Should You Start a Business?
With summer ending and school starting, with the leaves about to turn and change in the air, this happens to also be the time of year when many would-be entrepreneurs start thinking about finally starting that business. So in this blog and the next few, I am going to look at what it takes to start, run, and grow that new business.
Let's start today with an analysis of pros and cons of becoming an entrepreneur.
The pros of starting a business are these:
- Control: Even if you love your boss and job, the possibility still remains that you can be laid off at any time. Your boss can be transferred and your company could go out of business. So in many ways, starting your own business puts you more in control of your work and career (although, of course, with that control comes increased responsibility. As the boss the buck will stop with you. You are the one who has to meet payroll. You are the one who has to make sure that clients and customers stick around.)
- Money: There is usually a limit as to how much money you can make when you are an employee. As such, many people choose to start their own business for the simple reason that they think that they are worth more than they are making or that they want the chance to provide a better life for their family.
- Creativity and independence: If you feel stagnant in your current job, you won't feel stagnant for long if you start a business. Running your own business may require that you be the marketing wizard, salesman, bookkeeper, secretary, and president all rolled into one. It is a hectic life.
- Freedom: Working at your own business gives you the flexibility to decide when and where you will work. The freedom that comes with being your own boss, where no one can tell you what to do or how to do it, may be the best thing about being an entrepreneur.
But there are also definite downsides to starting your own business:
- Uncertainty: The hardest part of being in business for yourself is that there is no steady source of income; a paycheck does not come every two weeks.
- Risk: What is an entrepreneur? It is someone who is willing to take a risk with money to make money. Not all entrepreneurial ventures are successful. It is the willingness to take a smart, calculated risk that is the hallmark of a smart entrepreneur. But even calculated risks are still a risk.
- Lack of structure: Many people like the structure of working for someone else. They know what is expected of them and how things will look most days. That simply is not true when you work for yourself. It's very unpredictable.
You need to consider carefully both these risks and rewards before deciding to jump in. It is easy to become infatuated with the idea of owning your own business. But if you are going to do it right, if you are going to be successful, you need to take the emotion out of the equation. You have to begin to think like a businessperson, consider the risks, and make an informed, intelligent, calculated decision.
Steps to Starting a Business
In my last blog, I looked at the pros and cons of starting a business. While people often love the idea of opening a business, they also get bogged down in the actual nitty gritty of just how to do it.
It might help to know that no matter what type of business you decide to start, the essential steps are the same. Yes, different businesses will certainly have a slightly different path, but generally speaking, most businesses follow a formulaic path:
- Step 1: Personal evaluation: You need to begin by taking stock of yourself and your situation in order to figure out which sort of business is best for you. Why do you want to start a business? Is it money, freedom, creativity, or some other reason? What do you bring to the table? What skills do you have? What industries do you know best? 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? Will you have employees or not? The answer to these types of questions will help you narrow your focus and pick a business.
- Step 2: Analyze the industry: Once you decide on a business that fits your goals and lifestyle, you will need to evaluate your idea. Who will buy your product or service? Who will be your competitors?
- Step 3: Draft a business plan: 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 needs to get done when, and where you are headed.
- Step 4: Make it legal. There are several ways to form your business – it could be a sole proprietorship, a partnership, or a corporation. Although incorporating can be expensive, it is usually well worth the money. A corporation becomes a separate legal entity that is legally responsible for the business. If something goes wrong, you cannot be held personally liable.
At this stage, you also need to get the proper business licenses and permits. Depending upon the business, there may be city, county or state regulations, permits and licenses to deal with. This would also be the time to check into any insurance you may need for the business and to find a good accountant.
- Step 5: Get financed. Most small businesses begin with financing from bank loans, credit cards, personal loans, help from the family, and savings. As a rule of thumb, besides your start-up costs, you should also have at least six months worth of your family's budget in the bank. (My new book, Get Your Business Funded, gives all sorts of ways to finance a business that you may not have thought of.)
- Step 6: Set up shop: Find a location. Negotiate leases. Buy inventory. Get the phones installed. Hire staff. Set your prices. Throw a "Grand Opening" party.
- Step 7: Trial and error: It will take awhile to figure out what works and what does not. Follow your business plan, but be open and creative. Advertise! Don't be afraid to make a mistake.
Choosing the Right Business
It may be that you already know which type of business you want to start. If so, pass Go and collect $200. Other people have a general idea about what sort of business they may want to start, but many have no idea at all – they just know they want to be off on their own.
So how do you go about picking the right business? There are many ways. Some people look to something they know well, and that's usually a fine idea. The main consideration for others is that their business have a high profit margin; again, not a bad idea at all. And still others want a business that is on the cusp of a wave, for instance, a business catering to the now-retiring Baby Boom generation.
But it takes more than just a nifty idea to become a successful entrepreneur headed down the right path. Let me suggest that anyone who wants to start a business should ask themselves the following five questions. These will be much more helpful than any list of hot businesses:
- What is something that you do well that you like to do? As in the rest of life, we tend to succeed and do well when we are engaged in something that we really enjoy. Your business should be no different. Richard Branson started Virgin Music, not because he thought music would be hot but because he loved it. Bill Gates started Microsoft because he loved working with computers. As the book says, "do what you love, the money will follow."
- Is there a market for that business? Let's say that your answer to question Number 1 is that you love gardening. Well, there are no shortage of businesses that you could start that revolve around that concept; nurseries and landscaping to name just two. Now, what if your answer is that what you love most is 19th century Danish architecture? However interesting that may be to you, if there are not people willing to pay you for your expertise, you don't have a business. So you have to be realistic — there must be a market willing to buy what you want to offer.
- Can you afford to start this business? Some businesses are very inexpensive to start, most notably, home-based businesses. But others can be quite expensive. A nursery can easily cost $75,000 to create and stock. Buying into a well-known franchise can cost over $1 million. So, in addition to picking a business that you like and have a market for, you must make sure that whatever business you decide upon is one you can afford to start.
- What will distinguish your business? Your business must offer something unique if you are to attract customers. After all, they already shop somewhere else. Why will they choose to buy from you? You must offer better quality, cheaper prices, a more convenient location, better service, a unique product — something that makes you stand out from the crowd.
- Can you make a profit? Whatever business you start, whatever product or service you sell, you have to be able to sell it at a price high enough to make a profit, but low enough that people will buy it. It is not always an easy task. Why do so many stores in expensive malls go out of business? Because, even if they have a great concept, their overhead is often too high. So before jumping into a business, crunch some numbers. Although all of these issues are important, they should hopefully lead in one direction, namely, towards something you love. This business is going to become your baby. You will care for it, nurse it along, and obsess over it. You will also be putting an extraordinary number of hours into it. Unless you love it, unless you are passionate about it, working so hard will be difficult.
The Psychology of a Startup
No one ever said taking the entrepreneurial leap was easy. Fun, exciting, inspiring and maybe even a little nauseating? Yes. But easy? No way. Starting your own business is a big change and is worthy of a double-take. Especially if you have never done it before, starting a business is a significant emotional change, so do not underestimate the psychological factors when starting a business. It's simultaneously scary and exciting.
So aside from excitement and trepidation then, you will likely encounter exhilaration, exhaustion, confusion, and even moments of enlightenment. Entrepreneurship is the proverbial roller coaster of emotions, especially in the beginning. Here then are a few tips to deal with some of the mixed emotions you may encounter along the way:
- Look before you leap. Now, it may be that you need to start a business because you lost your job and have no other options at this moment. Many people started that way, and in fact that can be a big motivator. But if that is not the case, just remember that you can start part-time before quitting and jumping in 100%. Starting slow helps to see if your plan is working and if you like it.
- Get some advice and help. Help is available. The Small Business Administration, friends, websites like this one at Greatland, SCORE, your local Chamber of Commerce, and business associates can help you a lot along the way.
- Prepare for the roller coaster: Understanding that starting a business means taking a risk may not make things easier for you, but it should help to know what to expect. There will be highs and lows, successes and failures. There will be a steep learning curve. Knowing that you are getting on a roller coaster makes it a little easier.
- Don't go it alone. Many new entrepreneurs start out as solopreneurs. That is often a big change and huge adjustment to life in the old office. But you need not be out there by yourself in this day and age. Online resources like LinkedIn and Facebook have groups you can join. Your local chamber and groups like LeTip allow you to get out and mingle.
- Remember that you may have more assets than you realize. For example, you might have money in the bank, friends in the industry, a supportive family, a good attitude, a great idea, an awesome partner, chutzpah, or a good education. Those are all assets that not everyone else may have. Use what you've got.