Most profitable businesses to start

Forbes has publised a list of the most and least profitable business to start.

“Of the winners, little surprise that professional services–accounting, law, design and medical-related firms–accounted for eight of the top 10. Two big perks here: constant demand (no matter what the economy is doing, people will still get sick and still sue each other) and relatively low overhead. Bean counters trumped all, with a 25% average pretax margin. Next came the legal-service firms, at 21.6%, followed by dental offices (20.9%) and specialty design shops (17.6%).

Looking for causes behind low and high profits, the unstated concept of moat comes up:

Another nice thing about professional services is all the repeat customers. “If someone’s been doing my taxes for 20 years, why would I switch?” says John Czepiel, professor of marketing at New York University’s Stern School of Business. “There’s a perceived cost of switching that keeps customers coming back.”

As for those bleeding red ink, the reasons are myriad. Low barriers to entry, huge fixed and variable costs, lack of product differentiation, and little or no pricing power with buyers and suppliers are but a few.

The most interesting to me: Specialized Design Services (e.g. interior designers, industrial designers, graphic designers).  As far as the rest, I was surprised to see banking, accounting and medical care so heavily represented.  I don’t think of them as being high margin things.  I think it would be interesting to see someon take one of the less profitable ones, especially Amusement and Recreation Services (e.g. golf clubs, ski resorts, marinas, fitness centers and bowling alleys) and make it profitable.  The people I meet day-to-day are craving something fun and unique to do.  I imagine part of the difficulty there is creating something high value, but also having a margin left over.  People have high expectations when it comes to entertainment, and are none the less very frugle.

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