1. Conduct a personal evaluation
“Know yourself, and work in a job that caters to your strengths. This knowledge will make you happier.” – Sabrina Parsons
Begin by taking stock of yourself and your situation:
- Why do you want to start a business? Is it money, freedom, creativity, or some other reason?
- What skills do you have?
- What industries do you know about?
- Would you want to provide a service or a product?
- What do you like to do?
- How much capital do you have to risk?
- Will it be a full-time or a part-time venture?
Your answers to these types of questions will help you narrow your focus.
This step is not supposed to dissuade you from starting your own business. Rather, it’s here to get you thinking and planning. In order to start a successful business, passion alone isn’t enough.
You need to plan, set goals and above all, know yourself. What are your strengths? What are your weaknesses? How will these affect day-to-day operations? You could conduct a SWOT Analysis on yourself to figure this out.
All the better if you can enter a market you like and that you know well. As you get started, your business will likely dominate your life so make sure that what you’re doing is stimulating and not dull. You’re going to be in it for the long-haul.
Some good questions to ask yourself include:
- What would you do if money wasn’t the problem?
- Is money really important? Or rather, is making a lot of it really important? If it is, you’re probably going to be cutting out a number of options.
- What things really matter to you?
- Do you have the support of your family, especially your immediate family? They may have to make sacrifices at the beginning, so it’s important to have them behind you.
- Who do you admire in business? Perhaps in the industry you’d like to go into? Why do you admire them? What are their likable traits? What can you learn from them?
Answering these questions and asking many more about yourself and your abilities isn’t necessarily going to ensure you’re successful but it will get you thinking about your goals and about what motivates and inspires you. Use this time to make sure that you are matching the business you want to start to your personal aspirations.
2. Analyze your industry
“The more you know about your industry, the more advantage
and protection you will have.” – Tim Berry
Once you decide on a business that fits your goals and lifestyle, you need to evaluate your idea. Who will buy your product or service? Who will your competitors be? At this stage you also need to figure out how much money you will need to get started.
Your “personal evaluation” was as much a reality check as a prompt to get you thinking. The same thing applies when it comes to researching your business and the industry you’d like to go into.
There are a number of ways you can do this, including performing general Google searches, going out and speaking to people already working in that industry, reading books by people from the industry, researching key people, reading relevant news sites and industry magazines and taking a class or two (if this is possible).
If you don’t have time to perform the research or would like a second opinion, there are people you can go to for help, like government departments and your local SBDC.
There are also a number of less traditional sources worth turning to:
- Advertising representatives for statistics and data on your competition or the industry in general
- List brokers (to get an idea of the number of prospects out there)
- Suppliers of your industry (again to get a sense of demand and for market information)
- Students who will likely be happy to perform research for you at an affordable fee.
Evaluating your market
In order to identify how attractive your prospective market really is (your own desires aside for the moment), there are a few things you should consider:
How urgently do people need the thing you’re selling or offering right now?
What’s the market size like? Are there already a lot of people paying for this thing? For example, the demand for “traditional signwriting classes” is almost non-existent.
How easy is it (and how much will it cost you) to acquire a customer? If you’re a lead generation business, this may require a significantly larger investment that say a coffee shop.
How much money and effort will it cost to deliver the value you would like to be offering?
How long will it take to get to market? A month? A year? Three years?
What size up-front investment will you need before you can begin?
Will your business continue to be relevant as time passes? A business that repairs exclusively iPhone 5 screens will only remain relevant so long as the iPhone 5 sticks around. If your business is only relevant for a specific period of time, you will also want to consider your future plans.
If you like, you can even take things a step further and consider the consumer needs currently not being met by businesses in the industry. This is a good time to take a look at potential competitors. And remember, the presence of competitors is oftentimes a good sign! It means that the market for your product or service already exists, so you know that from the outset, you’re not flying entirely blind.
While you’ve got the time, learn as much as you can about your competitors, about what they provide to their customers, how they attract attention, and whether or not their customers are happy. If you can figure out what’s missing before you even get started, your job will be made that much easier when you do finally set up shop.
3. Make it legal
Realistically speaking, registering your business as a business is the first step toward making it real. However, as with the personal evaluation, take your time to get to know the pros and cons of different business formations.
If at all possible, work with an attorney to iron out the details. This is not an area you want to get wrong. You will also need to get the proper business licenses and permits. Depending upon the business, there may be city, county, or state regulations as well as permits and licenses to deal with. This is also the time to check into any insurance you may need for the business and to find a good accountant.
Types of business formations include:
Spend some time getting to know the pros and cons of each business formation. If you need help, we’ve got a full guide on Legal Entities, Licenses and Permits.
While incorporating can be expensive, it’s well worth the money. A corporation becomes a separate entity that is legally responsible for the business. If something goes wrong, you cannot be held personally liable.
Other things you will need to do include deciding on a business name and researching availability for that name.
4. Start the planning process
“Our goals can only be reached through the vehicle of a plan, in which we must fervently believe, and upon which we must vigorously act. There is no other route to success.”
– Pablo Picasso
If you will be seeking outside financing, a business plan is a necessity. But, even if you are going to finance the venture yourself, a business plan will help you figure out how much money you will need in order to get started; what needs to get done when, and where you are headed.
In the simplest terms, a business plan is a roadmap—something you will use to help you chart your progress and that will outline the things you need to do in order to goals. Rather than thinking of a business plan as a hefty document that you’ll only use once (perhaps to obtain a loan from a bank), think of it as a way to formalize your intentions.
While you will potentially use your business plan as part of your pitch to investors and banks, or use it to attract potential partners and board members, you will primarily use it to define your strategy, tactics, and specific activities for execution, including key dates, deadlines and budgets, and cash flow.
In fact, the business plan does not have to be a formal document at all if you don’t need to present your plan to outsiders. Instead, your plan can follow a lean planning process that involves creating a pitch, forecasting your key business numbers, outlining key milestones you hope to achieve, and regular progress checks where you review and revise your plan.
If you aren’t presenting to investors, your pitch is not the traditional pitch presentation, but instead a high-level overview of who you are, the problem you are solving, your solution to the problem, your target market, and the key tactics you will use to achieve your goals.
Even if you do not think you need a business plan, you should go through the planning process anyway. The process of doing so will help to uncover any holes or areas that have you have not thought through well enough. If you do need to write a formal business plan document, you should follow the outline below.
The standard business plan comprises nine parts, including:
- Milestones and Metrics
- Management Team
If you would like detailed information on how to write a business plan to present to others, there are plenty of online resources, including our own comprehensive guide.
You will also find hundreds of sample plans for specific industries on this very website. Use them at your leisure but be prepared to adapt them to suit your precise needs. No two businesses are the same!
Types of business plans
If you are simply creating a business plan in order to stimulate a discussion with potential partners and associates, you may want to consider opting for a “startup plan,” also known as a feasibility plan. As your business grows you can flesh out the sections as you see fit.
In contrast to the standard plan and the startup plan, is the operations or annual plan. This type of plan is used for internal purposes and primarily reflects the needs of the members of the company. This type of plan is not intended for banks and outside investors. You will use it either to plan your company’s growth or expansion, or to set company-wide priorities.
If the latter is true and you are using the plan in order to direct your internal strategy, you are creating a strategic plan, a type of plan that will include a high-level strategy, tactical foundations of the strategy, specific responsibilities, activities, deadlines and budgets, and a financial plan.
5. Get financed
Depending on the size of your venture, you may need to seek financing from an “angel” or from a venture capital firm. Most small businesses begin with private financing from credit cards, personal loans, help from the family, and so on.
As a rule, besides your start-up costs you should also have at least three months’ worth of your family’s budget in the bank. In order to finance your company, you will need to match the company’s needs to the appropriate financing option.
The main types of investment and lending options include:
- Angel investment (similar to venture capital)
- Commercial (banks)
For in-depth information on getting your business funded, see our complete guide on how to get your business funded, which includes detailed information on each of the above-mentioned funding options.
Note: A beautifully fleshed-out business plan does not guarantee you will get funded. In fact, according to Guy Kawasaki, the business plan is one of the least influential factors when it comes to raising money.
To stand a realistic chance of getting hold of the funds you need before you can get started, you’d be better off first focusing on your “pitch.” Not only will it be easier to fix because it contains less, but you’ll also get feedback on it—most investors don’t bother reading the full business plan, though they may still expect you to have it.
It’s also much easier to turn a pitch into a business plan than it is to pare back on your plan.
6. Set up shop
You’ve done it—or, just about. Your business plan has been laid out, the money is in the bank, and you’re ready to go.
You’ve got a long list of things you need to do: Find a location. Negotiate leases. Buy inventory. Get the phones installed. Have stationery printed. Hire staff. Set your prices. Throw a grand opening party.
Each of these steps will need to be thought through carefully. Your business location will dictate the type of customer you attract, what types of promotions you can run, and how long it will take you to grow. While a great location won’t necessarily guarantee your success, a bad location will almost always guarantee failure.
As you’re thinking about where you want to set up shop (including the city and state), consider the following:
- Price—Can you realistically afford to be where you want to be? If not, or if you’re cutting it fine, keep looking.
- Visibility—Will people easily be able to find you? Will they see your promotions and offers? Are you in the center of town or further out? How will this affect you?
- Access to parking or public transportation—Can people easily find you from available parking options and transportation routes? If they have to look too hard, they may give up.
- Distribution of competitors—Are there many competitors close to you? If so, this may be a sign that the location is premium for the clientele you wish to attract. It may also mean you do no business. Consider carefully how you wish to approach this type of situation.
- Local, city and state rules and regulations—Look into regulations, as areas may be more stringent than others. Ensure there are no restrictions that will limit your operations or that will act as barriers to your store.
Your marketing will set the stage for the future of your store. It will set expectations, generate hype (if done well), bring business in from day one and ensure that people know where you are and what they can expect from you.
Your store’s layout, design and placement of your products will decide not only the overall atmosphere of the store, but what products people see and buy. Consider the areas you want well lit; how you will display products (if necessary); what various colors will make people feel, and how people will move through your store.
There are reams of literature on why we buy what we do, all of it fascinating and much of it informative. Begin thinking about how you shop—this will get you to think more critically about your own store.
Consider: placing products low on shelves will mean that people are unlikely to see them and therefore unlikely to buy them, whereas placing them at eye-level will mean they’re seen first and are therefore probably more likely to be purchased.
Your choice of products and how you decide to price them will create a reputation. Rather than stock everything of a similar price range from one or two catalogues, consider only choosing those items that will create the feel you want to become known for.
If you’re a service business, build your services in a similar manner, considering your different clientele and the value they will get from the different options you have on offer. If a very affordable package will cheapen your brand, consider excluding it. If a pricier option will limit your clientele too drastically, maybe cut back on some of the services included.
7. Trial and error
Whether you’re starting your first or your third business, expect to make mistakes. This is natural and so long as you learn from them, also beneficial.
If you do not make mistakes, you do not learn what to do less of and equally, what to do more of. Be open-minded and creative, adapt, look for opportunities, and above all, have fun!
The great thing about owning your own business is that you get to decide what you want to do and what direction you want to grow in.