Are there any areas that investors just won’t touch at the moment?
Tuesday, July 19, 2011/
Are there any areas that investors just won’t touch at the moment? I’m pondering starting up a business in an area (travel) that many say is completely changing because of the internet. Are traditional-style businesses in areas like this “un-backable” in the eyes of investors?
Investors in start-ups are like the rest of us – they are wary of risk, uncertainty and slow growth. If your business plan does not answer or solve these issues, you may not attract funding.
Some “traditional” businesses fall into the “uncertain” and “slow growth” category. These are usually businesses that have been disintermediated by better online models. Classic cases of “traditional” being overtaken by “new” are record companies, record stores, book stores, video stores, auctions, classifieds, and in some cases, even clothing and cosmetics retail.
Travel has become one of the larger categories online – in terms of advertising spend (mainly via Google) and users booking travel online. Many “traditional” travel agents have closed or reduced their retail store numbers. But one major travel agency has managed the rise of online competition quite well. Flight Centre has maintained its retail store presence as well as migrated some of its business units online.
However, it is rare for an “old” economy business model to prosper in the “new” economy. Newer online travel businesses are capturing the user demand for better, faster, cheaper travel deals. Companies such as Expedia, Kayak, Hotels.com, Wotif, WebJet, Stayz and so on have helped change the market.
Potential investors will want to know how you plan to compete with these strong businesses, in what markets segments, with what consumer proposition. For instance, will you offer cheap hotels, luxury escapes or family holidays?
Travel online is intensely competitive as users can, and do, switch from site to site looking for the best deals.
So returning to your question – will investors avoid backing some sectors?
Yes – you will be competing for capital and time with other start-ups in “hot” areas. You need to be able to provide clarity on your business, its operations, competitive advantages, risks, returns and timeframes.
If you want to run a caravan park in Byron Bay and live a gentle life and you require no outside investors – great. But if you want to build a business with others, you will have to give up “lifestyle” in the short-term and be able to generate profits and good dividends or a clear exit path.
So start a business in a growth sector with strong margins and you will have more chance of finding staff and investors than a business with an uncertain place in the market.