Building the next “Big Thing”. Being your own boss. Getting the full rewards for your work. There are a lot of reasons to start a business (along with lots of risks), but taking the plunge is a step every entrepreneur has to face if they plan on striking out on their own.
Why Do People Start Their Own Business?
Every business starts with someone who wanted to do something, and then took the steps to make it happen. We go in to some of the wider-range impacts of starting a business in our economics article about entrepreneurship, but on a personal level people usually start businesses for 3 main reasons.
- Be their own boss. If you start your own business, you get to make the rules about how, when, and why you’re working every day. Being your own boss is a huge motivation for some people to succeed.
- Getting the full reward for your work. When you own your own business, you get to keep all the profits. Entrepreneurs often see the amount they work is strongly related to how well their business does, so many people with a strong work ethic are drawn to starting their own businesses.
- Exploiting a “hole in the market”. People who start their own businesses see something missing from their local economy – something of value that they believe they can provide and others would be willing to pay for.
[rich]If you start your own business, you need all 3 of these in order to succeed![/rich] If you are an extremely hard worker and want to be the one calling the shots on how your business is run, your business will still struggle if there is not a need in the marketplace for the products or services you are offering. Conversely, you might have a great idea that could potentially be profitable and be willing to work hard to get it, but if you do not have strong organizational skills and the work ethic to be your own boss (and the boss of others), your business could fail due to poor management.
The trickiest item in the long run might getting the full reward for your work. Many small businesses that have success in the short run start expanding, which means more employees to pay, investors taking their share of the profits, and time spent on managing the company, and less time directly providing the service you originally started with (since that part is now mostly being done by your employees). This means that small business owners sometimes get “complacent”, and stop working to grow their business. This attitude can lead to stagnation, and the potential for other new start-ups to start taking business away.
Your Business Plan
Having those three drivers above only means you’re ready to get started. Once you’re ready to jump in to a business, the first step is coming up with a business plan.
Whats In It?
Your business plan is a document that you write detailing what you think the problem your business will solve is (the “hole in the market” above, or the reason why people will pay you for something), a set of milestones, or goals, you plan on reaching to grow (including a timeframe as to how long you think each item will take), a brief overview on how you plan on running the business, and an analysis of the overall market.
The Problem Your Business Addresses
Every business exists to address a problem – fill a void that is in the market. Some businesses offer entirely new products (giving people something they want or need which they did not have before), others improve on existing products through new features or lower prices, and some innovate in entirely other ways. When you think about how your business will make money, think of what it has to offer and why people would be willing to pay for it.
The Market Analysis
The “Market Analysis” describes your potential competition, or lackthereof. The Market Analysis is an extension of “The Problem Your Business Addresses”, this is some hard data you can use to demonstrate why your business can be successful.
If, for example, you want to open an Italian restaurant, part of your market analysis would be going to all the other Italian restaurants that your potential clients already have access to. You should be able to outline several key points that your restaurant will have which the others don’t. If you can’t justify why what you are offering is better than anyone else, then you will have a hard time attracting customers later.
You need to outline several goals, each building on the one before it, and set a timeline for how long you think each goal should take. This step is very important – making sure you have attainable goals (such as “open for business by July 15”, “serve our 100th customer by October 15th”, and “earn $15,000 in revenue”) that you can track later can help you get a clear picture of how well your business is really doing.
You can update your milestones as time goes on to be more realistic, but always keeping your goals in mind is both an important motivating factor and a good way to show potential investors that you are able to hit your own targets.
This section does not need to be “point by point”, but a brief description of how you plan on running the company to hit your milestones. This would include your management philosophy, how many employees you intend to hire (and what their roles will be), how you plan to adjust for growth, ect. Imagine this part as being part of what you tell your new employees or investors about why you can make your business idea succeed.
Risks Versus Reward
Starting a business is risky. You might need to buy equipment, rent office space, or even just spend a lot of time and energy on an enterprise where you cannot be quite sure it will succeed. This uncertainty is one of the biggest reasons people choose not to start a business, even if they have all three of the drivers and a great business plan.
Losing can mean losing big – usually a large amount of savings are invested in starting a business, which can be lost quicker than you might think if things go badly. If you take out a bank loan, you might also need to list other assets as collateral for the loan, which you could also lose if your business goes too far under.