For part 1, you can check it out here.
There are many similarities between a labor-intense business and a skill-based business.
Both businesses:
- can be started with little capital,
- depend on the effort and value of the business owner,
- are often small or sole-proprietorship,
- often do not require significant or any formal business office, and
- have a low-barrier to entry and high-competitive pressures.
Skill-based businesses are often built on the fragments of shattered dreams
In order to be elite in any worthwhile endeavor, it requires passion, dedication, and thousands of hour of practice. American Idol, American Ninja Warrior, Master Chef, So You Think You Think You Can Dance, the National Football League, Hoop Dreams, the Olympics, Carnegie Hall, Broadway, Hollywood, Bollywood depict the drama of aspiring stars seeking greatness.
For all the worthy participants, there are few who rise above the crowd and achieve fame and fortune. Elite athletes and entertainers find their chase for their dream fleeting as the breaks fall to others. A lifetime of devotion has stalled though the passion still burns inside.
A star is born?
In this example, let’s consider a hypothetical aspiring singer as our protagonist. She has developed a love of music at an early age and delighted family members and classmates with her powerful voice. Her parents begin entering her into talent competitions and musicals. She extends her passion for music by taking piano lessons and participating in choir and even joining a garage band in junior high school.
Her talent is obvious to anyone who knows her. She finds herself drawn to other musically-inclined friends and mentors. Her competitions introduce her to talent scouts and other rising stars. Living in California, she auditions and accepts a job at Disneyland. She scratches out a meager living entertaining tourists while continuing to pursue her dreams. She joins a singing group and hustles to create a YouTube following. A well-respected agent takes her group on and shops them around to dozens of recording studios. As the rejections pile up, she remains positive, waiting for her break. Years pass. Waiting tables and performing at small clubs and weddings is failing to progress her career. She is faced with the question she had been avoiding for years.
What do I do now?
She has spent years on the periphery of the music industry and developed a number of friends and connections to the business. Her talent, though substantial, is not enough to break through. With an associates degree in communications and business, she has a knack for business. She also has an ear for talent.
With the encouragement of her agent, she takes an unpaid internship with his firm. She soon finds herself screening and meeting amazing talented performers who remind her of a younger version of herself. She learns the ropes of the business. She pitches a business concept to her boss to expand the agency by expanding their talent roster. Although appreciative of her enthusiasm, he decides to stick with what his agency is known for.
They mutually decide to part ways, but he offers to help her get her new business up and running. Her dream of being a top performer has now transformed into a drive to become a top agent for young, talented artists.
Turning passion into business
The saying “those who can’t do, teach” is false. A person does not decide that they can make a few dollars teaching violin lessons and start teaching unless they themselves are proficient violinists. A gifted golfing prodigy is not going to spend time and money with a golf instructor who can’t break 100. Teachers are former dreamers. They teach because they love their art or sport and want to relive their dreams through their students. These industry, whether it be in music, art or sports are staffed with former minor stars, many of whom are a business of one.
If discipline and hard-work are the foundations of a vibrant labor-intense business, passion and empathy are the fuel for many star-based industries. Jimmy Iovine was a failing musician. He became a music mogul with a combination of charisma, tenacity, and talent-identification. He loves music and musicians. U2, NWA, Eminem, and Nine Inch Nails are but a few of the artists he took from obscurity to eminence in the music world.
Turning grey matter into green bills
Let’s go 180 degrees and look at the other expert-oriented business. Examples of these highly-educated and credentialed professional include doctors, dentists, and lawyers. Although the capital cost and need for a business office is required for many of these businesses, the high fees these professions command can offset the equipment startup costs. Let’s be real. If you have managed to stick with this post this long, you probably have not have invested hundreds of thousands of dollars and a handful of years to get a degree.
Real estate, financial planning, and insurance sales are professions that combine people skills, industry expertise, and business acumen. These professions typically require a certification, but nowhere near like the rigor, cost and time to get a medical or law degree.
Developing a clientele in these professional businesses is challenging. Unlike a labor-intense businesses, a hard-working and reliable business owner is not sufficient to attract clients for these professional businesses. The business owner must illustrate deep expertise. The risk for the client in choosing the wrong practitioner is far greater than the decision to on-board a little known labor-intense business provider. If someone is experiencing heart palpitations, they would be ill-advised to choose a doctor just because she is hard-working and shows up. They would be better served by seeking a highly-respected doctor in the cardiac field.
Hands on education
Who is the best real estate agent or financial planner in your community? It is a good idea to ask around and see about meeting them. Would they be willing to take you on as a paid intern?
TIP: If you go this paid intern route, it is a good idea to set expectations. How many months of internship would be a reasonable for both parties? If the intention is to eventually build your own business, it is best to be upfront about this goal. There may be concerns about client and employee poaching. Reputation is key in these businesses. The internship goal should be a knowledge and industry accelerator, and not a customer database hack. A breach of trust such as this, will lead to aggressive competition with a powerful, well-connected enemy.
Graduating with nothing but knowledge
Once your internship time is complete, you can now set up your shingle. Before you can turn your knowledge into a profitable business, you will need to hustle. Discover how successful professionals in your industry got started. How did they meet new customers? Do they have advice to help you jump start your business? Before you can count on your brains to showcase your value, the painful process of hustling for new business is required.
What happens when hustle is not enough
Most professionals want to use their brain, not their shoe leather. They give up before they can develop a profitable clientele. When the hustle gets old or is not fast enough to keep the creditors at bay, the business owner can seek a job in the industry working for a corporation or successful operator. This process of venturing out, and then headed back to work as an employee may take a few iterations. Over time, the connections, know-how and industry expertise will increase to a point where a successful business launch can take hold. The benefit of working as an owner and an employee is that the business professional can weigh the pros and cons of both sides. Some professionals begin assured that they want to run their own business, only to find that the headaches, stress and distractions outweigh the benefits of ownership. There is no shame is working for a paycheck if the lifestyle and compensation offer higher satisfaction that the intensity of business ownership.
We have now covered 3 business categories:
- labor-intense,
- passion (star) businesses, and
- professional (often credentialed) businesses.
Labor-intense businesses have the lowest barrier to entry in terms of education, certification and startup capital. Due to these lower barriers to entry, the labor-intense business has less earning power than the passion and professional-oriented counterparts.
The passion businesses rates are only slightly better than the labor-intense business. The joy of being involved in their dream profession compensates for the nominal rates these businesses offer. Some highly passionate people can become very successful by connecting with superstars in their industries. Serving as Beyonce’s business manager or publicist would be more prestigious and better paying than teaching neighborhood kids how to play “Twinkle, Twinkle Little Star”. That is not to say that teaching businesses are not valuable. In many ways, it is a form of giving back to the art or profession that has provided the business owner with tremendous joy and fulfillment.
The professional businesses often command high rates, especially for professions that have lengthy and costly education and certification requirements. Reputation in these industries can be slow to develop. Real estate is a prime example of paying dues before breaking through. The deals and customers flow to well-known agents who have paid their dues and have a proven track record. Many aspiring agents find the barrier to break through too difficult and end up giving up. It takes determination, skill, connections and luck to build a lucrative business, emphasis on determination intentional.
