Starting your own business is one of the great joys in life and in fact, can probably be said to be part of the American dream. Often ranking right up there with owning your own home, starting a business is one of those things that signifies you have arrived.
But how, exactly, do you do that?
Buying your first house is pretty straightforward, if somewhat daunting: Save up enough for a down payment, qualify for a loan, find a place you love, go into escrow, have a housewarming party.
But starting a business? It can be a little more confusing, although certainly no less daunting. For sure, there are plenty of websites and books out there that can help you (and I have written a couple of those myself), but the problem is that, even so, it can still be overwhelming.
What really helps therefore is to have a ‘big picture’ view before you get started. It’s kind of like looking at a map before you go on that long, cross-country road trip. So in this column and the next, what I would like to do is give you that birds-eye view of starting your own business. Once you have that, drilling down into the minutiae of business plans and funding and hiring and all the rest will be far easier, and will make a lot more sense.
Step 1: Decide if entrepreneurship is really for you:
Not everyone is cut out for it. Some people are artists, others are athletes, some folks are scientific and others make great employees. Entrepreneurship takes a certain blend of chutzpah, diligence, creativity, initiative, hard work, leadership, and the ability to live with uncertainty.
As I said, it is not for everybody, and making the mistake of thinking that it is right for you, when in actuality it may not be, can be an expensive and time-consuming error.
So how do you know if it is really for you? Here is my handy-dandy quick test: Does the idea of leaving your current job and steady paycheck and benefits and boss and co-workers and all the rest make you more scared, or happy?
If it excites you more than it petrifies you, then pass Go and collect $200. If however the thought of leaving that security makes you far more scared than thrilled, that is important to know right up front, because this path may not be the right one for you.
Step 2. Vet your idea:
Once you have decided that being your own boss is the right career move for you, then the next step is to analyze your big idea. If you are reading this, then it is probably safe to say that you have a pretty good idea of what sort of business you may want to start. Although it may not be crystal-clear, that is just fine; most folks who start a business need to refine their initial idea. And that is exactly what I am suggesting you do as well.
The important thing to figure out at this initial stage is whether there is actually a market for your business idea and whether you will be able to make a living doing whatever it is you want to do. Following your passion is all well and good, and you have probably heard the phrase, “Do what you love, the money will follow.”
That may, or may not, be true.
If you are a computer geek, starting a business around that makes sense and is doable. But it will be much more difficult if instead what you want to do (taking it to the extreme) is to create a business around your love of 18th Century Flemish architecture.
So think it through, speak with people whose opinion you trust, and take a long, analytical, hard look at what sort of business you want to start and make sure (to the best you can) that it is viable and potentially profitable.
Step 3: Write a business plan:
You will need a business plan for a couple of different reasons. The first is that it is needed in order to get any type of financing. If you will be going to a bank to get a conventional loan, your banker will want to see your business plan. If you will be looking for a business partner, he or she will want to see it as well.
That said, more importantly, you need a business plan for one other person: Yourself. I like to analogize an entrepreneur’s business plan to a pilot’s flight plan. A pilot would never get in a plane from, say, Los Angeles and fly to Chicago without creating a flight plan first. The flight plan will help the pilot know exactly what direction to head in, how much gas will be needed, and so on.
A business plan is essentially the same thing. It is your plan for how you will get from where you are to where you want to go. It will force you to think through things like financing, the competition, marketing, and all the rest. You will be far more likely to succeed if you analyze these things thoroughly up front.
Step 4. Make it legal:
Once you know what the business is and how you will proceed, then the next step is to get the legalities out of the way.
Your business can take one of four legal forms. It could be
- A sole proprietorship
- A partnership
- A Limited Liability Company (LLC)
- A corporation
The right structure for your business depends on many things and is a decision that should be made in conjunction with your attorney.
Beyond the structure of your business, at this stage you also need to get appropriate permits from local authorities, as well as a tax ID number, and open a bank account in the name of the business.
Step 5. Get funded:
Your business plan will help you figure out how much initial capital you will need, but as a general rule, you need at least enough to open the doors and stay open for six months (the minimum amount of time needed to find customers and to begin to generate revenue.)
There are many ways to fund your business. You basic options are these:
- Self-funding: Your own savings, selling assets, cashing out an insurance policy, etc.
- Help from friends and family
- Conventional bank loans
Step 6. Set up shop:
This is the fun stuff. Here, the things to do are:
- Find a location. Retail business probably need to be in a high traffic area (where rent will be higher), while other businesses do not necessarily need a great location
- Get your Web presence established. You will need a great website, and you will also need to set up social media profiles in the name of your new business
- Prepare marketing materials
- Hire staff
- Have a “Grand Opening” party
Step 7. Trial and error:
When it comes to owning your own business, no matter how much you read and research, nothing beats experience. The learning curve, especially in your first venture, is fairly steep. But that trial and error phase is critical. The key is to try and make sure the mistakes are not too costly.
And, most of all, enjoy the ride. There are few times in life when the stars align just so such that you are afforded the opportunity to start your own business. Savor it.