The 5 critical steps to starting a business
You’ve been thinking about it for a while now, exiting the corporate world and becoming your own boss, but your fear of failure and not being able to pay the bills has always held you back. According to the Bureau of Labor Statistics, 20% of small businesses fail in their first year and 30% fail in their second year. It is a scary thought, but what if we reverse those statistics. That would mean 80% of small businesses actually succeed in year one and 70% in year two!
Every business comes with it’s own set of unique challenges and opportunities, but there are some basic steps to help get you started and better your chances of staying in the higher percentage who succeed.
1) Establish a Service or Product that You are Passionate About and Fills a Need
A lot of people looking to start their own business try to find a service or product that will make the most money; however, what I was always taught, is do what you love and the money will follow. Find something you are passionate about and feel confident in and build your business around that. If you are truly passionate about what you do, you can pick the most saturated industry and simply, do it better, and you will be successful.
2) Do Your Research and Create a Business Plan
The second mistake people often make is looking at the product or service first and the market second. Most successful businesses fill a gap in the market and create a solution to a problem. This is where doing your research comes in to play. There are so many online resources available but also, don’t be afraid to talk to real business owners and understand their needs.
When doing research, online forums and networking groups are a great place to start. See what topics people in the industry are discussing and what questions people are asking. Every industry has their own association and many of them can be found in groups on social media networks like Linkedin. Request to join and become part of the conversation. Keyword searches are a must as well. Use tools like Google to find out what keywords are being searched most frequently online.
Most importantly, find out who your competitors are. Visit their websites to gain an understanding of what they are doing but also find third party resources like articles and blogs and customer reviews. It is important to hear from actual customers what they like and dislike about a business so that you can learn how to do it better.
Once you’ve done the research, compile it into a business plan. Put all of your thoughts down in one place, including the potential challenges and opportunities, industry background, start up costs, marketing plan, will you need a website, etc… Learn more about creating a business plan here.
3) Test and Prove Your Concept
This can be a tough, but crucial step in the process. What is the demand and do customers want to buy what you intend to sell? Answering this question will mean talking to potential customers. It may be wise to steer clear of family and friends during this process, as they may not want to tell you the honest truth. Instead, make some cold calls and evaluate how people react. What questions do they ask and what are their needs? Be inquisitive during the call and don’t be afraid if you don’t have all the answers. This process will help you to figure out things you might have missed and will also help build your valuable sales skills.
4) Evaluate Your Start Up Costs and Raise Capital
Some business have very low start-up costs, maybe all you need is a computer, Internet service and a cell phone. It is probably wise to have a website where potential customers can find out more information about your products and/or services and you can easily set one up using sites like GoDaddy.com.
Other businesses may require you to have a physical location where customers can come in, such as a storefront, or maybe you need funding to develop prototypes for your product, apply for patents and fund research. This is where raising capital with potential investors will come in, a process that will take time. It’s a good thing you put together that business plan, because investors will want to every detail of your product or service and how you intend to succeed.
Investors are naturally hesitant and want to see proof that your business is viable. They also want to have confidence in the person running the business because ultimately, they are investing in you. Finding your first investment can easily take six months or more and you will probably be told no more times than you can count. Do not get discouraged, if you’ve ever watched Sharktank, many entrepreneurs get told no and go on to become incredibly successful.
If you plan to fund the business yourself, there are many different ways to do it. You can borrow against your 401k, life insurance and house, you can use credit cards and don’t forget about the good old-fashioned bank loans. Lastly, you can reach out to family and friends, but always be cautious mixing family and friendships with business.
5) Choose a Legal Structure
Once you are ready to dive in, it is time to choose a legal structure. Sites like LegalZoom.com can get you up and running in no time and have great resources to help you figure out which legal structure is right for your business. They can also help you with finding an available business name and setting up your accounting structure. With each different legal structure, sole proprietorship, LLC, Partnership, or Corporation there are different fees associated as well as different tax implications. It is extremely important to understand these differences and what is required for each before jumping in.
With everything else on your mind like growing competition, raising capital and choosing a legal structure, you might not have even started thinking of a name for your business yet. Finding a name for your business that is memorable and distinctive is important. You will also want to make sure that you can buy a domain name for your website that is similar. For example, if your business name is something like Smith’s Auto Group, you’ll want to see if smithsgroup.com or smithsauto.com or smithsautogroup.com are taken. If not, I’d grab all three! Sites like GoDaddy.com can help you with this and they even have services to set up your website for you.