Everything You Need to Know About Starting a Business (But Didn’t Think to Ask)
So, you’ve decided to take the official leap of faith and start your own business. Congratulations! What an exciting time.
But starting a business is much more than coming up with a great idea that fills a market need and running with it. There are several key steps and important things you’ve got to mark off your checklist if you want to build a sustainable, profitable company.
So let’s jump right in. Here’s everything you need to know about starting a business but didn’t think to ask.
#1. Conduct market research
There are many challenges to starting a business. The biggest one? Finances. Knowing you’ve got a viable product or service the market will support is critical. Conducting market research should be one of the first steps you take when building a business.
What’s the goal of market research?
Researching the market will tell you if your idea is a good opportunity to capitalize on and if you can turn it into a successful business.
You’ll collect information on potential customers, price points, if similar businesses are already successfully operating, and more. Then, use your findings to uncover a possible competitive advantage in the market for your unique brand.
Here are some examples of the type of information you’ll want to uncover via market research:
- Is there a demand for your idea?
- What’s the size of the market for your product or service?
- What’s the income range of your target market?
- Where are most of your customers located?
- What’s the level of market saturation?
- What are people paying for similar products or services?
You can use these methods and tools for conducting market research:
- Focus groups
Conducting market research will help you decide if your idea, in its current form, is a viable offer to bring to market. You might need to tweak your offering for it to be profitable. Or you may uncover additional opportunities for your fledgling business.
No matter what, we can’t recommend taking this first step highly enough. Doing your research upfront will give you a higher chance of success and make those new business growing pains a little less painful.
The Small Business Association has an excellent list of resources you can use to get started with your market research.
#2. Focus on your target customer
You might think your product or service idea is the neatest thing since sliced bread. But what’s crucial is if your target customer is going to feel the same.
This step ties into the first one. But while conducting market research is a holistic approach to researching your product’s entire market, you’ll want to focus part of your research on the customer especially.
So, dig in. Research precisely who these people will be.
You’ll want to research hard data, like where they live, how much money they make, how old they are, etc. But you’ll also want to analyze soft data. These are things like their values, desires, and buying habits.
Why is soft data on your target customer so crucial for starting a business?
You can probably think of a brand or two that has okay products or a brand that was slow to market a popular product, yet they’re highly successful. That’s because they were able to master marketing and sales.
You can have the best (or not so best) product in the world. The key to getting people to buy your offering is to market it effectively. Knowing your target customer and what gets them excited will help you build a sustainable, profitable company.
A great place to start is your successful competitors. Check out their reviews.
What do customers love about them? What are they not so happy about? Are there things your competitors aren’t doing that customers want?
Conduct this step early in the process of starting a business, and your future self will thank you.
#3. Be honest about your skills and your time
When you’re starting a business, it’s easy to fall into the trap of wearing many hats. But just like every hat won’t fit every face, you also won’t have every skill needed to run a successful business. And you’ll need to be honest with yourself about the skills you do have, where your weaknesses are, and how much time you really have to devote to different tasks.
You’ll need to outsource and delegate. For example, at some point, you’ll want to talk to an accountant, a lawyer, and an insurance agent. Outsourcing your marketing to a professional is also crucial.
You might be a savvy wordsmith who can put together a bombshell landing page. But even if you’ve got the skills, your time as a business owner is precious. The most important skill you’ll want to hone as a business owner is your ability to manage different teams and delegate.
#4. Think big, but start small
When you think big and dive headfirst into your business goals, you can quickly slam into a wall of overwhelm. It’s good to think big. But you don’t have to believe that you need all of the things right now. Start small and go (and grow) from there.
This is especially true if you don’t have a lot of capital. Many successful entrepreneurs started by self-funding their businesses while quietly making plans to exit their day jobs. Once you create a growth story, you can begin talking to angel investors or other loan officers.
(link to funding page)
When self-funding, you might need to break up your product or service into smaller offerings so you can get the traction and experience required to grow.
#5. Team up with a mentor and like-minded individuals
It’s not easy to start and grow a profitable business. You’ll come up against a lot of adversity. Many new business owners doubt themselves and their products. For some, they’ll also come up against doubt and negativity within their social circle.
Additionally, you won’t have all the knowledge, skills, or perspective to manage every aspect of your business and handle the obstacles you’ll face. Getting plugged into the entrepreneurial community will give you access to the knowledge and support you need.
Finding a mentor is also critical. They can show you how to manage your business, grow it, and ensure it’s well-funded. A business mentor can also expand your network, giving you access to additional opportunities and resources to grow your brand.
Ready to take the first step? Get in touch with a mentor.
(link to our mentors page)
#6. Know your numbers
It takes money to start a business. Before your venture starts making money, you need to know how to cover your costs. So, it’s vital to consider how to fund your startup and what your projected expenses, sales, and profits will be. Determining how much money you need to start your business will help you understand the level of additional funding you may require.
For every entrepreneur, balancing expenses and profit at the start is a significant challenge. Unfortunately, many startups fail because they run out of funds before turning a profit.
How to perform a break-even analysis
A break-even analysis is an excellent way to calculate how much money you need to ensure business success. The break-even point (BEP) is when your revenue equals costs. Anything you earn over and above the BEP is your profit.
Here is a simple calculation to conduct a break-even analysis:
- Break-even point = fixed costs ÷ (average price – variable costs)
For example, let’s say your break-even point is $1,000, and you want to sell a unit for $50. However, it costs $30 to make. This means you would have to sell 50 units per month at $50 each to break even.
You could become more competitive by lowering prices, but you would have to sell more products. Or, you could increase the cost per unit and then market it better to attract more customers.
The BEP is a critical figure, and it’s vital to know when starting a business. Without knowing this figure, it’s difficult to determine the minimum performance you need to achieve to begin making a profit. Only when you know the BEP can you set your set goals and define success.
The two reasons to perform a break-even analysis are:
- Determine profitability — With a break-even analysis, you can determine if you need to sell more products or reduce costs to turn a profit.
- Price a service or product — It’s crucial to hit that sweet spot regarding pricing. The cost to the consumer should be competitive enough for you to make a profit without impacting sales volume.
After starting a successful business, a break-even analysis is helpful for planning expansion, launching new products, cutting costs, or increasing profits.
#7. Get a business plan
Funding is essential for starting any business. However, before you can attract investors or lenders, you’ll need a robust business plan. Your business plan will typically be based on step one of starting a business —carrying out market research.
Any investor or lender must be sure that you have an in-depth picture of your industry and market. In addition to market research, you’ll need to show the results of a competitive analysis report and profit projections.
Part of your business plan should also include an exit strategy.
The exit strategy doesn’t mean setting yourself up for failure. Instead, it determines how you’ll leave the business in the future. The strategy usually helps determine the
short-term and long-term goals of a business. Additionally, an exit strategy can help you make crucial decisions without emotions clouding your thinking.
Here are five examples of exit strategies:
- Acquisition — You plan to sell the business in the future for a profit.
- Merger — Once your startup grows into a successful venture, you will look to merge with a large company.
- Selling to a colleague or friend — This exit strategy allows you to groom your successor to take over the business.
- Initial public offering (IPO) — The business becomes a public company by offering shares of stock to increase the company’s value.
- Liquidation — After making a profit, you plan to close the business.
#8. Get the proper funding in place to start a business
To launch a successful business, getting additional funding can help you reach your business goals faster. In some cases, you can bootstrap your startup by providing all the financing yourself. However, this strategy could leave you strapped for cash if you have cash flow issues.
Here are some examples of funding that can help get your new business off to a great start:
- Small business loan — A common way to raise capital for a startup is to apply for a business loan. The loan officer will examine your business plan and determine if the venture can make a profit. Alternatively, you can apply for a Small Business Administration (SBA) loan, which is sometimes easier to secure.
- Crowdfunding — Many people are willing to invest in a business in exchange for a reward or stake in the business.
- Investors — Venture capitalists or angel investors may see your business as a viable investment opportunity. In exchange, you may have to share some control with the investor.
- Business grants — In some cases, you may qualify for a business grant. A grant is free money you don’t need to pay back.
#9. Determine your business structure
One of the most important steps when starting a business is to choose a business structure. For example, your business could be a partnership, limited liability company (LLC), corporation, or a sole proprietorship. The type of structure you choose will influence your liability and taxes.
Being the sole proprietor gives you complete control of the business. It is easy to set up a sole proprietorship, and you can get a trading name. However, your personal assets and liabilities are not separate from your business ones. It can also be more challenging to get a business loan if you are the sole proprietor.
As the name implies, a partnership is where you form a business with one or more individuals. Partnerships offer the possibility to attract more investment and share the responsibilities and liabilities of running a business.
Limited liability company (LLC)
Setting your business up as an LLC is an excellent way to protect your personal assets from liability. Businesses operating under a Limited Liability Company enjoy the benefits of a corporation along with a partnership.
Corporation (C corp)
A corporation — also called C corp — is a legal entity that’s separate from the owners. Registering your business as a C corp gives you the best protection from personal liability. However, the cost of establishing a corporation is higher than an LLC, partnership, or sole proprietorship. Also, taxes can be higher, and there is more paperwork involved.
Another type of business structure is an S corporation — also called an S subchapter. An S corporation refers to the tax status of a corporation or limited liability company. The difference between an S corporation and a C corp is that profits or losses are passed through to the business owners on their tax returns. Therefore, owners pay tax at an individual level. The majority of businesses in the US are registered with the IRS under Subchapter S.
#10. Choose a great business name and brand yourself
Many startups are successful because they develop strong branding before launching. Having a brand and relevant business name will make your company instantly recognizable when it becomes successful. Also, a strong brand sets you apart from your competitors and can give you an edge in your industry.
What is involved in a brand? Here are a few things to think about:
- Name — Your brand or trade name should allow consumers to identify you, your values and help you stand out from the crowd. In addition, the name should be easy to remember and not limit your company to a specific niche.
- Logo — Think of successful companies, and you can probably recognize their logo before you see the name. Feature your logo across multiple channels and platforms, such as printed material, website, social media, and physical storefronts.
- Website — The first contact new customers will have with your company will be through your website. So, make sure it’s easy to navigate, is attractive, and has a clear call to action. Remember, your website is an investment, not a burdensome expense.
- Social media — Using social media is the number one way to get your message to millions of consumers. Analyze the best social media channels to use and develop a marketing strategy.
The final step to starting a business: Keep growing
After your business goes live and you make your first sales, you have started on the road to success. However, it’s only the start. After that, your focus should turn to growing your business by attracting new customers and retaining existing ones. It’s crucial to stay on top of current industry trends and collaborate with established brands.
By following these top ten steps, you’ll have the greatest chance of starting a successful business that will create a positive impact in your industry and provide a healthy return on investment.