At least once in a lifetime, everyone should start a business.
Business Tip: When you form your business, make sure you choose the right business entity. Start your company now and set up for success here.
Fortunately, you can start a business even if you have no money. You hear and read about entrepreneurs. You might even have some friends or family members who are running their own businesses.
One of the best things you can do as a first step is to reach out to the entrepreneurs in your own network of people. Another option is to talk to some small business owners you have done business with in the past.
Ask questions like:
- What is it like to own your own business?
- What’s the best thing about owning your business?
- What are some of the greatest challenges as an entrepreneur?
- Were there any mistakes that you have made that I could learn from?
As you approach the entrepreneurs, you will find that most of them will be happy to share their experiences with you.
The main reason I want you to talk to some entrepreneurs first is because you will get first hand exposure to what it’s like starting and owning a business.
I know that before I have owned my own business, I had no idea what it really took to be an entrepreneur.
After you speak with entrepreneurs, you might feel a bit intimidated by all that you learn from them, but don’t let that scare you.
Starting your own business can be a journey filled with excitement. Going down the road toward entrepreneurship will teach you new things about yourself.
Before you take the leap, consider the realities of entrepreneurship.
Be honest about your reasons for starting a business
As an entrepreneur, few experiences are more thrilling than getting your first paying customer. While getting paid is great, money should not be your greatest motivator.
Starting a business is hard. If you are going to succeed, there has to be a deeper desire to succeed.
Before you start thinking about what product or service to sell, be honest about your reasons to start a business.
Here are some of the worst reasons to start a business:
- You are full of great ideas. Ideas have nothing to do with business. Starting a business is a major life decision. It is not your idea that will make you a success.
- You hate your job – boss, coworkers, you fill in the blank -. Not everything you do in business is fun. If you are worried about your boss, consider this, when you are an entrepreneur everybody is your boss. Your customers might be yelling at you. Your vendors might treat you badly because you are not spending as much money with them as they would want. Worrying about employee issues could keep you up at night. As a business owner, everything will be your fault. Don’t get me wrong, I love being an entrepreneur, but there is plenty you can hate about entrepreneurship too.
- You want to tell people how it is. Being an entrepreneur is a humbling experience. Especially when you are starting out you eat and sleep rejections. No, and no thank you are the most common words you hear. If you think that you will be ordering people around you will be disappointed.
- You want to be a millionaire. So many businesses fail that your chance of becoming a millionaire is much greater by saving and investing than starting your own business. Most entrepreneurs never become millionaires. If becoming a millionaire is your main reason, you will most likely be disappointed.
- You want to read your own success story. Entrepreneur biographies can be very interesting. Unfortunately, most success stories omit the most important parts of success such as hard work, dealing with rejections and lifting yourself up after failures.
- You want more free time. Entrepreneurs work more hours than employees. Starting your business will not give you more time to spend with your family. Think of it as a goal that you might reach one day, and I hope you do, but it is unlikely that you will have more free time.
Get over your fears
Fear is good. It alerts you to the bad things that might happen. If you haven’t started a business before, you are entering a new and unknown area. You have no idea what to expect. For some, the unknown is thrilling and for others its pure terror.
The best way to get over your fears is by proper preparation.
Your preparation to become an entrepreneur should begin with:
- Taking an inventory of the skills required. – For example, if you want to start a restaurant, you should learn what skills are necessary to run one. I am sure that you have a hunch that cooking is a tiny part of what it takes to build a successful restaurant. It makes sense to start a business that relies on the skills you have.
- Considering the lifestyle changes, you need to make. – Being an entrepreneur is not a job. It is a lifestyle. If you ask entrepreneurs, they will tell you about the sleepless nights and worries about all the different issues that they deal with. Your work day will not end as it would with a job.
- Look at the time it will take to make revenue, then double it. – A fatal flaw of aspiring entrepreneurs is underestimating the time it will take for their business to start making money.
- Consider the risks. – You might have a job now with a steady paycheck. If you start a business, you might not make any money for months. Do you have enough savings to take the risk? What if your business fails? There is a good chance that it will. Failing should not stop you, but you must consider it as a likely outcome.
Dreaming kills success. Don’t get me wrong it’s OK to dream. It feels great, but it won’t get you anywhere.
What you need is action.
Here are some of the first actions you should take starting your business:
- Identify your product or service. – You hear people say “follow your passion and the money will follow.” Unfortunately, it’s one of the dumbest things people say about entrepreneurship. No amount of passion is enough in itself to help you succeed. I do agree that you should enjoy at least some aspects of the business, but realistically, it’s tough to find a business that you love 24/7.
- Determine how much money the business has to make. – A lot, I know. But, you have to have a dollar amount in mind. Don’t confuse revenue with profit.
- Define your customer. – You have to know exactly who is your customer. Proper preparation will result in an actual number of potential customers. For example, if you want to build websites for biotech companies with less than ten employees, you have to do your homework to find out the exact number of biotech companies with less than ten employees. It’s not enough to trust what you read about your customer; you have to reach out and talk to them. Learn as much about them as it relates to your business as possible. If you want to build websites for the biotech companies I mentioned before, call them and ask questions. Focus outward instead of inward. Talk to your customers and find out if they would buy your product. Ask questions like: “How much would you pay for it?”, “How often do you update your website?” “What is important to you about your website?” and more. If you don’t find customers that are willing to pay for your product your business will fail.
- Consider your legal entity options. – As a business, you can select from several different business entities. The simplest one is the sole proprietorship, but it doesn’t mean you should go with the simplest option. There are many advantages to form an LLC or a corporation. The sole proprietorship offers the fewest protections, but it is the quickest and cheapest option.
Should you start a business with a friend
There is comfort in going into business with a friend. You know and trust each other.
Isn’t that what partnerships supposed to be about?
That’s why going into business with friends seems so appealing.
The reality is that friends don’t always make the best cofounders.
One of the first questions you should ask yourself is – Are you willing to lose your friend because of the business?
If your answer is yes, you should find answers to the following questions:
- Do I trust this person completely? – I don’t mean the “show up on time for the ball game” kind of trust. I mean your livelihood, your credit, or your reputation.
- Does my friend have experience that will help us succeed? – Is s/he an entrepreneur already? Does s/he have any experience building and running businesses?
- Do we have a complete agreement, preferably in writing, on the core values of the business? Do we agree on the mission and vision?
- What happens if one of us wants out? – People change their minds all the time. Can you agree on how the two of you will handle it?
- How do you handle worst-case scenarios such as divorce, illness, or even death?
One more very important thing. If you decide on starting a business with a friend, make sure s/he is self-motivated and really wants to partner with you. You should not have to talk to him or her into going into business with you.
The best age to start
Elizabeth Holmes was only 19 when she decided to drop out of Stanford to start her own company, Theranos. Holmes’ company is now worth $4.5 billion, making her the youngest self-made female billionaires.
No question starting a business is easier when you are young, but there is no reason older people can’t succeed. According to the Kaufman Foundation, the highest rate of entrepreneurial activity in the past decade has been among those aged 55 to 64.
In 2013, 35% of new companies have been started by people 50 or older.
Take Jeanne Dowell, of The Green Buddha, at age 80 she is an entrepreneur and professional yoga instructor. Sam Walton, the founder of Wal-Mart, started the business when he was 44. Henry Ford was 39 when he established the Ford Motor Company. Charles Flint didn’t start IBM until he was 61 years old.
I think you get the picture. There are people of all ages who started and built successful businesses. Don’t let your age influence your decision.
Should you buy a business or start one
When most people think of starting a business, they are referring to starting from scratch. But, it doesn’t have to be that way. Buying an existing business is a viable alternative if you have the funds.
Starting from scratch is a lot more difficult. It will take you longer and require more expertise.
Getting your first five customers is a lot more difficult than getting the next 50.
Starting from zero you have to succeed with a lot of firsts like:
- Attracting your first customer.
- Hiring your first employee.
- Establishing a cash flow.
- Implementing policies and procedures.
- Earn credibility.
- Build brand recognition.
All of the above is doable, but they are also opportunities for costly mistakes.
When you buy an existing business you are investing in a successful formula.
Of course, buying a business has its risks too. If you don’t do your due diligence, you could end up with unhappy customers, unpaid debts, uncooperative employees, or an unsellable inventory.
Starting a business as a parent
Raising children is a full-time job, yet many parents of young children decide to become entrepreneurs. If working around the clock doesn’t scare you, starting a business as a parent might be the right thing for you.
The biggest challenge is the inconsistent income. It is tough to budget from month to month, so expect to go through your savings. Be ready to really watch your pennies.
There are several advantages to starting your business as a parent:
- You will manage your time more efficiently.
- You might be able to run your business from home.
- You might be able to partner with other parents.
As a parent, your tolerance for risk is greatly reduced. It is tough to make it work, but it is possible.
Start a business part-time
Starting your business part-time lowers the pressure on you immensely. It enables you to work on your business while you have a steady paycheck just in case things don’t work out.
Building your business part-time allows you to work on your business before or after work, nights, and weekends.
Another benefit of a side business is that you don’t have to quit your job. You might like your job, but you want to make some extra cash on the side.
A part-time business enables you to shut it down when you are not ready to take on more work or scale up when you feel motivated to do so.
Here are some of the greatest advantages of starting a part-time business:
- You can ease into entrepreneurship.
- You can afford to make more mistakes.
- It gives you more time to test your ideas.
- The pressure to make money is much lower.
- It is much easier to walk away from it, just in case you change your mind.
The key to part-time businesses is flexibility.
Financing your business
It is true that most startups require at least a small amount of seed money. The lack of cash should not mean the end of your entrepreneurial dreams.
According to the Small Business Administration (SBA) the average cost of starting a new business is $30,000.
If there is a way, avoid going into debt to start your business.
You have several options to finance your business:
- Save money – You might be surprised how much money you could save in one to two years if you are willing to cut your expenses. I think that saving is one of the best ways to finance your business.
- Sell assets – You might own a car, RV, boat, jewelry, vacation home, or some other valuable asset that could fund your dream.
- Friends and family – The easiest money you could get your hands on is from friends and family. If your business fails and you can’t repay your obligations, your relationships will suffer.
- SBA – The SBA offers several loan programs for businesses in the startup phase. SBA loan approvals take a few months.
- Crowdfunding – Kickstarter and Indiegogo are a couple of examples of crowdfunding. The greatest advantage of crowdfunding is that you don’t have to give up any equity.
- Home equity loan – I am very much against financing any business with a home equity line of credit. I wanted to include it as an option, but I don’t think that its worth losing your house for your startup.
- Credit cards – I think that using credit cards to finance your startup is another dangerous option. It is safer than a home equity line of credit, but it is still a bad option. Avoid it if you can.
- Angel investors – An angel investor is a high net worth individual with a net worth excluding their home of $1 million or more, or who has an income of $200,000 income per year. Angel investors are great if you need fairly small amounts – mostly between $25,000 and $100,000 – of investment and if you don’t mind giving up equity in your company.
- Venture Capital (VC) – VC investment is usually a later stage – Series A – a form of financing. VCs are usually formed as Limited Partnerships in which the partners invest in the VC fund. You will have to give up business equity with VC funding. In addition to equity, VCs might take a more active controlling role in your business than you’d want.
- Business plan competition – There are business plan competitions every year in every state. It is a time consuming but risk-free way to finance your startup. It is especially popular with college students.
- Strategic investor – Corporations frequently form strategic partnerships with startups. Siri started out as a strategic partnership with Apple.
In the startup world, they call, the ability to change, pivot. The point is that you will go into your journey with a lot of assumptions. Relying on assumptions will destroy your business before it even begins. Your goal is to replace your assumptions with facts.
As you arm yourself with facts, you will pivot. Entrepreneurs that fail fight facts or ignore them altogether.
If you will succeed, you will become a master at pivoting.
Your flexibility will enable you to:
- Change your target market. – You might have assumed that your ideal customer is X just to find out as you are doing your research that your customer is Y.
- Change your product. – As you talk to your customers, they will tell you what they like and dislike about your product. Keep your eyes and ears open and make the necessary adjustments.
- Adjust your pricing. – It’s not enough to ask if people would buy your product. You have to ask for the sale. Depending on your customers, competition, and the business environment, you will adjust your pricing. There is no science of proper pricing. It is more like art with some science.
- Change your sales and marketing. – As your product, your customer, or your pricing changes, so does your sales and marketing.
The key idea here is that there are so many moving parts in any business that your business will fail without flexibility.
Instead of fighting it embrace it.
If you are smart, you will figure out most challenges you are faced with, but if you really want to succeed in business, you will find yourself some mentors.
Mentors can help you to succeed quicker.
They have most likely experienced many of the challenges you are facing.
The key is to find the right mentors. You are looking for successful entrepreneurs, ideally in a similar niche to yours. If you are starting a restaurant, find a mentor that started successful restaurants in the past. If you are starting a technology company, find yourself a tech entrepreneur.
It takes a while to build a successful business. Pay no attention to the overnight success stories you hear. They don’t exist. They feel good to hear, but it will frustrate you.
Expect your journey to be a long one. It will take years instead of months.
Be patient with yourself.
It is great to have high expectations, but you also have to be realistic.
The bottom line
Starting a business can be one of the most thrilling things you will ever do.
Many others before you have succeeded, but keep in mind that most who tried have failed.
Never underestimate the sacrifices your business will demand of you.
If you are willing to work hard, and listen to your customers, there is a good chance that your startup will succeed.