Steps for Starting a Business

Recently, I've been searching online for potential web resources that outline the steps for starting a business. This would be helpful for someone that wants to start their own business, but isn't sure where exactly to start or what to do. Most people, in my experience, are especially anxious about the paperwork and legality side of a business -- as they usually have the business idea down pretty well.

One of the better "steps" that I found was by startupnation.com, which included the following:

1. Create a Life Plan
2. Choosing a Business Model
3. Create a Business Plan
4. Select a Business Structure
5. Create Key Business Assets
6. Find the Funding
7. Organize Logistics
8. Find Great People
9. Establish the Brand
10. Market and Sell

I liked these steps because it starts out with creating a life plan, which I firmly believe in. You don't start a business just for the heck of it, it needs to fit into your life strategy. I think it is also pretty realistic in the sequence of starting a business. They offer much more detail after every step -- providing the wanna-be entrepreneur with the guidance he/she needs.

The Small Business Planner put out by the SBA is also pretty good as they focus on what is needed not only to start up the business, but also grow and eventually exit the business. They offer a specific set of steps within each of the four categories below.

1. Plan your business
2. Start your business
3. Manage your business
4. Getting out

Building on my previous post about looking for local websites when doing market research, a last source for identifying the steps for starting a business should be a local government website -- depending upon whatever state you live in. As a whole, these websites are not (in my opinion) that great for offering an overall sense of what it takes to get your business started, but they are especially useful in providing you with the paperwork and bureaucracy that needs to be taken care of. As an example, the State of Illinois offers a step-by-step process with links embedded to all the necessary government forms.

Web Resources: DocStoc

A while back, I was referred to a website called 'DocStock.' Here are the main benefits:

(1) Find Documents

- Download legal, business, tech & educational documents

- Store your documents online for free

- Get your documents indexed by search engines

(2) Share Documents

- Upload and share your documents with the world

- Get business leads by sharing your documents

- Embed documents on your blogs and websites

I was a little skeptical at first, but then I gave it a chance and browsed around. I personally have always thought that it is easier to start with an existing template instead of starting from scratch. The types of documents available under the business category include biz planning, contracts, employment, financing, job descriptions, operations, project management, sales and marketing, and Spanish press releases. Hmmmm....ALL the kind of stuff an entrepreneur needs to do to actually get the business up and running.

If you are looking for some help with putting together a business plan, for instance, they have over 3000 documents on this topic alone - and that are further segmented by due diligence, executive summary, Internet start-ups, Market research and sample business plans! I also appreciate the fact that you can also choose to view the most viewed, downloaded, reviewed, recent and/or highest rated.

Now, keep in mind that some of this is more or less junk and useless. You also have to beware that their is nothing backing the actual quality of the documents, But, that said, there is a lot here that as an entrepreneur I believe you will find of use. Don't reinvent the wheel (or shell out a lot of big bucks) unless you have to.

Integrating entrepreneurship into your every day life

I recently visited some friends that work for themselves as construction contractors. Their business is small (just the husband and wife team for the most part) and they live modestly. When I pulled into their driveway, there were flowers blooming all around their home that took my breath away - hundreds of lilies in almost any color, hostas everywhere and quite a few other flowers that I do not know their names. When they moved into the house three years ago, there was not a single flower there. You see, flowers were their passion and starting the following summer, their plan was to start selling them.

We then went inside their home where their dog had eight puppies that were just two weeks old - my daughter did not want to leave them! I then learned that this particular breed of puppies would sell for over $200 a piece, and that was their plan once the puppies were old enough.

I left thinking about how entrepreneurial they were with their passions and their every day life -- and how smart they were to be able to find a way fund their passions and bring in a little more money while doing so. I learned first hand that entrepreneurship doesn't always mean writing long business plans and integrating cutting edge technology - it can also mean simply being smart and creative - or entrepreneurial - with how you live your life.

Assumptions versus Knowledge

One of my favorite quotes is that new ventures have a 'high ratio of assumption to knowledge' (McGrath & MacMillan, 1995, p. 4). Essentially, when you start a business, you are relying on a huge pile of assumptions. Take the business plan, for instance. It is an important tool that I highly recommend, but it is based almost completely upon assumptions such as what price you think you can charge, how you think the customers/competitors will react, the sales you think you can get, etc. You will likely get financing if your assumptions appear believable, but it is still not a guarantee of success.

As a business grows, however, this ratio of assumption to knowledge should change. You will get customer feedback regarding your prices and products/services. You will see how your competitors react. You will find out how much sales you can actually build. Then, if you are going to be successful, you integrate this knowledge into your working business plan to reduce your reliance on all those unknown assumptions. 

As I am writing this blog, I am sitting here at my favorite coffee shop and just finished a conversation with the owner. (By the way, if you ever get to Linton, IN, you have to look up Francisco de Borja!!!) They are in their second year of business and he described their experience thus far as a roller coaster as they try to figure out what works and doesn't work for their business. One example he gave me was their pastry cases, they realized that customers are more apt to purchase pastries if they are on the counter where they can see it and help themselves rather than in the case. I've also noticed that they have modified what they sell for lunch and also what they sell retail.

What I admire about their business is that they are willing and open to taking in new knowledge and integrating it to produce a more successful business. Other businesses can get stuck on that initial business plan (based entirely on assumptions) and don't take the opportunity to adapt and grow into a mature business with the new knowledge being given.

 

Small Business Development Centers (SBDC)

If you want to start your own business and need some help, and are located in the U.S., I encourage you to start with your local small business development center (SBDC). What is an SBDC? As described on the U.S. Small Business Administration's (SBA) website:

SBDCs offer one-stop assistance to individuals and small businesses by providing a wide variety of information and guidance in central and easily accessible branch locations. The program is a cooperative effort of the private sector, the educational community and federal, state and local governments and is an integral component of Entrepreneurial Development's network of training and counseling services.

The services do tend to vary from SBDC to SBDC, but I have found that the quality is good and it can be an affordable start to receiving some training and one-on-one counseling for your business idea. Another advantage of starting the entrepreneurial process with your local SBDC is that they have a great knowledge base of the local entrepreneurial resources that you can tap into - both within and outside their organization.

Use the SBDC Locater on the SBA's website in order to fine an SBDC close to you.

Are you prepared?

Like other parts in the Midwest, southern Indiana where I live has recently experienced a tremendous amount of flooding. Several properties that we own are completely flooded. We also lost power for several days, which meant that we did not have access to the Internet and could not operate our business as normal. Multiple roads were flooded, which meant that we could not always go where we needed to go. We are still without phone service.

The question I pose today is the following: As a business owner, are you prepared for the unexpected? What happens if your physical business building or any of your other properties are flooded? What if your computer system gets zapped by lightening? Do you have a backup? What if your business burns to the ground? What if you or a key employee dies?  What if the area you live in is hit by a hurricane? What if there is another terrorist attack? These are all viable circumstances out of your control that could dramatically affect your business. 

Although you cannot control many of these external circumstances, you can control how are able to respond to them. For instance, you can purchase insurance. You can backup your data regularly and/or utilize web storage to have continuous access. You can document all the job duties and tasks so that it is easier to replace key employees if need be. You can have an succession plan. You can have a plan for what to do should your business need to be evacuated. You can be flexible and think creatively how to respond.

How else might you prepare for the unexpected?

Selling Options

Have you ever noticed that sales people are among the most highest paid within many organizations? The reason is fairly simple: selling is crucial AND difficult to master. As a new business, one of the first decisions you need to make is your selling strategy and which route(s) make most sense to pursue.

SmallBusiness.com outlines the following different options:

Direct Sales: involving face-to-face contact

• retail or consumer
• door-to-door or traveling salesman
• party plan

Industrial/Professional Sales: selling from one business to another

• business-to-business

Indirect: human-mediated but with indirect contact

• telemarketing or telesales
• mail-order

Electronic

• web B2B, B2C
• EDI

Agency-based

• consignment
• multi-level marketing
• sales agents (real estate, manufacturing)

When you are developing your sales strategy, it is helpful to see what avenues your competitors are taking. However, it sometimes can give you a competitive edge to go against the norm. A good example is Cabi, a custom-designed clothing line for women formed in 2001. Instead of selling the traditional way via retail stores, Cabi sells exclusively through home-based consultants (i.e. the Tupperware way) and appears to be very successful thus far!

Commercializing your new product

Coming up with a new idea is an essential part of the entrepreneurial process, but that idea alone will not turn you into a successful entrepreneur. Sometimes I even think that coming up with the idea is the easy part, and that turning an idea into a business is really the hard part. VentureNet Iowa is a new organization that is dedicated to helping Iowans in the commercialization process. Their model below is a great representation of the many key questions that need to be asked throughout this process.

 

 

 

 

 

 

 

 

 

 

In my experience, I have found that individuals tend to have specialized knowledge in different aspects of this model. For instance, you might have an inventor or an engineer that is great at coming up with ideas, but they might not have that much knowledge of the marketability or how to write a business plan, or vice versa. The answer it to know where your strengths lie and then surround yourself by people that can help you. This is valid for both independent entrepreneurs as well as corporate entrepreneurs. Before pursuing my Ph.D., I worked for Brady Corporation and at the time they were spending a significant amount of time and effort to create teams across the product/market/business arenas as they knew it would enhance their ability to better commercialize products successfully.

Many thanks to my former student and respected colleague, Cris Grunewald, for passing this model along.

Getting help with business planning...

"I need to write a business plan. Can you help?" Given my prior consulting experience coupled with my degree in entrepreneurship, this is a question that I am frequently asked from friends, family, students and others that are interested in starting their own business. As I really like to write business plans (strange as that sounds), I am usually more than happy to help out. However, what I would like to discuss today are some pointers in what kind of help one should look for in putting together their business plan.

• You need to be involved in the business plan process. This is NOT something that you can completely outsource. Why? Because this is YOUR business and although I greatly suggest getting advice from others, you ultimately need to decide what business strategies you will take.
• Find a business plan outline, and then customize it to your specific business. If you are having difficulties finding a business plan outline, do a quick google search. There are MANY web resources. A simple place to start is the SBA. You could alternatively use one of the many books out there -- one that I frequently recommend is Business Plan in a Day by Rhonda Abrams.
• Write the first business plan draft yourself. This may be difficult, but the business plan is essentially a tool for you to determine if you have thought out all the little details that go into starting a business.
• Then, take your business plan to other "experts" in order to get some feedback. Think strategically here. If you are having a hard time with the financials, find a friend or acquaintance in your network that might be able to help here. Other "experts" can include consultants, friends, family members, other business owners, bankers, etc. This is a good time to start putting together your board of advisors whom you can develop a relationship with and come back for advice on a regular basis.
• Revise the business plan, and get more advice. Beware, as different "experts" might have differing opinions on what you should do. This is good -- as it will help you think out the many different paths your business can take. The ultimate decision is up to you
• Last, remember that your business plan is your road map for your business. You want to continuously update it and rely upon it as you plan out the direction you want to go.

Business planning is a lot of work. So is starting a business. Be prepared. Seek help. Be persistent.

Learning from Franchises

Even if you are not interested in starting a franchised business, there is a lot you can learn from franchises in general.

Take, for instance, the rankings put out by Entrepreneur Magazine. If you look at the top new franchises for 2008, which include Instant Tax Service, Massage Envy and Snap Fitness, you gain insight into some of the latest trends for new businesses. When looking at the top overall franchises, including 7-Eleven, Subway and Dunkin' Donuts, you can further investigate what they are doing right to be able to expand so much (and then possibly replicate their strategies).

When you research an individual franchise that is in an industry that you are considering entering, you can also gather quite a bit of market research to help you put together your business plan. For example, what is their location strategy? Do they only locate in metropolitan areas, near major freeways or in malls? What is their marketing strategy? (it is obviously working and you can learn a thing or two here) What are the capital requirements? What can you expect in sales? Margins? What processes and systems do they have in place to run efficiently? And, yes, you can find this all out. A lot of this information may be on their website and you can also ask to have additional information sent.

What is a business plan, anyhow?

If you do a search at Amazon.com for books under the topic of 'business plan,' you will find a staggering 69,736 titles. Likewise, if you google 'business plan,' it comes up with 91,500,000 results!!! But, my question for you is - what really is a business plan?

According to the American Heritage Dictionary, a plan is defined as 'a scheme, program, or method worked out beforehand for the accomplishment of an objective.' So, if we apply this to a business plan, it essentially is figuring out beforehand how you are going to successfully start up your business. There are many different business plan outlines, because figuring out the how question can vary depending upon the type of business and how complex it is. That said, most business plans address the following questions:

Company: How will you be organized and bring in the personnel to exploit this opportunity?

Product/Service: What are the features and how will they benefit the customer?

Target Market: What is happening in the industry and how will your business fit into the mix?

Competition: Who are your existing and future competitors and how will you compete?

Sales and Marketing: How will you create an effective strategy to attract and sell to your customer?

Operations: How will you actually get the business up and running?

Financials: How will you make money and maintain financial feasibility?

It is important to note that technically, a business plan does not need to be written. Why? Because nothing about the definition says anything about being written. It is about planning! Of course, I suggest writing down your business plan because it is a lot of planning to keep in your head, and research does show that if you write down your goals/objectives, you are much more likely to achieve them. You will also need a written business plan to pitch your idea to important stakeholders such as investors, lenders, and key partners. Interestingly, there is a study out by Honig and Karlsson published in the Journal of Management in 2004 that found that the mere writing of a business plan is not linked to survival or higher levels of profitability in the first two years of a business. Why? My answer is that what is more important than going through the act of writing the business plan is how well you answer the how questions.