What Every Prospective Entrepreneur Should Know About Starting a Business
If you’re sick of working to make someone else richer, you might be an entrepreneur at heart.
More and more people are taking on the challenges of the free market so they can work on projects they love, earn more money, have more flexibility, and live more satisfying lives.
According to Freshbooks, 96% of self-employed people are happy they ditched their ‘normal jobs’. Starting a business always involves taking a risk, but for many, it is worth it.
If you’re in the same boat, and you’re thinking of launching a business, there are some things you should know upfront.
Understanding the world of business takes a lifetime, but in this article, we’ll walk you through the essentials you need to know before you start your first business, so you can make it a success.
Validating the Business
Step 1 is figuring out whether your idea for a business is any good. Not all of them are. The less of your time you spend working on a business that is doomed to fail, the better. Starting a business always involves validating the idea.
The validation stage is where you figure out whether the killer idea for a business that has been growing in your brain for the last year or so is a total dud or the kind of seed that could grow into a thriving business.
Some ideas don’t necessarily need validation, because the market is obviously there. For example, people always need plumbing contractors. We all use indoor plumbing. And it all eventually breaks. Your idea to provide plumbing services is pretty solid, as long as you live in an area where people exist and use indoor plumbing.
To validate a business you need to know only 2 things.
1. You can deliver the product.
2. People will pay for it.
The best way to validate any business is to run a simple test. Try to sell it. There is nothing better than test-driving your business in the market.
For example, if I wanted to sell a water heater, I could list it online for sale. I could ask people I know if they need a water heater, and sell it to them. I could even run a cheap ad in the paper or online. As soon as you’ve made a single sale, you know that a business is possible. When you’ve made a couple of sales pretty easily, you know you’re onto a good business idea.
Services and Pricing
How much should you charge for your product or service? What is it really worth to people?
In the book ‘Influence’ by Robert Cialdini, he tells the story of a jewelry store in a seaside tourist town. Whenever a piece of jewelry didn’t sell, they would lower the price, but people still weren’t interested. Instead, tourists flocked to buy the most expensive pieces.
One day, the clever owner tried an experiment. She took one of their worst-selling pieces of jewelry and tripled the price. The next thing she knew, they were sold out.
She realized that the prices were telling their own story. The tourists saw low prices and decided that the jewelry probably wasn’t very good. They bought the higher-priced jewelry instead because they had mentally gotten used to the equation ‘high price = high quality’.
What you charge for your product or service depends on a number of factors: what it costs you, what people are willing to pay for it, and what your competitors are charging. However, remember that lower prices are not always better, and people pay for quality. Starting a business always involves asking yourself a critical question: what do I think it is worth? Consider carefully before answering.
Also, remember to be like the clever store owner and test! Try changing your prices over time, and see what works. The only way to know whether you are undercharging or overcharging is to experiment occasionally to see whether you can increase sales with lower prices, or profits with higher ones.
It’s all fun and games until the government gets involved. As a business owner, you’ll have to deal with legal structures, taxes, and plenty of red tape. Starting a business always involves a lot of paperwork, right?
It all depends. If you are working as yourself, offering a service as a pipe inspector, you might not need to register with the government right away, as long as you declare all of that income on your taxes. You can make a website, print business cards with commercial printing services, and advertise your services all without actually existing as a company if that’s what you want to do – and your legal jurisdiction allows you to do business as yourself, an individual.
However, there’s a reason you might not want to do that: if you inspect someone’s pipes and then later, they burst and cause a bunch of damage, that person might be pretty angry with you. They might say that your negligence as a pipe inspector cost them money or damaged their property. They might even take you to court and sue.
If they take your company to court, PipeInspekt LLC, they can only take the stuff the company owns.
However, if you never registered your company, and instead you are doing business as yourself, someone could sue you and take your house, your car, your retirement fund, and your dog (well, probably not a pet, but you get the idea).
If you are selling web design services, writing, or art, you might be able to get away with working as yourself, depending on the legal jurisdiction you are in. However, if you are handling people’s money for them, selling physical products, or performing critical services (like a commercial concrete pourer), you should probably think about protecting yourself legally.
Funding and Financing
There are businesses you can start with zero dollars. If you have a laptop and a WIFI connection, you can probably use your brain to start a business without any extra funding.
However, if you want to start a clothing brand, a software startup, a commercial cleaning company, or a vodka distillery, you definitely need some cash on hand to pay for things like a location, supplies, and employees.
If you need a small amount of capital to get started, you might just need to save up for a while. Bootstrapping a business with just your own funds is a great way to keep 100% ownership. You could also ask friends or family for a loan, or offer them a small stake in the company for an initial investment.
If you’re in the vodka distillery business, then yeah, think bigger. Local and international banks offer favorable rates to businesses that want to borrow money and grow. If you have a solid business plan, some domain experience, and a good credit history, you can probably get the startup funding you need as a repayable loan.
The highest level of funding is venture capitalist seed investment. Companies that could potentially offer huge returns are sometimes funded by VCs, or venture capitalist firms who expect to sell later for 10X or more what they paid for their shares. They are looking for the next Twitter or Uber. If you want to hire a big staff and get to work changing the world, you need a VC to fund you.
The important thing to remember about funding when starting a business always involves dilution. If you accept money, you are also giving away pieces of your company, which means you are shrinking your potential profits later.
Finding a Location
Starting a business always involves finding the right location where you and your customers come together.
If your business is online, you need a website. That’s your location. Wix and Squarespace are great options if you don’t know what you’re doing, because they have excellent templates. If you want to be a little more hands-on, go for WordPress and save some money at the same time.
If you’re selling directly to people, you need both a website and a physical location. Renting a storefront, an office space, or even a building is a little more complicated than HTML – but it doesn’t have to be, especially if you use a property management company to help you.
Location only really matters in relation to sales when you are looking at physical traffic. Office buildings should be convenient for employees to get to, but a storefront on a busy avenue where rich people like to walk is going to get more business than one tucked in an alley. Pay for a good location, and you’ll make that money back.
Security and Protection
As you build your empire, you don’t want to lose it to thieves. Starting a business always involves risks, but you can protect yourself and your investment by using security systems.
Secure your website with an SSL certificate, and pay for security plugins and services wherever it makes sense. Only use secure payment portals like PayPal and Stripe. Make sure you have good firewalls – but also, make sure you don’t leave your password lying around.
Protecting your physical location and your supplies is essential, too. If you are keeping anything outside, even in a secluded area, consider a chain link fence installation. Things have a way of getting lost when they’re not secured.
Unless you are storing something like diamonds or pharmaceutical drugs, you probably don’t need a vault or iron doors, but you should definitely invest in security systems that will alert the police in the event of a robbery or break-in. Treat your business like you would your home, and protect your assets like you would your family, to give yourself peace of mind.
If disaster strikes and your business catches fire or is robbed, you stand to lose a lot of money. But that’s just business, right?
Actually, you can protect yourself with commercial business insurance.
Just like homeowner’s insurance protects your home, commercial insurance can cover your business in the event of an unforeseen challenge, like a workplace injury lawsuit or a fire. Having insurance could mean the difference between closing your doors and weathering a storm, so think about purchasing some if you can afford it.
Marketing and Sales
Marketing is the difference between stagnation and growth. Starting a business always involves finding new customers and selling to them. If you’re waiting for them to find you, you might wait a long time.
It’s easier than ever before to reach people through social networks like Tik Tok, Twitter, Instagram, and Facebook, for free. But it’s also harder than ever to keep their attention and turn ‘followers’ into ‘customers.’
To market your business, go to where your customers are and start talking to them about what you do. If you run a chain of tile stores, start attending home improvement conventions and trade shows where potential customers might be. Help them for free with information if you can. Be kind and polite. It’s that simple.
If you do AC replacement, social media might not be your best source of customers. Would you go to Tik Tok to look for an AC replacement? Try using SEO content marketing instead, to get people who search for ‘AC replacement in My Town’ to click on your website, where they can make an appointment for a free consultation.
Marketing isn’t rocket science. It’s common sense. Go where your customers are, online and in-person, and start offering your help and your services. The more contact you have with the people who might become your customers, the more of them will end up buying from you.
Hiring and Retention
If you want to build a great company, you need to find great people. Starting a business always involves a search for talent, and your first three hires will determine your company culture moving forward.
According to Peter Capelli in the Harvard Business Review, the recruitment industry is broken. Hiring based on tests, keywords, and recruiting funnels often costs a lot of money, and hasn’t been proven to bring in the best candidates. If you outsource your hiring to recruiters you’ll get the same bad results.
Instead, consider networking and word of mouth. You cast a smaller net, but you know you are bringing in quality candidates that others have worked with and vouched for, decreasing the risk for you.
Make Your Business a Success
Starting a business always involves a lot of work, but it should be the kind of work that brings you more sales and profit in the long run. There are a lot of details to worry about, but try not to get caught up in them. You can solve problems as they come up. Instead, stay focused on your long-term goals and the stuff that matters – the value that you offer to customers, your reputation, working with good people, and protecting your investment.