Intro
You want to start a business in your small town, but you’re afraid to take the leap because you don’t want to fail like so many small business ideas do. So we’re going to show you seven business ideas to absolutely avoid as a new entrepreneur because of their extremely high failure rates. We’ll show you what these businesses are, why they will destroy your small town business dreams if you try to start one, and give you the inside secrets on how not to fail with your own business idea. We run several small town businesses ourselves and have helped many other small town entrepreneurs get their starts. We’ve seen what works and, more importantly, what doesn’t. And if you stay to the end, we’ll share with you a proven formula for coming up with business ideas in a small town that have the absolute highest potential to succeed.
But first, before you go and lose thousands of dollars on a small business idea, we need to look at which businesses have the highest risks to them in a small town and why.
1. Restaurants
The first business idea we’ll look at has been a risk-filled dream crusher for years: Restaurants. The best-laid plans of opening a restaurant come crashing down for seventeen percent of entrepreneurs in their first year of operation. That number jumps to an incredible sixty-one percent after three years and a full eighty percent after five years. If your restaurant is closing in its first couple years of doing business, guaranteed you’re losing your investment.
How much of your investment? Well, on average, it costs three hundred and seventy-five thousand dollars to open a restaurant, and that’s not including ongoing operating costs. Every year, restaurant failures result in the loss of three point two billion dollars in capital investment.
So why do so many new small town entrepreneurs lose their shirts in this business? Well, as we mentioned, the initial startup costs are quite high, so cash flow is an immediate problem. Inflation is also a big killer, driving up your costs and keeping customers at home.
Now, keep in mind, every small town needs places to eat, but if your restaurant isn’t different enough from the competition, it’s going to fail. Your town can only support so many pizza or taco places. The high price of rent, lack of staff, inexperience in the service industry, and inadequate marketing are all restaurant killers waiting in the shadows for many poor small business owners. While the restaurant business can be a risky gamble, the next small town business idea we’re going to look at is equally dangerous.
2. Photography
Are you one of those people who loves the idea of mastering a difficult skill and using it to show off your creativity? Maybe you’ve thought about making money from that idea, too. Well, don’t do it if that skill is photography. The photography industry is already highly competitive, with advancements in technology driving down the barriers to entry.
With the ease of digital photography, a ton of people have turned their passion for photography into a side hustle, offering their services at a fraction of the cost that traditional small town photography studios used to charge. This trend has led to prices being driven down, making it difficult for anyone to stay in the business.
So what makes an interesting side hustle a bad small business idea in a small town? According to one study, sixty percent of photographers quit their business in the first year. That number jumps to eighty-five percent by year three.
Digital photography has changed how people see pictures. Nearly two trillion digital photographs are taken every year. Ninety-three percent of them are taken on smartphones. The result? A massive decline in professionally staged and posed photos.
Cash flow is also a big problem. Wedding photography is a major source of income for many studios and is typically in demand only in the spring and summer. The work and money dry right up in the fall and winter.
3. Bars and Nightclubs
So if amateurs stealing your lunch isn’t enough, let’s look at another business idea many entrepreneurs want to start in small towns that close as quickly as they open. Are you the type of person who loves going out with friends to enjoy a drink and maybe some music and dancing? Many inexperienced business owners think it’s a fantastic idea to try to capture this feeling and make some money at the same time by opening a bar or nightclub. They’re dead wrong.
So just how tough is this business? The generally agreed-upon stats are seventy-five percent of bars close in their first few years, jumping to as high as ninety percent in some areas. But even with industry experience, this business is littered with broken dreams and lost money.
So what challenges are waiting for you out there? The high level of competition, for starters. Your town’s limited population size can make it difficult for a new bar or nightclub to attract customers, especially when competing against long-time established venues. Also, customer preferences can change rapidly. Popular trends and tastes come and go. If you don’t adapt, you risk losing customers. If you follow the trends, you’re constantly investing more and more money.
But, despite all that, by far the toughest aspects of operating a bar or nightclub in a small town are all the rules. Your town likely has strict regulations regarding alcohol sales, noise levels, and operating hours. Violating these can result in hefty fines or even losing your business license.
4. Clothing Stores
Now if you thought opening a bar or nightclub was risky, let’s take a walk down Main Street and pop our head in another small town business idea that’s waiting to entrap you. Have you ever looked at a traditional brick and mortar clothing store in your town and wondered how they keep the lights on? The people running them are often thinking the same thing.
Competing with other clothing retailers is hard. Competing with online retailers is even harder. Over fourteen percent of all retail sales are online. Of that, forty-five percent is on Amazon. More people shopping online means fewer people walking in the front door of your business, even in small towns and rural areas.
Online shopping has the advantages of convenience, twenty-four-seven availability, and a wider selection of products compared to traditional retailers. Price comparison is also super easy. Keeping inventory that interests customers can also be a challenge. Clothing stores have to stay ahead of the trends and stock their shelves with the latest styles. Get it wrong and you’re looking at excess inventory and lost sales.
And then you have fast fashion giants producing high-volume, low-cost clothes. It’s hard to compete when the competition is selling their products for only a few dollars each. Consumers may get tired of the low quality and waste caused by fast fashion, but right now these international clothing retail companies are thriving.
But even if you can manage to make some sales, you have to deal with the culture of returns. Every year, customers return over eight hundred billion dollars worth of merchandise, which translates to roughly sixteen percent of total retail sales.
5. Gyms
But that’s nothing compared to the failure rate of this next small town business. You might think a business model built around motivated, high-energy people would translate into fists full of cash, but you’d be wrong. Around eighty-one percent of gyms and fitness studio businesses fail within their first year, according to one industry association.
Why are gyms such a drain on entrepreneurs’ bank accounts? Gyms require significant upfront investment in equipment, rent for large spaces, and staff. It’s another small town small business that causes a lot of people to lose a lot of money when they close.
But what causes this hardship? One of the biggest obstacles is the commitment level of the typical client. Gyms often struggle with member retention. Many customers only have short-term fitness or weight loss goals that don’t translate into long-term memberships. Keeping membership fees competitive can also be a challenge. Gyms often get into races for the bottom, dropping prices to get people to sign up. Competing to be the cheapest is always a lose-lose situation.
And then there’s the rise of at-home workouts. In recent years, people’s fitness routines have been confined to their homes. They invested in equipment, changed their programs, and many simply haven’t returned in the same numbers now that all the gyms have opened again.
6. Travel Agencies
We’ve still got two more small town businesses to avoid starting for you, but what do you think of our list so far? Let us know in the comments if you disagree or if we missed one!
Like a ship in a storm, this next small town business is struggling to stay afloat, much less on course. And the waves coming over the deck are massive online booking companies. Many small towns used to have travel agency businesses in them. They weren’t big, basically a small office on Main Street with a desk or two and a whole bunch of brochures. Those days are done, and anyone wanting to get into the travel business should be wary of this small business model.
There are just over 42,700 Travel Agency businesses in the United States as of 2023, a decline of two and a half percent from 2022. Even worse, according to the Bureau of Labor Statistics, there were around 75,300 travel agents employed in the United States in 2013. In 2022, that number dropped to 66,300 travel agents. That’s a twelve percent decline.
But, if people are traveling again, then where have all the travel agents gone, you ask? Well, massive online booking sites are putting these small businesses out of business. The average traveler is already price-sensitive and airfare and accommodation are discretionary purchases. Travel agencies compete fiercely on price in a highly saturated market where consumers are attracted to the best deal, leaving them with razor-thin profit margins.
The costs of small brick-and-mortar agencies and online platforms differ significantly. Online booking sites spend less on purchased furniture and décor, allowing them to earn higher profit. In short, unless your small business idea is physically guiding tourists on unique local or international trips, stay out of the middle-man booking business; they’ve figured that part out on their own.
7. Newspapers
If travel agencies in small towns are floundering, this next small town business has basically already sunk. Everyone who lives in a small town loves to know what’s going on. The problem is no one wants to pay for that information anymore. Small town newspapers are dying, no matter how important these businesses might have once been to our communities.
One study indicates one in five local newspapers have closed since 2004. Two more close every week. Traditional newspaper publishing is extremely expensive with high printing and distribution costs. Many established small papers and newcomers have tried moving online or using social media, but most fail to make money this way. Why? Because the social media companies themselves are the main competition for ad dollars these days.
People now get their local news from community Facebook groups or posts directly from the news source at no charge. Local advertisers can directly reach their customers through email lists or social media. Traditional newspapers just don’t play a role in the community they once did because they can’t make money. No money coming in, no business. People might mourn when a newspaper closes after 100 years of uninterrupted small town business, but if the business could continue, it would. And that’s the surest sign to stay away from this small town business idea.
The Secret 4-Step Formula
And as promised at the start of the video, here’s the secret four-step formula to creating a small town business idea that will thrive. It looks like this:
Problem plus Solution plus Picking Top 3 plus Testing equals Winning Business Idea.
In other words, you first need to identify some problems people have. Next, you need to come up with some solutions to those problems. After that, you narrow it down to your Top three solutions. Finally, you test those three ideas in the real world and settle on your winning business idea.
