labor against output generated
- The ratio of production to profit
The table below explains well through the numbers as to what indicators mentioned above made me zero down to Warehousing as a choice of my business.
https://www.bls.gov/news.release/prin2.t01.htm Bureau of Labor Statistics
With an annual growth rate of 4% in the last 5 years and a market share of $25 billion, Warehousing and storage over the next one year will be growing to close to $27 billion. The $2 billion of market share is what the new company is going to vie for in the next one year. As of 2008 there are 10,000 warehouses in USA.
National average of revenue per annum in warehousing = $2bn / 10,000 establishments = $200,000 p.a
$200,000 is the projected target revenue in the next one year for our Warehouse X.
RISK MANAGEMENT PLAN
The only factor that determines the difference between loss and profit is risk. Risk can be managed efficiently to close the gap by reducing the probability/impact ratio.
Identifying the risks is something that is completely individual to the business as in warehousing, we can cite building warrant of fitness, fire prevention and alerting, flood and water damage and intruder alarms as some of the risks that can impact the fixed costs, thus the revenue potential of the company. Competitors, distance from competition, area limitation and clientele, etc. are some of the things that can have business impacts.
The above risk chart contemplates the heatmap of risk as an operational and business problem that gives us an insight into planning our course to meet the forecast goals.
(Attached below are the templates to the above Growth/Forecast Charts and the Risk Assessment Modeler given as a free download. Feel free to download the Excel sheets, just plugin your values into the existing tables and fast track your work. This is the baseline for your future database SQL servers as your business grows.)
Tell us what you think! If you love these, do drop us a word and keep a look out on this space for more templates and resources on Launching your business!
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