Ideas are the beginning of dreams. Dreams are what make life a thrill to live. The question is how do we turn our ideas into our dreams? Confidence is the way to make any dream come true but it takes knowledge to gain confidence in your idea. Starting your own business is a life defining experience, which is why it’s essential to prepare yourself for this long and exciting journey.
Getting Your Idea Started
At first your idea is probably vague, but it’s important to know that all major companies started with a vague idea. The owners turned their ideas into their dreams. And it’s no secret how they did it. They used five simple rules to give them an advantage over the competition. The five key ingredients to starting any business are dedication, planning, managing, raising capital, and marketing.
Right now your business is still just an idea in your head, but after we are finished, you will have confidence and knowledge to begin the journey from idea to success.
Why Businesses Fail
Statistically speaking, new businesses have a fifty-fifty chance of surviving the first five years. Don’t let that discourage you though, as many of the failures are a result of the same mistakes. Learn these mistakes, and you will give yourself an even better chance of success.
The #1 Cause for Failure is The Wrong Reason
Surprisingly, the number one reason for new business failures is the fact that the originator started their business for the wrong reasons. They mistakenly thought that if they have their own business then they will get rich quick. Or working for themselves means shorter hours and less workload. None of this is true. You should start a business because you feel passionate about your idea, not because you want to get rich in a year or two. I’m not saying profit shouldn’t be one of your goals, but don’t let money be your only reason for starting your business.
The #2 Cause for Failure is Poor Management
Being able to manage a new business is a must. It doesn’t require a college degree or anything, it just requires you to be able to adapt to new markets and dedicate yourself to success. Many new business owners become lax and make the mistake of thinking that their business will blossom on its own. However, a business only grows as much as the work put into it.
The #3 Cause for Failure is Not Enough Capital
Underestimating the amount of money needed to operate your business is a huge mistake and can be fatal to your business. Here are some of the common mistakes:
- Don’t plan for an unrealistic income. This is a reason why many make this mistake. It’s best to always underestimate it until you have the knowledge to get an accurate number.
- Make sure you plan for all expenses.
The #4 Cause for Failure is Location, Location, Location!
The favorite three words of the real estate industry. This is important for your business, if you try and start a computer repair business in a town where only 5% of the population have computers, then you are most likely going to fail. You location must have a demand for the services and products that you will be offering.
The #5 Cause for Failure is Not Having a Business Plan
The most important part of any business is the business plan. In fact, most of the failures mentioned above could have been avoided with a sound business plan. You must not only develop a business plan, but dedicate yourself to stick with it.
The 5 Ingredients to Success
Before we go any further, it’s important that we name the five keys to success again. They are the most important things for a new business and you must learn to master them. Write them down somewhere and look at them every morning before you start work.
Research Your Idea
Ready to take your first step on this life-changing journey? Well, the first step is to research your idea. A few hours in front of the computer will help you not only determine the potential of your idea, but to see how many competitors you will have. The proper research can give you more confidence in your idea, or let you know if there are some things that you should re-think. Either way you will have a better idea of what your services will offer to your community.
Your potential competition is the main thing that you will need to research. Here are some important facts to look at.
- In what ways are your products and services different from your competition?
- What will you be able to offer potential clients that your competitors cannot?
- How long have they been in business?
- What are their target markets?
Understanding your competition will give you a better idea of exactly what markets you should target and the services you should offer.
As a new business owner, there are things that you can only learn through experience. Be sure to always keep an open mind and be willing to learn new things. You’re going to have setbacks, but the key to setbacks is to take the knowledge away from the experience to prevent making the same mistake twice.
Making Your Business Plan
The anticipation of beginning your new journey into the business world is starting to wear at you. You have your idea written down and have vigorously researched it and know that it will work. You know your competition inside and out, so what are you waiting for? Oh yeah, you don’t know which direction to start. That’s where a business plan comes into play. Now comes the most important task; a task that can either make or break your business. Business plans are broken down into ten key components.
The 10 Key Components of a Business Plan
Although there are many different types of business plans, all of them comprise of these common components.
- Cover – The cover of a business plan consists of a title page and the table of contents.
- Title Page – A brief overview of the overall business plan.
- Table of Contents – An index to the entire plan.
- Executive Summary – A brief description of the company followed by a summary of the services that they will offer along with why they will profit.
- Business Description – This section is used to show the reader exactly what the company stands for. Usually the company’s mission statement goes here. There are three essential parts to the business description.
- Mission Statement
- Company Objectives
- Keys to Success
- Marketing Strategies – The company’s marketing strategy and a brief description of locations and services that will be provided.
- Competitive Analysis – This section is basically a summary of your marketing strategy and how you will use it to provide services better than your competitors.
- Strategies and Implementation – This section describes how the business plans to implement their marketing strategies.
- Operations and Management Plan – A list of all employees and contact numbers for the business.
- Financial Factors – Budgets and projected income conclude the business plan.
Types of Business Plans
Now that you know all of the basic elements of a business plan, I felt it best to quickly go over the four types of business plans available to you.
This plan is just as the name suggests. It’s a plan that is short and to the point, only utilizing information such as financial needs, income projections, and marketing plans. A mini plan is a great way to test new ideas and work as a great outline for your overall business plan.
Note that this plan is only intended for internal use. That means you do not send this to investors as it is only a rough outline of your overall plan.
These are the most popular type of plan and are used to actually run your business, especially in the beginning stages. Once again, this plan type is for internal use only. That means that you only need to include factors essential to operating your business.
This plan is what you will present to investors when you are trying to raise capital; therefore, style and presentation are very important to this type of plan.
More companies are changing to electronic formatted business plans. These are exactly like a presentation plan except they are completely digital and presented using programs such a PowerPoint.
Now that you have a well laid out business plan, you are ready to tackle it. This takes a lot of discipline and determination. There are times when it might be very tempting to stray from a business plan. This is a huge mistake that many people make and it ends up costing them in the long run.
There are several different levels of management that you will need to learn so that you can better manage your new business. You will use your business plan as your guideline but it’s up to you to have the discipline and determination to follow it to the letter.
Making The Business Plan
You already know how important your business plan is, so now it’s time to tackle it. After all, you don’t want this plan that you’ve spent hours putting together collecting sitting on the shelf collecting dust. Since you’re just starting out, you probably don’t have the money to hire anyone at the moment. That means you will have to perform multiple roles but that’s okay because you’re determined to work hard to bring your company to life.
Although you won’t have a management team, I still think it’s best to give a brief description of the different levels of management and their responsibilities.
- Senior Management
- Establishes the goals of the business.
- Decides how to utilize company resources.
- Middle Management
- Meets goals set by senior management.
- Sets goals for their specific areas of the business.
- Keeps an eye on day-to-day operations
- Watches over the employees that physically work to produce the business’s products.
The good news is that you have already performed one of the roles of senior management. Your business plan should include your company’s goals and how you plan to utilize your resources. Now it’s up to you to make sure that these goals are met.
Cash is the life flow of your business. It’s the blood that flows through your business and keeps it going. The importance of finances makes this area of management vital in every way. Here are some of the basics that you will need to learn in order to keep your business alive.
Should I Get a Bookkeeper?
This is totally at your digression. If you feel that you can manage your finances on your own, then I recommend doing that. After all, no one knows your business like you do. If you feel that this is too difficult a task, then hire a bookkeeper. This is going to be your first big decision as the owner of your business.
If you plan to take on your own finances, then I recommend investing in some financial software. They are inexpensive and will take a bunch of the workload off of your shoulders by reducing the time it takes to enter and manage account transactions. The software will automate entries and compile information into neat reports.
Cash flow is easily the most important aspect of your company’s finances. Its purpose is to make sure your company has enough money to pay bills that are needed to stay in operation. This should all be in your business plan but now is the time to double check and make sure that the information is accurate.
The Process of Management
It’s time to take a moment and look at how the management process works. It can be sorted out into several categories. As a new business owner, you will have to fill more than one of these roles until your business grows enough to hire additional employees to help. Here is a brief list of all of the roles of management.
- Planning – Decisions based on company goals and what actions are needed to secure them.
- Organizing – Grouping of different jobs in order to be more efficient.
- Staffing – Determining the number of people needed to operate.
- Leading – Guidance that the employees need to efficiently perform their job.
- Controlling – Making sure that financial goals are being met.
When first starting out, you will have to perform the roles of planning, organizing, and controlling. As sales increase, make sure you hire employees in order to allow your company to keep growing. It’s easy to get overwhelmed from too much work and that is when mistakes will start to creep in.
We have already mentioned the importance of finances but now it’s time to discuss all of the different ways to fund your company during its initial stages. Many people start their business out of their own pocket; however, there are many options available to help fund a new business.
Equity and Debt
Investments are broken down into two types, equity and debt. Equity is when a new business owner actually sells a portion of their company to an investor in return for cash. Debt is when a business takes on a loan from a lender that they have to pay back over time. The key is to find the type of investment that suits your individual needs.
It’s not enough to simply find an investor, you have to find the right one. So this means that more research is needed in order to find an investor that best suits your needs. I recommend you find investors that can help with technical assistance, financial advice, or can bring you new customers.
Raising funds for your company is a huge circle. In other words, start with a small group of investors who can directly help your business grow. Then work your way around to more and more investors until you are satisfied. Here are the different funding options available to you.
Using Your Own Money
This is the most popular way of funding a new business. The advantage to funding your business from your own account is that you maintain total control. However, investors will sometimes allow you to tap into their vast network of knowledge and experience. This will not be the case if you fund your business on your own. You will be alone. But for some, that seems like the best avenue. Remember earlier when I talked about keeping an open mind? Now is the time to follow that advice. At the very least, research different investors and if you can’t find one that suits your needs, then invest your own money. You might be surprised at who you can find.
Some people use credit cards to fund the start up costs of a new business. They are easily accessible and have a simple payback schedule. But don’t be lured into this trap. Credit cards should be a last resort as they have huge interest rates.
Family & Friends
Talk about making the family reunion a huge business meeting. I’m highly against mixing family and friends with business. The number one reason is that when money is involved, things get tense. Plus, when a family member lends you money to start a business, they tend to think that they can tell you how to run it.
This is another debt form of raising capital. You will have to present your business plan to a bank and then they will decide if your idea is worth the risk of lending you money.
This is the option that many successful companies begin with. Angel investors are dedicated to investing money into new businesses and since they cater to new business more than any other investor type, I strongly recommend that you include them in your research.
Researching Different Options
Now that you understand some of the different funding options available to you, here is a step-by-step process of researching them.
- STEP 1 – Put together a list of all of the advantages and disadvantages that each option presents.
- STEP 2 – Compare the advantages against the disadvantages and form your own opinion about which ones are best suited to your business.
- STEP 3 – Research again until you narrow the list even further. The remaining companies will be who you will attempt to get funding from.
Now it’s time to start marketing your idea. You’ve vigorously researched and planned thoroughly for this stage and now it’s show time. You can actually begin your journey into the business world. Before we begin showing your idea to the rest of the world, there are a few important basics you should know about marketing.
Basic Marketing Terms
- Public Relations – Activities that promote a good relationship with your customers.
- Press Release – Press released articles about your company’s activities.
- Market Research – Finding the nature of your customers and competitors.
- Marketing Collateral – Communications that are utilized as part of your marketing strategies.
- Positioning – A technique used to identify your company’s position against your competition.
- Branding – Your company’s logo and what it stands for.
- Distribution – Getting your services and products to your customers.
Now it’s time to discuss all of the items that are needed in your marketing plan.
Describe Your Competition
Most of your marketing plan will revolve around you presenting services and products in a different way than your competition. Therefore, you must know them inside and out. This will prove to be an invaluable part of your marketing strategy.
Describe Your Product
List all of the benefits of your products and give your customers a good idea of what to expect from your products and services. This will be your selling point.
Budget all of the costs of your marketing plans. Be sure to include advertising and promotional costs.
Those are the three key things to make sure to include in your marketing plan. Remember to always stay dedicated to any plans that you make and to always put your customer’s needs first. This is your dream but it will not come true without your customers there to support you.