Starting a new small business? Find out where to begin and how to achieve success.(part I)
- You want to make sure you prepare
thoroughly before starting a business, but realize that things will almost
certainly go awry. To run a successful business, you must adapt to
changing situations.
- Conducting in-depth market research on your
field and the demographics of your potential clientele is an important
part of crafting a business plan. This involves running surveys, holding
focus groups, and researching SEO and public data.
- Before you start selling your product or
service, you need to build up your brand and get a following of people who
are ready to jump when you open your doors for business.
- This article is for
entrepreneurs who want to learn the basics steps of starting a new
business.
Tasks like
naming the business and creating a logo are obvious, but what about the
less-heralded, equally important steps? Whether it's determining your business
structure or crafting a detailed marketing strategy, the workload can quickly
pile up. Rather than spinning your wheels and guessing at where to start,
follow this 10-step checklist to transform your business from a lightbulb above
your head to a real entity.
1. Refine your idea.
If you're
thinking about starting a business, you likely already have an idea of what you want to sell online, or at least the market you want to enter. Do a quick search for existing
companies in your chosen industry. Learn what current brand leaders are doing
and figure out how you can do it better. If you think your business can deliver
something other companies don't (or deliver the same thing, only faster and
cheaper), or you've got a solid idea and are ready to create a business plan.
Define your "why."
"In the
words of Simon Sinek, 'always start with why,'" Glenn Gutek, CEO of Awake
Consulting and Coaching, told Business News Daily. "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."
Consider franchising.
Another option
is to open a franchise of an established company. The concept, brand following and business
model are already in place; all you need is a good location and the means to
fund your operation.
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.
Desaulniers said
too often people jump into launching their business without spending time to
think about who their customers will be and why would want to buy from them or hire them.
"You need
to clarify why you want to work with these customers – do you have a passion
for making people's lives easier?" Desaulniers said. "Or enjoy
creating art to bring color to their world? Identifying these answers helps
clarify your mission. Third, you want to define how you will provide this value
to your customers and how to communicate that value in a way that they are
willing to pay."
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 not a market for your creation,
it might be time to brainstorm other ideas.
2. Write a business plan.
Once you have
your idea in place, you need to ask yourself a few important questions: What is
the purpose of your business? Who are you selling to? What are your end goals?
How will you finance your startup costs? These questions can be answered in
a well-written business plan.
A lot of
mistakes are made by new businesses rushing into things without pondering these
aspects of the business. You need to find your target customer base. Who is
going to buy your product or service? If you can't find evidence that there's a
demand for your idea, then what would be the point?
Conduct market research.
Conducting thorough
market research on your field and demographics of potential clientele is
an important part of crafting a business plan. This involves conducting
surveys, holding focus groups, and researching SEO and public data.
Market research helps you understand your target customer – their needs, preferences
and behavior – as well as your industry and competitors. Many small business
professionals recommend gathering demographic information and conducting
a competitive analysis to better understand opportunities and limitations within your market.
The best small
businesses have products or services that are differentiated from the
competition. This has a significant impact on your competitive landscape and
allows you to convey unique value to potential customers.
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. 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."
A business plan helps you figure out where your company is going, how it will
overcome any potential difficulties and what you need to sustain it. When
you're ready to put pen to paper, these free templates can help.
3. Assess your finances.
Starting any business
has a price, so you need to determine how you're going to 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 is an essential element of financial planning that 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:
1.
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?
2.
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?
3.
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.
Don't overspend
when starting a business. Understand the types of purchases that make sense for
your business and avoid overspending on fancy new equipment that won't help you
reach your business goals. Monitor your business expenses to ensure you are staying on track.
"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 that had
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 that are essential
for the business to grow and be a success. 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.
1. 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. If you are
unable to take out a bank loan, you can apply for a small business loan through
the U.S. Small Business Administration (SBA) or an alternative lender. [Read related article: Best Alternative Small Business
Loans]
2.
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 trying to secure a small business grant, look for ones that are uniquely specific to your situation. Options
include minority-owned business grants, grants for women-owned
businesses and government grants.
3.
Investors. Startups
requiring significant funding upfront may want to bring on an investor. Investors can provide several million dollars or more to a fledgling company,
with the expectation that the backers will have a hands-on role in running your
business.
4.
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 there are dozens
of reliable crowdfunding platforms designed for different types of
businesses.
You can learn
more about each of these capital sources and more in our guide to startup finance options.
Editor's note: Looking for a small business loan? Fill out the
questionnaire below to have our vendor partners contact you about your needs.
Choose the right business bank.
When
you're choosing a business bank, size matters. Marcus Anwar, co-founder of OhMy Canada, recommends smaller
community banks because they are in tune with the local market conditions and
will work with you based on your overall business profile and character.
"They're
unlike big banks that look at your credit score and will be more selective to
loan money to small businesses," Anwar said. "Not only that, but
small banks want to build a personal relationship with you and ultimately help
you if you run into problems and miss a payment. Another good thing about
smaller banks is that decisions are made at the branch level, which can be much
quicker than big banks, where decisions are made at a higher level."
Anwar believes
that you should ask yourself these questions when choosing a bank for your
business:
- What is important to me?
- Do I want to build a close relationship
with a bank that's willing to help me in any way possible?
- Do I want to be just another bank account,
like big banks will view me as?
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