I’ve had the opportunity to launch two successful small businesses in my life. Because of this, I regularly get emails from readers who are quite excited about starting their own business. They write out their plans to me and send it on, hoping to get some feedback on their ideas. What I’ve found, though, is that almost all of my responses boil down to the same handful of things. Without further ado, here are the ten things you should do before starting any sort of small business.
1. Clarify what you plan to do.
It’s easy to dream about something you want to do. One of my readers is dreaming of opening a coffee shop in his neighborhood. Another reader really wants to start a blog on video gaming for busy thirtysomethings. A third reader is trying to develop a seminar series. All of these are potentially great ideas, but they all need some more thought. Here are some specific points that you should try to answer before anything else.
What sets your idea apart from what’s already out there? With Money360, I was aware that there were personal finance blogs out there. I sought to set myself apart by writing quality content with my own real voice and update it on a very consistent schedule, something that I didn’t see in the personal finance blogosphere at the time.
Who are your customers, do they actually exist, and how will they find you? You don’t have to research this (that will come later), but you should at least be able to define who these customers are and have some idea how they will find you. You should also honestly ask yourself whether there are enough of these customers to sustain what you want to do.
How will you actually make money at this? With some businesses, it’s obvious: you’re going to sell a product. With other great ideas, it’s not so clear. Where will the money actually come from? What will the costs be (roughly)?
2. Find a mentor.
The process of mulling over those questions will likely cause you to second-guess the purity of your plan and also make you wonder how you really can make this work. That’s the perfect time to find someone who can be a mentor for you.
A mentor is basically a person who has seen success in an area somehow related to the area you’re seeking success in. For you, a potential small businessperson, that means a person who has started some sort of enterprise successfully on their own, whether it’s a large business or just a sole proprietorship. Some mentors will be engaging and easy to talk to, others may be more challenging, but the two things you really need from any mentor are candor (a willingness to talk seriously and honestly about things) and support (are they actively helping you towards a positive outcome). Without those, no mentor is useful.
Don’t know where to start? Here’s where you can find a mentor (or three)…
Locate and identify businesses in your niche that are outside of your area. For example, if you’re going to open a coffee shop, try to find a coffee shop owner far enough away from your target area that you won’t be in competition with each other. If you’re looking at blogging, look for an expert blogger that’s working in a niche that you won’t be working in.
Locate and identify businesses in your area that are outside of your niche. With the coffee shop, try to find a small business owner in the area that you’re going to target. With the blogging, look for someone who is knowledgeable about the topic you’re going to write about, but doesn’t blog about it.
Locate anyone you trust that has successfully started a business. This person will be a great one because you can feel much safer bouncing your fears.
… and some key things to do and ask your mentor.
Do something generous to get their attention. Most people who are successes have a pile of things that need their attention. You’re hoping for some free advice and counseling from them. You might get it for free if you’re lucky, but it’s usually easier to do something kind to get their attention. For example, I’m much more likely to communicate with and mentor people who comment frequently and participate on or donate to Money360 than people who just write to me out of the blue. Similarly, I had another person have me “repair” their PC by the hour – and it was mostly running a spybot removal program while they asked me a lot of questions.
Schedule a meeting. If it’s a local businessperson, take them out to lunch. If it’s an online person, ask them if they have time to talk at length on IM (better) or by email (if this is the only option). Be persistent, but not annoying – if they say no, ask if you can try to schedule again in the future. If you still get a firm no, send a gracious response and let it drop – don’t make a nuisance of yourself and respect that other people are very busy.
Ask every question you can, but don’t forget the most important one! You’re going to have a lot of things to talk about, but there’s one thing you should never forget to ask. What would you do differently if you started all over again? This is key, as it goes right to the core of challenging parts of the business model. I’ll even give you a tip with Money360: if I could start all over again with it, I would have had a slower writing schedule right at the start so I could focus on more individual quality posts.
3. Do some honest soul-searching about passion.
You’re now equipped with the basic information that you need to know about your business, and you know the pain and sacrifice that it involves (the mentor will clue you in here if they’re worth their salt). Now comes the real question: do you have the passion necessary to carry this through?
This is not an easy question to answer – if the answer is an immediate yes, you haven’t given the question the weight it deserves. A successful business requires a lot from you, even if it is something that you believe you’ll enjoy from top to bottom. You now have an idea of what it will really take to make it go – do you honestly have that drive within you to make it work? Do you have the commitment to collect the resources to get started? Do you have the fire to take those resources and build it into something that the people will want?
It may sound like I’m trying to talk you out of starting, but without the fire to strongly and unequivocally answer “yes” to those questions, your business has a very, very strong chance of failing. Don’t even start if you’re not fully committed to success.
4. Do some market research.
You know what you want to do. You know the commitment required, and you’re willing to step up to the plate with it. Now, you need to know whether anyone’s going to buy what you are selling. This is called market research, and it’s a vital step to take before you make the leap into a business.
The first step is to clearly define your market. Who exactly are the people that will partake in what you’re offering? Define them as clearly as you can. How old are they? What are their other interests? What places are they visiting right now? What are their core values that you can appeal to?
Once you’ve identified that market, try to identify people who are in that market. Look for some specific people who would potentially partake in your business. Look for places where they would congregate. These people will be the ones that will give you the real skinny on whether your business will work or not.
Now, mine these people for information. There are a lot of ways to do this. One good way is to offer them a freebie in exchange for answering a few questions in a survey format. I actually did this myself when trying to figure out a computer consulting business. One good method I’ve found is to buy a bunch of quality chocolates, get permission from the business to conduct a short survey outside of their shop (many will say okay if you aren’t trying to start a business in direct competition), and then ask customers if they’d answer a few questions in exchange for a piece of chocolate.
If this doesn’t seem like a good opportunity, tap your social network to find potential customers. Float the idea to your s that you’re thinking of starting a new business and you’d like some input from potential customers, and describe who you’re looking for. If you don’t have a social network within the area where you’re going to try to build a business, get started building one now. I really recommend the book Never Eat Alone if you have a lot of difficulty doing things like this.
What do you ask these customers? Keep the number of questions low. Ask them whether they would be willing to visit such a place, should it open up. Ask them what they would like to see in such a shop, in terms of items for sale, services, content, etc. Also, ask them what their favorite similar places are and why. Many people won’t give you useful answers – but note as much as you can because no matter what it will come in handy.
5. Write a detailed business plan.
Most of the first four tips revolve around gathering the information you need to really understand the situation. You should have developed a very clear idea of how your business will earn money and most of the major challenges along that path, along with ideas on how you’ll get around those challenges. That material needs to be codified and written down in an organized manner, preferably in a single document. That document is your business plan.
Many people starting side businesses and sole proprietorships skip this step because at first glance it seems like a big waste of time. You have your ideas already worked out in your head and you know what you’re going to do, so why bother writing out this big document? There are two giant reasons for doing this.
First, it makes you move carefully through your entire game plan to make sure you haven’t missed anything. By laying down every idea, thinking carefully about it, detailing it, and connecting it to the next step, you’re taking the time to ensure that you haven’t missed anything important along the way.
Second, it provides you with a document to provide to others for input. When you have your entire plan together, it’s easy to take it and show it to others, showing them your ideas and plans in one collected place.
What about formality? It doesn’t have to be highly formalized unless you’re seeking outside investors. The thing you most need to worry about is that it’s thorough and that it’s readable above all else. Don’t worry about formality unless you’re going to attempt to borrow your capital or get investors to get involved.
6. Talk to your “inner circle” and make sure they support you.
When your business plan is complete, you would be doing yourself an injustice if you didn’t circulate that plan around your inner circle. Talk to the people who matter the most to you, show them your plan, and ask for feedback.
Who’s the inner circle? I would include the people whose opinions you trust the most, including at least one cynic, as well as your mentor. If you have established good relationships with people in the local community, talk it over with some of them. Don’t include people who are just going to bobble their head “yes.” These people are great for our egos, but not very helpful with making us successful.
What sort of feedback should I seek? Positive feedback is nice. Criticism, though, is what you really want. Have them try to find holes in what you’ve written. Have them look at every angle.
Most importantly, don’t argue with their criticism. You can ask questions to clarify what they’re saying, but don’t argue with them. They’re usually giving you criticism for a reason, even if it’s not readily apparent to you. For example, if you do have an answer for a particular criticism, add it to the business plan. If you think it’s completely off the wall, still jot it down and do a bit of investigation into it. Don’t toss it aside just because it doesn’t match your world view.
With regards to your family, make sure that they’re willing to support you in this endeavor. Without the support of the people whose lives you interconnect with every day, a successful business won’t happen, period.
7. Revise your detailed business plan.
After you collect all of this feedback, use it to revise your business plan. Go back and rewrite parts of it. Add other parts. Maybe even delete a piece or two. Move things around. Clarify some pieces. Use all of that feedback to make your plan better.
In fact, if you have willing people, use them as a feedback cycle. Make all of the changes you can think of from the first go-round, then ask for opinions. You might even want to do this in “levels,” meaning you give the first version to some people, have them suggest changes, then give the second version to another group, and so on. This will hone the document into a finely-tuned instrument, one that explains exactly what you’re going to do to make this a success.
When do I know that it’s done? In one way, it’s never truly done. When things get rolling, you’ll find that some parts of the plan were wrong and other parts were missing – that’s unavoidable.
The moment when it’s time to move on, though, comes when you read through your final revision of the plan and feel it deep inside. A business plan that’s ready to go is one that inspires you every time you think about it. It feels complete to you, and the people you’ve shown it to are positive about it as well. You’ll know in your gut when it’s done.
8. Learn how to live frugally.
The last three points can be done at the same time as the first seven because they provide the support you’ll need to execute the game plan.
First of all, it’s essential to learn how to live frugally. You need to learn how to run your life like you run a business, and you don’t run a business by throwing cash to the wind. Start cutting your spending on all fronts, but particularly on the nonessentials. Eliminate all of your credit card debt and put away money each month.
The best first step I’ve found for trimming the fat from your spending is to trim the fat from your monthly bills. There are many ways to do this: be more energy efficient, don’t use optional services, trim the “extras” that you don’t need on your plans, practice maintenance of the stuff you have, and so on.
Also, a major stumbling block for most people is a sense that they need to have the newest, latest, and greatest of everything. I know many people who “lease jump,” meaning they lease a car for two years, then move to a brand new one to lease – over and over again. That’s a gigantic waste of money, money that could be used to build your business into something amazing or construct a strong personal safety net.
When your business is a success, you may have the income needed to enjoy such things, but for now you don’t have room for it. Learn about frugality and practice it until it becomes second nature. Leave that credit card in your pocket.
9. Build up the capital you need.
For some people, their small business won’t require much investment at all to start with, just time. For others, the seed money may come from a relative or a friend or an investor. But for many people starting their own small business, the money will come from their own pocket, and that means it’s time to start saving now.
Set up an automatic savings plan today, putting away as much as you reasonably can on a weekly or monthly basis. Put that cash straight into a high-yield savings account, then just leave it alone. Wait until you’re ready to make your move, then tap it.
Although it should be part of your business plan, you should know your startup costs in great detail. This should be your goal for saving, and the absolute best time to get started is right now, even if you haven’t sat down and tabulated your total startup cost yet – or even have any idea what that will be.
10. Make sure you have a safety net.
Many small businesspeople I know get so excited about their plans that they take the leap without really thinking about a plan for failure. It’s a fact of life that many small businesses fail for various reasons, even ones that are well thought out and well executed, so it pays to think about that “what if” before you even start.
Make sure you have at least a few months’ worth of living expenses in the bank at all times. Never, ever go without an emergency fund, especially in the early days.
Also, don’t get the finances of the business mixed up in your own personal finances. Make the line very clear. Keep them in separate accounts, and pay yourself from the business account when appropriate. What I tend to do is pay myself effectively as a contractor to my various businesses – I provide things for the business in exchange for pay. Make this the standard even before you start.
Ready… Set… Go!
If you’ve done all these things, you’re well ahead of the game. The final step is to wait until the time is right and pull the trigger.