Setting up a Business

https://www.americanentrepreneurship.com/small-business-advice/setting-up-small-business

Long journey, first steps is one way to describe what is undertaken when becoming an entrepreneur or small business owner. Whether your idea has the potential to become a unicorn like Facebook or Amazon or a successful small business with an established customer base, there are common fundamentals in setting up a business.

1. Move from idea to execution: Having a successful business is all about execution. There are thousands of ideas and business models out there, but only half of small businesses are successful after their first five years, according to the Bureau of Labor Statistics. Establishing the right steps to execute on an idea or vision begins with an assessment of each.

To truly understand the potential of starting one’s own business, begin with the fundamentals that are covered in a business plan. There are templates available that can be followed to help a founder formalize their idea into a plan which identifies and clarifies the critical elements needed for success. Check out Business Model Canvas that offers templates and tools for a plan to set up a business.

When evaluating your idea keep in mind that there are two business model types: replicative or innovative. Knowing the difference between the two is important because if your idea for a startup is replicative, meaning the business model already exists, it can put the founder onto a path of benefiting from others’ experiences. Replicative models can range from the local dry cleaner to a web design firm among many others in which one can follow the steps to success of others, while avoiding setbacks. Though these models are available to emulate, it is still important to write a business plan because each is tailored to the founder’s specific circumstance and skills.

If your idea is new and innovative, the business model typically must be created uniquely to execute. Something so new brings both its own set of challenges and sometimes great rewards. Facebook is an example of an innovative business model because at its outset Mark Zuckerberg was responding to the marketplace to learn how to monetize it and make it sustainable. Others then followed and built upon Facebook’s model. Facebook spawned a generation of social media platforms, some that had their own innovations that needed to be proved out.

In the instances of a new model being launched, the aspiring entrepreneur should consider validating the model using a popular methodology known as the Lean Startup that includes building a Minimum Viable Product.

These tools are meant to give an entrepreneur greater insight into the commercialization of their idea without first committing large amounts in a startup. When the startup is then pursued the product or service idea is closer to the market need, saving much time and money required in a learning curve.

1. Establish the startup budget and sources of funding:

Most of the time thoughts of doing a startup begin with the founder looking into their savings to see if they have enough money to go down the risky course of setting up a business. From there they need to itemize all the startup costs ranging from a laptop that typically expands to a place to do business, the materials or labor necessary for the product or service, potential hires and so on and so on. Much of this is detailed in the business plan financials that helps an entrepreneur to know the magnitude of their initial investment and how much cash that will be laid out over time for ongoing expenses before the business becomes a net cash generator.

While establishing the cash needs of the startup, other sources of funding should be explored to know what alternatives may be available outside of personal savings. There are small business commercial lenders and a range of programs offered by the SBA that assist small businesses with funding.

If the startup has the potential to scale to very high revenue that is well described in the business plan, the founding entrepreneur will most likely explore investment vehicles ranging from crowd funding platforms, angel investor groups, venture capital, among others.

1. Choose the Legal Structure and Select your Professional Service Providers:

There are a few legal structures a business may have to be chosen at outset. They include a Sole Proprietorship, C-Corp, S-Corp, LLC, as well as the Benefit Corporation that is fairly new.

The choice of one is typically arrived at through discussion with an accountant and an attorney. They will explain the advantages and disadvantages of each. The latter may assist with the certificate of incorporation and any necessary filings in a state.

1. Learn about and Meet Government Compliance: When establishing a business anywhere in the U.S. it is almost certain that regulations will need to be met to run the business. This includes getting Tax ID numbers, registering in a state, and obtaining any licenses specific to certain industries.

In addition, many states now offer online business portals that facilitate the setting up of a new business by informing founders of the regulatory requirements in their state, as well as offering fundamental direction about starting a business.

1. Establish the Processes to deliver the Product or Services: Whether one is setting up an ice cream store or a more complex technology business, at the outset the steps needed to deliver a product or service need to be crystallized. This is the establishment of core operational process of a business that a founder must focus on to reliably deliver products or services to new customers, hopefully gaining repeat sales and testimonials. In addition to the materials and labor associated with a product or service, a basic is recommended so the founder clearly knows each step of the process and areas for improvement.
2. Identify critical resources: Resources necessary for setting up a business range from locating the correct physical space, typical for manufacturing as an example, to the important vendors who will provide the products (or components) and services (subcontractors) that are touched upon to go to market.

Other important resources may be found in a state’s ecosystem that includes accelerators, incubators, co-working spaces, government programs, consulting resources such as SCORE and SBDC’s, micro-loan lenders, and more.

1. Identify first customers and the Path to Repeat Customers:

Some businesses are fortunate to have customers in place at the outset. This may be due to the founder’s prior work experience or key introductions that led directly to work for the startup.

However, many startups begin without a first customer in place, so it is critical that before running up startup expenses, the founder knows the target customer base and a strategy to approach and land them. These first steps are very difficult and are covered in a book entitled Crossing the Chasm.

Gaining what is known as a Testimonial client will greatly assist a new business in becoming established and positioned for growth. Those are clients who are willing to share, publicly or through referral, their positive experience with prospects that then aids in landing other sales. Those clients also give great insight about their needs that enables the entrepreneur or owner to understand a prospect’s purchasing decision that may make them a repeat customer.

1. Set up the Sales Efforts and Marketing Plan: After putting in place the foundation of the business and the know-how and processes to deliver the product or service, the next task is to get the word out. This is the marketing part of the business plan that details how products or services will be promoted to draw in paying customers and the budget to make it happen.

In our digital world it often begins with a web site, but that is just the start. A full marketing plan has a budget and establishes s a tool box of marketing initiatives to promote the business. It covers areas such as SEO and SEM, as well as traditional media such as print advertising etc. that is often influenced by what is common practice in a particular industry.

The founding entrepreneur should make their own self-assessment as to whether they have the necessary sales skills to develop business or that they need to create a position or to outsource the role.

In Summary:

Those are the top eight steps for setting up a business. Much of the business setup is identified and then spelled out in the business plan. The business plan is considered the top tool for starting a business as it includes the critical elements necessary to succeed. The process of writing a business plan is often a revelation to a founding entrepreneur who learns how much they do not know, giving them time to fill in critical gaps earlier in the startup process.

Originally published at https://www.americanentrepreneurship.com