BabeofBusiness.com

This morning I discovered an article on the Yahoo! Small Business Answers Center that talked about the seven most overrated businesses – and I have to agree with their assessment. When times are tough or simply ‘not fun anymore’, entrepreneurs often leave the security of full-time employment to launch businesses that are either not appropriate for market conditions or just really, really risky. The Yahoo!‘ article cites the following as the most hyped:

1. Restaurants
2. Direct Sales
3. Online Retail
4. High-End Retail
5. Independent Consulting
6. Franchise Ownership
7. Traffic-Driven Web Sites

Of those noted, I want to specifically point out two: restaurants and traffic-driven Web sites. Restaurants are one of the riskiest business propositions. According to a study conducted by H.G. Parsa, an associate professor in Ohio State University’s Hospitality Management program, one in four restaurants close or change ownership within their first year of business. Dun & Bradstreet has reported that restaurants only have a 20% chance of surviving two years. Although the stats vary depending on who is conducting the research, one thing remains constant: restaurants are risky business propositions! Not only are they capital and labor intensive, there are a lot of them – which means that competing for the discretionary dollar is tough. Not understanding your market, thinking that you know how to cook when in reality it sucks, low profit margins and poor management skills are common reasons why restaurants fail.

The second risky business venture is the traffic-driven Web site. Facebook, Twitter and MySpace get some pretty impressive traffic. Even the non-profit Wikipedia is a heavily visited property. But being traffic-driven comes at both a price and a risk. To get traffic that amounts to any type of significant revenue generation you’re going to have to invest a lot of dollars into search engine optimization. Plus there is established brand loyalty – so the switching costs are high. Think the guy next door will simply leave Facebook to flock to your new social network? Think again. And finally there is reliance on a third-party – specifically Google and other major search engines. People have become dependent on using search engines – often one in particular – to process information in a certain way. Should these search engines up and decide one day to change the way they index pages or modify how they rank listings, you could lose substantial traffic and as a result, ad-supported revenue. Here is a great article from Sitepoint which talks about this topic and ways to prevent falling victim.

Tags: Google, MySpace, risky business, search engine, search engine optimization, Wikipedia