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15 Least Profitable Small Businesses in the U.S.

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Whether you’re looking to turn your passion into a profession or you were simply born with that innate, unshakeable spirit of an entrepreneur, there’s one thing that all aspiring business owners have in common. To make your big dream a long-term, sustainable reality, you have to figure out how to earn more revenue than you spend on business expenses.

Unfortunately, with market trends, consumer preferences, and other variables, there are always going to be certain industries and business ideas, that at one time or another, are less likely to become profitable. Therefore, before you invest all your time, energy, and savings into starting a business, we recommend checking out this list of 15 least profitable small businesses, so that you can put yourself on the track to success from the get-go.

Least profitable small business industries

Deciding on the perfect idea for your new business can be a detailed and lengthy process. This being said, the last thing you want to do is choose a business idea, invest in planning, and start financing—only to come to realize that it’s going to take a huge investment to make your business profitable. Unfortunately, there are certain industries and business types that are simply less likely to be profitable than others—and usually, these are the business ideas that require high overhead costs to get started or already have saturated markets that are difficult to get into.

Conversely, some of the most profitable businesses are going to be the ones within industries that you can launch with little to no overhead (especially if you’re a first-time business owner) and fulfill a current market need or trend. So, with this kind mind, let’s break down 15 of the least profitable small businesses so that you have an idea of industries you should probably avoid as you search for the best business idea for you.

1. Oil and gas extraction

The first two items within our list of the least profitable small businesses are part of the manufacturing industry. Unfortunately, considering the overhead costs and moving parts associated with manufacturing, this is not going to be a very profitable industry for most entrepreneurs.

This being said, despite the almost urban legend around “striking oil” you might be surprised to learn that oil and gas extraction is regularly cited as one of the least profitable industries for small business owners—if not the least, period. This stems mainly from the variability that comes with investing in this kind of business, with a market that can go from plentiful to desolate in a day’s time. Plus, lowering prices for crude oil and gas since 2014 doesn’t help in this field’s profitability.

2. Medical equipment and supplies manufacturing

If you’ve ever read the fine print on your hospital bill after a surgery, illness, or injury, you’ve probably noticed the sky-high prices. With the high costs of everything from crutches to braces, you may quickly find yourself thinking that manufacturing medical equipment and supplies would be one of the best small business ideas.

Unfortunately, this is not the case. In reality, the majority of that profit goes straight to the hospitals and insurance companies—not the wholesalers, who are left with an average pretax profit of less than 5% (according to a 2016 report by Sageworks, now Abrigo). With such a low profit, plus all of the potential processes and equipment required to get started, you can easily why a medical equipment and supplies business makes our list of the least profitable small businesses.

3. Home healthcare services

Next, although there are plenty of service-based business ideas that can be very profitable, there are also those that fall on the other end of the spectrum.

For example, although there’s a huge need for home care for the elderly, there are also many barriers that prevent home healthcare services from becoming profitable businesses. The main issues that these businesses face are the hard-line price limitations negotiated through Medicare and major insurance companies.

At the same time, the emotional toll and relatively low pay associated with providing this kind of care results in high turnover and a shortage of workers in the home healthcare industry, which could make managing your home healthcare business a stressful and profitless endeavor.

4. Real estate services

Requiring a relatively low barrier to entry in terms of both capital and required training, businesses involved with providing real estate services—including not only real estate agents but also appraisers, title companies, loan brokers, and more—might appear to be a lucrative and worthwhile opportunity for aspiring small business owners.

However, you’ll also want to keep in mind these serious downsides before launching a business in real estate services. First, competition within the industry is fierce, with a small number of top realtors in each market controlling the vast majority of who does business with whom. Additionally, since revenue is almost exclusively commission-based—with particularly small percentages going to loan brokers, appraisers, and similar professionals—it can be difficult to build up the number of clients required to keep your business afloat.

To pursue a business offering real estate services such as property management, appraisals, inspections, title, or loan management, you must build key relationships from the start with successful and well-connected real estate agents, as these are the individuals most commonly making referrals between your business and your target customers.

Therefore, considering the time, effort, and honestly, luck, that can be involved with this industry, getting started in real estate services is going to be one of the least profitable small businesses.

5. Amusement and recreation services

If you’ve always been naturally gifted at rolling out the welcome mat to show out of town visitors or house guests a good time, it’s natural to think that opening a business in the hospitality industry would be right for you. Unfortunately, when it comes to travel, leisure, and caring for others, there are some business ideas that fall into the category of “least profitable businesses to start.”

First, although many people see recreational services as an easy way to make money—a place where people can spend their extra money on services that improve their quality of life and free time—it’s actually more difficult than you would think to make these service-based businesses profitable.

Ultimately, the fixed costs of operation, stiff competition, and the high impact of economic ups and downs, make amusement and recreation services one of the least profitable industries. Although you may find success in a small community that’s lacking these services, for the time being, it’s important to remember that if your customers face a shortage of cash, your services may be the first thing they cut to save money.

6. Traveling accommodations

For anyone with big dreams of moving or retiring to an exciting or scenic destination, the idea of opening a picture-perfect inn, bed and breakfast, or small hotel might sound like an ideal small business venture.

In reality, though, travel accommodations businesses rarely match up with the carefree, cozy vibe that owners picture at the start. In fact, they are one of the least profitable small businesses. Hotel professionals are faced with high fixed costs along with stiff competition from low-priced chain hotels and sites like Airbnb, forcing many to sacrifice profits with bare-minimum pricing to maintain occupancy rates.

These factors and more leave independent inns and hotels with average pretax profits at a hollow 0.26%. Therefore, if you’re interested in this type of service business, you might instead consider becoming an Airbnb host.

7. Retirement and assisted living facilities

As the baby boomer generation moves into older age, demand for retirement, assisted living, and hospice facilities to care for and support this large aging population continues to rise.

Unfortunately, although gearing a business toward the care of our older citizens might be a noble choice, as we mentioned above with regard to home healthcare, this is one of the least profitable industries for small business owners. High overhead, a shortage of nurses, real estate costs and pricing controls put in place by Medicare and Medicaid leave most healthcare elderly facility businesses with a net profit margin of just 3.3%.

Therefore, you decide to start a small business in this industry, consider whether the business venture you’re planning for will be profitable enough to support your livelihood.

8. Furniture stores

When you imagine small business ownership, there’s almost nothing as truly quintessential as the classic Main Street business storefront. Yet sadly, no other industry has been harder hit by the rise of the global online economy than independent, brick-and-mortar retail businesses.

In particular, you might find that despite the popularity of HGTV and interior decorating, opening a furniture store is actually one of the least profitable small businesses. Why is this such a hard retail business to get started and make successful?

Furniture stores typically have incredibly high overhead, which pairs poorly with a notoriously low markup rate from wholesale to retail. Combine this with shipping costs, production delays, and the growing influence of online retailers like Wayfair, and you’ll quickly understand how the average furniture retailer winds up with pre-tax profits of only 3.3%.

9. Car dealers

With the reliance many people around the country have on their cars, you would think getting into the car-selling business would mean easily accessible profit. However, like many of the business ideas on our list, selling cars involves much more than the sale process.

As a car dealer, you’ll need to source and transport cars—whether new or used—maintain them, store them, market them, and have representatives to sell them and work with customers. Considering all of these different components, starting a car-selling business, let alone a dealership, is going to require a significant amount of startup costs that most new entrepreneurs don’t have access to.

Plus, with the push for green transportation, especially in major cities and surrounding areas, it’s not surprising that car dealers have a low net profit margin of 3.2%

10. Lawn service and garden supplies stores

Although lawns and gardens are always going to be something that homeowners need to maintain, millennials are changing the home buying industry, which certainly could be a contributing factor to why these stores are on our list of the least profitable small businesses.

Millennials are renting longer and buying later, thereby eliminating the need for a “starter home,” which would require the most maintenance and therefore, drive the most business to these types of stores. Plus, not only is there not a high demand for this kind of retail shop, but as we’ve discussed with many of these ideas, overhead costs are high and maintaining the store means dealing with moving parts between employees, wholesale distributors, customers, and more.

11. Specialty retailers

For every passion and personality under the sun, there’s potential for a different type of specialty retail store—fashion boutiques, paper goods shops, hobby shops, and more.

Sadly, though, there’s a reason you’ve seen so many of your town’s Main Street retailers come and go over the years. High overhead costs along with impossible-to-beat pricing competition against big box stores and online retailers make local specialty retail shops one of the least profitable small businesses.

Have a handmade product you want to sell? Or are you still eager to curate your own collection of wholesale distributed goods? Opt for an ecommerce business model instead. It might not be the same as flipping the open sign on your own brick-and-mortar storefront, but when it comes to profitability, you’ll be much better off.

12. Grocery stores

Who doesn’t love a good meal? Joining friends around the table to enjoy a meal is a favorite pastime for many of us. This being said, however, when it comes to the food and beverage industry, you’ll find that some of the least profitable small business ideas fall under this umbrella.

For example, if you’d love to be the local grocer in your small town, it’s going to be very difficult to turn a profit with this small town business idea. Like many other specialized companies within the retail industry, there are low entry barriers, which leads to more and more competition, which leads to an average pretax profit of only 2.5%.

Plus, because grocery stores operate with perishable items that have to be carefully handled, maintaining profitability for an independent grocer can be especially tough.

13. Bakeries

If you have a passion for making bread, cakes, pastries, and all sorts of treats, opening your own bakery probably sounds like a dream small business.

Unfortunately, high overhead costs and food regulations along with tough competition from retail food stores and larger scale franchise operations make it close to impossible to sustain a freestanding independent bakery.

Therefore, instead of opting for a brick and mortar bakery, consider a food truck setup or focusing on bespoke baked goods for weddings and other special occasions. Either of these options will let you minimize overhead while meeting your customers where they are.

14. Beverage manufacturing

At first glance, knowing the high demand for palatable beverages, you might be tempted to start your own distillery, winery, or soft-drink manufacturing business—but unfortunately, even these ideas make our list of the least profitable small businesses.

With a high demand for beverages then, why is this industry so unprofitable? As you’ll see just based on the different types of “cola” available in the grocery store, there is no shortage of competitors in the beverage manufacturing industry, and smaller companies struggle to compete with the larger companies that can supply these drinks quickly and easily. This leaves the average pretax profit for small businesses in the beverage manufacturing industry at a very low 0.8%.

15. Beer, wine and liquor stores

In the United States, we have vastly different laws from state to state as it relates to liquor licenses, alcohol consumption, and distribution. And, while the demand may be tempting for a person who wants to start a profitable business, the regulations placed on alcohol retailers can put a lot of pressure on your small business. Plus, competing against other companies can be hard, since some have near-monopolies in their field. All of this leads to a less than desirable average pretax profit of just 3.4%.

Therefore, if you’re tempted to jump into this industry with your liquor store, your best choice is to find a specific, niche product type to specialize in and bring customers with those tastes directly to you.

This article originally appeared on JustBusiness, a subsidiary of NerdWallet.

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How to Start a Niche Foam Party Business: Kid’s Party

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Foam parties have become popular and are great fun. If you didn’t know what a foam party is, it is a party or event where participants have fun dancing amidst foam created by a machine. The machine creates bubbles of foams that envelop the place, creating a fun environment at the party. If you are a business person, then a foam party business is a great idea.

You can get a foam machine and use it to throw foam parties and make money from it – relatively affordably.

photo credit: Roaring Foam

Can you make money through foam parties?

Yes, you can make money if you have a foam machine. Parties are common, and party-goers get bored with the usual stuff. A foam party is an innovative way of partying. It allows participants to let go, dancing in joy amidst the foam. This kind of party would be popular, and you can make money by offering a different experience to participants.

Creating a niche market

When you want to make money from a business, you will find that there are many others with the same idea. You need to do something different so you can succeed. This is where finding a niche market helps. A niche market is a specific category to which you can cater. Kids Foam Party is such a niche market. While there are many businesses catering to foam parties in general, foam parties for kids is a niche idea. This is a business idea that can help you succeed and make money.

Planning your business

Now that you have found your niche, it is important to plan your business before you get started. The first thing is to be clear with what you are offering. You are offering a foam party, which is an event where there is a dance floor filled with suds. When this party is offered for kids, they will enjoy it the most. They would not only dance but play in the foam and have a great time in general.

Taking proper safety precautions like setting the depth of the foam and insisting on face coverings ensure there are no problems.

What do you need?

It is obvious that you need a foam machine if you plan to run foam parties. A foam machine is not too expensive. However, you need not buy one immediately. Since you are starting off with a new business, you can get a foam machine for rent. This is a cheaper option allowing you to rent a machine and use it whenever you need it. This will allow you to do a pilot run of your party business.

If the response is good and you start getting many events, then you can consider buying your own foam machine. This would work out better for you.

Kid having fun in foam
photo credit: Roaring Foam

Planning and executing foam parties for kids

With these basic concepts in mind, it is time you start planning your parties. Since you have chosen the niche of foam parties for kids, you need to explore different options. You can have foam parties to celebrate birthdays. There can even be parties for no reason but just to allow kids to have fun. Explore different themes for foam parties and plan the events.

Here are a few considerations to keep in mind while planning and executing foam parties for kids:

  • You need to find a venue to host the foam party. The ideal location is outdoors, so the foam does not create a mess inside. When the weather does not permit, you need to find indoor venues with a fairly big hall to organize the event.
  • Apart from the machine, you need the foam solution to create foam. You need to have sufficient foam machine solution to last the entire party.
  • Safety is a very important issue in foam parties. This is all the more important when you are dealing with kids. You need to have a clear plan for ensuring safety in your foam party. Communicate the plan with your clients so they are assured of the safety arrangements.
  • If you are doing the party indoors, you need a tarp to cover the floor and walls. It is important to cover up all the electric and other outlets to avoid them being damaged.
  • Placing plastic furniture is better since it won’t get damaged due to bubbles.
  • Safety arrangements for the kids are very important. Wearing shoes is a must. You can insist on goggles or face coverings to prevent allergies from the suds. You need to take adequate precautions to prevent kids from skidding and falling during the party. There is always a risk of accidents at a foam party, and you need to do everything to prevent it.
  • Preferably, get a waiver from guests to protect against liabilities.

With all this planning, you are now ready to execute foam parties and make neat profits from them.

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What open source-based startups can learn from Confluent’s success story

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It’s common these days to launch an enterprise startup based on an open source project, often where one the founders was deeply involved in creating it. The beauty of this approach is that if the project begins to gain traction, you have the top of the sales funnel ready and waiting with potential customers when you move to commercialize your business.

In the past, this often meant providing help desk-style services for companies who appreciated what the open source software could do but wanted to have the so-called “throat to choke” if something went wrong. Another way that these companies have made money has been creating an on-prem version with certain enterprise features, particularly around scale or security, the kind of thing that large operations need as table stakes before using a particular product. Today, customers typically can install on-prem or in their cloud of choice.

“A key aspect of these kinds of technology-developer data products is they have to have a combination of bottom-up adoption and top-down SaaS, and you actually have to get both of those things working well to succeed.” Jay Kreps

In recent years, the model has shifted to building a SaaS product, where the startup builds a solution that handles all the back-end management and creates something that most companies can adopt without all of the fuss associated with installing yourself or trying to figure out how to use the raw open source.

One company that has flirted with these monetization approaches is Confluent, the streaming data company built on top of the open source Apache Kafka project. The founding team had helped build Kafka inside LinkedIn to move massive amounts of user data in real time. They open sourced the tool in 2011, and CEO and co-founder Jay Kreps helped launch the company in 2014.

It’s worth noting that Confluent raised $450 million as a private company with a final private valuation in April of $4.5 billion before going public in June. Today, it has a market cap of over $22 billion, not bad for less than six months as a public company.

Last month at TC Sessions: SaaS, I spoke to Kreps about how he built his open source business and the steps he took along the way to monetize his ideas. There’s certainly a lot of takeaways for open source-based startups launching today.

Going upmarket

Kreps said that when they launched the company in 2014, there were a bunch of enterprise-size companies already using the open source product, and they needed to figure out how to take the interest they had been seeing in Kafka and convert that into something that the fledgling startup could begin to make money on.

“There have been different paths for different companies in this space, and I think it’s actually very dependent on the type of product [as to] what makes sense. For us, one of the things we understood early on was that we would have to be wherever our customers had data,” Kreps said.

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5 Hobbies That Make Money and How To Get Started

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Money-making hobbies range from walking dogs to blogging to creating and selling homemade goods.

Read about these profitable hobbies, as well as what you can expect to make.

1. Driving

Enjoy cruising around town? Give others a ride and make money by becoming an Uber or Lyft driver. Uber drivers make an estimated $5 to $20 an hour, and Lyft drivers earn about $5 to $25 an hour, according to SideHusl.com, a review site for money-making platforms. Note that earnings depend in part on when, where and how often you drive.

To become an Uber or Lyft driver, you must be the minimum age to drive in your area. You must also meet specific requirements related to your driver’s license, insurance and vehicle. Learn about these exact requirements in our guide to becoming an Uber or Lyft driver.

If you enjoy driving but don’t want people in your car, look into becoming a full-service Instacart shopper, which involves shopping for and delivering groceries. Uber Eats and Amazon Flex also offer opportunities to deliver food and other products to homes. Each of these gigs has its own set of requirements, though, so do your research before signing up.

2. Caring for dogs

If your favorite hobbies involve belly rubs, smooches and long walks in the neighborhood, try Wag or Rover. These apps enable you to walk, dog-sit or board pups overnight for money.

Rover and Wag work in similar ways. They both require you to be at least 18 years old, pass a background check and meet other requirements. For both, you create a profile, set your own rates, and use the app to choose which gigs to take. (See our Rover vs. Wag comparison for more specific sign-up and payment information, as well as how the apps vary in the services they allow.)

On both apps, the amount you earn depends on what you charge, how much you receive in tips, and which types of services you provide. As you would guess, boarding typically pays more than walking a dog, for example. But both companies take a bite from your earnings. Rover charges a 20% service fee per booking, and Wag takes 40%.

3. Blogging

If you have a blog that gets decent traffic, try making money from it. Blogging for money can take a few forms. One way is to host ads on your blog through a service like Google AdSense, which is free. Here’s the gist, according to Google: If your website is approved, then you choose where on it you would like ads to appear. Then advertisers bid to place ads where you designated, with the winner’s ads appearing in that spot. (People make money on YouTube through the same service.)

You earn some money when a reader clicks on one of these ads — but determining exactly how much you’ll make is tricky. Explore our guide to Google AdSense to learn more about it.

You could also try writing sponsored content, meaning companies pay you to write about their products. Or, become an affiliate through the Amazon Associates program. That involves linking to an Amazon product from your content and earning a commission when one of your readers clicks through and buys that item. Learn more about how to make money on Amazon through your blog.

4. Posting to social media

Love posting to social media and building a following? On Instagram and TikTok, many users earn money through sponsored photos and videos. Say you regularly post about your at-home exercise regimen. You may agree to post about a retailer’s resistance bands or sweatpants in exchange for cash or free products. (Sponsorships and affiliate marketing are also ways to make money from podcasts, in case that’s one of your hobbies.)

Sponsors may reach out to you to set up this kind of arrangement; you could contact them; or, in some cases, you may consider working through a third-party agency.

The type of content you post, as well as your number of followers and their engagement, will likely impact sponsorship opportunities. Learn more about how to make money on Instagram or on TikTok.

5. Selling your wares

There’s a marketplace for just about everything. So if you’re skilled in a hobby, consider trying to profit from it. For example, if you create jewelry or have an eye for thrifting quality clothes, try selling those items at a local flea market or yard sale, or on a neighborhood website such as Nextdoor or Facebook Marketplace.

Or look into an online market that could attract a wider range of buyers. Consider Etsy for crafts or Poshmark if you want to sell clothes online.

These websites charge fees that will cut into your profits. This guide to selling stuff online will help you think through the math and determine if your hobby can become a viable business.

What to consider before making money from your hobbies

Before taking any of the routes listed above, keep in mind that this work will likely affect your taxes. See our guide to self-employment taxes, which includes expenses you can deduct, and how to avoid penalties.

And as you aim to profit from your hobbies, consider whether you will continue to enjoy them through this new business lens. Let’s say knitting helps you relax. Will it continue to do so if you’re pricing, promoting and shipping your homemade wares through an online marketplace? And that blogging hobby: Will writing still be fun or cathartic if you’re occasionally throwing in a sponsored post?

It may be hard to answer these questions until you give the money-making approach a shot. But it’s worth reflecting on the potential trade-offs as you think about turning your hobby into a job.

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