You don't need to be some kind of business prodigy to be a great entrepreneur. If you've got the right idea and the right amount of elbow grease, you can write your own success story.
But building a booming business empire is no easy task. So to help you get started in the right direction we brought in our friend Len Briskman, a small business mentor for the nonprofit organization SCORE. Together, we’ve laid out some clear guidance and answers to your questions that’ll help lay a strong foundation for you to build your business from.
So, let’s get this thing goin’.
What Kind of Business Should I Start?
In short, the kind that only you could start. Trendy ideas come and go (hello, remember waterbeds?), but customers will always respond well to expertise and passion. A great business idea should combine your skills and interests with a specialized need in your community. And if you follow that advice, the customers will come. And then they’ll come back again. Again and again.
“The customer is the most important element of your business,” says Briskman.
To build a big pool of potential customers, you’ll need a strong strategy for attracting them and a product or service that’s good enough to keep them.
And speaking of your product, you’ll need to think long and hard about what you want to sell and how you’re going to sell it to customers. Do you prefer an old-fashioned brick-and-mortar shop, more of an online storefront, or even both? High rent, stiff competition and inventory quantity are all things to consider when deciding to sell online or in person.
Here are a few ins and outs and other things worth mulling over while laying out your business plans:
- Retail businesses sell products directly to the people who will use them. For example, the toy stores and clothing stores you see in a mall are retail businesses.
- Online: In online retail, you are literally competing with the whole world (wide web), so you need to do a lot to stand out. Targeting a small slice of customers, integrating social media or using SEO (search engine optimization) are good strategies.
- In person: Retail stores require a lot of traffic to draw in customers and be profitable. It’s not worth it to rent a cheap space if it’s in a run-down, empty area of town. Brick-and-mortar retail stores require a lot of planning, with a lot of overhead costs, to boot.
- Wholesale businesses sell large quantities of goods to retail stores. For example, seafood wholesalers buy seafood from fishermen and sell it to restaurants or grocery stores.
- Online: If you have access to a special resource in your area that isn’t easily available online, that’s a golden opportunity for starting a business. You’ll still need a physical storage location for your inventory, though. It’s also important to stay organized so you can fill orders efficiently.
- In person: Some wholesalers operate warehouses where retailers can come pick out inventory in person. This is especially popular among used and vintage clothing wholesalers. This requires extra space, organization and cleanliness, but you don’t need to be in a high-traffic area: Your customers will go out of their way to come to you.
- Manufacturers, farmers and other creators create the things that wholesalers and retailers sell. They require space, labor and expertise to make the products. Sometimes these creators are also retailers or wholesalers, as with farm stands or artists who sell on Etsy.
- Service businesses sell services. Hair salons, business consultants and freelance writers are all service businesses.
- Online: Running an online service business is easy if you’re in a creative or consulting industry. All you’ll need is a computer, phone and software. If you’re working with physical items, you must set up a system to receive and mail out these items safely and efficiently.
- In person: Like retail businesses, service businesses are usually most profitable when they’re in a high-traffic area. Even if you don’t do walk-in work, a high-traffic area helps customers discover your business.
- Food service works like a blend of all these categories. Most food service businesses must operate in person and not online. Restaurants, food trucks and caterers are examples of food service businesses.
- Online: Meal kit services are a revolutionary new food service business model that works online. You prepare meal kits for customers to cook at home and mail the kits to the customer. Bakeries, chocolatiers and food delivery services can also operate through online orders.
- In person: A restaurant is one of the most difficult businesses to open because they’re so expensive to run and competition is stiff. Spoiled food, fire risk and bad staff are all pricey risks. Food trucks and pop-up restaurants are cheaper and less risky for first-time business owners.
Can I Operate My Business from Home?
Yes, and it may even be better to do so! Working from home means no overhead for a warehouse or storefront, which means lower start-up costs. It’s easier to start out part-time and ease in to a home-based business, too. And if you use a significant amount of your home’s square footage for office and storage space, you can even get a nice little tax break on top.
On the other hand, the Internet has opened up a host of possibilities for home-based small businesses. Some of the most common include freelance writing and design, tutoring (especially teaching English to people in foreign countries) and online resale on platforms like eBay and Amazon.
How Much Money Do I Need to Start a Business?
You definitely need some money, but it doesn’t have to be your money. You can start a business with a loan or, more rarely, a grant. A grant usually refers to “free money” that doesn’t need to be paid back, and is rare in the for-profit world.
To apply for a loan, you’ll need to fill out a form, get a credit check and show the lenders a business plan. (More on that a bit later.)
That said, it’s almost always best to put some of your own money into a new business. Banks like to see that you have “skin in the game,” says Briskman, and may refuse to loan to you if you don’t have your own capital.
More importantly, loans need to be paid back whether your business idea succeeds or not. Many, many businesses fail—sometimes for reasons that are entirely out of owners’ control, like natural disasters. Putting your own money into a business lowers the amount you’ll need to borrow.
Do I Need a Business Plan?
Yes, and for two reasons. If you want a loan or other funding, you’ll need to provide one to your lender; but more importantly, it’s a vital tool to help your business succeed. A business plan outlines your business model, competition, marketing plan and more, in effect giving you a free dry run to test for problems.
A business plan is a 9- to 12-page document that is meant to change over time with your business. It doesn’t require flashy formatting or writing skills, just a clear plan that shows you’ve thought of everything and a willingness to adapt.
Where Can I Get Financing?
Though it may seem anticlimactic, Briskman recommends starting with your local bank (the one where you have a checking and savings account). Even if the bank chooses not to fund you, they can give you a good first opinion on your business plan.
Typically, smaller banks and credit unions will offer better rates to small business owners. So keep that in mind while you’re searching.
When Will My Business Become Profitable?
The hard truth is that your business may never be profitable. Many businesses close despite the strength of their concepts or the skill of their owners. It’s a risky gig!
If you are lucky enough to make a profit, it can take months or even years to do so. Briskman’s favorite example is tech giant Amazon, which lost money hand over fist for over a decade before turning today’s massive profits.
Briskman recommends that entrepreneurs start their business part-time to test its profitability before quitting their full-time job. “Don’t just come from a place of hating your job,” he says, cautioning that entrepreneurship can mean 60- or 70-hour weeks and paltry profits.
The smaller and scrappier the business, the faster it can turn a profit. That’s because of simple math: The less money you spend on overhead and start-up costs, the less money you have to make to be in the clear. That makes home-based businesses a safer bet than ones that require a storefront.
But if entrepreneurs let long odds put them off their big dreams, we’d never see any innovation at all. A strong business plan can help you map the best path to profits and success with your small business.
Open for Business
Well, boss, there ya have it. We hope to have answered a few of your business-opening questions and helped put you on the right path to success. Like we said, the road isn’t easy, but with the right planning and foundation to start with, you’ll hopefully be on the way to profit and success status in no time