Learning how to start a small business is an exciting stage in your entrepreneurial journey.
You’ve reached the point where you’re ready to stop dreaming and start doing. You’re ready to make your idea happen.
But how exactly is it done? On the one hand, you can’t afford to rush into starting your business blindly. The stakes are too high to risk making a mistake. On the other, you can’t take too long researching and planning. It’s better to get just enough information to act on, then start making it happen.
We’ve gathered together everything you need to know about making your small business a reality. By following this guide, you can start your business safe in the knowledge that you’re following a proven process.
But first, I’d like to share a little secret with you…
Your Secret Competitive Advantage for Starting a Successful Small Business
It might sound strange, but publishing a book is one of the best ways to go about preparing to start a small business.
Having a book related to my business has been massively successful for the growth of Self-Publishing School, taking it from $0 – $16 million in only 5 years.
You can either do this before following the main steps in this article or in conjunction with them.
Why exactly should you invest your time in book creation?
- Deep consideration. By writing a book around your business idea, you think it over carefully and thoroughly. This can unearth hidden gems or eureka moments you might have otherwise missed.
- Authority. Having your name on the cover of a book establishes authority and credibility. This can give your business idea a much better chance of taking off in its early stages.
- Book leverage loop. I’ve seen the book leverage loop work time and time again. It refers to the concept of releasing a book that brings you leads, sales, and referrals.
Let me leave you with one last thing to think about before we get to the main process of starting your small business.
If your business idea is a solid one, plenty of other people are probably thinking about starting something similar.
Of those people, how many are also thinking about writing a book? Probably not many, right?
Why not give yourself that competitive advantage from the very start and learn more about how we help authors write, market, and publish a book successfully in as little as 90 days.
With that in mind, let’s check out the process of starting a small business.
- Solidify your small business idea
- Carry out market research
- Get the right feedback
- Formalize your business
- Finalize your product or service
- Determine initial finances
- Plan your small business
- Launch a minimum viable product
- Find the right people
- Monitor and scale
Step #1 – Solidify your small business idea
While a successful small business requires a lot more than a good idea, without one, you have no chance of success.
The business idea you end up pursuing might have been something you’ve had in the back of your mind for years, or it might come to you in a flash of inspiration.
Whether you have an idea in mind at the moment, or you need to come up with one from scratch, there are a few particular areas that are useful to focus on:
- Skills. Considering that you want to start a small business, you’ll probably be fairly involved in its early stages. This means that you should ideally seek out a business idea relating to the skills you already have. This allows you to either carry out the work yourself or credibly train others on how it’s done.
- Growth areas. Your idea should ideally relate to a growth area. Of course, you can’t fully know the future, but you should at least have a gut feeling that your idea has longevity. Ideally, this should stem from a mix of your personal experience mixed with some kind of external reinforcement, such as market research data.
- Your passions. It’s a simple fact that your small business will consume a massive amount of your time and cognitive energy. Accordingly, it should be something you care about. Money and success are only so motivational, so ideally your business should be aligned with your values or passions in some way.
- Personal problems and pain points. Some of the best small business ideas stem from personal pain points. For example, you might notice there isn’t a certain style of clothes available for people who happen to share your body type, or no books of a certain style are aimed at your particular demographic. Chances are, if you would be served by the creation of a business like this, others would be too.
- Proven models. You might recognize that a certain idea or model is working for a particular industry, but hasn’t been applied to another. Let’s consider an example. If you thought the subscription box business model was a winner but hadn’t seen it applied to a certain type of product, you might want to see if you could make it succeed in that area.
- Local need. The internet means your small business doesn’t need to be restricted to your local area, but it still might be a valuable place to find customers. You might want to bring an idea you’ve seen work elsewhere, but isn’t currently available in your community, to your local area.
- Improvements. Sometimes, great business ideas simply stem from seeing something out there and envisioning the ways it could be improved. Think of this in terms of evolution rather than revolution. Rather than trying to reinvent the wheel, you’re just trying to make it a little more durable or attractive.
Of course, you can never guarantee an idea will work. But, by focusing on the above points of inspiration, you help shift the odds in your favor.
Step #2 – Carry out research
The idea stage of starting your small business is perhaps the most fun part. You have free reign to let your imagination run wild, unrestrained by the mundanities of real life.
However, after coming up with one or more ideas you think have potential, it’s time to validate them through research.
Market research is something people dedicate entire careers to, but you don’t need to have a high level of experience for it to be useful.
Instead, focusing your initial research on two key areas can help you refine your initial small business idea and have some concrete data on how to proceed.
Failing to consider the competition you will face is one of the key mistakes made by aspiring small-business creators.
Even the best idea is doomed to fail if you don’t have an accurate idea of the competition. Seeking competitive advantage is a complex area of market research, but as a starting point, consider the following ideas.
Unique Selling Point/Proposition
It’s highly unlikely your business idea is something brand new or completely different to anything else out there.
Instead, it’s likely to be something that already works, but with a point of differentiation.
This is often known as your unique selling point/proposition, or USP for short.
At its heart, USP is about figuring out why someone would choose your offering over something similar.
It’s important to note that it’s not enough to be unique, it’s also essential your intended customer values the uniqueness of what you are bringing to the table.
For example, Death Wish Coffee has the USP of being the world’s strongest coffee.
This is something that is not only unique, as by definition only one coffee can be the strongest, but also valued, as many coffee drinkers are reliant on its stimulant properties.
By thinking about what will be both unique and valued about your small business, you give it a better chance of succeeding.
Without revenue, your business will die. Finding the right price point for your products and services is crucial to making your idea work.
Although you’ll need to consider your costs, it’s worth researching what your competitors are charging.
Will you be able to realistically charge a comparable price and still be profitable? Will you aim to compete by offering a lower price? Or offering a better product at a higher price
Different approaches to pricing can work, but failing to take the time to consider pricing from a competitive standpoint is a quick route to failure.
How long have your competitors been in business?
Of course, the longevity of your own business won’t exactly match that of your competitors.
But, by finding out if businesses in your area tend to experience longevity or not, you can make your expectations realistic.
For example, about 60% of restaurants tend to fail within their first 3 years. Seek out this information for your intended area of business. By knowing it, you are accepting risk consciously and deliberately, rather than taking a leap of faith.
As well as considering your competitors, you need to think about your customers.
Trying to be all things to all people is not a smart approach.
Instead, it’s better to think about a specific group of people, the problems they have, how you will be able to solve them, and how you will reach these people.
As a starting point, consider the following.
– Demographics and Psychographics
You can think of demographics as the ‘what’ of a group of people, and psychographics as the ‘why’.
For example, knowing age and gender is an example of demographics. Knowing people’s attitudes and hopes is an example of psychographics.
Demographics can form a good starting point for your research, but going beyond this basic information, and seeking out not only who people are, but why they do what they do, is a lot more effective.
Considering whether you will be focusing on local people, people reached through the internet, or a mixture of both is worthwhile.
Of course, you’re not setting anything in stone. You can adjust your ideal customers as time goes on. But having an idea when you start out can help you make better subsequent decisions.
– How To Reach
How will you reach your intended audience?
For example, if you are intending to serve local people who read their regional paper, print advertising might be effective.
If you want to reach international millennials, targeted advertising on a social media platform might be a better choice.
Step #3 – Get the right feedback
At this point in the process, you should have not only an idea of the small business you want to start but also the businesses you will compete against and the people you want to serve.
Next, it’s time to get some feedback on these initial points. This can be as informal as asking people you trust, or as complex as carrying out strict research.
Here are some possible ideas on how to proceed.
- Surveys. It’s fairly straightforward to conduct surveys either online or offline. The key is to design survey questions in the right way and to issue the survey to the right mix of people.
- Focus groups. It’s well-known that people are more likely to answer survey questions in a way that might not reflect their true opinion. Conducting a focus group is often a way to get a richer set of qualitative data than a simple survey can provide.
- Targeted advertising for feedback. Through Google and Facebook targeting, it’s easier than ever before to directly reach the specific people you want to hear from. Seeing how your intended customers respond to targeted ads can give you a real world view of how your idea will be received.
- A/B testing services like PickFu. Split testing helps you get tangible feedback on whether to pursue one route or another. For example, Tim Ferriss used this method to help choose the titles and covers of his bestselling books.
Often, the ideas that seem excellent in our minds end up failing in the real world. Give your business idea the invaluable benefit of scrutiny before you invest too much time or money into it.
Step #4 – Formalize your business
After finding and testing an idea you’re happy with, it’s time to take the next step and formalize your business, allowing you to legally operate.
It’s important to note that this isn’t legal advice or financial advice. Seek out professional guidance for any questions you may have.
So what do you need to consider?
- Structure. Depending on your location, the type of business you want to run, and the relative level of bureaucracy you want to deal with, different business structures are available to you. It’s worth starting with a long list of every possible option, such as sole proprietor and limited liability, and breaking them down in terms of tax rates, legal requirements, and overall pros and cons. This will help you find the best fit for your small business.
- Location. Which country or state do you want to register in? Is offshore an option for you? Be open-minded about this at an early stage to avoid the costly process of changing course further down the line.
- Name. What will your business be called? Is it unique? Does it comply with local business naming laws? Is your intended brand name available? Ask these questions before getting too attached to any particular name you have in mind.
- Taxes. What are the recording and reporting requirements for your particular business? Will you need to enlist the services of an accountant? Is this something you’re capable of handling yourself with a software or app solution?
- Trademarks/Patents/LLC/Other Formalities. Are there any licenses or other formalities you will need to do business? Ensuring compliance at an early stage will avoid costly penalties down the line. You’ll also want to look into getting an LLC for legal purposes.
- Renewal. Once you’re in the day to day reality of running your business, it’s easy to overlook or not budget for renewing essential services. Plan ahead and make sure you have set aside the time and money for everything you need at least a year in advance.
Although the formalities of business are a lot less fun than the idea stage, you can’t afford to overlook them. Don’t let your dream die by ignoring a technicality.
Step #5 – Finalize your product or service
Now that you have a formal business that’s ready to operate, it’s time to translate your idea into a concrete product, service, or mixture of both.
Consider these points to find the right option for you:
- Product or Service. Following your ideation and research process, you might have a good idea of whether you want to pursue a product, service, or mixture of both, but it’s time to solidify this choice ahead of launch.
- Physical or information product. If you’re offering a product as part of your small business, will it be a physical or information product? Think about the logistics and practicalities of each option before making your final choice.
- Scale. How easy will it be to scale up your offering should demand increase? For example, in the case of a physical product, can you make/buy/store greater amounts if needed? For information products or services, can you produce more or train others to do so should demand increase?
- SOPs. Standard operating procedures, or SOPs, are the best way to ensure things are consistently done the right way in your business. Creating them from the get-go is one of the best ways to ensure your customers enjoy a consistent experience.
- 4 Ps. One of the oldest concepts in marketing is the 4 Ps, or ‘marketing mix’. They are price, product, promotion, and place. If you’ve carried out the earlier steps in this article, you probably have some initial ideas about these aspects. Now is the time to drill down and formalize them.
By getting clear on the initial mix of products and services you will offer, you enable your business to be at the point where it’s ready to launch.
Step #6 – Determine initial finances
What’s the initial financial requirement of your business, and how will you meet it?
Every business has a unique financial picture, but there are some common things to consider when you’re approaching the time of your initial launch.
- Fixed costs. What are the fixed costs you will need to establish before launching your initial product or service? At the start, it’s important to keep these as low as possible.
- Launch costs. What will you need to spend to be in a position to launch? Factor in initial marketing, customer support, and related costs.
- Finance sources. Where will you source this money from? Options include your own money, a bank loan, investment from family and friends, and crowdfunding.
The longer-term financial planning for your business comes next. However, you have to ensure everything is in order before getting your first offering out into the world.
Step #7 – Plan your small business
After making sure a solid plan is in place for your initial launch, you might want to take the time to look further ahead.
Having a vision for how your business will progress can help you stay focused on a day to day basis. Some things to consider planning for include:
- Quarterly goals. How much revenue do you need to generate each quarter? In which areas are you looking to grow, and by how much?
- Break-even point. When do you expect your business to break even? How will you monitor progress toward this point to ensure it’s on track?
- Cash flow. Failing to consider cash flow is one of the quickest ways to sink a new business, even if everything else seems to be running well. Having a cash flow plan is something you can’t afford to overlook.
- Threats. Which threats do you anticipate for your new small business, and how will you protect against them? Using a framework such as SWOT can help achieve this.
You can, of course, adjust your plan along the way. But as the old saying goes, failing to plan is planning to fail.
Step #8 – Launch a minimum viable product
Now that you’ve planned both the initial and longer-term vision for your new small business, it’s time to launch your first product.
For a lot of businesses, the concept of minimum viable product will be the way to go.
This essentially involves getting the smallest possible manifestation of your idea to market as quickly as possible to test its viability, get feedback, and put you in a position to pivot if needed.
- Target. Having a realistic sales target in place will allow you to invest the right amount in marketing and have a benchmark for your success.
- Feedback. A massive part of the purpose of your minimum viable product launch is to get feedback on your idea. Make sure you know the type of feedback you will seek in advance and how you will solicit it.
- Future implications. Have an idea ahead of time of what type of feedback will lead you to change something about your offering as opposed to what level of feedback would cause you to go in a different direction entirely.
It’s really important to adopt a growth mindset around the time of your initial launch. Most businesses fail many times before they succeed, and you need to see this as part of the process, rather than something to get dispirited about.
Step #9 – Find the right people
After learning lessons from your minimum viable product launch, you might decide to expand your small business by hiring others.
If you decide to take this step, keep the following points in mind.
- Organizational core values. What are the values and principles your organization is based on? Having these clearly defined will allow you to find people with the right character and cultural fit for what you’re trying to build.
- Employee type. Consider the pros and cons of hiring people on a contract VS permanent basis. There are pros and cons for each option in terms of the amount you will pay, what you can ask of them in return, and other practical factors.
- Pay structure. How will you structure pay? Consider how much to pay as a base salary and how much as a bonus.
- Hiring criteria. How will you evaluate the people you are considering hiring? Which traits will be desirable as opposed to essential? How will you make the final decision?
Like any other aspect of starting a small business, hiring people is something you will get better at as time goes on. But, by keeping the above points in mind, you stand a better chance of not making an initial error.
Step #10 – Monitor and scale
The final step in starting your small business is monitoring its performance according to your business plan and making adjustments along the way as you scale up.
Here are some points to keep in mind as you monitor performance in the early days:
- Revenue. Are you experiencing growth or decline? If you have multiple revenue sources, which are performing highly? Should you allocate more resources to one area or decrease them in another?
- Marketing. Which marketing channels are performing well? Which represents the 80/20 for driving customers to your business? Where should you invest more time and money, and where should you be allocating fewer resources? New products and services. Don’t assume that your current revenue sources will always perform well. Listen to your customers’ needs, and keep an eye on what your competitors are doing. Always be open to the possibility of pivoting or launching something entirely new.
- Sustainability. Make sure that your growth is sustainable in terms of cash flow and other resources. Be wary of overly aggressive expansion. In the words of Aesop, slow and steady wins the race.
As the focus of today’s article is starting a small business, I won’t dwell on expansion too much.
However, it’s nice to keep your mind open to the infinite possibility for future business growth and success that exists with even the smallest of starts.
I hope you now feel more equipped with the information and ideas you need to make your small business a reality. I wish you every success as you learn and grow along the way.