According to the U.S. Small Business Administration (SBA), only 50% of startups succeed beyond five years of operation. This statistic shows starting a business requires a level of preparation and organization many people don’t consider before they open their doors.
In order for business success, an owner must first create a sustainable framework for their company. This article guides those who are new to entrepreneurship on how to start a business through 10 simple, but essential steps.
Step One – Research the Market
When starting a new business and deciding upon a business concept, entrepreneurs must understand the market they’re entering. Market research fine-tunes the idea of the company by providing insight into people’s needs. In essence, this important first step in starting a business zeros in on the target audience and morphs the company’s positioning. Market research also helps business owners understand who their customers are and how they can best relate to them.
Use Primary and Secondary Resources
When gathering data on an industry’s market, use primary and secondary research methods. Direct source gathering is considered primary research. This includes things like conducting surveys, interviews, experiments, and focus groups. On the other hand, secondary resources are sources of information others have previously produced or collected. For example, this includes books, articles, reviews, and bibliographies.
Step Two – Pinpoint the Target Audience
The next step in opening a new company is identifying the target audience of the business. “By clearly identifying target audiences, it becomes easier to capture someone’s attention because their needs and goals are front and center . . . it provides valuable insight into the needs and motivations of potential customers,” says startup expert Mark Evans in an article for Forbes.
While there will be adjustments here and there, a company should gather as much information as possible around the target audience before pitching products and services to them. Successful marketing strategies require casting a smaller, more tight-knit net.
Include factors like:
- The audience’s buying personas
- What motivates them
- Problems the target market struggles with
- How to emotionally resonate with them
Step Three – Find Holes
Finding a niche is key in order to stand out in a sea of startups and existing companies. First, ask, “Where is there a need?” Next, think about what the company offers that others within the market can’t or won’t. This means looking at where the industry is failing in terms of serving customers. In short, this helps new entrepreneurs find problems customers want solved. In addition, these answers shed light on the development of a new organization’s business plan.
Step Four – Create a Business Plan
A business plan serves as a company’s guiding light. From opening day to scaling for growth, there isn’t a stone it leaves unturned. Creating a business plan means thinking through the inner workings of a company: how to structure it, manage it, and prepare for success.
Business plans aren’t just for business owners, though. They are a key component in attracting other people to the new endeavor. “Business plans can help you get funding or bring on new business partners. Investors want to feel confident they’ll see a return on their investment,” explains the SBA in an article about how to develop a business plan.
The Structure of a Traditional Business Plan
When presenting a business plan to experienced investors and potential partners, deviating from the standard structure isn’t wise. Instead, stick to the key elements which include:
- An executive summary
- Company description
- Services and products
- Market research and analysis
- Organization, management, and team
- Marketing and operations strategy
- Financial plans and projections
- Funding requests
Learn more about structuring a business plan with this article: Business Plan Outline for Entrepreneurs.
Step Five – Back-Up Claims with Facts and Evidence
Compile statistics, facts, and projections and use them in the business plan. These assets prove a new entrepreneur conducted serious, extensive research on their company. When the business plan goes under review by someone like a banker or investor, these resources provide credibility and demonstrate strong evidence of success or the potential of it. “By their very nature, business plans are full of assumptions . . . The best business plans highlight critical assumptions and provide some sort of rationalization for them,” says CEO Andrew Clark in an article for Entrepreneur on common business plan mistakes.
Step Six – Get Feedback
Let mentors, business coaches, trusted confidants, or partners read over the business plan and help out with any blind spots. Listen to their feedback and make any needed adjustments. In addition to this, have a professional writer or copy editor review the business plan for errors and mistakes.
Step Seven – Document Everything
When starting a business, owners must know how much money is coming in and going out. If expenses aren’t tracked, entrepreneurs quickly lose sight of the costs and the numbers needed for generating a profit. If this isn’t an area of expertise or takes too much time away from working on the business, find an accountant to manage this duty.
Capturing costs and profits and forecasting the future helps entrepreneurs understand the business’s financial needs for success. “Put together a spreadsheet that estimates the one-time startup costs for your business . . . as well as what you anticipate you will need to keep your business running for at least 12 months,” says entrepreneur Alyssa Gregory for The Balance Small Business in an article on starting your own company.
Step Eight – Organize Funding
The following step in starting a business is determining the finances and budget needed for operation. Creativity is crucial for those beginning on a shoestring budget. For example, new entrepreneurs can seek investors, organize crowdfunding campaigns, get a business loan, look for a partner who is more established, or trade equity and profit-sharing opportunities when thinking outside the box for funding.
When working with a bank, increase chances for loan approval by:
- Providing clear and financially transparent documentation
- Showing a business plan
- Maintaining good credit and building personal relationships with smaller banks
Step Nine – Take Care of Legal Duties
Before opening the doors to a new company, entrepreneurs must first fulfill the necessary measures for legal business operations. Unlawfully running a business could result in a myriad of problems for entrepreneurs. For example, this includes criminal penalties and punishments, business closure, and damage to a company’s reputation. Requirements and standards vary and are industry-dependent. When making sure if a business qualifies for legal operation, always consult with an attorney.
Obtain All Required Licenses and Permits
In an article for LegalZoom, David Singer, Director of Compliance Research and Acquisition at Business Licenses, explains, “The single most important concept to remember is the word proactive. Whether you apply for the proper licenses and permits on your own or through a licensing service, you want to take these steps before you open the doors.”
This process is one of the most extensive parts of legally opening a company. Licenses and permits are dependent upon industry, state, and location. For more information on common licenses, visit this article.
Register the Business
Before launching a company, make sure the business name doesn’t already exist. After this, register the company with local and state governments. In addition, apply for a federal tax ID number (EIN). Most banks require this number when setting up a business banking account. This excludes people who conduct business using their legal name. For more information on how to properly register a business, click here.
Step Ten – Choose the Structure, Location, and Bank
The last step before opening is determining the company’s structure. The most common business structures are sole proprietorships, partnerships, limited liability companies, cooperatives, and corporations. For more information, read more about the various business structures, here.
In addition to this, think about the location of the business and opening a separate bank account for the company. Location determines the types of licenses and permits required by law, while having a business bank account helps keep track of an organization’s finances.
Taking care of these ten steps when starting a small business requires diligence and hard work, but readies those interested in entrepreneurship for the road ahead. Envisioning, planning, and preparing for the success of a company is crucial before becoming a business owner. Addressing and adhering to these requirements helps people open businesses with strong, grounded foundations.