Building a Foundation: Ten Things To Do First If You’re Looking At Starting Your Own Business

Share Button

Tissot's 'Going to Business'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 The Simple Dollar, 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.
mentorThe 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 The Simple Dollar 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 The Simple Dollar: 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 contacts 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.
talkWhen 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.

Good luck.

Share Button
Loading Disqus Comments ...
Loading Facebook Comments ...

20 thoughts on “Building a Foundation: Ten Things To Do First If You’re Looking At Starting Your Own Business

  1. Great article! I’ll add a few:

    Take a class on Entrepreneurship at a local college. You’ll learn how to formulate a viable business plan; you’ll learn more about business, yourself, and others around you; the school may help you find a mentor; and you can do it all within four months’ time! You may even find a business partner!

    Overall, everything returns to self-awareness and moderation. Passion helps but it can also take you over a cliff…

    Thanks again for the article…

  2. Nice article. I have a good friend that wants to start his own micro-brewery and is going through this process right now.

    I can’t tell you how happy I was to see the detailed business plan and the revision of the plan on your list. It is sooo important to have a plan that is a working document – not just something that you create and shelve. That way if your business takes off and you want to grow it (ie: look for angel investors or get financing from a bank), you have a plan in place and can show how you’ve followed it to date.

    @Financial Philosopher – I second the motion regarding the entrepreneurship class. I know that people that have the spirit to go out on there own don’t often see the need for formal education, but it can really open doors and expand your network.

  3. Once you’ve decided to take the plunge, start doing something every day to bring you closer to your goal. A lot of great ideas die in the planning stage. Each step you take will build momentum and you’ll have a much greater chance of seeing success.

    As far as taking a formal class goes, it may be a good idea for many people. Recently, I’ve grown to enjoy learning-by-doing though. So once you’ve got the basics, it might be best just to jump right in. Don’t let you idea die before it sees the light of day!

    Peter

  4. Passion for the subject matter is the absolute most important factor. Passion will drive you to be persistent and won’t let you give up even when the going gets tough during the formation of your small business (and believe me, it occasionally will get tough/lonely during the business creation/development).
    -Raymond

  5. Thanks for posting this Trent. I’m going to print it up and make some notes on it later. I recently started planning to launch a side business in the spring, so this will give me some great things to think about.

  6. Great article.

    It should also be known that practically every business can be started small with no debt and grown to multi million dollar status over time.

    If you start your business with debt you are putting your idea at great risk. If you build it with cash, slowly, your chances of making it big go up exponentially.

  7. Kevin hit the nail on the head…I have started two businesses and am still employed in one (I sold the other). Building it slowly with cash usually succeeds.
    Both my businesses were started very simply; I decided what I wanted to do, found out who needed me to do it and where they were and went after those customers in every way that I could think of. You can complicate anything to the point that you do nothing. Businesses are alive, shifting, changing…if you are flexible and alert, you will succeed. You just have to start. If you put one foot in front of the other; you will get anywhere you need to be. If you stand there and think and analyze and reanalyze…you will freeze in place.

  8. Informative and inspiring.

    I have built my site as an exercise in learning personal finance and as a hobby. Guess it’s time to build a business model. Thanks.

  9. Thank you for taking the time to sit down and write out these suggestions. Having a plan is the difference between having things just “happen” to you, and having some control over what is going on.

    My writing career up to this point just sort of happened to me, and now that I want to take it a step further, this article is really going to help me get there.

    >>don’t get the finances of the business mixed up in your own personal finances.

    This is something I wish I had figured out a bit earlier (especially come tax time lol) but it’s a mistake I’ll only make once! It’s wonderful advice for those of us just starting out.

    Thanks also for mentioning the time investment. I think most people go in expecting a small business to be more like a nine to five job – or worse a job they can just leave off for any reason when they need to.

    The truth is, it’s an eat-your-life challenge every day that you work for yourself instead of someone else. Wonderful, but challenging.

  10. “Without the support of the people whose lives you interconnect with every day, a successful business won’t happen, period.”

    I read your blog the whole time but this I don’t agreew ith right now I own my own business and I come from a family that if you don’t have a degree you are nothing.

    They never supported me or belived in my art,not 1 person, and yet that helped me to prove them I was capable of doing what i love and living out of it.

  11. Well I am starting my own freelance gig next year. I did make the mistake of using my person account to make purchases instead of business account. I got that situated actually 2 days ago. Now I have my business account(free no charge for 1 year) I have now a CD account with emergency money. Now I need to work on the important thing a business plan how to sell myself as different to other designers. Now here is my question, do you have a website directory to finding local accountants. All I found where dead phone calls.

    Thanks

  12. Something else, that you need to do *before you start your business* is to sell some of your product or service to someone else.

    I can’t recommend this enough.

    Too many people, even after doing all of their market research and fact finding, get into business selling a product that no one is interested in purchasing. Their may be a huge market for it, on paper, but in actuality, no one is willing to spend any money on it. You need to find this out before you spend any time putting your business together.

  13. You’ve talked on occasion about your computer consulting business, but I haven’t found much more than passing mentions of it. I’m trying to start the same thing for myself as a side business but I’m not quite sure how to really start. I already have a few tentative customers (small businesses I have personal connections with) and I’m in the early stages of writing my business plan.

    But being the “think-ahead” guy I am, I keep imagining needing liability insurance in case I mess someone’s computer up (that won’t happen) or a lawyer to write up my legal business docs or to defend me if I get sued (again, won’t happen) or … or … and the list goes on.

    I suppose I’m somewhat of a perfectionist and a worry-wart, but I’m depending on this business to grow and eventually become my full-time passion (outside of my family, of course). I hope you’ll find some time to maybe write about your own experiences in the next month, and I’ll keep searching to see if you already have but I just missed it. Thanks and I love your blog.

  14. Hmm… the mentor is a great idea. I started an online business and find I get frustrated not having anyone to relate to about the process. I also need help in the marketing arena. Your blog is great for financial inspiration in everyday living and entrepreneurship. Thanks!
    http://www.urbanbasketcase.com

  15. One of the most challenging and also important things you can do when starting your own business is to set yourself apart from the other people that claim to be providing the same services you are. I work with computer consultants, and I know that there are thousands of “generalists” in a given area claiming to offer very “general” computer consulting services, but only a few “specialists” that can offer something different to their clients. Distinguishing yourself from the crowd makes your services invaluable and gives you a reputation as an expert in the same realm as an attorney or an accountant. Giving yourself these qualities increases your credibility and helps you build your business.

  16. Very good advice overall, starting a business is not something to be taken lightly it requires your full attention, motivation, commitment, vision, desire and belief amongst other things. Be careful with point 6 – “consult your inner circle”, inner circles may be interpreted as family and friends and their advice can be some of the most costly as it is nearly always not the right advice – “consult those qualified on the subject”. Point 8 – “Live frugaly” may be be taken by some to limit spending, without thinking of the spending as an invetment with a consequent return. Best of luck to everyone starting in business!!! For this point i would have said “Invest wisely”.

  17. This article really addressed some things I have been thinking about lately – I am hoping to start my own business in the next year or two. I want to open a used book store, that also offers computer repairs in-shop (that should appeal to you, Trent!). Why? Simply because I love books, and I love computers. I already do freelance tech support for a few clients. I figure if the book business can’t bring in a lot of money, the computer business alongside it should help. In my research I’ve come across the suggestion of a business plan quite often, but I like how you put it. Now I feel like I can start putting one together! Thanks.

  18. I am young and new to the business world and I found this article to be a fantastic way of organzing the mess I have of ideas. I have been working with a partner for nearly a year now and while I have made many improvements to our business, they have been mostly unfocused and profitless. This article has shed a lot of light on mistakes I am making in my way of thinking. I am going to pour over it again tonight and begin implementing these steps. I feel like I can turn this whole thing around just from reading through it once. Again, this article seems to exude experience and common sense that I guess for me was not so common. I am very glad to have run accross it at this point in my career.

  19. Great advice! Another thing would-be business owners can try is starting a blog to chronicle their business start-up. I’ve recently started a blog for this purpose and it’s really helped me get my thoughts and ideas organized. Plus it’s a great way to get almost instant feedback on your ideas and it’s also a great way to connect with possible mentors.

Leave a Reply

Your email address will not be published. Required fields are marked *

You may use these HTML tags and attributes: <a href="" title=""> <abbr title=""> <acronym title=""> <b> <blockquote cite=""> <cite> <code> <del datetime=""> <em> <i> <q cite=""> <strike> <strong>