1. Conduct a personal evaluation
Begin by taking stock of yourself and your situation:
- Why do you want to start a business? Is it money, freedom and flexibility, to solve a problem, or some other reason?
- What are your skills?
- What industries do you know about?
- Do you want to provide a service or a product?
- What do you like to do?
- How much capital do you have to risk?
- Will it be a full-time or a part-time venture?
Your answers to these types of questions will help you narrow your focus.
This step is not supposed to dissuade you from starting your own business. Rather, it’s here to get you thinking and planning. In order to start a successful business, passion alone isn’t enough.
You need to plan, set goals, and above all, know yourself. What are your strengths? What are your weaknesses? How will these affect day-to-day operations? You could conduct a SWOT analysis on yourself to figure this out.
As you get started, your business will likely dominate your life so make sure that what you’re doing is stimulating and challenging, but not completely outside of your expertise. You’re going to be in it for the long-haul. Use what you learn from the SWOT analysis to think through what you want your life to be like, not just what you want from your business.
Some good questions to ask yourself include:
- What would you do if money wasn’t an issue?
- Is money really important? Or rather, is making a lot of it really important? If it is, you’re probably going to be cutting out a number of options.
- What really matters to you?
- Do you have the support of your family, especially your immediate family? They may have to make sacrifices at the beginning, so it’s important to have them behind you.
- Who do you admire in business? Maybe there’s even someone in the industry you’d like to go into. Why do you admire them? What are their likable traits? What can you learn from them?
Answering these questions (and many more) about yourself and your abilities isn’t necessarily going to ensure you’re successful, but it will get you thinking about your goals and about what motivates and inspires you. Use this time to make sure that you are matching the business you want to start to your personal aspirations.
Be sure to take our quiz to find out if you’re entrepreneur material, too.
2. Analyze your industry
Once you decide on a business that fits your goals and lifestyle, evaluate your idea. Who will buy your product or service? Who will your competitors be? At this stage, you also need to figure out how much money you will need to get started.
Your “personal evaluation” was as much a reality check as a prompt to get you thinking. The same thing applies when it comes to researching your business and the industry you’d like to go into.
There are a number of ways you can do this, including performing general Google searches, speaking to people already working in your target industry, reading books by people from your industry, researching key people, reading relevant news sites and industry magazines and taking a class or two (if this is possible).
If you don’t have time to perform the research or would like a second opinion, there are people you can go to for help, like government departments and your local SBDC.
There are also a number of less traditional sources worth turning to:
- Advertising representatives for statistics and data on your competition or the industry in general
- List brokers sell mailing or email lists based on demographic attributes. Like, if you think your target market is people making above a certain income in south Texas, a list broker may be able to tell you how many people fit that criteria, to give you a sense of how big your target market actually is.
- Industry suppliers (again to get a sense of demand and for market information)
- Students who will likely be happy to perform research for you at an affordable fee.
3. Evaluate your target audience
Validate your business idea by creating a pitch page.
To determine how attractive your prospective market really is (your own desires aside for the moment), we suggest doing a market analysis.
It will guide your research as you think about:
- How urgently do people need the thing you’re selling or offering right now?
- What’s the market size? Are there already a lot of people paying for products or services similar to yours? Have you honed in on who exactly your target market is? Being specific will help you focus your marketing message and investment.
- How easy is it (and how much will it cost you) to acquire a customer? If you’re selling enterprise software, this may require a significantly larger investment than a coffee shop.
- How much money and effort will it cost to deliver the value you would like to be offering?
- How long will it take to get to market? A month? A year? Three years?
- How much up-front investment will you need before you can begin?
- Will your business continue to be relevant as time passes? A business that repairs iPhone X screens will only remain relevant so long as the iPhone X sticks around. If your business is only relevant for a specific period of time, you will also want to consider your future plans.
If you like, you can even take things a step further and consider the consumer needs currently not being met by businesses in the industry. This is a good time to take a look at potential competitors. And remember, the presence of competitors is oftentimes a good sign! It means that the market for your product or service already exists, so you know that you have potential customers who are willing to spend money on your product or service.
While you’ve got the time, learn as much as you can about your competitors, about what they provide to their customers, how they attract attention, and whether or not their customers are happy. If you can figure out what’s missing before you even get started, your job will be made that much easier when you do finally set up shop.
4. Set up your business
Realistically, registering your business is the first step toward making it real. However, as with the personal evaluation step, take your time to get to know the pros and cons of different business entities.
If at all possible, work with an attorney to iron out the details. This is not an area you want to get wrong. You will also need to get the proper business licenses and permits. Depending upon the business, there may be city, county, or state regulations as well. This is also the time to check into insurance and to find a good accountant.
Types of business formations include:
- Sole proprietorship
- Limited Liability Company (LLC)
Spend some time getting to know the pros and cons of each business formation. If you need help, we’ve got a full guide on Legal Entities, Licenses, and Permits.
While incorporating can be expensive, it’s well worth the money. A corporation becomes a separate entity that is legally responsible for the business. If something goes wrong, you are less likely to be held personally liable.
Other things you will need to do include deciding on a business name and researching availability for that name.
5.Start the planning process
If you will be seeking outside financing, a business plan is a necessity. But, even if you are going to finance the venture yourself, a business plan will help you figure out how much money you will need to get started, what it will take to make your business profitable, what needs to get done when, and where you are headed.
In the simplest terms, a business plan is a roadmap—something you will use to help you chart your progress and that will outline the things you need to do in order to reach your goals. Rather than thinking of a business plan as a hefty document that you’ll only use once (perhaps to obtain a loan from a bank), think of it as tool to manage how your business grows and achieves its goals.
While you might use your business plan as part of your pitch to investors and banks, and to attract potential partners and board members, you will primarily use it to define your strategy, tactics, and specific activities for execution, including key milestones, deadlines and budgets, and cash flow.
In fact, the business plan does not have to be a formal document at all if you don’t need to present your plan to outsiders. Instead, your plan can follow a Lean Planning process that involves creating a pitch, forecasting your key business numbers, outlining key milestones you hope to achieve, and regular progress checks where you review and revise your plan.
If you aren’t presenting to investors, don’t think of this as a formal pitch presentation, but instead a high-level overview of who you are, the problem you are solving, your solution to the problem, your target market, and the key tactics you will use to achieve your goals.
Even if you do not think you need a formal business plan, you should go through the planning process anyway. The process will help to uncover any holes or areas you have not thought through well enough. If you do need to write a formal business plan document, you should follow the outline below.
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