Starting a new small business? Find out where to start and how to succeed.
You want to make sure you’re well prepared before starting your business, but realize that things are almost guaranteed to go wrong. In order to run a successful business, you need to adapt to changing circumstances. Conducting in-depth market research on your area and the demographics of your potential customers is an important part of developing a business plan. This includes conducting surveys, conducting focus groups, and researching SEO and public data. Before you can start selling your product or service, you need to build your brand and get a group of people willing to join you when you open your doors. This article is for entrepreneurs who want to learn the basic steps to start a new business.
How to start a small business
1. Refine your idea.
If you’re thinking of starting a business, you probably already know what to sell online, or at least the market to enter. Quickly search for existing companies in your chosen industry. Find out what current brand leaders are doing and find out how to do it better. If you think your company can offer something that other companies can’t (or offer the same thing, only faster and cheaper), or you have a solid idea and you’re ready to create a business plan.
Define your “why.”
It is good to know why you are launching your business. In this process, it may be wise to differentiate between [whether] the business serves a personal why or a marketplace why. When your why is focused on meeting a need in the marketplace, the scope of your business will always be larger than a business that is designed to serve a personal need.”
Another option is to start a franchise from a well-known company. The concept, brand loyalty and business model are in place; you need a good location and the means to fund your operations.
Brainstorm your business name.
Regardless of which option you choose, it’s vital to understand the reasoning behind your idea. Stephanie Desaulniers, owner of Business by Dezign and former director of operations and women’s business programs at Covation Center, cautions entrepreneurs against writing a business plan or brainstorming a business name before nailing down the idea’s value.
Clarify your target customers.
people start businesses without taking the time to think about who their customers are and why they should buy from them or hire them. “You need to figure out why you’re working with these clients—are you passionate about making people’s lives easier?” Desaulniers said. “Or do you enjoy creating art to add color to your world? Identifying these answers helps clarify your mission. Third, you define how you provide value to your customers and communicate that value in a way that they are willing to pay for.”
During the ideation phase, you need to iron out the major details. If the idea isn’t something you’re passionate about or if there’s no market for your creation, it might be time to brainstorm other ideas.
2. Write a business plan.
Once you’ve implemented your idea, you need to ask yourself some important questions: What is the purpose of your company? Who are you selling to? What is your ultimate goal? How do you finance start-up costs? These questions can be answered in a well-written business plan. Many mistakes are made by new businesses jumping into things without considering these aspects of the business. You need to find your target customer base. Who will buy your product or service? What’s the point if you can’t find evidence that there is a demand for your idea?
Consider an exit strategy.
It’s also a good idea to consider an exit strategy as you compile your business plan. Generating some idea of how you’ll eventually exit the business forces you to look to the future.
“Too often, new entrepreneurs are so excited about their business and so sure everyone everywhere will be a customer that they give very little, if any, time to show the plan on leaving the business,” said Josh Tolley, CEO of both Shyft Capital and Kavana.
“When you board an airplane, what is the first thing they show you? How to get off of it. When you go to a movie, what do they point out before the feature begins to play? Where the exits are. During your first week of kindergarten, they line up all the kids and teach them fire drills to exit the building. Too many times I have witnessed business leaders that don’t have three or four predetermined exit routes. This has led to lower company value and even destroyed family relationships.”
3. Assess your finances.
Starting any business has a price, so you need to determine how you will cover those costs. Do you have the means to fund your startup, or will you need to borrow money? If you’re planning to leave your current job to focus on your business, do you have money put away to support yourself until you make a profit? It’s best to find out how much your startup costs will be.
Many startups fail because they run out of money before turning a profit. It’s never a bad idea to overestimate the amount of startup capital you need, as it can be a while before the business begins to bring in sustainable revenue.
Perform a break-even analysis.
One way you can determine how much money you need is to perform a break-even analysis. This essential element of financial planning helps business owners determine when their company, product or service will be profitable.
The formula is simple:
- Fixed Costs ÷ (Average Price – Variable Costs) = Break-Even Point
Every entrepreneur should use this formula as a tool because it informs you about the minimum performance your business must achieve to avoid losing money. Furthermore, it helps you understand exactly where your profits come from, so you can set production goals accordingly.
Here are the three most common reasons to conduct a break-even analysis:
- Determine profitability. This is generally every business owner’s highest interest.Ask yourself: How much revenue do I need to generate to cover all my expenses? Which products or services turn a profit, and which ones are sold at a loss?
- Price a product or service. When most people think about pricing, they consider how much their product costs to create and how competitors are pricing their products.Ask yourself: What are the fixed rates, what are the variable costs, and what is the total cost? What is the cost of any physical goods? What is the cost of labor?
- Analyze the data. What volumes of goods or services do you have to sell to be profitable?Ask yourself: How can I reduce my overall fixed costs? How can I reduce the variable costs per unit? How can I improve sales?
Watch your expenses.
“A lot of startups tend to spend money on unnecessary things,” said Jean Paldan, founder and CEO of Rare Form New Media. “We worked with a startup with two employees but spent a huge amount on office space that would fit 20 people. They also leased a professional high-end printer that was more suited for a team of 100; it had key cards to track who was printing what and when. Spend as little as possible when you start, and only on the things essential for the business to grow and succeed. Luxuries can come when you’re established.”
Consider your funding options.
Startup capital for your business can come from various means. The best way to acquire funding for your business depends on several factors, including creditworthiness, the amount needed and available options.
- Business loans. If you need financial assistance, a commercial loan through a bank is a good starting point, although these are often difficult to secure.
- Business grants. Business grants are similar to loans; however, they do not need to be paid back. Business grants are typically very competitive, and come with stipulations that the business must meet to be considered. When securing a small business grant, look for ones uniquely specific to your situation.
- Investors. Startups requiring significant funding up front may want to bring on an investor. Investors can provide several million dollars or more to a fledgling company, expecting the backers to have a hands-on role in running your business.
- Crowdfunding. Alternatively, you could launch an equity crowdfunding campaign to raise smaller amounts of money from multiple backers. Crowdfunding has helped numerous companies in recent years, and dozens of reliable crowdfunding platforms are designed for different types of businesses.
4. Determine your legal business structure.
Before registering your company, you need to decide what kind of entity it is. Your business structure legally affects everything from how you file your taxes to your personal liability if something goes wrong.
5. Build your team.
Unless you’re planning to be your only employee, you’re going to need to recruit and hire a great team to get your company off the ground. entrepreneurs need to give the “people” element of their businesses the same attention they give their products.
6. Choose your vendors.
Running a business can be overwhelming, and you and your team probably aren’t going to be able to do it all on your own. That’s where third-party vendors come in. Companies in every industry, from HR to business phone systems exist to partner with you and help you run your business better.
When you’re searching for B2B partners, you’ll have to choose carefully. These companies will have access to vital and potentially sensitive business data, so finding someone you can trust is critical. In our guide to choosing business partners, our expert sources recommended asking potential vendors about their experience in your industry, their track record with existing clients and what kind of growth they’ve helped other clients achieve.
7. Brand yourself and advertise.
Before you start selling your product or service, you need to build up your brand and get a following of people ready to jump when you open your literal or figurative doors for business.
- Company website. Take your reputation online and build a company website. Many customers turn to the internet to learn about a business, and a website is a digital proof that your small business exists. It is also a great way to interact with current and potential customers.
- Social media. Use social media to spread the word about your new business, perhaps as a promotional tool to offer coupons and discounts to followers once you launch. The best social media platforms to utilize will depend on your target audience.
- CRM. The best CRM software solutions allow you to store customer data to improve how you market to them. A well-thought-out email marketing campaign can do wonders for reaching customers and communicating with your audience. To be successful, you will want to strategically build your email marketing contact list.
- Logo. Create a logo that can help people easily identify your brand, and be consistent in using it across all of your platforms.
10. Grow your business.
Your launch and first sales are only the beginning of your task as an entrepreneur. To make a profit and stay afloat, you always need to work on growing your business. It’s going to take time and effort, but you’ll get out of your business what you put into it.
Collaborating with more established brands in your industry is a great way to achieve growth. Reach out to other companies and ask for some promotion in exchange for a free product sample or service. Partner with a charity organization, and volunteer some of your time or products to get your name out there.
While these tips will help launch your business and get you set to grow, there’s never a perfect plan. You want to ensure you prepare thoroughly for starting a business, but things will almost certainly go awry. To run a successful business, you must adapt to changing situations.
FAQs about starting a business
How can I start my own business with no money?
You can launch a successful business without any startup funds. Work on a business idea that builds on your skill set to offer something new and innovative to the market. While developing a new business, keep working in your current position (or “day job”) to reduce the financial risk.
Once you’ve developed your business idea and are ready to start on a business plan, you’ll need to get creative with funding. You can raise money through investments by pitching your idea to financial backers. You could also gather funding through crowdsourcing platforms like Kickstarter, or set aside a certain amount of money from your weekly earnings to put toward a new business. Finally, you can seek loan options from banks and other financial institutions to get your company up and running.
What is the easiest business to start?
The easiest business to start is one that requires little to no financial investment upfront, nor should it require extensive training to learn the business. A drop shipping company is one of the easiest types of new business to launch. Dropshipping requires no inventory management, saving you the hassle of buying, storing and tracking stock. Instead, another company will fulfill your customer orders at your behest. This company will manage the inventory, package goods, and ship out your business orders. To start, you can create an online store by selecting curated products from the catalog available through partners.
When is the best time to start a business?
Each person’s ideal timeline for starting a new business will be different. First and foremost, you should start a business when you have enough time to devote your attention to the launch. If you have a seasonal product or service, then you want to start your business a quarter before your predicted busy time of the year. Spring and fall are popular times of year to launch for nonseasonal companies. Winter is the least popular launch season because many new owners prefer to have their LLC or corporation approved for a new fiscal year.