If you’ve ever had to wake up early and go to work all week, only to see that after paying bills you have about 20 bucks left for the week, I would be willing to wager that you’ve wondered if its even worth it. You may have also wondered about what it would be like to be the one running the show and making the real money. Maybe you’ve even thought about venturing out on your own to start something for yourself. Most of us have entertained the idea and for the vast majority that fire fizzled out. Whether that’s because it was just a daydream, starting a business seemed overwhelming, lack of time/capital or countless other reasons its often a missed opportunity.
Sometimes I wonder how many people would have a greater sense of freedom if they just followed through with their ideas? The truth is most would fail, many would struggle through to retirement, and a handful would be successful. Most businesses fail, that’s just the harsh reality. But starting a business is an investment in yourself and a wager that your skills are worth more than just a weekly paycheck. If you have that drive, then below you will see how you can position yourself to have a much stronger chance of success.
Business is hard. Its time consuming, stressful, competitive. Its also fun, exciting, and rewarding, and when it is started right it’s much easier and I truly believe that just about any business can be
Once you have an idea, the first question you need to ask yourself is “can it be done”
If you want to sell volcano diving lessons on Mars, I’m sorry. I don’t think anything I have to offer will help you. It may be possible in some form or fashion; you’ll have to talk to Elon Musk about that. But regardless, it’s not feasible. Of course this is an extreme example, but lets break it down anyway.
· There are many certifications I’m sure you would need, transportation, special training for customers,
· Extreme safety risks (though I’m not sure how safety regulations would be enforced on Mars)
· Your target audience is likely far too small to sustain a long-term business.
Conversely if you wanted to open a Café’, that is significantly easier; however, the problem with the achievable, especially the easy, is that it has already been done. Low barriers to entry usually mean higher competition. For example, there are thousands of Café’s, but no volcano diving Mars tours to my knowledge. Essentially, what I am trying to convey is that starting a business is a fine balancing act.
Examining the Café’ concept, it’s been done time and time again, its relatively easy to start one, but the question you have to ask yourself is “can it be done better?” Maybe yours will offer shots of alcohol, or you’ll have a live band, or maybe it’s all gourmet drinks. The point is that you need to make your entry into the market raise the level of difficulty for anyone entering behind you and for those already in the market.
At this point the reality is you probably already have an idea and with that a concept of who your customers will be, but it’s time to narrow that down and zone in on refining you’re offering and your customer base. This will help you in starting to define income projections and whether this is worth your time or if you need to adjust your plans to MAKE it worth your time.
Going back to using a scenario- Lets say you want to open a shoe store. Most people have feet and those with feet tend to wear shoes, so your customer is everyone right? Not exactly. We need to look at some things like:
· where do people buy shoes? Online or in store?
· What makes them buy shoes? Theirs are worn out? Special occasion? Impulse buy? Outgrown them?
· Do men and women have different triggers for buying shoes or different shopping habits?
· What is the income profile of those who buy the most shoes?
So whatever your product or service, take a Zoomed out look at it and slowly zoom in as you answer those questions to really define who you are selling to and what motivates them to make a purchase. Once you have that answer you will be in a much better position to formulate your strategy and that begins with the big “Why?”
Why Consumers Choose You
So you’ve narrowed down your shoe business to figure out that you just want to sell to one guy, Bob. He’s a wealthy, shoe lover nearby and he is an active shopper. Now its time to get a little bit more specific by asking a couple of questions:
· Why does he want to buy from you?
· Why would he choose to go in your store or shop your website over yard sales, countless websites and other shoe stores?
Where are the Consumers?
Answer that and at this point you have a strong fighting chance of success. But let’s improve those odds even more. Let’s say Bob isn’t your only potential customer. In fact, he may be one of thousands, you don’t know. But you know the profile of what your customers will look like, now you just need to find them. For a brick and mortar, or other business that serves a location we need to check out the area. I love census records for this, you can go to the US census bureau’s website and identify how many people that fit your criteria live within a certain location. You will have to do some digging, comparing and light calculations to extrapolate the data, but it is there and well worth your efforts to look into.
Next you will look at the competition. How far do people travel for your product? How many businesses that sell what you do are in the radius which you intend to operate? You’ll be sharing business with them, no matter how good your product or service, you’ll never capture 100% of the market in most cases.
So working off the shoe store scenario, lets say you checked out the and you are looking to open a shoe store for those in the higher tax bracket in Somewhere City and you’ve found through that data that there are 5,000 customers who on average spend $700 per year on shoes. You’ve figured out who you have 3 competitors and formulated a plan for how to make your offering a little better than theirs, so you expect to capture 10% of your target market in your first year. This would give you a revenue of $350,000. That means you will need to fit Cost of Goods, Rent, Insurance, Labor, Utilities and all other costs under $350,000 in order to make a profit.
At this point you should know what you will sell, to whom, why they choose you, and have a rough idea of your expected revenue. But you still need to know where you’re getting your products or if this is a service industry, who will provide the service. What is the cost of your facility, what regulations do you need to be aware of, and what will your employee obligations be?
To help determine some of these answers you will need to answer the following:
· Where does the service or transaction take place?
· Will you need a large facility or just a laptop and wifi?
· Will you need to hire a team, or can you run everything yourself?
· What costs are directly associated with each transaction?
These costs are important to know this for obvious reasons, but they also gives us a breakeven point. In other words, how much volume does your business have to have in order break even. Conventional wisdom says that you should have enough cash reserves or a loan large enough to cover 6 months of expenses when you first begin. This is to prepare for a worst case situation where you are working and fighting to make your business successful, but people just aren’t interested in volcano diving so you don’t generate any revenue at all. Ideally it’s not just so that you can stay afloat for 6 months and then call it quits though. It’s so that you have ample time to see where your business is succeeding and where it needs work. Normally businesses aren’t profitable for the first 3 years and business owners don’t get to pay themselves for the first 5. These reserves give you the chance to course correct, make necessary expenditures, and adjust your model to help make that profit faster cover any losses along the way.
A successful, thriving business is always the goal, but sometimes even with the best planning things just don’t work out, so it is important to formulate exit strategy. Will you try to sell the business, close it, downsize, convert it to another business model? Ideally, you’ll want a strategy that recoups as much capital as possible. That will vary for every company so this will be highly individualized
You’ve got an idea, you know who you are selling to, why they would choose you, financial goals, an operational flow, and an exit strategy. Now you just have to jump through the administrative hurdles such as those pesky details like getting the money to start, licensing and taxes.
Thankfully, the SBA has a slew of resources for funding, and you have a few routes you can go.
· You can choose to self-fund, meaning you save up the money and pay for it all out of pocket.
· Take out a loan
· Take on investors
Each route has its own pros and cons which, like many aspects of this writing requires its own dedicated post to dive into.
Next you need a business name and entity ID which is often procured through the Secretary of State’s website or at your local courthouse. This gives you rights to that name in your jurisdiction and sort of “validates” your business as an entity. This can vary a bit if you are working as a sole proprietor but if you are an LLC, S Corp, C Corp, LLP, or Partnership you will usually need an entity ID. Determining your ideal business structure can be a bit tricky and I suggest connecting with an accountant to determine what is best for your business.
Next you will need a business license which can be obtained similarly to the name reservation. In many cases you will need an EIN which can be obtained online through the IRS website.
Finally, you can check with your accountant about your state and local requirements for tax accounts. These are generally set up through your states department of revenue.
Don’t misconstrue this as any sort of financial advice, opening a business is difficult and risky. This template is meant to be a tool to provoke thought and encourage you to do your own research and does not encompass the entirety of possibilities, contingencies, legalities or business knowledge that exists. There is no one perfect plan that fits everyone or every business that would guarantee success, but the more questions you can answer upfront and the deeper you dive and dig you position yourself for a greater chance of success.