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According to the U.S. Census Bureau, 82,000 small businesses have formed in the U.S. in the second quarter of 2018—the most in nearly 10 years. If you're interested in becoming a small-business owner, you may be wondering exactly how to start a company. The specifics of starting a business will vary according to business and industry. However, there are a few key pieces of advice that can be applied to any business as you launch your startup.
Before You Start: Should You Even Start a Startup?
Before you begin down the road of starting a new company, ask yourself if you're ready to commit to this path. A lot of people are misled by media headlines full of unicorn startups that obtain millions of dollars of seed funding. In reality, research shows that more than 90% of startups fail to ever secure equity financing and close shop. That's why it's a good idea to first evaluate your decision to become an entrepreneur.
We don't recommend starting a startup until you have the following.
- Time: No matter what kind of business your startup will be, it will require time and effort. If you're not willing to put in the effort or don't think you have the time, we don't recommend starting until you do.
- A well-thought-out business plan: Forming a business plan early on is a good idea as both an internal and external resource. You'll need it for any upcoming conversations with lenders, investors or partners, and you should also keep it handy so you can have a tangible vision to keep your business centered.
Step 1: Start with an Idea and a Business Model
Companies like Microsoft, Google and Apple all started from humble beginnings and an idea. They didn't transform into tech behemoths overnight. They didn't even start with million-dollar ideas. Almost every Fortune 500 company today has deviated from the original path it started on. At one point, IBM was selling meat choppers.
A good starting point is defining your business model. This will serve as a guiding light that can inform many of the tough decisions you will have to make as your company scales. Here are a few examples of common business models.
Manufacturers: Your business creates products from raw materials and either sells those products to distributors and retailers or directly to consumers.
Freemium model: Your business leverages a paid subscription model but basic services are offered for free.
Distributor: Your business distributes goods acquired from manufacturers and wholesalers.
Franchise: Your business takes advantage of an existing business to leverage its brand strength and operations. Franchise businesses include restaurants, retail stores and more.
They key to success here is to start with an idea that will improve the customer experience, or at least give the impression that it will. You don't need a completely revolutionary idea to convince customers to start paying for your product or service, but you do need to differentiate it somehow and convince the market that yours is better than the competition.
Your initial idea is a mere starting point, and a successful startup is expected to be flexible. It is highly unlikely that you'll capture the perfect product in your initial idea. Steve Jobs and Steve Wozniak likely didn't envision Apple would be what it is today when they decided to sell computer models that featured a keyboard and a screen.
Step 2: Find the Right Funding
Whatever your idea is, you'll likely need financing for it to become reality. Unfortunately, most startups aren't seen as prime borrowers in the eyes of many lenders in both equity and debt financing. You'll likely have low cash flows or cash reserves, which are two of the biggest factors lenders take into consideration when approving funding.
Also, consider all options for obtaining financing—there's more than just debt and equity financing. We recommend checking out our article on financing options for startups. You'll need to decide whether you'd rather retain control of your business and pay interest with debt financing, or if you'd rather give up ownership through equity financing.
Do You Need External Financing?
External financing can be a powerful tool to provide a quick surge of capital for high growth, whether it's through equity or debt. However, external financing is also expensive, which can eat away at your growth if improperly used. There is always a risk you won't generate your expected returns with each form of funding.
Instead, many entrepreneurs have gone the bootstrapped route. Bootstrapping is essentially paying for your entire venture yourself with the occasional small-business loan or business line of credit. It's a harder and arguably slower route since you'll be working with less capital, but if successful, you would retain full control of your business and enjoy larger portions of your business's profits.
Step 3: Learn and Adapt
Don't get too attached to your first idea. Be ready to change and adapt. You'll want to really listen to what customers are telling you what they want and be ready to pivot based off that.
When Brian Chesky, Joe Gebbia and Nathan Blecharczyk first started Airbnb, they visited the hosts who were using the app. They had conversations about the Airbnb platform, which allowed them to home in on exactly what was attractive and unattractive to potential customers.
Being flexible doesn't mean you should abandon an idea the moment you encounter resistance. But do your research and figure out what adjustments need to be made. Startups have the advantage of being lean and being able to adapt quickly, as they have little overhead or institutional legacy systems. If your business slows down or has troubling starting at all, you'll need to figure out what's going wrong and quickly address it.
Having said that, staying flexible can get expensive. It could mean dumping your inventory and buying new supplies. It could mean paying for advertising to help boost your brand. In order to be best prepared, we'd recommend acquiring a business line of credit to help with unexpected expenses.
Resources for Entrepreneurs
Here is a list of valuable resources we recommend to any budding entrepreneur.
|Coursera||Platform for online courses, including ones on entrepreneurship|
|Udemy||Another platform with a large collection of online courses|
|edX||Platform for free online courses for entrepreneurs with tight budgets|
|Masters of Scale (Podcast)||Listen to lessons from successful entrepreneurs, as they describe how they grew their respective companies|
|Startup Podcast||A podcast that follows several businesses through the process of launching|
|The Pitch||Another podcast where you listen to ventures pitch their ideas to four investors; similar to "Shark Tank" but without the TV drama|
|SiteGuru||A free SEO tool that performs a health check on your site's SEO status|
|Moz||Another service that helps analyze the SEO performance of a page or domain|
|SBA||The government arm geared toward helping small businesses and startups; provides financing and educational resources|
|SCORE||A nonprofit organization that is entirely focused on helping startups and small businesses|
|America's Small Business Development Centers||Another organization that provides in-person educational and mentoring services for startups|
|Clarity||A platform to connect with experts who are knowledgeable in fields outside your domain of expertise|
|Young Entrepreneur Council||A professional network of global entrepreneurs with a specific focus on mobile ventures|
|Strategyzer||A site that gives you a template to build a business model canvas, which is a helpful internal and external resource|
|userinput.io||A service that collects feedback on your website or idea from real people|
|Global Accelerator Network||A network of dozens of accelerators located across the globe|
|My Tweet Alerts||A tool that allows you to create a customizable list of tweets to get alerts about, allowing you to closely monitor specific topics and what the public market is talking about|
|Planable||A visual project management tool for planning social media campaigns|
|Help a Reporter Out (HARO)||A platform where reporters submit various queries to talk to experts on a daily basis, providing an easy channel to promote your startup|
|Mindnet Analytics||A tool that crawls the web and shows you where your business is being mentioned|