Here's the businesses that make more money and have less competition
May I see your license and registration?
What if I told you a business had less competition, commanded higher prices, and was in-demand by customers, would you be interested? Of course, you would.
Let me show you how. It’s called occupational licensing.
An occupational license allows an individual to pursue a particular profession or vocation legally. Governments charge fees for these licenses, and may include education or experience requirements to obtain and maintain the license.
Governments began issuing medical licenses as early as the 13th century. In the 1950s only 5% of the US workforce needed a license to do their jobs. Today, about one-third of all workers in the US need some form of an occupational license.
The surge in licensing began about 30 years ago. The storybook answer is licensing protected the public from bad actors. The reality is industry itself often lobbied for licensing. Licensing restricted competition, kept associated wages at a premium, and became a nice source of revenue for governments. The downside has been an increase in costs for the consumer, fewer choices, and a high barrier of entry for new participants.
As an example, Texas had a license that required 70 days of training and two state exams to wash someone’s hair. Wild.
I know some of you read that and think “this licensing system actually sucks.” Well, it is what it is, so let’s get something out of it. You need to consider starting a business that requires an occupational license.
Licensing does a couple of things that are very beneficial for a new business.
It gives an endorsement from an official source that a customer will trust. How do I know my doctor has at least a basic competency? They have a medical license.
Many people don't have your grit. Once you're in, licensing reduces competition by providing a barrier to entry.
The incumbents are likely to be ripe for the whooping – on a competitive basis that is.
Make a list of jobs you know require a license. How many did you get? A nice dozen? In reality, between all 50 states over 1,100 occupations require a license. Texas alone licenses 779 occupations. There’s something for everyone.
Consider this when picking a license
The requirements for each license are not proportional.
You'll need to weigh the cost-benefit of each. For instance, in New York, a basic cosmetology license calls for 1,000 hours of classroom work and two state exams. An armed security guard needs only 55 hours of classroom time. That's right if you carry clippers to work, it's 1,000 hours, but carry a gun and it's 55 hours.
Consider using potential revenue (wages, tips, or sales) as a way to value the cost of licensing.
As an example, let's say you're going to cut hair working in the state of New York. The average tuition for a cosmetology school in New York is $13,354 and runs 10 months long. If you go to work for someone else, you're going to make about $15/hour to start, working up to an average of $21/hour. The cost of the schooling will take six months to pay off – in theory. Of course, it will take longer since you will have other bills to pay both in and out of school. (You can see where the barriers start to form.)
But, if you open your own salon you have a reasonable shot of making $70,000-$175,000 each year. The change to the return on investment may make going through the process worth doing.
Also, occupational licensing is coming under greater scrutiny over the last several years. Research any changes being proposed to the license before making the investment.
Some licenses allow you to supervise people working under your license authority. This is an excellent opportunity to get a lot of value out of the license as a business owner.
Consider the start-up costs.
Getting the license isn’t the only expense. Often, licensed trades will require continuing education and tooling. The tooling thing can be no joke expense-wise. Next time your mechanic makes fun of you for having $40k in student loans, ask them how much they owe the Snap-On guy. I’ve known techs with $75,000+ in tool debt.
Tooling for some jobs can be as little as $100. Others can be north of $100,000. Most are much more reasonable and you'll be able to buy things as you need them. Don’t let the start-up costs alone freak you out. Consider all the costs and potential revenues before making your decision.
A private drug dog will take two years, $25,000 in training, and countless hours of your time working with your dog. You'll also need to go through the process of obtaining licenses to have the drugs needed for training. Seems like a high price, right? The upside is private handlers can make $1,000+/day for their work. There are handlers working part-time making a nice six-figure income.
Is the license is necessary to your business model?
If you're going to work in that salon, hire employees and manage it on a daily basis, you'll need to get a license. Or, you can keep things simple by renting chairs to independent stylists instead. In this case, you might get away with skipping the license.
This is a matter of deciding what your “core business” is going to be. Is your core business being a stylist employing other stylists, or is it owning facilities you’re renting out to independent stylists?
I recommend you get and maintain a license for your core business. Even if you intend to hire people to do the work from Day 1, there's good reason to do so.
Employees respect a boss who is willing and able to do the work. (Don't worry, they don't expect you to be great at it.)
You’ll be able to hire for the person’s intangibles and train for the skills needed.
You’re not going to want the stress of having to only depend on other people to deliver for your customers. When things are going sideways, you're going to want to get things back on track.
Exposure to the work will give you a leg up on thinking about new ways to make money with your business.
Where to find a list of occupational licenses
Unfortunately, this is easier said than done. After checking a few states, none had a central place listing all available licenses. In almost all states, the system for occupational licensing is amess. The problem is so bad some have launched studies to figure out how many licenses even exist.
In most cases, the state has an agency that does most licensing. You'll need to Google-fu your way around. Then pick up the phone and call them. The agency likely has an office for small businesses – use them. Other agencies will have their hand in there too. Some occupations may need licenses at the individual and business levels. A word of warning: agencies often fail to mention additional licenses you may need. Oh, yeah, don’t forget you need to check with the federal government too!
I know, I know...this seems like a big pain in the rear, but that’s the damn point! Most people give up, and that is to your benefit – if you can persist.
Licensing isn't an end-all, be-all. It is a great place to start when you want to build a boring business, but not sure what kind. If you have your heart set on building something else, go do that. That said, you should take a hard look at licensed occupations.
It's time to get to work, analyzing the opportunities in your area. Let me know what you're up to, and if you want to chat about it you can give me a call.