Starting a
small business
is without a doubt a large undertaking, but it is fortunately something
that can be attained by anybody with a good idea, a strong work ethic,
and a good set of resources. Starting a business involves thinking of a
business concept, writing a business plan, understanding the financial
side, and finally marketing and launching.
Part 1 of 6: Setting Out the Basics
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1
Define your goals.
Do you want financial independence, eventually selling your business to
the highest bidder? Do you want something small and sustainable, that
you love doing and want to derive a steady income from? These are the
things that are good to know very early on.
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2
Choose an idea. It might be a product you've always
wanted to make, or a service you feel people need. It might even be
something people don't know they need yet, because it hasn't been
invented!
- It can be helpful to have people who are bright and creative join
you for a casual brainstorming session. Start with a simple question
like: "what shall we do?" The idea is not to create a business plan,
just to generate potential ideas. Many of the ideas will be duds, and
there will be quite a few ordinary ones, but a few may emerge that have
real potential.
- Consider your talents, experience, and knowledge when selecting a
concept. If you have a particular skill set or talent, consider how
these resources can be applied to meeting some sort of market demand.
Combining skill and knowledge with a market demand increases your odds
of having a successful business idea.
- For example, you may have worked with electronics as an employee for
many years. You may have noticed a demand in your community for a
particular form of electrical work, and combining your experience with
the market demand can allow you to attract customers.
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3
Create a working name. You could even do this before
you have an idea for the business, and if the name is good, you may find
it helps you define your business idea. As your plan grows, and things
begin to take shape, the perfect name may come to you, but don't let
that hinder you in the early phases. Create a name that you can use
while you plan and don't hesitate to change it later.
- Always check to see if the name is being used by somebody else
before selecting it. Try to create a name that is simple and memorable.
- Think of popular brand names like "Apple". These names are memorable, simple, and easy to pronounce.
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4
Define your team. Will you do this alone, or will you
bring in one or two trusted friends to join you? This brings a lot of
synergy to the table, as people bounce ideas off each other. Two people
together can often create something that is greater than the sum of the
two separate parts.
- Think of some of the biggest success stories in recent times, such
as John Lennon and Paul McCartney; Bill Gates and Paul Allen; Steve Jobs
and Steve Wozniak; and Larry Page and Sergey Brin. In every case, the
partnership brought out the best in both sides of the equation.
- Think about the areas that you are either weak in, or have little
knowledge of. Finding partners compatible with your personality who can
fill in your knowledge or skill gaps is an excellent way to ensure your
business has the resources you need to succeed.
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5
Choose your partners wisely. When choosing the person
or people you're going to build the business with, be careful. Even if
someone is your best friend, it doesn't mean that you will partner well
in a business operation. Start it with a reliable person. Things to
consider when choosing your co-leaders and support cast include:
- Does the other person complement your weaknesses? Or do both of you
bring only one set of the same skills to the table? If the latter, be
wary as you can have too many people doing the same thing while other
things are left unattended.
- Do you see eye to eye on the big picture? Arguments about the
details are a given, and are important for getting things right. But not
seeing eye to eye on the big picture, the real purpose of your
business, can cause a split that may be irreparable. Be sure your team
cares about the and buys into the purpose as much as you do.
- If interviewing people, do some reading on how to spot real talent
beyond the certifications, degrees or lack thereof. The area an
individual is educated in is not necessarily the area they are most
talented in. An interviewee may have a background in accounting for
example, but their experience and your assessment of them indicates they
may be a better fit helping with marketing.
Part 2 of 6: Writing a Business Plan
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1
Create a business plan.
A business plan helps to define what you think you need to launch your
business, large or small. It summarizes the sense of your business in a
single document. It also creates a map for investors, bankers, and other
interested parties to use when determining how they can best help you
and to help them decide whether or not your business is viable. Your
business plan should consist of the elements outlined in the steps
below.
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2
Write your business description. Describe your
business more specifically, and how it fits into the market in general.
If you are a corporation, LLC, or sole proprietorship, state that, and
why you chose to go that route. Describe your product, its big features,
and why people will want it. Answer the following questions:
- Who are potential customers? Once you understand who they are and what they want, come up with a marketing strategy.
- What price are they willing to pay for your product or service?
- Who are your competitors? Do a competitive analysis to identify key competitors.
Find out who is doing something similar to what you are planning, and
how have they been successful. Just as important is to find the
failures, and what made their venture fall apart.
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3
Write an operational plan. This will describe how you will produce or deliver your product or service and all costs.
- How will you create your product? Is it a service that you are
offering, or if it's more complex—software, a physical product like a
toy or a toaster—how will it get built? Define the process, from
sourcing raw materials to assembly to completion, packaging,
warehousing, and shipping. Will you need additional people? Will there
be unions involved? All of these things must be taken into account.
- Who will lead, and who will follow? Define your organization, from
the receptionist up to the CEO, and what part each plays in both
function and financials. Knowing your organizational structure will
better help you plan your operating costs, and fine-tune how much
capital you will need to function effectively.
- Getting feedback. Friends and family make great resources for asking
questions and getting feedback––don't hesitate to use them as your
sounding board.
- Needing to increase the size of your premises. This happens more
often than expected. Once the stock starts piling up, you may find it
ends up in your living room, bedroom and the garden shed. Think rental
of storage premises if needed.
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4
Write the marketing plan. Your operational plan
describes how you will produce your product, and your marketing plan
describes how you will sell your product. When you create your marketing
plan, try to answer the question of
how you will make your product known to potential customers.
- You will want to include the type of marketing you will use. For
example, will you use radio ads, social media, promotions, billboards,
attend networking events, or all of the above?
- You will also want to define your marketing message. In other words,
what will you say to convince customers to choose your product? Here,
you want to focus on your Unique Selling Point (also known as USP). This
is the unique advantage your product has to solve your customers
problem. For example, you may be lower cost, faster, or higher quality
than your peers.
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5
Come up with a pricing model.
Start by checking out your competitors. Know how much are they selling a
similar product for. Can you add something to it (add value) to make
yours different and hence make it a more enticing price?
- Competition isn't just about the goods or services themselves. It is
also about your social and environmental credibility. Consumers are
increasingly conscious of the need to show that your business is
concerned with labor conditions and isn't damaging the environment.
Certification endorsements from reputable organizations, such as labels
and stars, can reassure customers that your product or service is more
aligned with their values than one lacking the certification.
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6
Cover the financials. The financial statements
translate your marketing and operational plans into numbers --- profits
and cash flow. They identify how much money you will need and how much
you might make. Since this is the most dynamic part of your plan, and
perhaps the most important for long-term stability, you should update
this monthly for the first year, quarterly for the second year, and then
annually after that.
- Cover your startup costs. How are you going to finance your business
initially? The bank, venture capitalists, angel investors, Small
Business Administration (SBA), your own savings: these are all viable
options. When you start a business, be realistic. You will probably not
roll out of the gate making 100 percent of whatever you project, so you
need to have enough ready reserve to fund things until you are really up
and running. One of the surest roads to failure is
under-capitalization.
- What price do you intend to sell your product or service for? How
much will it cost you to produce? Work out a rough estimate for net
profit—factoring in fixed costs like rent, energy, employees, etc.
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7
Come up with an executive summary.
The first part of a business plan is the executive summary. Once you've
developed the other parts, describe the overall business concept, how
it will be monetized, how much funding you will need, where it stands
currently, including its legal standing, people involved and a brief
history, and anything else that makes your business look like a winning
proposition.
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8
Build your product or develop your service. Once you
have the business all planned, financed, and have your basic level of
staffing, get going. Whether that's sitting down with the engineers and
getting the software coded and tested, or getting materials sourced and
shipped to your fabrication room (aka "garage"), or purchasing in bulk
and marking up the price, the building process is the time during which
you prepare for market. During this time, you may discover things such
as:
- Needing to tweak the ideas. Perhaps the product needs to be a
different color, texture or size. Maybe your services need to be
broader, narrower or more detailed. This is the time to attend to
anything that crops up during your testing and development phases.
You'll know innately when something needs tweaking to make it better or
to make it less like a competitor's stale offerings.
Part 3 of 6: Managing Your Finances
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1
Secure start-up costs. Most businesses require
capital to start. Money is typically required to purchase supplies and
equipment, as well as keep the business operational for the period
before your business becomes profitable. The first place to look for
financing is yourself.
- Do you have investments or savings? If so, consider using a portion
to fund your business. You should never invest all your savings into a
business due to the risk of failure. In addition, you should never
invest money put aside for emergency savings (experts recommend having
3-6 months of income put aside for this purpose), or money you will need
over the next few years for various obligations.
- Consider a home equity loan. If you have a home, looking to get a
home equity loan can be a wise idea, since these loans are typically
easily approved (since your home acts as collateral), and interest rates
are typically lower.
- If you have a 401(k) plan through your employer, consider borrowing
against the plan. Plans typically allow you to borrow against 50% of
your account balance up to a maximum of $50,000.
- Consider saving ahead as another option. If you have a job, save a
portion of your monthly income over time to cover your start-up costs.
- Visit a bank to inquire about small business loans or lines of
credit. When doing this, always visit many providers to ensure you are
getting the best rate.
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2
Manage your running costs. Keep a close eye on your
running costs and keep them in line with your projections. Whenever you
see something spent wastefully—like electricity, phone plans,
stationery, packaging—look around and estimate how much you really need,
and minimize or remove the cost in every way possible. Think frugally
when you start up, including renting items instead of purchasing them
and using pre-paid plans for services your business needs instead of
locking yourself into long-term contracts.
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3
Have more than the minimum. You may determine it will
take $50,000 to start your business, and that's fine. You get your
$50,000, buy your desks and printers and raw materials, and then then
the second month arrives, and you're still in production, and the rent
is due, and your employees want to be paid, and all the bills hit at
once. When this happens, your only likely recourse will be to pack it
in. If you can, try to have the reserves for a year of no income.
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4
Pinch those pennies. Plan to keep purchases of office
equipment and overheads to a minimum when starting up. You do not need
amazing office premises, the latest in office chairs and pricey artwork
on the walls. A broom cupboard in the best address can be sufficient if
you can artfully steer clients to the local coffee shop for meetings
every time (meet them in the foyer). Many a business start-up has failed
by purchasing the expensive gizmos instead of focusing on the business
itself.
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5
Decide how to accept payment.
You will need to do something to get payment from your clients or
customers. You can get something like a Square, which is great for small
businesses since it requires the minimum amount of paperwork and the
fees are minimal. However, if you feel uncomfortable with technology,
you can inquire about a more traditional merchant account.
- A merchant account is a contract under which an acquiring bank
extends a line of credit to a merchant, who wishes to accept payment
card transactions of a particular card association brand. Previously,
without such a contract, one could not accept payments by any of the
major credit card brands. However, the Square has changed that, so don’t
feel locked in or limited to this option. Do your research.
- The Square is a card swiping device which connects with a smartphone
or tablet and turns that device into a sort of cash register. You may
have encountered this device in the businesses you frequent, as they are
becoming common at coffee shops, restaurants, street food stands and
other businesses (look for a postage-stamp sized plastic square plugged
into a tablet or phone).
- Note that Paypal, Intuit, and Amazon all offer similar solutions. Make sure to look into all options before making a selection.
- If you are online business, services like PayPal offer an excellent way to receive payment and make transfers.
Part 4 of 6: Covering the Legal Side
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1
Consider finding an attorney or other legal advisor.
There will be many hurdles to leap as you go from working stiff to
overworked and underpaid small business owner. Some of those hurdles
will be composed of stacks of documents with rules and regulations,
ranging from building covenants to city ordinances, county permits,
state requirements, taxes, fees, contracts, shares, partnerships, and
more. Having somebody you can call when the need arises will not only
give you peace of mind, it will give you a much-needed resource who can
help you plan for success.
- Choose someone with whom you "click" and who shows that he or she
understands your business. You will also want someone with experience in
this area, as an inexperienced legal advisor could lead you to legal
trouble or even fines and prison time.
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2
Get an accountant. You’ll want someone who can deftly
handle your financials, but even if you feel you can handle your own
books, you’ll still need someone who understands the tax side of running
a business. Taxes with businesses can get complicated, so you’ll need
(at a minimum) a tax advisor. Again, no matter how much of your finances
they’re handling, this should be someone trustworthy.
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3
Form a business entity. You’ll need to decide what
type of business entity you want to be, for tax purposes and hopefully
to eventually attract investors. You will do this after you've decided
whether you will need money from others either in equity or loans and
with the advice of your legal and accounting experts. It is one of the
last steps taken before you actually spend money or ask someone for
money. Most people are familiar with corporations, LLCs, etc., but for
the vast majority of small business owners, you will need to form one of
the following
- A sole proprietorship, if you will be running (not including employees) this business on your own or with your spouse.
- A general partnership, if you will be running this business with a partner.
- A limited partnership, which is composed of a few general partners,
who are liable for problems with the business, and a few limited
partners, who are only liable for the amount in which they invest in the
business. All share profits and losses.
- A limited liability partnership (LLP), where no partner is liable for another’s negligence.
Part 5 of 6: Marketing Your Business
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1
Get a website.
If you're selling online, get your ecommerce in gear and either build a
website, or have one built for you. It's your storefront, so anything
and everything you can do to make people
want to visit, and
want to stay, do it.
- Alternatively, if your business is more oriented toward the "in
person" experience, traditional marketing may be just as important. For
example, if you're starting a landscaping business, focus on getting the
word out to neighbors before starting a website
- When making a website keep in mind that simplicity and clarity are
key. A simple design that clearly states what you do, how you do it, and
what you charge is most effective. When making your website, remember
to emphasize why your business is the best solution to a clients
problem.
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2
Hire professional designers. If you do decide to get a
website, make sure it looks professional. Designers may cost more
initially, but a well presented and trustworthy site is essential. It
needs to look professional and work with ease. If you are including
money transactions, invest in security encryption and check that your
money transfer companies are sound and reliable.
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3
Discover your inner publicist. You might truly
believe in your product or service, but in order for it to be
successful, everyone else must believe in it too. If you're new to
advertising and marketing or you dislike doing the sales pitch, now is
the time to overcome such feelings and put on the publicist persona. You
need to develop an excellent short pitch to convince people they need
your product or service, one that reflects the value, purpose and
potential of what your business is offering. Write down this pitch in
many ways until you find one that you feel satisfied says it all and is
something you can say readily. Then practice it like crazy!
- Depending on your business, it could be appropriate to have interesting, eye-catching business cards printed.
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4
Spend time developing an excellent social media presence.
This can be done well before the business is ready, increasing
anticipation. Use Facebook, Google+ and Twitter, and any other social
media you participate in to build excitement and spread the word. You
want to build a buzz so that people will begin following your progress.
(Be sure to choose business accounts for your business and keep your
personal accounts separate. The messages you send should be tailored
differently, depending on which account you're sending from.)
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5
Implement your marketing and distribution plans. With
your product being built or services developed, and a reasonable
expectation on when either is ready for selling, begin marketing.
- If you will be advertising in periodicals, they will need copy or images at least two months in advance of publication.
- If you will be selling in stores, get pre-orders sold, and shelf
space allocated. If you will be selling online, get that e-commerce site
ready to sell.
- If you're offering a service, advertise in appropriate trade and professional journals, newspapers and online.
Part 6 of 6: Launching Your Business
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1
Secure space. Whether it's an office, or a warehouse,
if you need more space than your garage or your spare bedroom, now's
the time to get that.
- If you don't generally need an office beyond your home, but may
occasionally need meeting space, there are often places that can address
those needs. A quick Google search on "business meeting rentals [your
city/state]" will deliver plenty of rental options in your area.
- Be sure to contact your local municipality about zoning laws. Some
types of small businesses cannot be ran out of a home, and it is
important to ensure your business is operating within its proper zone.
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2
Launch your product or your service. When the product
is all built, packaged, coded, online, and ready to sell, or when your
services are fully worked out and ready to go, hold a special event to
launch your business. Send out a press release, announce it to the
world. Tweet it, Facebook it, let the word resound to all corners of
your market—you have a new business!
- Hold a party and invite people who can spread the word for you. It
doesn't need to be pricey––purchase the food and drink from bulk
discount stores and get family and friends to help with catering (you
can give them a product or service in return).
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Tips
- Always provide value and service to those who may be your customers, even if they are not currently. When they do need your product, you want them to think of you first.
- With the advent of the internet, online businesses are probably the
easiest way to start and very much less expensive in terms of start-up
cost than a bricks-and-mortar counterpart.
- Keep learning, and be adaptable to change. Find buddies, mentors, local business-related organizations, Internet forums, and wikis
to discuss the daily details of running a small business. It's much
easier for everyone to perform their core businesses well and prosper
when they don't waste time and energy "reinventing the wheel" on
housekeeping.
- Most direct selling companies have low start up capital compared to a
traditional brick and mortar business. You can also break even rather
quickly compared to the traditional business.
- You can also consider trading on eBay or Overstock.
- It is ok to start small with one or two products and then add more and more great ideas as you go!
- Don't be afraid to experiment with prices. You should determine the
minimum price for your product or service to break even, but experiment
with low-price or premium-price variations.
- Always believe in yourself even when financial money is down hill.
Warnings
- Beware of people who ask for money before giving you business. Trade leads to prosperity through mutual gain,
so a business should be willing to pay you to work for it. (A franchise
store or home-sales business may have legitimate start up costs, but
they should reflect a reasonable cost of getting you started in the
business so the managers would make money through your success, rather
than just by getting you in.)
- Beware of business propositions that seem to offer "something for
nothing." They probably involve taking something from somebody—usually
you. There are innumerable variations, some more polished than others.
Examples include pyramid schemesand advance-fee fraud.
