How to Start a Business in 12 StepsSep 28, 2022
Business planning is one of those things you don't really think about until it's too late. You start out thinking "I'm just going to do some freelance work," or "I'll open up my Etsy shop." But what happens next? Who are you going to hire? What systems do you need to put into place? How much money do you need to set aside for the initial startup costs? And how long will it take you to make enough money to cover those expenses?
The process of starting a business isn't easy, and it takes careful consideration of many factors. So we've assembled a list of steps to follow when asking yourself 'how do I start a business?'
1. Find a business idea
Figuring out what business idea you'd like to build can be daunting. Ideas are also a dime a dozen, what also needs to be considered is if your idea is also a genuine opportunity. Can it become a viable business?
Getting started or brainstorming can be like looking at a blank page and trying to figure out how to get started. Think of a major pain point you deal with on a constant basis. What's a problem you feel passionate about? Do others feel this pain point as well? Once you have a more general sense of direction, it's then about being able to further figure out if you want to move forward with this.
2. Conduct Research
Is entrepreneurship right for me?
Okay so before you jump into the deep end, here is the voice of reason. Entrepreneurship isn't suited for everyone. While there is rightful debate over the existence of the 'entrepreneurial gene' if you feel uncomfortable dealing with constant risk and uncertainty you might want to second guess launching your business. While it's true you become your own boss, you control your time...it doesn't mean that you work less, or the presence of stress decreases. There is no manual here. You can put your blood, sweat and tears into building your business - that doesn't guarantee success. You need to be able to be open to failures, learning more them, dusting yourself off, and moving on. There's no fast track to guaranteed success or riches...if that's what you're looking for, this isn't the read for you.
This doesn't need to be as intensive step to what the title implies. This is really about validating if there is potential to your idea. It's about looking at the attractiveness of the industry and market that you'd be entering into as well as the macro factors of the overall landscape. Why is this important? Before you take any further of a step, you need to understand if the macro environmental factors are blowing wind in your sails, or in your face. This will impact the number of hurdles you'll have to address in your business strategy.
One of the main questions to ask, 'why is now the right time to launch my business?' Think of the many companies that were ahead of their time, too much so that people weren't ready to accept/pay/adopt the solution. Here's an article from Inc. that lists various start-ups that failed because they were simply ahead of their time.
Okay so assuming now is the right time, or there aren't too many factors that would be a major detriment to a solid foundation, now you need to look at the industry landscape. Identify potential barriers to entry, what are the bigger players doing (how are they operating), can you envision building a moat around your idea that others would have difficulty replication?
Market Analysis & Competitor Research
They key aspect here is about a) getting to know your potential customers and b) getting to know your competitors. The purpose? You need to be able to identify key gaps that could be the foundation to building your key differentiator, what makes your solution different/unique/more compelling to customers?
When it comes to your customers, you need to understand that customers are looking for a solution. They are complete strangers and you need to understand if they would be willing & able to pay. Start to think about what could be your secret sauce? Any stickiness will be key to creating customer loyalty in the long run. As you can tell we're big on creating VALUE, it's the key to any business, it's how you build a solid foundation from the get-go. Check out various resources to conduct this research, everything from Google, academic journal articles, books, to looking at more opinion-based forums such as Quora or Reddit - it's all about collecting information and how your potential customers are feeling.
Another aspect to this research is figuring out if it's a worthwhile opportunity by researching the market size, and the market growth. If you don't see growth, then it may not be worth pursuing. A market analysis is about see if there is a strong potential for revenue generation. Look at various geographic market size (ie. # of potential customers in North America, # of potential customers in your neighbourhood, # of potential customers within driving range).
Now let's talk about your competition. What do they offer? Are they well-funded? How easy would it be for them to pivot or copy your product? Don't just look at companies located in your country, look globally to see if there's anyone else doing the same thing. This doesn't necessarily need to dissuade you - if they are well established or well funded, they could be a potential acquirer for your business in the future. Again it's all about understanding what you're getting into. The more information you have, the better you can plan and lay out a business strategy to execute and avoid or diminish some of the various hurdles you may have uncovered.
3. Define your target customers
Wants you've defined your market analysis, it's now time to give your potential customers a defined archetype. This will better help you to put yourself in your customers' shoes. Why is this important? You need to be able to create a compelling marketing message in order to convert potential customers into paying and becoming loyal brand champions. It's also important because you want to make sure that you are targeting the right audience. For example, if you were a career transition consulting service, you wouldn't want to sell to people who are already employed, but rather those who are unemployed and looking to land employment. They are a lower hanging fruit because they would be more susceptible to a message about how they can improve their skills to land a job in a variety of verticals or industries. You'd want to find someone who has the means to buy your product, but isn't currently buying anything.
Segmenting the market here is key. Think of all the various target audiences you believe would be interested in your solution. Segmenting elements can include geographic location, demographic traits, psychographic (personality & lifestyle) and behavioural (how they would use and interact with your solution). Once you've segmented the market, you need to understand what is you're lowest hanging fruit? To establish a successful business you need to understand who your customers are, and what makes them convert in the sales process.
At this stage it's also important to start to define your plan of differentiation. We call this positioning. Think of all the other competitors on a dance floor, where can you stand out? What will not only make you different, but what messaging will resonate with your target market most? By the end of this step you should have an understanding of who you're selling to, and how you're going to position your business to be compelling.
4. Putting together a business plan
When you Google 'business plan' you may get the results that are intimidating and seemingly more 'homework' or fluffy rather than genuinely being helpful. A 50-page business plan doesn't need to be a dense, one-time useful document. Keep it simple, a business plan is meant to outline the research you've conducted, why this is a viable opportunity and how you plan to execute and capture it. An effective business plan, in other words, is simply your game plan - something you can constantly come back to and adjust. It's meant to show how your business idea is viable.
Shopify & Futurpreneur both have really great resources and templates to get you started:
By the end of our Business Readiness pillar you'll have a robust execution plan for your business.
5. Choose a business structure
This is one of the biggest decisions you'll make as a business owner. There are many options available to you when choosing a legal entity. The decision you make will impact every aspect of your business from tax obligations to liability protection:
Common amongst small businesses, especially as a single-person run business. As a sole proprietorship you own everything, including any assets, liabilities, profits and losses. You'll be personally liable for any debts incurred by the company.
If you decide to incorporate, you'll be protected from personal liability, however you'll be required to pay corporate taxes.
The corporation owns all its shares equally among shareholders. Shareholders are usually individuals, families, trusts or partnerships. Corporations are taxed separately from the individual business owners. Incorporating is important if there are potential plans for raising external capital; issuing stock to investors in exchange for investment.
Limited Liability Company
Also common for small businesses in the US. A limited liability company is similar to a corporation, except that it is owned by members instead of shareholders. Members are owners who share in the profits and losses of the LLC. It provides liability protection for the business owner(s), so you are not financially responsible if legal claims are brought against your business. An LLC can be formed by one or more business partners/owners.
A partnership is made up of two or more partners who each contribute capital and assume equal responsibility for the risks and rewards of the venture. Partnerships are often used in real estate ventures.
How to decide?
When choosing a legal structure for your business, it's important to think about these key factors:
- Where is your business located? Certain locations will require certain licensing in order to get up and running.It's important to check out what requirements are needed in your municipality. Often the local economic development team is a great resource to have them walk you through the requirements.
- What type of business are you in? Some structures mentioned above are more suited for businesses looking to scale exponentially, versus being happy running a single <5 person team retail location. It's important to do your research, look at what appears best and potentially look into speaking with an expert.
- How many business partners? As stated earlier, a sole proprietorship is an easy option for solo small business owners, however when you have multiple co-founders looking to launch a start-up, you'll need to consider more complex options and looking at equity split.
For Canadians, Ownr, is a great go-to resource to understand the differences between legal entities and what is the best fit for your business. Ownr streamlines business registration for small business owners.
6. Obtain a business license and permits
Once you've gotten the business entity down - you'll also need to look into what local, state/provincial and federal licenses you'll need to operate. It’s worth consulting with your local economic development officials, and a small business lawyer to get advice before you launch your business.
A business is subject to laws both in your geographic area, but also from regulations pertaining to your particular industry. Again, research here is key to make sure all your bases are covered and consulting with expert help if you're having a difficult time navigating the licensing and permit space.
7. Open a business bank account
Keeping personal and business finances separate is important, taking the time to open a business bank account and getting a business credit card for expenses is key. Do not get frustrated here, sometimes trying to open a bank account can be difficult - especially if your personal credit is weak. An alternative to consider is looking at your local credit unions as well, they also often have micro-loans that are accessible to small business owners, the caveat being you have to hold an account with them.
8. Get business insurance
Business insurance protects your business from whatever can go wrong. Different businesses require different types of coverage. Insurance is completely dependent on the type of business you're running, and the specific situations you'll need to consider here. Here's a list of common types of insurance products to consider if it's relevant for you.
- Liability: protection from any legal action due to accidents, injuries or negligence.
- Commercial property: helps to pay for repairs or replacement of property, inventory and equipment due to property damage (fire, storm or theft).
- Commercial auto: coverage for vehicle damage used by the business (delivery vehicles, company car, moving trucks, forklifts etc.).
- Professional liability (aka errors and omissions): coverage for those in service-related jobs, specifically pertaining to liability for malpractice or negligence (eg. hair stylists, therapist, esthetician etc.)
- Product liability: protection to manufacturers, wholesalers, distributors and retailers specifically if a product they make or sell is unsafe or injures someone.
- Umbrella & general liabilities: extra coverage, customized with specific policy limits and covers a variety of aspects in terms of protection (property damage, personal injuries, medical payments, liability of tenants)
- Business interruption: allows a business to weather a temporary shut down or move (eg. fire or theft). Covers lost net income and ongoing business expenses (rent & wages), relocation and advertising expenses
- Cyber liability: covers the costs associated with a data breach. Ranging from data recovery and ransom costs, lost revenues and business interruption, legal fees, public relations and reputation recovery.
- Compensation: compensation insurance protects employees and employers from liabilities associated with workplace injury and death (medical care, disability, rehabilitation and survivor benefits to those injured or killed in work-related accidents).
After you’ve found the insurance coverage your business needs, shop around. It's easy to get overwhelmed and intimidated. Find a licensed agent you connect with and are able to share your business plans with. They'll help guide you through the process and suggest an insurance package that works with your needs.
Would recommend checking out Mitch Insurance, they have helpful bundles associated with different business types to make it easier to understand what types of business insurance you need to consider.
9. Select your tools and software
When you're just starting out, there's a lot that needs to be done. There's such an abundance of tools and software geared towards small businesses now to help make their time more productive and easier to complete tasks. Different tools and software can help automate tasks, keeping your efforts on track, while tracking metrics over time.
There's a fine balance between utilizing tools and software, and getting distracted. You need to be strategic and think about what kinds of tools and activities you want to focus on. Here's some general areas to consider:
- Accounting: talking with an accountant that has a client based of small business owners can help guide you here in terms of recommendations. Quickbooks, Wave, Freshbooks, Expensify, Float
- Website: there are a multitude of no-code website builders that can help you get a domain, design with simple templates and launch. If you don't feel confident, or don't want to spend the time designing your site you can always outsource to a local graphic designer, graphic design studio. It's also important to consider if you need e-commerce elements here that can also help support invoicing & payment processing, receipts, tracking shipping etc. Shopify, Squarespace, Zyro, Wix, Kajabi, Stripe & Helcim for payments
- Ads: this will be highly specific to how you envision reaching your target audience. Taking out ads in relevant newsletters, sponsored blog posts, putting together a media kit for PR outreach. You'll need to fine what works best for you and your business building an online presence. Canva, Upfluence, Google Ads, Facebook & Instagram Ads
- Email marketing: building an email list can help you communicate with your target audience, encouraging them to go through with their purchase (cart abandonment sequences), letting them know about sales, launch dates etc. Mailchimp, Shopify Email, Constant Contact, Active Campaign
- Project management: there's a lot of different productivity-related tools out there, don't get carried away as it might take some testing and trialing to see what tools fit best. Trello, Asana, Monday.com, Notion, Slack, Todoist, Airtable, Zapier
10. Start building a team
If your funds are limited and it's just you, that's totally acceptable. Depending on the nature of the business, and if you're bringing in business partners think about what skills & weaknesses you bring to the table. What roles are you able to manage, and what can/should you offload when you're able? What skills and roles are critical and necessary to get the business up and running?
There are some roles/responsibilities that can be outsourced to third-party firms if it's a role you don't have the time to fulfill or you recognize it's one of your weaknesses and it's more cost effective to outsource versus hiring in-house. Some of these can pertain to product development, marketing & branding (social media, ads specialist, graphic design), looking at virtual assistants to assist with day to day operations (customer service, invoicing etc.).
11. Market your business
By this point you have a clear understanding of the ideal audience. It's now a question of how to reach them, and crafting a compelling message to get them to convert into paying customers. Looking at the competitive landscape, what is the look and feel of the various brands? How do you plan to be different and unique? What do you think will be a compelling brand name and personality that will help attract customers? Also thinking from a personal level, what would you be proud to rep on a t-shirt?
Creating a brand is by no means easy, and if you don't have the confidence to create it alone it's best to consult with a branding agency so they can bring your vision to life. This will be the visual identity customers remember your business for. What's involved?
- Logo; the business name your customers will remember. Shopify's Free logo maker and Looka
- Company colors and fonts; your company colors and fonts can really help further differentiate from the competition, it can further help make the personality of the brand more obvious.
- Voice, tone, and messaging; this is really the personality of the brand. It's important to be consistent and to constantly draw from your customer base. What would they engage with?
- Brand positioning; what are the key competitive advantages your solution provides to consumers?
A marketing plan will help keep everyone focused and the messaging consistent. It'll lay out the plan of attack when it comes to reaching the target market, what the messaging will be and the overall budget for marketing activities. A quick Google search will give you various marketing plan templates and marketing plan examples to go through. Balance these examples with a) what you're able to afford and b) what you think is most relevant to obtain your lowest hanging fruit.
A marketing plan can go a long way toward helping your business outline an audience, grow your customer base, and keep your marketing efforts on track over time. Shopify has a blog post of several marketing plan examples to help get you started.
3 promotion methods for your business
You've planned, you've built, and now you're ready to spread the word. But how? Here are three easy to implement methods to help boost your business's first few days of sales:
- Use your network to help amplify your messaging. Sending one-on-one emails seeking support can go a long way, it can help toward gaining traction. Because each contact knows someone they can share your business with.
- Offering a discount code, and saying thank you to your early customers can help gain traction early on as well as building positive customer reviews and brownie points in the eyes of the public. Social proof is important early on, building customer loyalty and advocacy is key.
- Paid ads; there are a variety of methods to spread the word depending on your budget. Google search ads, Facebook & Instagram ads, paid advertisements. These all have a cost, it's important to understand how they will reach your target market and if it'll help give you a good ROI. Tracking your efforts over time can also further augment your ads' effectiveness.
12. Secure financing to fund your business
Most financial institutions and private equity investors will look to ensure that your business opportunity is sound, you've thought things through and they are willing to either lend you a loan or invest and take out stock. Being able to show your financial plan will be critical to lay out the expectations of both anticipated revenues, break even, and costs. Understanding your overall startup costs is important before approaching anyone for money, you need to be able to show what you need the funds for, and the anticipated goals you're trying to achieve in a duration of time.
For many brick and mortar retail-based businesses, if you seek start-up funds to establish your business before you see any revenue come through the door, this step should be taken earlier on. It'll be critical to have a good credit score, a business plan including financial projections and approaching banks for a business loan.
For larger business loans, or growth capital businesses need to start gaining notable traction they can speak to accompanied with an operations plan for future growth once funds are secured. There are a variety of financing methods for you to consider, they should each be considered and further research will be required to ensure success at getting a cheque from any of these options.
- Business loans: for those with a good personal credit score and history, a business loan from a financial institution would be the most traditional way for many small businesses. Loans can be difficult for those with low or no credit history, immigrants, students, and young professionals with student debt can find this route difficult.
- Business grants: business grants available from government programs is always recommended. These are non-dilutive (meaning you aren't giving up any equity of your company), it's not in the form of a loan so it's helping you pay off expenses that you will pay for or already have paid for in a specific timeframe. Looking up grants available to you can help offset some of your startup costs. Or participating in specific grants relevant to different areas of the business (some grants are only applicable for marketing activities, others only applicable for R&D efforts). Doing your research to understand what programs you're eligible for is key, and perhaps consulting with a grant proposal writer to ensure a successful application.
- Crowdfunding: is great to help you establish early customers, this will be great to establish as a base to get further feedback, and help assist in raising substantial costs needed for manufacturing runs, getting enough inventory etc. Researching how to launch a successful campaign is key, and you should be prepared to invest in putting together a compelling message.
- Private Equity: raising funds from private investors can range from going to your family and friends for startup funds in the starting days. Then looking towards potential angel investors, there are lists of angel groups online (ACA, NACO). Venture capital funds (VCs) are also common for startups to approach - different VCs have their own investment thesis. Research to ensure who to focus your investment efforts on is critical. Remember this is a dilutive path, meaning in exchange for capital you're giving investors a portion of company ownership (shares).
Successful business leaders have succeeded in getting their businesses up off the ground through different means, looking at the various funding opportunities is just one faucet that you should think of creatively. You may have to go through many potential angel investors before meeting those that fit with what you're looking for. Or similarly approaching multiple banks until one manager finally agrees with your vision. There's a level of perseverance and continued motivation required here.
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