While it’s true that anyone can start a business, actually starting one isn’t necessarily simple. The process doesn’t have to be complicated or overwhelming, but there are some basic requirements and procedures that anyone starting a business needs to know.
Here, we offer a step-by-step guide to starting a business, from coming up with an idea for one to making sure everything you’re doing is both legal and potentially profitable.
Decide What You’re Going to Do
The first thing you have to do when starting a business is simply figuring out what your business is going to be. Maybe you have something in mind and have for years. If so, that’s great—as long as it’s viable, but we’ll get to that later. If you don’t know what you want to do, but you know you’re ready to go out on your own, you’ll need to do some brainstorming.
Sit down and start thinking of business ideas. Write down whatever comes to your mind. Then, go back and look at your list. Ask yourself these questions about each idea:
- Can I actually do this, or could I do it with a reasonable amount of education or training? If your business idea requires a degree or long-term training you don’t have, it’s probably not worth the effort to start.
- Does this business actually solve a problem or fill a need in a market, or is it just something that sounds interesting to me? It’s great to do something you love, but you have to do something that will sell. Sure, if you love it, even better. But if your passion is, say, carving soap, keep in mind that there might not be much of a market for bars of Coast shaped like dolphins.
- What is the competitive landscape for this idea? And if not many people are doing it, why not? Beware of the temptation to start something completely new and revolutionary. For every truly “disruptive” product or idea that has succeeded, there are thousands that have failed. There’s no need to spend an inordinate amount of time and money trying to push a new product or service if what your neighborhood needs is a really good, reliable, inexpensive dog walker or landscaper.
Write a One-Page Business Plan
Your business plan will be your guide for operating your business. Yes, you should write a complete business plan eventually. But writing a one-page business plan is a great way to stay focused and crystalize your vision for your business. A one-page plan:
- Enables prospective investors and partners to quickly understand your business idea.
- Serves as a type of pitch document for your business, much like a beefed-up elevator pitch.
- Offers an approachable way to get your business plan in front of the right people in the form of a single sheet of paper, a single PowerPoint slide or a simple copy-and-paste email.
- Delivers a powerfully succinct message, enabling you to grab your audience’s attention and spur them to action.
- Forces you to condense your thoughts and explain yourself clearly. There’s no room to fudge or hide behind a torrent of words and numbers.
You’ll be covering a few critical areas here, including marketing and sales, and operations. For marketing and sales, think of the one marketing or sales method that’ll be your calling card. Is it publicity? A top-notch sales force? Inbound marketing via the Internet? Describe what you’re going to do and—more importantly—how it’s going to generate revenue.
In terms of operations, you’ll be planning how you’ll actually run the business. In a one-page plan, you’ll want to focus on one or two of the following areas: key personnel, organizational structure, a human resources plan, product/service delivery, customer service/support and facilities.
Focus on the aspects of your operations that will give you a competitive advantage, and briefly explain why they’re important and how you plan to executive them. When you write your full business plan, you can expand on all five areas of operations.
Conduct Market Research
Your business looks great and sounds great. But where does it fit into the competitive landscape? Who are your competitors? How are you filing a hole in the market? How should you price your product or service? How should you position your new business—will you compete on price, on service, on a unique product or model? You need to know all of these things, and you need to do market research to find the answers.
As is the case with so many other activities, market research can start with a search engine. You can gather a lot of data on your competitors—price, product or service offerings, sometimes even the size of the organization. But you need to go beyond that. When you need to get deeper into the numbers of just how broad your competitive landscape is, the Small Business Administration—always a good resource for entrepreneurs—offers a handy guide to conducting free market research.
There are other, more hands-on, ways to conduct market research for free or for very little money. Survey software lets you select an audience and email relevant people directly to get their take on the space you want to enter. Social media, particularly Facebook and Twitter, is a great place to go out and start asking questions on your own about your market space.
Also, consider forming alliances with businesses that might be complementary to yours and getting their owners’ takes on the market your entering. This is especially useful for local market research. If you’re doing to start a handyman service, for instance, visit a local hardware store and ask about your potential competition.
Determine Your Financial Requirements
We’re not talking about looking for funding yet. We’re talking about figuring out how much your business is going to cost to start and run, and how much money you have available to put into it at the outset.
This can seem like a daunting step in the process of starting a business, but it doesn’t have to be. Some of the most successful entrepreneurs have been able to start a business on a tight budget or on virtually no budget at all. Here again, your business idea matters. If you’re going to start a business as a freelance writer, for instance, you probably won’t need much more than a domain name, assuming you already have a computer.
But if you’re going to, say, manufacture a product or deliver a complex service, you’ll need to know what your start-up costs will be. Make a spreadsheet with the funds you have, the costs you expect to incur and the revenues you think you’ll earn. Then add a little bit—maybe 10 percent—to the costs and cut the revenues by about the same amount, just to be safe. It’s better to be prepared than surprised, and there are sure to be challenges you don’t see coming.
Once you have an idea of how much money you have and how much your business is going to cost, you can decide whether you’re able to bootstrap your business—fund it yourself—or whether you’ll need to ask friends and family, or even banks or investors, for loans or equity funding. We’ll have more on that later.
Decide on a Team or Partners
This is another step a lot of entrepreneurs will be able to skip, but if for whatever reason you see roadblocks to running a business yourself, you’ll need to investigate bringing in one or more partners.
The decision to bring in partners is a difficult and complicated one, and the best scenario is probably to avoid letting somebody else into the business unless you’re really strapped for either cash or work resources. As an entrepreneur, you have a vision for your business that is very likely unique. Bringing in a partner might compromise or even destroy that vision.
Then again, the right partner can help you build on your vision. That’s why finding the right partner is so important if you are going let someone else into your business. One positive aspect of bringing in a partner is that somebody else can assume the risk of starting a business with you, both in financial and psychological terms.
Bringing in a board of advisers, on the other hand, can be an excellent way to help you keep your business on the right track and get some objective advice from relative outsiders. Having somebody challenge your ideas and offer new ones can be a strong positive for your business. The only complication might be determining how (or whether) to compensate your advisers, something you’ll have to consider with your own potential advisers.
Determine a Legal Structure
Not everything about starting a business is exciting. Choosing a name, developing a logo and writing business and marketing plans should be thrilling if you’re an ambitious entrepreneur. Deciding which legal structure to use to incorporate your business isn’t quite as appealing, but it’s very necessary and a very important part of the process of starting a business.
The essential options for structuring a business are to set it up as a corporation or as an LLC. The permutations, costs and considerations for each are numerous and complex, and best laid out in our serious of videos about legal advice for your startup.
Choose a Name for Your Business
This can be tricky. Your business name is at the core of your brand, and you need to build a brand on a firm foundation. For starters, avoid the temptation to name a business after yourself. Chances are, not many people know who you are, so your name isn’t necessarily going to deliver a lot of credibility.
Beyond that, when you name your business after yourself, you give the impression that it’s all about you. That might be the case at the beginning, but if you want to grow your business, experts say that you’ll want to give it a name that doesn’t make it sound like a one-person operation. (After all, Microsoft and Apple aren’t named Gates and Jobs, respectively.) If you do name a business after yourself, give it a sophisticated feel. For instance, Adams Media Corp. sounded a lot more professional than Bob Adams Inc., so we changed the name.
Another challenge you might run into with a business name is trademarks. It’s possible that somebody else will have the name you’ve come up with, so you need to check and see. Do a trademark search for your desired business name, and if somebody else has it, you’ll have to come up with something different.
Choose a name that’s catchy and easy to remember, spell and pronounce. Also, check to see if your domain name is available. Although fewer people are going to home pages these days—most prospective customers will find you through search or social media online—it never hurts to have domain name that is essentially nameofyourbusiness.com. Get a .com if you can, as other extensions still sound a little clunky and less familiar.
Once you’ve chosen a name, you can lock it down by purchasing the domain, and you can and should register your business name with the US Patent and Trademark Office. However, note that you can only register your name with the trademark office after the name is in commercial use. So, go sell something or put an ad on social media before you seek to register the name. There is a small fee for registration, but it’s worth it to protect your brand.
Write a Full Business Plan
Now, it’s time to expand your one-page business plan into a full business plan. This document will serve as the foundation for your business, so it needs to be comprehensive. When you write a business plan, you need to keep in mind what your objective is.
Are you just coming up with a document for yourself to keep your vision sharp and your objectives clear? Are you seeking funding or investment from a bank or investor? Are you trying to attract a partner? Whatever your top priority is, gear your business plan toward accomplishing that goal.
Remember how, in your one-page business plan, you focused on just one or two aspect of each category of the plan? Now is the time to focus on all of them. (Check out this sample business plan for guidance.) For instance, we offered a list of topics on operations to cover and said you should focus on one or two of these in a one-page plan: key personnel, organizational structure, a human resources plan, product/service delivery, customer service/support and facilities.
The full plan needs to deal with all of those areas in detail. Financials need to be specific and in depth. Marketing should be a particular focus of your full business plan. Your marketing plan here should more of a product plan, also including the key differentiation of your product from those of competitors, as well as a thorough description of your target market and customer needs. You should include a separate marketing plan for every key product or product line that you offer.
In the marketing section of your plan, you’ll want to go into more detail about your target market, evaluate your customers’ needs, determine a pricing strategy, enumerate a marketing strategy, explain which advertising and promotion channels you want to use, and determine how you will measure the effectiveness of your plan.
Seek Funding (If You Need It)
There are many types of businesses you can bootstrap. For many entrepreneurs, that’s the ideal scenario. However, if you need more money than you have to start your business you’re going to have to find it somewhere.
One great place to start is with family and friends—but be careful. Doing business with friends and loved ones can be fraught with personal and financial peril. Still, it’s not that much riskier from a financial perspective than some of the other forms of funding your business—using bank loans or personal loans. And you’re more likely to get a “yes” from family and friends.
If you’re doing something really big and sophisticated, you might need to explore bringing in investors, which can rake in big money but will usually require you to surrender at least some of the equity you have in your business. Finding and successfully pitching investors—including venture capitalists—is a viable but fairly extreme option for most entrepreneurs.
Above all, when borrowing money from anybody, just remember that you’ll eventually have to pay it back. Don’t get in above your head. Do you really want to put your house on the line to start your business? Maybe you do, but think it through and budget very carefully.
Also, when dealing with a bank, a loan provider or an investor, do your homework and make sure you’re dealing with somebody credible. You can use that homework to put together a knockout presentation when the time does come to write a pitch and ask for money.
Find a Facility
Many entrepreneurs will be able to skip this step, as they’ll be able to start their businesses and run them from home. But if you need an office, you’ll have to find one first. And depending on what you’re doing, that might not be easy. And it could be incredibly important.
There is a lot to consider when choosing an office space, and the requirements will vary widely depending on the type of business you’re planning to start. Restaurants and retail operations will have to pay very close attention not just to the demographics of their neighborhoods—which are incredibly important and should reflect the target market—but also to factors such as parking, access to public transportation, handicapped access and which other businesses occupy the building.
For a more standard office, location might be slightly less important, but employees will still need to get there and leave easily and have someplace to park. You’ll also need to consider utility bills and the condition of the building, as well as the terms of the lease and the reliability and credibility of the landlord.
Always leave room for your business to grow. Moving offices is usually more expensive than expanding an office, and it’s almost always more of a hassle. If you need manufacturing facility of some sort, the process becomes even more complex, but the basic considerations of finding an office—along with new ones such as age of and space for equipment, and safety considerations—will still come into play.
Investigate Insurance Requirements
Insurance can make or break your business. It can also make or break you, personally, depending on how you structure your business. If you’re running a sole proprietorship, make sure your current insurance policy covers you. It very well might.
If you have employees, though, or if you plan to work very directly with people or animals—say, as a personal trainer or a pet-sitter—you will very likely need some sort of specialized insurance, or, at the very least, some form of liability insurance. If you’re going to have an office, you’ll need property insurance. And it only gets more complicated from there. The world of insurance is incredibly complex and sophisticated, and yet getting this right is essential for your business.
Where do you start? First, watch our videos on insurance here on BusinessTown. Then think about what you’ll actually be doing—whom will you employ? How will you come into contact with your customers and suppliers? Gather as many answers as you can, and speak to an insurance professional you trust. You might have to go back and adjust your financial spreadsheet based on what you find.
It’s at this point in the process where you’ll also need to acquire whatever licenses are necessary for legal operation of your business. Some states and municipalities are stricter than others when it comes to requiring licenses, so make sure you at least search to see if your business idea will require a license or permit in your state. Do this no matter what your idea is—you might be surprised at which businesses require licenses.
If you’re going to have employees, you’ll need to take the further legal step of getting an employer identification number from the IRS. The IRS provides a handy guide on how to get an EIN and who needs one.
Set up an Accounting System
Let’s face it: you’re in business for the money. If you don’t know how to manage that money, your business won’t survive. Accounting is dull, tedious and incredibly important for your business. You might be able to start out with a simple spreadsheet to track revenues and expenses, but hopefully, your business will grow fast enough that you’ll need a more comprehensive and sophisticated system.
Setting up an accounting system is harder than it sounds—for instance, do you know the difference between process accounting and systems accounting? But it doesn’t have to be an overwhelming process. There are software and cloud applications—some quite inexpensive—that can help you get up and running.
If you think your business is going to be big enough, you could consider hiring financial professionals to keep your books. Here are some brief profiles of the positions you might want to eventually create:
Chief Financial Officer: This is somebody that is responsible for the strategic vision & the forward-looking part of the business. They can help you establish pricing models and fundraising strategies so you can actually achieve the growth that you expect. But keep in mind that a part-time CFO usually my costs more than $200 an hour depending on the city that you live in.
Controller: A level down from a CFO would be a Controller. This is the person that is actually responsible for making sure that all of your finance and accounting activity as reported on in generally accepted accounting principles, or GAP.
Bookkeeper: A lot of folks would probably consider just hiring a bookkeeper. A bookkeeper is really just responsible for manually entering in data into your accounting systems, following the processes that you’ve established. Some of the systems that are in place actually decrease the need for a bookkeeper these days.
Develop a Logo
When you think of famous companies, images come to your mind as fast as names do. The Ford oval. The iconic apple with a bite out of it. The golden arches. It can take decades for a logo to gain that kind of prominence, and yours certainly won’t right of the bat. But you want to create one that can and will eventually.
There’s a lot to consider when designing a logo. You want to be simple but not basic and have colors that are both pleasing and eye-catching. You also need a logo that can scale—be depicted in larger or small formats—without becoming distorted or unrecognizable. Once you develop a logo, you can trademark it, too.
You might choose to outsource the design of your logo, and it’s not a bad idea. (Beware, though, that good logo design can be costly—one friend who designs logos professionally charges a minimum of $1500. On the other hand, there are designers who will create a logo for $50 or less … although it might not be too distinctive.) Professional designers understand nuances and psychology of design that you might not. It’s not unlike getting an accountant to do your taxes.
If you do decide to find a designer to create your logo, don’t be hesitant about giving honest, open feedback. Designers are used to scrapping and redoing designs. They might not like to do it, but it’s what you’re paying them to do.
Determine and Prototype a Minimum Viable Product or Service
Now, we move from the basics to the more complex aspects of starting a business. You have to sell something, whether it’s a product or a service. At this point, you have to develop a minimum viable product, or MVP. (The same concept also goes for a service.)
Perhaps the best way to explain the concept of the MVP is that if your product or service doesn’t meet the requirements of an MVP, it won’t sell, and your business will fail. There are two essential elements to building an MVP: Does your product do you what you say it does, and will anybody buy it?
Hopefully you answered the second question way back at the beginning of the process of starting a business when you chose what type business you wanted to start. If not, you should have answered it in the market-research phase. As for the first question, particularly if you’re offering a product as opposed to a service, you’ll need to develop a prototype. (It is also possible to prototype a service, but the process is different.)
Developing a prototype is really the process of turning your idea into an actual product or service. It’s at this stage where you’ll actually create your MVP. There are three essential steps to prototyping a product: determining the tools you’ll need, constructing the prototype itself and soliciting customer feedback. For services, the focus is more on determining how much you should charge for your service and then soliciting customer feedback.
Once you have a prototype, you have something real that you can actually sell. Now, you need to figure out how you’re actually going to sell it.
Get Your Business Noticed
Now, you’re ready to float your business to the public. You laid out in your marketing plan how you plan to advertise and publicize your business, and now it’s time to do it. There are three tactics you can use to get your business noticed right away.
Network locally and within your industry
In order to network effectively, you need to have a networking mindset. Everywhere you go and whomever you meet, you need to think in terms of making people part of your business network and finding out how you and the person you’re talking to can help each other.
Consider the outcome of each interaction as you experience it. When you first meet somebody, find out what you have in common—you know the same people; you’ve been in the same industry, you’ve had a similar job. Pull together connections and then move to the next steps. Either decide that the interaction isn’t beneficial to you and move on—and possibly refer the person to someone else—or set up an appointment, maybe lunch or a phone call.
What you want to have is a clear closing. You want to think about every interaction in the networking event as going through the process and moving towards a definitive endpoint you both agree makes the most sense. Remember, too, that networking is about making connections, not about selling. You do want to have an elevator pitch about your company ready—you always do—but you’re not looking to close a deal in a networking session. You can close the deal later at an appointed time.
You should definitely attend events that are relevant for your business but, choose networking events that are right for you. Meeting people can take time and energy, so don’t be afraid to target certain events and not others. Networking can happen anywhere, so don’t spread yourself too thin running from event to event. Remember where the elevator pitch got its name—you can meet people in place you’d never expect.
You can also join organizations as your time and budget allow. There are many in-person and online groups that can help you meet people and make connections. Join the chamber of commerce and any industry group businesses of your type might have. Go to local trade shows and conferences. Get involved with Facebook groups that cater to your local area or industry. Facebook is useful because people almost always use their real names and are easy to contact via private message.
Advertise in the local press
If you’re running a local business, find the most targeted newspaper or radio station you can and advertise there. Local people pay attention to local news. And the honest truth is that a lot of local media outlets might throw some free coverage your way if you advertise with them. Don’t expect or ask for that, but know that it could happen. And go ahead and send a press release about your business to all of your local outlets.
Even in your local media, you’ll need to break through the clutter of advertising. You need a message that’s memorable and actionable. For instance, if you’re writing an ad for radio, make sure you get right to the point and leave a clear call to action.
If, on the other hand, you choose to place an ad in a local print publication and need to know how to write a magazine ad, remember to cater to the publication’s niche, which should match the one your business is trying to reach. Overall, when it comes to advertising, simplicity and repetition might seem overbearing, but they’re time-tested techniques that work.
Promote your business on social media
It’s easy, and it’s free—at least to begin with. They key to succeeding with social media is to be persistent and consistent with your messages without being annoying. Create a friendly persona for yourself and your business, and watch where it goes.
Don’t develop the wrong expectations about social media. With social media, you’re reaching out to a group and prospecting for leads. You’re not necessarily selling—yet. You want to create a dialogue with your audience and build good feelings among your potential customers.
Then, once you’re on the radar, you can get into selling to individuals, perhaps through email marketing or even through private messages on a social platform. But don’t get ahead of yourself. Take your message to social media first and let it build—hopefully with help and participation from your audience.
Social media can become a major time suck if you let it. Start with one platform, and stick to it; Facebook works well because of the sheer number of people on it, but Pinterest or Instagram could work if you’re displaying lots of photos of products. You can schedule posts on most social media platforms, so you don’t have to be physically on around the clock. But don’t overextend yourself.
Anybody Can Do It
It’s true that anybody can start a business. Just follow the steps to starting a business and keep your wits about you—be patient, expect roadblocks and don’t fear failure. Take the process one step at a time, and watch your business take off and grow.
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