According to Google Trends, “how do I start a business” ranks among the top search requests in the United States. This newfound interest in becoming an entrepreneur was most likely accelerated by the COVID pandemic and the uncertainties it has brought into our lives. Yet, at the same time, the startup ecosystem today is healthy and ripe with unlimited possibilities. It could be one of the best times to start a small business.
This article will focus on ten essential questions you should ask yourself before becoming an entrepreneur.
- Why do I want to start a small business?
- What are my vision and mission?
- What’s unique about my business idea?
- What do I know about the market I’m entering?
- What legal structure will I use to start a small business?
- Do I know how to manage a company?
- How will I fund startup costs?
- Will I start a small business as a solopreneur or bring on a team?
- How will I market my small business?
- What’s my plan for growth?
Why Do I Want to Start a Small Business?
Knowing why you want to start a small business may be one of the most important questions to consider before launching your new business. The answer will carry you through the challenging times.
“To be my own boss” may not be the best reason to become an entrepreneur. However, it can be an excellent motivator. However, when the cash flow is tight, and you haven’t been able to pay yourself for months, being your own boss may lose its appeal.
Consider this great quote from Barbara Corcoran, founder of The Corcoran Group:
A lot of people think you have to have a lot of knowledge to start a business. I had something far more important than that—I had a dream. I had a clear image of who I wanted to be: I wanted to be the queen of New York real estate…I moved toward it and moved toward it until one day I was written up in a New York magazine, and they called me ‘the queen of New York real estate.’
You need a driving passion and love to start a small business—you’re making a long-term commitment. This passion will empower you with the strength to keep moving when things aren’t going as planned and protect you from critics and detractors.
What Are My Vision and Mission?
You’ll need to include a vision and mission statement in your business plan. Still, even if you never write one (which you should), the process of visioning and articulating your mission helps you create a structure that keeps you aligned with why you started your small business.
Vision and mission are not the same things.
A vision statement looks toward the future—it’s a statement of how you hope to transform your community or the world.
For example, LinkedIn’s vision statement is:
“Create economic opportunity for every member of the global workforce.”
A mission statement tells your target audience what product or service you provide, who it’s for, and why you’re in this business.
For example, Warby Parker’s mission statement is:
“To offer designer eyewear at a revolutionary price, while leading the way for socially conscious businesses.”
Your vision and mission statements clarify your values, something you need to do today when consumers prefer to do business with mission-driven brands.
What’s Unique About My Business Idea?
You don’t have to invent something new, although if you have a novel idea—great. In fact, many entrepreneurs start a small business because they have an idea about making an existing product or service better.
Sophia Edelstein, the founder of PairEyewear, says the idea for her launch came when she was sitting in her dorm room with friends. Someone began sharing their experience with their eyeglasses. She realized that eyeglasses feel more like a uniform and lack individual expression. So her initial goal was to improve upon the eyeglass-wearing experience by creating personalized eyewear.
“If you can improve people’s lives, you have a business. People think, ‘well everything’s been thought of,’ but actually, all of the time, there are gaps in the market here and gaps in the market there.” Sir Richard Branson, founder of Virgin Group
What do I Know About the Market I’m Entering?
You’ve identified a gap and shared your idea with your friends, and they’re ready to buy your product. And now you’re ready to launch and make a million dollars. Maybe, but your incredible idea could be a great flop if you haven’t done market research (beyond your fan club).
Researching the market means more than doing a Google search. Mark Cuban, a serial entrepreneur and investor in Shark Tank, says not finding your small business idea on Google is not necessarily a good thing. Instead, it could mean that a hundred companies have gone out of business doing the same thing.
Before launching, identify your target consumer base—what do they need, and how can you help them? Do your research,
- talk to people
- use your personal social media channels to post quizzes, surveys to gain insight into the potential for your product or service
- run tests and validate your idea with real people and users.
It takes time. You might be ready to start a small business right now, but without this background work, your great idea may fizzle.
And be ready to pivot if necessary. The marketplace is fluid, no matter your niche. Opinions, concerns, and technologies are changing, throwing a lot of variables your way. So constantly collect feedback and incorporate what you learn into your business model.
What Legal Structure Will I Use to Start a Small Business?
Your legal structure impacts how much you pay in taxes, your ability to raise money, and your liability should you find yourself facing a lawsuit. The most common types are:
- Sole proprietorship
- Partnership
- Corporation
- S Corporation
- Limited Liability Company (LLC)
Sole proprietorship
- Your business is unincorporated, and you own it yourself
- Easy to set up, and you have complete control over your business
- Your business assets and liabilities are not separate from your personal assets and liabilities
- You are personally responsible for the debts and financial obligations of your business
- It’s more challenging to raise money, but a sole proprietorship can be a good choice during your testing phase.
Partnership
- Two types: limited partnership (LP) and limited liability partnership (LLP)
- Two or more people own the business together
- LPs have one general partner with unlimited liability, and the others have limited liability (and limited control over the business)
- LLPs give limited liability to everyone, protect each partner from debts against the partnership, and shield from negative actions taken by other partners.
LLC (Limited Liability Company)
- An LLC is a legal way to protect your personal assets from liability
- Owners are called “members” and are not personally responsible for lawsuits against the LLC
- Any debt or collection action taken would impact only your small business
- You are taxed only once
- Business profits go to you, the business owner. You report your share of the earnings on your personal tax return, a process known as “pass-through taxation.”
- You can be the sole owner, or you can have co-owners.
Corporations
There are two types of corporations: C corp and S corp
- C Corps are separate from its owners, taxed, and can be held legally liable. Also, C corps are more complex to set up, require more extensive record-keeping, but offer the highest protection from personal liability.
- S Corps protect owners from double taxation by allowing profits and some losses to be passed directly to the owners’ individual income without being subject to corporate tax rates.
You should choose your legal structure in consultation with qualified tax accountants.
Do I Know How to Manage a Company?
“The only source of knowledge is experience.” Albert Einstein.
While this is not 100 percent accurate, the point is well taken because lack of management experience is one of the chief reasons many new small businesses fail.
Get as much experience in management as possible before you start a small business. For example, you can gain management skills at your current job by leading teams or your division. Or, if there are no opportunities at the office, volunteer at a local nonprofit managing one of their projects or programs.
If managing a business is just not your thing, then bring on a partner with management experience.
How Will I Fund Startup Costs?
Almost 65% of founders invest their own money into their startups. And if you’re able, it’s the best way to get started. You’ll be debt-free and won’t need to relinquish equity. But, not everyone can do this. Many borrow from family and friends or borrow from their retirement accounts. Alternative funding options include:
- Seed Investment/Venture Capital
- Angel Funders
- Crowdfunding
- Small Business Loan (bank or online lender)
- SBA-guaranteed loans
You might need to mix and match different funding sources to reach the amount required to cover day-to-day operations and unexpected expenses.
Will I Start a Small Business as a Solopreneur or Bring On a Team?
Being a solopreneur is one way to keep the overhead low, but it means that you are responsible for everything.
Do you have the experience, skills, grit, and energy?
You might want to bring on a team to cover the areas where you are weak or the stuff you hate, for instance, someone to handle day-to-day management. In the beginning, you can outsource, hire contractors to cover your financial and legal issues, someone to do marketing, and so forth. But even if you decide to go solo, network and build relationships with others in your industry. Don’t be concerned that you’re talking to “competitors.” Nurturing relationships with others in your niche opens the doors to industry tips and secrets, mentors, and someone to talk to on the cloudy days.
“It’s not impossible to be a single founder, but in my experience, it is easier to be resilient and successful as a team.” Steve Rayson, BuzzSumo
How Will I Market My Small Business?
Laurence Bradford, the creator of Learn to Code With Me, says that many entrepreneurs wait too long to start marketing their service or product. She suggests that rather than waiting for your audience to show up or customers to find you, jump out in the relevant spaces and start marketing yourself.
- Create videos
- Go livestream
- Podcast
- Write blog articles
- Get active on social audio platforms like Clubhouse.
What’s My Plan For Growth?
Too many entrepreneurs spend long hours working in their business but not on their business. Set aside time every day to think strategically about the big picture. Keep your growth goals in front of you every day; start small and make them tangible. Rhett Power
Your growth goals might include:
- Moving into an office or expanding locations
- Adding employees
- Growing customer acquisition rate
- Expanding your market
- Profit growth
Do you want to keep a small shop, be a solopreneur?
Or do you hope to staff up and become a major company in your industry?
What is your timetable, and what will it take to get there?
Let’s say you have this great product, and you’ve been laboring over it for two years. Suddenly a retailer discovers you, and now you have massive orders. How are you going to fill those orders?
You might think that these questions should come later, but actually, you need to have the answers when you start your small business.
Bottom Line
More than 1.46 million new business applications were filed in the third quarter of 2020, representing a jump of 69.9% year-over-year. Industry experts suggest that the surge was partly due to the boom in the e-commerce market, which inspired many people to start online businesses. More than 448,000 new applications were filed in June 2021. So it’s no surprise that “how do I start a small business” is trending on Google.
The current ecosystem could be fertile ground for your small business idea. Prepare yourself by answering these ten questions, and then go launch.
Stay in touch with this blog for tips on marketing your business and scaling your idea to the top of your industry.