You have decided to purchase a business and are thinking of something that is a new concept, should you buy this or not? Will the business have staying power or will the business disappear in two years? For example, bagels became a very trendy business 10 years ago and lots of bagel places opened up. Initially they did well but after 2 or three years, many started to lose sales and many have closed and no longer exist. Fifteen years ago when satellite TVs were new, many new businesses included selling grey market satellites dishes. This has been subsequently closed down and selling grey market satellites is no longer legal however many companies made lots of money in the early years.
Are you looking to make a quick dollar or are you looking for the long term? If you are hoping to take risks and know that the longevity of this business may not be long, then the rewards will be commensurate with the risk. High risk often has high returns if they are successful.
Do you look at a business based on technology? Many years ago, Mailbox Etc was a large franchise, but this was before fax machines became economical. Fax machines because very inexpensive, technology improved therefore there was no real need to go to a third party to send a fax. Now you can now text message, send an email, send a PDF documents from your computer or cell phone. These may seem like these have always been around this technology was not available back in the late 1970’s and early 1980’s when many of these franchise stores existed.
The packaging and mail box concepts were based on no or expensive technology preventing people from getting access to a service for a minimal cost. As technology improved, the need for certain services such as this declined significantly and many of the smaller competitors have all but vanished.
Many years ago, night clubs did not exist and now they are very profitable and exist in every city. If you were the first person to invest in theses, you could have been successful. Many businesses such as paint balling or using a laser to shoot people with a light or object were established before the invention of XBox PlayStation and Nintendo. Computer games are also improving and many of these games include shooting etc in your own home. Surprisingly, these companies have still survived but I am not sure if they were as profitable as prior to the innovation in technology.
Now that you have found a business to buy, do you look at the past and say that technology will not impact this business or do you look at the current and future trends in technology and determine if they will have an impact on the business that you are looking to purchase?
Do you look at a trendy business, do you look at a new concept, do you look at a concept proven in another country and you hope to replicate in your country? There is no right and wrong answer, it comes down to what is your tolerance for risk. The riskier the venture, the greater the rewards if it becomes successful. If it does not succeed, can you afford to risk your investment and start over again. If you are older ie 60 I would not suggest that you invest in riskier adventures unless you have been already successful and are using “play money” to invest. Play money is surplus money that you have that you do not need to live on now or in the future. If you are young and willing to take risks, then looking at trendy, risky adventures may fit your investment criteria. What is good for you may not be good advise for your friend. One of the key criteria of buying a business is determined by assessing your risk level that you are willing to take.