What Are 5 Things You Need to Start a Business?Jan 05, 2023
Are you feeling trapped in a 9-5 job? Wouldn't you like to have more control over your time and income? If so, starting a business of your own might be the answer.
Many dream of working for themselves, but it's not easy to go from employee to entrepreneur. There are risks and challenges along the way, but with the right plan and attitude, starting a business can be an exciting journey.
Starting a business is hard work. You need entrepreneurial skills, knowledge of the industry, financial resources and support from your family and friends. Here’s an overview of the five main things you need to consider before taking the plunge into entrepreneurship.
1. Uncover or exploit a problem
The startup graveyard is full of ideas. Therefore, the real question becomes 'how do I know my idea is viable?' Based on interviews from 80+ startup founders with failed startups, 34% failed due to lack of product-market fit. Learn from this. Try to kick the snot out of your idea with as unbiased approach as possible. Try to map out what problem you're solving, and for whom. Truly ask if the pain point(s) are worthy to a complete stranger to pay for a solution, or if it's just a 'nice-to-have' the reason here is during economic downturns people cut back on their overall spending and the first things to go is usually the 'nice-to-haves' rather than their 'must-haves.'
Business ideas don't necessarily need to be a completely new invention. You can often learn from the bigger fish in any industry what they're doing right, and what could be improved. What's important as a business owner is to figure out how you're going to set yourself apart from the competition, that's easily recognizable to potential consumers.
2. What's your target market?
Alright so as a budding business owner putting together a customer archetype is vital to better understand who you're marketing to and what the messaging will be. To start refining this map out basic target markets, you feel would benefit from your solution.
Who often experiences the problem you're solving? You can create groups based on various facets, we have a complete post on how to identify potential customers. The TLDR of it is, customer segmentation based on demographic traits (age, sex, education level, income level, occupation), geographic traits (where are they), behavioural (how you see them using your product), and psychographic (their values, their interests, their hobbies).
You'll most likely combine the aspects above to arrive at a specific archetype. Here's an example. Let's say you're opening up a high-end hair salon...
You may come to the conclusion based off of interviews, and online research that the best potential customer for this business is... Lisa, she's 42-years old corporate lawyer by-day, and busy mom at night. She needs to look professional and is willing to spend more money to visit her local high-end hair salon to feel pampered and taken cared of for an hour or two. She loves to look sift through trend magazines to see the latest styles and trends. A couple of times a month, she hosts a wine night for her and her girlfriends to bask in catching up, sharing their latest must-haves with each other and gossiping about their day to day lives.
This example might seem incredibly detailed, and if you find it too difficult to arrive at something this close, just aspiring to get as detailed as possible is key.
3. How will you get customers?
At the end of the day, the business can't operate unless it has customers. So as a business owner, it's important to understand how you're going to get your first, fifth, tenth, fiftieth, hundredth etc. customer. Where does the business income come from? Getting customers is often the primary source of revenue to make the business model work.
Once you've mapped out the typical archetype for your ideal customer it's then important to figure out how can you reach them? Where do they spend their time?
Depending on the archetype your marketing efforts will be either in two main categories: traditional and digital media. If you're demographic spends most their time online, your business needs to have an online presence. Figuring out what platforms to spend on ads and what type of brand persona would best grab the attention of potential customers is key. Traditional media such as newspapers, commercials, conference booths etc. are other sources for consideration. Depending on your financial plan, and the financial limits you have you'll be constantly measuring what marketing means will get you the best bang for your buck. Just remember the initial startup phase is a constant learning exercise. Don't expect overnight business success, it will take time to learn what works and what doesn't.
Beyond marketing and acquiring customers, having the best possible customer service as you can will make a difference in retaining customer loyalty and encouraging a word-of-mouth effect. Think about how painful of a process it is when hiring an independent contractor, or another trade-related service. So often is the case that you have to call and get quotes from at least 5-6 different companies, and hopefully a couple of them actually shows up to your home. What a pain, right? Well usually if you have good neighbours you usually ask and share recommendations to everyone. Some successful trade businesses are able to operate on their established legacy, once they've hit their 10th year of operating - their traditional ad spend could be close to nothing, and instead operating on getting new customers from referrals provided from current and loyal customers.
Think about restaurant owners running successful restaurant businesses as well. Customer service is just as important as the food quality. When customers refer a restaurant to friends and family, they often say it's because of how great the food quality is. But if they experience bad customer service, it's one of the first things they complain about to friends and family so they can avoid it.
4. What makes you different?
Creating a competitive advantage is an essential part of starting a successful business. This is what will give you the “edge” over your competitors and help ensure that customers continuously come back to your business. There are many ways to gain an advantage, such as offering superior quality products or services, having better customer service, or being more responsive to changes in the market.
However, one of the most important aspects is having a “moat” around your business. The idea is to protect it from any potential competition by creating something unique that sets your products and services apart from other similar companies in the market. Identifying ways to develop unique products or services requires a deep understanding of both supply-chain and consumer trends. In addition, it may be beneficial to seek out external expertise or mentor guidance for further insights on how to gain a competitive advantage for your business.
When you’re starting a business, it’s important to know what your competitive advantage is. What makes your business unique and why should customers want to buy from you instead of the competition? This is known as your “unique selling proposition” or USP.
Your USP is how you set yourself apart from the competition and is essential for any successful business. It could be anything from better customer service, lower prices, more convenience or a combination of all these things. Whatever it is that sets you apart from other businesses in your industry needs to be communicated clearly so potential customers understand why they should choose you.
Once you determine your competitive advantage, make sure you communicate it loudly and clearly to your target audience. That way they know exactly why they should shop with you instead of products or services offered by others.
5. Map your business finances.
One of the five things you need to start a business is mapping your business finances. This involves creating a financial forecast for your business to determine whether it is financially viable. You will need to consider both short-term and long-term costs and revenue forecasts in order to have an accurate understanding of the potential success of your business. You will also need to consider any necessary investments or loans as well as potential risks associated with launching the business. Knowing how much money will flow in and out of your company can help you make better decisions when starting up and keep you on track towards profitability.
You need to understand what kind of business you want to operate. Are you opening up a brick and mortar family business? Trying to be the next startup unicorn? Just want to operate a side hustle to supplement income? Each of these business structures have different growth goals, and they have different financial requirements.
You need to categorize, what's critical to get the business up and running, and what resources you're able to bring to the table. Ie. what you need to spend money on, and figuring out how much you have to invest in your business when you're just starting out. From this you can put together a to-do list, that needs to get done.
Your financial goals need to be based on reality, if you're in the mindset of trying to make millions overnight, well this is probably not the article for you. To better understand the length of time you'll experience the death valley curve (when you're putting more money into the business than you're generating in revenue, operating net loss), this will hopefully give you an estimate of how much you'll make in the first 3 years of operating the business, based on how many customers and the acquisition cost of each customer.
To ensure accuracy in your budgeting and cash flow projections it's best to have someone experienced in business accounting help you track and manage cash flow. This involves setting up accounts with bookkeeping software such as QuickBooks or Xero, managing payroll taxes, and anticipating future expenses like health insurance and office rent. It's also important to set up some form of accounting system so that you can see how well your business is doing at the end of each month. Additionally, tax law compliance is essential so that you file all necessary paperwork on time with the relevant authorities.
By having a good handle on your finances from day one, this will make running day-to-day operations much easier as you won't be constantly checking where every dollar went or forecasting how much money is coming in - both very important steps for any small start-up startup.
These 5 main aspects, and many more are more thoroughly laid out in a formal business plan. Now, I know what you're thinking... ugh you want me to make a 30-page document that I create once and never look at again as it collects dust on my bookshelf. But it doesn't need to be this way, it should be your go-to document that can be pulled out whenever you're onboarding a new team member and they need to get up to speed on the business operations (think co-founders, business partners, bankers overseeing business loans etc.)
To put together a good business plan, you'll need to gather some trusted advisors - preferably ones with experience in start-ups - who can help advise on best practices and give realistic advice about risks and possible rewards. To get started on writing the actual document itself, you'll also want to look at online templates or sample plans for inspiration. Make sure each section is clear and concise so that readers have no misunderstandings about your plans for developing your new venture.
Once completed, present your finished product to potential investors or lenders as part of an effort to secure financing. Remember: when done right, an effective business plan should act as a powerful tool that communicates both what you plan to do and how you plan do it!
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