Last year, over 750,000 new companies were registered, a slight reduction from the 800,000+ the year before, but still a significant number. Which perhaps isn’t surprising given the upside of business ownership. But I don’t need to tell you that entrepreneurship can have its downsides too. Starting a business is one thing, but keeping it going profitably year after year is quite another. On average, around 20% of UK businesses fail during their first two years, which rises to 45% after five years and 65% after ten years. Yet every one of those entrepreneurs had high hopes of success when they started. So what do people routinely get wrong when creating a new business? And is it possible to find a business model that doesn’t suffer from the usual challenges that affect most businesses? Well, bear with me because I’d like to propose an answer to both of those questions.
In my view, the business model that makes the most sense to start in the current market (and it has done for a while) is a small-scale property development business. Now, when I say ‘business’, please don’t imagine you’ll be creating a new Persimmon Homes or Taylor Wimpey. I’m talking about little old you deciding to turn an old shop or office building into a few new flats, something much more manageable and frankly not much further up the property development ladder than doing a flip or a refurb. Such a project should comfortably net you a six-figure profit, and it’ll likely take 18-24 months from when you acquire the property to when you bank the proceeds. This is all very nice, but why do I think property development (and doing small-scale projects in particular) has an edge compared to other types of business?
Let’s start with the basics. One of the rudimentary requirements of any new business is that there must be a market for the product or service it will be introducing. How many of us would like to have been descended from the inventors of things like cat’s eyes, post-it notes, or the slinky? What were our parents and grandparents doing with their time when they could have been getting creative and setting up their progeny for life? But it’s very easy to get this bit wrong. Remember the Sinclair C5, Betamax video recorders, and sprayable cheese? These are all products that memorably bombed, but there are millions of other less memorable ones. So how does property development score? Is there a demand for the product? According to the UK Government, there is a massive housing shortage in this country. The government’s targets require us to build 300,000 new homes every year, and in recent years we’ve not come close to hitting this figure. And, of course, if we only build 150,000 in one year, the target for the following year must increase to 450,000 to make up for the shortfall. So, if you’re building homes of pretty much any shape or size, it’s fair to say there’s a very healthy demand for what you’re selling.