According to one recent study conducted by the Small Business Administration, there are approximately 32.5 million organizations that classify as a small business in operation in the United States. Half of all American workers are either employed by a small business or own a small business and are significant drivers of not only the economy in this country but on a global scale as well.
Coming up with an idea for a new business, however, is one thing. Actually becoming a successful business owner is something else entirely.
According to another study, only about 48% of small business organizations survive beyond their five-year anniversary. This is due to a large number of reasons including uncertainty in terms of economic development, changing consumer behaviors, cash flow problems, and more.
Because of that, if you’re going to start a new business, you need to have more than just an idea. An excellent product or service can only get you so far if your business structure isn’t where it needs to be. There are several critical steps that need to be taken that go beyond your initial business idea to help make sure that you end up as one of the approximately 52% of business owners that are still here five, 10, or even 20 years from now.
To be a successful entrepreneur, you need to think about factors like business financing. You need to guarantee that your legal structure is in order. You need to focus on market research so that you fully understand the customers you’ve dedicated yourself to serving.
Business insurance, workforce development, your business entity type – all of these things must be considered before you “hit the ground running” and try to bring your initial vision to life.
Any seasoned business veteran will tell an aspiring entrepreneur that it takes a long time to become an “overnight success.” A rock-solid foundation must first be laid so that you have something stable to build from moving forward.
But while the process of starting a business is time-consuming, it isn’t necessarily as difficult as some people assume it to be. Running a successful business requires you to follow a precise process and to keep a few important things in mind along the way.
1. Hone Your Business Idea
By far, the most important step to take when starting a new business involves making sure that your actions are motivated by the right idea in the first place.
It’s not too difficult to come up with an idea for a new product or service. But what makes yours unique? For the best results, you should be able to easily answer the following three questions:
- What is it that your product or service does?
- How is it different from similar products or services that are already on the market?
- What problems does it solve for your potential customers or what value does it bring to their lives?
If the answer to any of those questions is “I don’t know,” you need to go back to the drawing board and refine your idea until things start to come into focus.
Market research will help enormously to that end. Your primary motivator when starting a business should be to bring something fresh and exciting to people’s lives. Therefore, it stands to reason that in order to do that, you need to know as much about who these people are as possible.
Thorough market research will allow you to drill down your potential customers in an almost intimate level of detail. Who are these people? What do they need? What do they want? What do they like? What do they dislike?
Market research can help you answer all of these questions and more. Not only will this then be the insight that you can use to refine your initial idea, but it will inform a lot of the choices you’ll make from that point forward. Marketing is a prime example of that.
2. Develop the Right Business Plan
Next comes what is arguably the most essential part of starting a new business – making sure that you have the right business plan to operate from at the outset.
At this point, you’ll continue to ask yourself a series of important questions. What is the overall purpose of your business? What long-term goals do you hope to accomplish? How are you going to come up with the business finances necessary to get your enterprise off the ground?
Keep in mind that everyone’s answers to these questions will be a bit different because every situation is unique. There is no “one size fits all” approach to starting a business.
Once you know what you’re doing and most importantly why, you can begin to put together a plan for how you’re going to accomplish it.
Again, market research will prove invaluable to that end because it helps you better understand your target customers. You’ll also want to conduct a competitive analysis to see what other companies in the industry are offering similar products and services to yours. At that point, you can figure out what they’re doing well – and what you can do even better.
Although it may seem counterintuitive, you’ll also want to think about a potential exit strategy at this point. Keep in mind that you’re trying to put together a roadmap for your new business, essentially. You need to know where you’re starting and where you hope to end up in order to connect those two points in the most efficient way possible.
Therefore, if you hope to start a successful business and sell it in 10 years, you need to start making decisions with that goal in mind. If you want to leave the business to your kids so that it stays in the family once you retire, you’ll need to begin thinking about how to accomplish that, too. Tax planning actually starts before you choose your business entity and structure.
3. Dive Into the Financial Side of the Equation
Another part of starting a business comes down to business finances. This, too, will play a pivotal role in the plan that you’re in the process of developing.
First, you’ll want to consider how you’re going to come up with the funds necessary to start your business in the first place. Do you have the cash on-hand to cover startup costs, or will you be taking out a business loan? What do those startup costs actually look like in your scenario?
Obviously, startup costs will be smaller if you’re selling entirely online via an eCommerce portal as opposed to opening up a brick-and-mortar retail location, so all of this needs to be carefully considered.
Keep in mind that a number of small business services exist to help people in your exact situation. In addition to the aforementioned business loans you also have the option of business grants or even third-party investors. Crowdfunding is also a very popular option these days to pull in funding from multiple sources.
You’ll also need to perform what is called a “Break Even Analysis.” As the name suggests, this is the total amount of money you need to make by way of your product or service for your new business to be profitable.
This number will vary wildly depending on the industry. In some, like food services, it can take years for you to break even and start turning a profit. In others, it will be a much smaller amount of time.
In general, take the fixed costs associated with starting your business and divide them by variable costs subtracted by the average price of your product or service. The number you’re left with will give you the break-even point.
This is a key number to keep in mind because it can help shed insight into how far you’ve come and how far you still have left to go. It will also help you determine a key price for your product or service at the outset.
4. Registration Begins
At this point, you’ll begin the registration process – one that again has multiple moving parts that need to be accounted for.
First, you’ll need to determine your business structure. One such option is a sole proprietorship, which is applicable when you plan on owning your new business entirely on your own. Don’t forget, however, that operating as a sole proprietor does have the potential to impact your personal credit.
Another option is that of a limited liability company, also referred to as an LLC for short. This is actually the most common selection for small business owners because it offers certain legal protections that other avenues do not. There are also tax benefits that you get as well.
Two other options are to choose a corporation, S-corporation or partnership. You’ll likely want to consult with a financial professional or legal council to determine which one makes the most sense for your situation and your long-term goals.
At that point, you can begin to register with all of the appropriate entities, including your local government and the federal government by way of the Internal Revenue Service.
This will involve completing and submitting several essential documents, including your articles of incorporation, your operating agreements, and your “Doing Business As” (DBA) document that outlines, among other things, your business name.
You’ll also want to trademark your business name for additional legal protection moving forward.
This is also the part of the process where you will obtain your employer identification number (EIN) from the Internal Revenue Service. You’ll fill out income tax forms for both federal and state income outlining your obligations once you do officially open your doors.
5. Insurance and Other Key Considerations
Another one of the key factors that you’ll need to account for at this point involves choosing the right business insurance plan. This is another part of the process that will vary depending on exactly what type of business you’re planning on starting.
If you’re operating entirely on your own, you’ll need a different type of business insurance than if you were opening a retail location that will see customers visit on a regular basis. You’ll also need to account for things like property damage and potential theft of valuable assets.
Whether or not your business is founded to sell a product versus a service (or vice versa) will also impact the type of policy you need as a small business owner.
Again, it would be wise to consult with a financial professional who has experience in the industry that you’re planning on entering. They can help you make sure that business insurance and other essential factors are properly accounted for so that you don’t run into trouble later on.
One element of becoming a successful entrepreneur also involves the acknowledgment that, as much as you’d like, you probably can’t handle everything on your own. You may be able to start that way, but eventually, you’re going to need a team of people to surround yourself with who can fill in a lot of the skills gaps that you may lack.
What this means is that you need to start thinking about workforce development. Depending on the size of your business and your long-term goals, you don’t necessarily need a Board of Directors or anything to that extent. But you do need someone who understands crucial factors like marketing. You need someone who will be able to know which vendors to partner with and where to get the supplies you’ll need to bring your product or service to life. You’ll want a seasoned financial professional (either in-house or a third party) who can handle your business finances on an ongoing basis. Don’t forget that the major reason why a lot of small businesses ultimately fail comes down to cash flow problems, after all.
Defining these roles and their responsibilities, and finding the right people to fill those positions, will be one of the key ingredients to your success in the years to come. At the very least, they’ll make your day-to-day obligations easier. At best, they’ll help keep you on the right path and moving in the right direction to make the biggest impact possible once you launch and every day thereafter.
6. Start Thinking About Marketing and Branding
One mistake you can’t afford to make as an entrepreneur involves assuming that branding begins and ends with your business name. While having a memorable name is important, that’s not going to instill awareness (and ultimately loyalty) among your potential customers.
Before starting your business and selling your product or service, you must build your brand. When that product or service does launch, people won’t need to warm up – they’ll already be excited about what you have to offer.
This part of the process begins with the development of your company website. Most people are going to find you through a search engine like Google and that will take them right to your website, which should immediately tell them who you are, what you do, and why they should care to begin with. Many successful businesses narrow their narrative to target specific audiences.
You’ll also want to establish a social media presence on sites like Facebook, LinkedIn and Twitter as well. This is a great way to build anticipation for a product or service prior to launch, as well as to expand your reach and begin to develop a reputation as a brand that can be trusted.
During this time, you’ll also want to choose a customer relationship management (CRM) tool – especially if you’re offering a particular service. This will help you keep track of customer data in a way that improves not only your services in the future but also how you conduct things like your marketing campaigns as well.
Keep in mind that every piece of content that you put out into the world – be it a helpful blog post on your website or a post on social media – needs to feel like it’s coming from the same place. Everything from the colors you use during the design phase to your language choices needs to be consistent. This level of brand continuity is critical to again help cement an idea in someone’s mind of who you are and what you do and to avoid confusion among a larger audience.
In the End
Once you’ve completed all of these steps, you’ll be well on your way to starting a new business. Having said that, you need to see this point for what it truly is – the beginning of a larger journey, not the end of something.
Every day, conditions will change. Your industry – and your customers – will throw you curveballs. You need to be in a position to continue to adapt to them and make intelligent choices in the future.
All of these best practices will go a long way towards helping you bring your new business to life, yes. But if you want to keep that business alive, you need to continue to think about these and similar factors consistently. That will put you in the best possible position to not just be initially successful but to ultimately stay that way, which in and of itself is the most important benefit of all.
If you are thinking of starting a new business, or have questions regarding a current one, we’d love to help! Contact us today!