The 10 Worst Businesses to Start

April 28, 2011

April 28, 2011

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Start these businesses if you want to be a part of that 90% of businesses that FAIL* FeeFighters is often an early part of setting up a business… but before that, you choose the business. In these tough economic times, you definitely don’t want to start your business in the wrong industry. IBISworld put out a […]

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Start these businesses if you want to be a part of that 90% of businesses that FAIL*

FeeFighters is often an early part of setting up a business… but before that, you choose the business. In these tough economic times, you definitely don’t want to start your business in the wrong industry. IBISworld put out a pretty interesting piece of research recently, entitled Dying Industries (pdf). It should be noted that this list is US-centric, though the industries dying due to technology will likely soon decline abroad as well.
Here they are:

Let’s take a look at these one by one to examine why they are dying and why you shouldn’t start them:

1. Wired Telecommunications Carriers
I highly doubt you were planning to start one of these, but just in case, I’ll let you in on a secret: Everyone has cell-phones these days, and a lot of landlines are switching to VOIP. What was once a great business with huge fixed costs is now a terrible business.

2. Mills 
In the future, no one will wear clothes. No, I’m kidding. For sake of clarification, this refers to textile mills… as in those places where we make the fabric we use to make clothes, furniture, etc. We have a ridiculous $3Billion subsidy for cotton growers in the US, so we still grow a lot of the worlds cotton. But then we send that cotton to other countries like India, the Philippines, Malaysia, and much of Central America to make fabric out of it, which they then send to apparel manufacturers (see below).

3. Newspaper Publishing 
Apparently Sam Zell could’ve used this article (he took the Chicago Tribune private in December 07 for $8Billion and it was in bankruptcy a year later). These days, we’re all on the internet/tablets/smartphones. People don’t have time for the ol’ broad-sheet, and more importantly, the traditional advertisers have many other ways to reach people.

4. Apparel Manufacturing
Refer to #2 above. We still design and brand the stuff, but we let cheap laborers in Asia and Central America do the dirty work of sewing and stuff. They are getting a lot better with increased investment in technology, so this is only accelerating.

5. DVD, Game & Video Rental
Please don’t start one of these companies or buy one. Noone wants to go to a physical location and talk to a human to get these things… In my mind, even fairly new innovations like Redbox aren’t going to survive, because of increasingly good offerings from Cable/Satellite and Netflix. Interestingly, Netflix has done so well that it is threatening the existence of torrent sites, it’s pirated counterpart!

6. Manufactured Home Dealers
This one sort of surprised me. Many in the real estate game are struggling, but these guys are struggling most. There are tons of empty foreclosed homes all around, who needs a manufactured home?

7. Video Postproduction Services
Many people in their hands have a more capable video editing device than even expensive setups of a decade ago. My iPhone 4 can can capture and edit video that looks great! But the money was made on a large scale, with huge postproduction facilities editing and cutting film. Nowadays noone uses film anymore, as digital technology is the standard, and postproduction happens on cheap computers with some software.

8. Record Stores
This one also is obvious.

9. Photofinishing
Related to #7 – Everyone is digital. Cell phones are already the most popular image capture devices. People upload pictures to Facebook or Flickr now rather than printing them out. Albums are things you email to people online rather than a physical book.

10. Formal Wear & Costume Rental
This one was news to me! But this is actually related to #s 2 and 4… Now that you can buy cheap imported formalwear, why rent? Also… who gets dressed up anymore?

Basic lessons from this for ANY company:

  • Don’t bet against technology. For a lot of businesses, the writing is on the wall, and the writing says E-COMMERCE. Borders is bankrupt. They invested a lot in bricks and mortar instead of their website. Their “direct” competitor, Barnes and Noble (BKS) is really undervalued because people don’t realize how strong their online and Nook business is (Full disclosure – I am long as hell on this stock and am trying to get you to buy it). On this list, Newspapers, Video/Game rental, Video postproduction, record stores, Photofinishing, and Wired Telecom all got slammed by technology.
  • We live in an increasingly global world, and labor arbitrage is real. Take advantage if you can. Apparel Manufacturing and Mills are getting decimated by cheap labor overseas, and that’s likely the case for Formal wear as well. Many companies can use labor arbitrage to their advantage, probably yours too! Our amazing designer Tisho lives in Bulgaria, and we found him through a competition on Crowdspring. There are certainly some challenges in working with people overseas caused by timezones and languages, but if you can take advantage of labor arbitrage, you should.
  • Innovate Innovate Innovate Innovate No matter what industry you’re in, if you fail to innovate, you fail. We’ve seen this time and time again. Look at the companies that have recently gone bankrupt. Sure, they were in a tough industry but the smart companies innovated out and the crappy ones didn’t. Manufactured homes fall under this category… The downturn is likely cyclical, but they need to innovate out of the downturn with more efficient manufacturing.

*Made up stat that still gets quoted

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