https://tinyempires.substack.com/p/4-mistakes-to-avoid-to-build-a-better

Not all businesses are good choices for solo-founders. Some are almost impossible to grow when you're a business of one. But how can you find a business that you can easily grow as a solo-founder or small team?

Understanding the types of business that are most suited to being a solo-founder can save years of frustration. Understanding the markets that are suited to small self-funded businesses, will shorten your road to success from years to months.

Unfortunately I spent a decade learning this the hard way. Every day I see people making the same mistakes, mainly because we naturally copy what big companies do.

Don't think big. Think small

We're unconsciously influenced by companies that we use ourselves. Think Netflix, Notion, Twitter, Gmail. These companies all have a few things in common:

1. They require scale (lots of customers)
2. They target consumers for a major part of their business
3. They charge a low price (or are free)
4. They exist in large markets
5. They have a lot of money to spend

But don't worry. As a small business, we can craft an offering that avoids all these points and is much more likely to succeed.

Here's how to do it, step by step:

1. Avoid businesses that require scale

As a solo-founder or small bootstrapped business, any type of product/service that requires a massive number of users is best to avoid.

I discovered this the hard way with one of my early startup attempts. The idea was a wedding directory that I was positioning as "TripAdvisor for weddings" (this was in TripAdvisor's heyday). It was a 2-sided marketplace and targeted the entire UK wedding market. The market I chose was too big. The business required network effects on a massive scale to work, and trying to attract engaged couples and wedding vendors on this scale, with no budget, was basically impossible. As a result, I was forced to keep changing the focus of the business, making it constantly more niche, in an attempt to have a small enough market where the network effects could take over. Ultimately I couldn't build those effects quick enough, in such a transient market as weddings. I shut it down. It failed. It's very hard to create network effects when you're the only one working on it. You don't have the time or money to make it work.

Have a think about other businesses that require network effects. For example, social networks. All the major social networks were funded early and were typically unprofitable for a long time before they reached scale that allowed them to monetize effectively. As a small-business, you can't compete against the spending, or sustain losses for a prolonged period.

2. Don't charge low prices

The other thing to avoid is charging low prices. Why? Because getting customers is hard! Sales and marketing are both major time drains and you can't spend all your time doing them. Again, if you have low prices, you need to reach hundreds or thousands of customers (that scale problem again).

I see a lot of people starting a subscription business and charging "Netflix style" prices. e.g $10/month. We are so conditioned to these types of pricing, that we naturally want to replicate them. But converting consumers to a $10 month subscription is much more difficult than you might imagine. If you work really hard and get up to 100 users, you're still only at $1k per month and that doesn't take into account running costs and users cancelling. You need to constantly bring on more users to replace those who leave.

On the flip-side, you could just have 1 single B2B client paying $10k per month for a service and make 10x the amount, with lower running costs and no churn. 1 sale vs 100. 10x revenue vs 1x.

3. Target businesses. Not consumers

The easiest way to avoid the challenges of scale and low prices is to target businesses, rather than consumers. Not only does it allow you to sell at higher prices (so you don't need scale), it 's also a much easier sell. Here are a few reasons why:

1. Businesses are happy to spend money on things that help them grow. It increases revenue.
2. Business expenses reduce profits and therefore taxes on those profits. The expense is offset against future taxes.
3. Businesses allocate money for training, marketing etc. They are literally looking to spend the money.
4. It's often part of somebody's job description to spend that money, so you can find out what role within the company spends the money and sell to them directly.

This is not true in the consumer world. Consumers are very cautious with spending. A $49 subscription to a consumer is a lot, whereas a business wouldn't bat an eyelid.

Here are a couple of examples of the difference between consumer and business mentality with spending:

1. Twitter Blue caused outrage in the Twitter community when they started charging £6 per month. They charge organizations £1,140 a month, for that same tick in a different color and Organizations are happy to pay.
2. Gmail is one of the most popular email tools ever created. If they started charging $1 a month, they would lose 90+% of their users to a free alternative. Meanwhile, Superhuman email launched a couple of years ago and targeted business users exclusively. They shook the market by charging $30 per month for an email client. This is a service we are conditioned to expect to be free. But the product was great and helped business users save time on emails, and therefore allocate their time elsewhere and make more money. It grew like wildfire.

If you're a solo-founder, you need to minimize your time spent on attracting customers (because it's just you) and maximize your product price. Selling B2B solves both of these problems.

4. Don’t choose a large market

The larger the market, the bigger the competition. If you were a goldfish, would you rather live in an ocean, or a garden pond? Probably the pond. In the ocean, you are competing with millions of other fish, most of whom are much bigger than you, and will ultimately eat you. In a pond, you might be the biggest fish. This is exactly how you want to think about your business. Choose a market where you can be the biggest fish. If you decide to start a sports shoe brand, you'll be competing with Nike, Adidas and countless others. Niche that down and make it a Pickleball shoe brand and suddenly you're the only player in the market. You're the biggest fish. You can hone in specifically on that customer's needs and take the entire pickle ball shoe market.

In Summary

Swap scale for small and charge higher prices to businesses.

• Instead of a social network, build a niche professional community
• Instead of an AI blog, write an AI image-generation newsletter for social media managers
• Instead of a general web-design agency, start a web agency targeting Logistics companies in the UK

Think smaller markets with bigger budgets. The opportunities are endless.

I hope this guide was helpful. Next week I'll be posting a continuation of this guide on choosing a business that suits your personality and skill sets, which makes it exponentially more likely to grow. Subscribe to get that guide sent to your inbox next week.

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