Why am I starting a business?
The question should be, why aren’t you? It is rare to get rich working for someone else, and the freedom that working on your own business gives you can be worth its weight in gold.
If you want a lifestyle that is ‘normal’, maybe living in the suburbs or a rented apartment, driving the same car as everyone else, working in an office, doing the same thing every day, you might want to consider getting a job or keeping the one you have. For around 20 years you’ll have received an education, and for the next 40 or 50 years, you’ll be working for someone else, who at their whim could dispose of you in an instant. Jobs are not for life anymore – the global financial crisis made sure of that. If you underperform, or maybe just want to be paid a little more than someone else, or a multitude of other reasons, you could well find yourself jobless.
That’s not to say having a regular job is a bad thing. For many, it gives a sense of security, and the day after day repetitiveness is comforting. But you are held accountable to someone else within the organization, and you do have to do things the company way – there’s very little room for creativity.
The biggest problem with a job is how you get paid. Most jobs pay an hourly (or daily) rate, and some add a performance-related bonus on top. For the basic pay rate, you are limited in your income. There will only ever be twenty-four hours in a day, and only seven days in a week. The maximum you can make is your hourly rate multiplied by the number of hours you work.
Performance-related bonuses depend on you being good at your job. If you aren’t good, you won’t get a bonus. Of course, if you are excellent, you will get a bonus – but you’re still limited by your hourly rate, and you’re still limited by the number of hours you work.
You are constantly trading time for money – and you have a very limited amount of time. The verified very oldest human beings of modern times have lived no more than 125 years, and average life expectancy is around 75 years. If you work many hours a day until you are 65, you haven’t got long left to enjoy yourself afterward.
Time is valuable, and nothing you do will give you more time in a day.
The ideal way to build wealth is to separate time from money. How is this possible? In several ways – here are a few:
Write a book – You may spend many hours preparing and writing a book, but once it’s done, it’s done. Say it takes you ten hours, and you make a dollar per sale. One sale and you made 10 cents an hour – which is atrocious. But then you don’t do anything else and remain having worked only 10 hours but sell 9 more copies – now you’ve made a dollar an hour, and only had to work 10 hours in total. You sell a thousand copies, and you’re on $100 an hour, and don’t have to lift a finger. Sell a million copies, and you’ve made a million dollars for ten hours work, putting you on the equivalent of $100k an hour. Of course, you could also have spent ten hours writing a follow-up book…and this is a system that works in many ways, e.g. the recording industry, the movie industry, the video game industry, etc.
Co-ordinate a service – You run a business installing garden fences. Your investment is less than $100 to get some flyers printed up, which you push through doors or stick on posts around town. When someone wants a fence, they call you, you price the job up…and get a contractor to install the fence. You invoice the customer, and the customer pays you, and then you pay the contractor. But you charge the customer 10% more than the contractor charges you – and you just made money from handing out flyers and taking a phone call and not doing much else. You could do this with almost anything – and if you get busy, employ two contractors – you’ll still make 10% per job, but you can effectively be in two places at once. You are entirely free from time limitations!
Renovations, repairs, and upgrades – Primarily with real estate, but also applicable to vehicles and other items. Buy one that is run down, fix it up as economically as possible, and sell it on for profit. Typically, you will make more than the amount you would expect to be paid for the number of hours work you put in.
So, your motivation is simple – make more money than you would by being paid per hour, gain the freedom to live your life on your terms. If you can do this whilst solving a problem for someone else, you could be on to a winning idea.
What kind of business do I want? What products or services will my business provide?
There is a school of thought that suggests you should “do what you love”, but it is often easier to start with “do what you know”. If you go down the route of providing an information product, such as a book, you will need to know what you are talking about – you can of course do plenty of research, but if you know a fair deal to start with it will help.
If you are outsourcing the work, be it writing a book or installing a fence, you have a greater choice.
The first thing you need is to establish where there is a gap in the market. If you don’t have an idea already, it’s worth carrying a notepad and pen around with you to make notes when you are inspired, as it could be at any time. Perhaps you are in the store and see a jar with a lid. You always have great difficulty in removing those lids, but you are suddenly inspired – you know that if you do *this particular thing* the lid will pop off easily. But you might forget it while you do the rest of your shopping – making a note will help you remember, and later on you can design a device to remove lids that you can sell for a fortune on the shopping channels. If you don’t remember the idea, you can’t get started.
When you find your gap, you need to find an elegant and cost-effective way to fill it. An example could be that in the town where you live, there are many businesses without websites, and you know how to put one together – maybe even using a simple service like Weebly. You go door to door around these businesses, show them an example site on your laptop, take orders, and give them a site – you can pretty much use a template for most sites and just change the words and pictures slightly to represent the particular business. A more elegant solution might even be to get someone else to put the sites together for you, but with a bulk discount, so the more you sell the less you have to pay.
The best business ideas are based on solving a problem or fulfilling a need.
What differentiates my idea, products, and services from others in the market?
If you run a business that is identical to another business, you’re going to struggle. Why would a potential customer pick you over the other company, especially if the other company has been established longer and has a track record?
Price doesn’t do it. If Company X charges $100 for their Super Widget, calling your product a Mega Widget and charging only $50 for it won’t work. First, for every product you sell you’ve slashed your profit. Secondly, customers perceive value in the cost – both Super and Mega widgets cost $1 to produce, but as Super Widgets sell for twice as much, they are perceived as being of higher quality. I mean, who would buy a Mega Widget for half the price if it’s only going to last a week and then snap in half?
At the risk of causing a large fanboy argument, Apple computers are no better than Dell computers. Apple computers are often in nice shiny cases, but are no more reliable and certainly are no faster than Dell computers – and Dells can cost a quarter of the price for the same spec. But some people just need an Apple device, because, you know, APPLE. Dell might say, “we are better!”, but the customer thinks, “No, Dell, you are cheap, and therefore not as good”. While there’s a difference between “cheap” and “value for money”, it’s hard to convince most customers.
And if Apple suddenly slashed their prices by 90%, everyone would wonder what was wrong with the products they were selling!
Apple’s popularity is based on style and perception – Apple products look nice, and it’s assumed people like designers own them. Dells do the same job, as do every other manufacturer’s products, but they aren’t APPLE!
So how do you set yourself apart and cause people to perceive you as the best solution?
The answer is to position yourself as an expert, as the best in your field. Provide value. Make the customer feel special.
Want a fence? Our fences are the highest quality and built to last, installed by qualified experts. You’ll never find a better fence.
Want a book about dogs? We trained dogs for the last 20 years, and all our dogs have been champions – yours can be too.
Want a personal trainer to help you lose weight? I used to be fat, and now I’m healthy and super-slim, and I can share my methods with you.
The trick is to find the right balance – if you go too far, you’re going to sound unbelievable. For example, if the personal trainer text finished with “…and I guarantee you’ll lose 50% of your body weight in a week”, it’s not only unbelievable but also a lie unless your method involves surgically removing body parts! The truth will get you a long way.
But what if you want to enter a market where there is no competition, so you will automatically be the best in the market? Aside from the fact that this simultaneously makes you the worst in the market by definition (you are the whole market – top to bottom), no competition can be a bad thing.
Who is my competition? What are the benefits of competition?
You might think it’s easier to start a business where there is no competition at all, and in a very small number of cases, this might be true. But in most cases, competition is a good thing, and if you are successful competition is inevitable.
Imagine people had been catching fish for hundreds of years using a net (no, this isn’t a historically accurate story, but an example of starting something new) – each day they go out on their boat, drop the net, hang around for a while, pull the net up, there are the fish. Imagine inventing a fishing rod. The conversation might go like this:
You: “Hey, fishermen. I’ve invented something to catch fish with.”
Fishermen: “We already have nets. What have you got?”
You: “It’s a stick with a piece of string.”
Fishermen: “We’ll keep the nets.”
You: “No, you don’t understand. You know when you’ve caught a fish because you can feel it pulling…”
Fishermen: “We know we’ve caught a load of fish when we pull the nets up. Go away, stick-and-string man.”
There is no market for fishing rods, as everyone uses nets. Convincing them to change would be tremendously difficult. However, you know that the nets catch a lot of useless small fish…so you enter the net market where there is competition – but you make a better net!
You: “Hey guys, I know you use nets. I’ve got a better net here for you.”
Fishermen: “Really? What’s so great about it?”
You: “It has larger holes. Little fish can’t be caught in it, you only get the big ones. No messing around throwing the little ones back. And it collects less trash too.”
Fishermen: “Sounds cool. How much?”
You: “Only ten percent more than a regular net. Don’t forget, you’ll only be catching big fish!”
Fishermen: “I’ll take two.”
Bigger holes in the net? That means it takes less material to make the net. Ten percent more? That means you get more money. More money for less net and they’re snapping them up – because nets are an established market. So, the guy down the street hears about this and starts work on his own net – he wants to enter a competitive market, and because you are successful, competition is inevitable.
Competition is a good thing because it proves something – it proves that there are customers out there. Whether you offer a product or a service, you aren’t going to get paid unless you have customers and entering a market with no competition is just the same as entering a market with no customers. If you have no competition/customers, you will have to find people who might be interested and try and convince them to become customers – if the customers are already there, you just need to convince them that you are the best choice.
But where are any of these customers coming from?
Who is my ideal customer? Where can I find them?
Put yourself in the shoes of your perfect customer. What problem are you solving for them? When and where do they have this problem?
You need to get near to your customers, mentally and physically. If you’ve devised a way to stop your customer spilling their soda whilst at a sporting event, it would be ill-advised to set up a stall selling your product outside a clothing store. However, if you’ve invented a product that keeps shirts wrinkle-free, you’re better off outside a clothing store than hanging around a sporting event.
If you’re selling new-and-improved fishing nets, head for the docks.
The same goes for advertising. If you’ve invented a product that makes life easy for plumbers, placing an advert in “Electrician’s Monthly” will not be effective.
You need to know your target market, where they go, what they do, what they read, what they watch on TV, what they listen to on the radio, what kind of websites they visit, and so on – then track them down and get your product or service in front of them!
How much money will I need to start? And where will it come from?
You can start with absolutely nothing, but it entirely depends on what your business is. For example, if you offer a service – you might be a mobile hairstylist – your first few sales might be to friends and family, and then your reputation will spread by word of mouth. If your service requires the purchase of equipment (e.g. scissors, etc.) you will need to find the money for the equipment, along with any travel expenses involved.
If you are offering a product rather than a service, you will need to purchase or build the product before selling it to your customer. If it’s an off-the-shelf item that you are reselling, this is quite straightforward. However, if you are putting together an entirely new product, the cost may skyrocket as you may have to invest in prototypes and testing before unleashing your designs on the public.
You may also want to pay for advertising in print or on the internet – but we’ll get to that later. For now, just keep in mind that you may need to set aside some money for advertising.
There are several ways in which you can fund your business. You may have some money already put away, or you might find it possible to approach a bank for a loan. Banks and other financial institutions may require you to have a written business plan in place before approving any type of loan, so do not just turn up and expect them to hand the money over!
A popular new way of funding startup businesses is through crowdfunding, using websites like Kickstarter. In short, you create a page showing the benefits of your product or service, and backers pledge support for you in the form of cash donations. You are expected to provide “rewards” for each level of support, i.e. a supporter who gives $500 gets something far better than a $5 supporter, but the $5 supporter still gets something as they are supporting you and are likely to be a customer.
Am I prepared to spend the time (and money) to get my business started?
The only person who can answer this is you. Perform a risk assessment – if it all goes wrong and you lose the money you’ve invested, what’s the worst that could happen? Could you lose your home? Or just not eat out for a month? Only you know what risks you are willing to take. On the bright side, the business could be a great success – but you need to be prepared either way.
As for time, again, only you can decide. If you are already working a full-time job, you may not have enough hours in the day to get started effectively, whereas if the new business is your prime focus you may get ahead of yourself. If you can’t dedicate the time, you may want to look for help from others, either outsourcing or just getting a hand from a friend.
Starting a business is like having a new baby – you’re going to need to be hands-on for a long while, and you may have many sleepless nights!
So now you have the idea for a business, you know who your customers will be, and you’re ready to launch, right? Right?
Not so fast – there are a few more things you need to consider first…
What type of business is this?
You may think there are only really two kinds of business – service or product based – but that’s not what we are after. Services and products are things that your business offers, not types of business.
We’ll look into this further in the “tax and legal” section, but for now, you just need to establish whether you’ll be working on your own or with other people (partners or employees), and what kind of risks you are willing to take.
If you work as a sole proprietor, any liabilities you incur may result in the loss of real property – i.e. if your business fails, your house is at stake. If you set the business up as a separate legal entity, for example, an LLC (Limited Liability Company) in the US, or a Ltd (Limited) company in the UK, your personal possessions are less likely to be taken should your business fail (there’s still a chance they may, but it is a much, much lower chance).
Where will my business be located?
In the internet age, businesses can be run from anywhere in the world – email, video calls, instant messaging, and so on make this possible. But running a business is different from allowing the business to fulfill the needs of the customer. For example, you could purchase a brick-built store from which to sell pizza. You could install a manager, a cook, and a delivery driver. You could locate this business in New York and run the business remotely from New Zealand.
However, if you located the business in New Zealand but still wanted to deliver to New York, it isn’t going to work. Your location is entirely independent of the location of your business, but the business needs to be located to serve the customers.
If the business model is entirely internet-based, this is less important – but if it’s only mostly internet-based, perhaps an online order system with physical delivery of a product or service, you will have to think carefully. Think most of your customers will be in the US? Base your distribution system there. Think they’ll be in Europe? Base it there. No idea where they will be? It might be time to do a bit more research…
How many employees will I need?
The eternal infernal question! Somebody somewhere has probably worked out a complex formula to give you an exact answer, but here are some things to consider:
Can you do it all yourself? Should you do it all yourself? The fastest way to on-paper profit is to minimize your expenditure. Not employing any staff at all is the cheapest option from a wage point-of-view. However, depending on your business, this may not be the best way. If your business needs a website, you might be able to build one yourself – but it might take 10 times as long as a pro web developer. The cost of hiring a developer would be offset by the amount of time it takes you to get online – every day longer it takes, the longer you must wait for that first sale.
Further along, if you do run a website selling items, you will probably be able to handle the packing and shipping on your own to start with – and hopefully, you will soon be spending many hours a day packing items up. At this stage, it’s probably worthwhile employing someone to do all the hard work for you!
What types of suppliers do I need?
This is again entirely dependent on your business. If you just sell widgets, you need a supplier of widgets, and possibly a supplier of packaging materials to send the widgets out in. If you build widgets, you’ll need at least one (probably more) widget component supplier.
Your suppliers may not of course be local. Manufacturing and production costs vary greatly from country to country, and so the best deal for your business may come from a far-flung foreign land. Don’t forget, cost implications are of vital importance before starting your business and going into production – and don’t forget, if you are importing items from somewhere else, you may be liable for import taxes.
Aside from this, should your business require premises, you will also need energy (electric, gas, etc.) suppliers – again, it is important not to forget this, as small costs missed out here and there can add up to a very large bill.
Getting to market
How long will it take before my products or services are available?
If you’re still on the fence as to what kind of business you want to start, speed might be a consideration. If you are offering a physical service, e.g. gardening/building/moving something, as long as you have the equipment to do it, you can start right away.
For anything else, you are going to have to wait until your product or service is ready. If you’re marketing a digital how-to book, you’ll have to get it finished and uploaded. If you’re selling widgets, you’ll probably have to wait until you have widgets in stock. Pre-orders are a thing, but making your customer wait an extended period is not a good idea.
The more complex your product or service is, the longer it may take to get to market. It will be quicker, easier, and cheaper to get an e-book written and on the market than it will be to design, test, and build an electric car. But that said, the profit is likely to be higher per unit sold on the cars!
How will I price my product compared to my competition?
As mentioned in part one, pricing your product lower than your competition is not always a good idea. If it works, you will sell a lot of products, but at a lower percentage profit.
The ideal situation is to position yourself as an expert, a leader, a provider of quality. Whether it is true or not, the public perception of Apple is they make quality products that rarely go wrong, and they charge more for these products because they are so good. Other companies make better products and sell them for a lower price…but the public “knows” Apple is the best.
When marketing your business, this is the kind of thing you need to focus on – how your product or service is full of quality, and how it will improve the lives of the customer. Are you selling tea bags? They don’t make cups of tea. They make the most luxurious and relaxing cup of tea you’ve ever had, calming your mind and soothing your soul. You don’t throw them in a cup and add hot water; these things are an experience!
The short version: if you want a quick sales boost at a minimal profit, try a low price. But be warned, lower prices are often perceived as lower quality – if you price yourself a little higher and promote the quality of your business, you’ll be more likely to make good sales.
How long do I have to wait until I start making a profit?
Hopefully, not long. If you’ve started the business on a shoestring and kept your costs under control, you might be in profit by the end of your first sale. If it has cost you thousands to research, develop, and build, you’re probably going to need more than one sale to get profitable.
The sooner you get to market with a good idea at a reasonable price (after incurring minimal costs), the sooner you will make a profit.
All you have to do now is to work out if your idea can be profitable – if your market is small and you’ve spent a lot on development, it will take a long time to become profitable if you are only making a few pennies per sale.
If you can get the balance right, you’ll be in profit very soon.
The tax and legal implications of starting a business
Rules and regulations vary greatly from country to country. In some places, you need years of training and full certification to become a barber. In other places, you turn up on the marketplace with a hedge trimmer and off you go.
It’s vitally important that you check the rules in your area – keep in mind that tax rules can change from state to state in the US. But there are a few general rules that apply.
- If you sell something you own, and it wasn’t bought specifically to sell on, you most likely don’t have to pay tax on your profit
- If you buy something intending to sell it on, either in full or part, or as part of another product, you will have to pay tax on the profit
- If you buy something from one country and sell it in another, there’s a good chance you will have to pay some kind of import tax in the country you are selling in – even before you’ve sold the item
- The more money you make, the more tax you must pay – but that’s OK because you have more money to pay the tax bill with!
- As for legal implications, there are broadly two types of business. There is the individual and the company. If you are an entrepreneur working on your own, have no business partners, and perhaps describe yourself as self-employed, you will be seen as an individual.
If you’ve registered a company with the appropriate authority in your country, you will be seen as a business – and that’s important. There is a class of business, known as a “limited” or “limited liability” company. Should you be one of these companies, if everything goes wrong you will only be liable for what the company has. If you are not “limited” and end up in difficulties, there is potential for another person or company to legally challenge you, and you could end up losing your own personal property – including your vehicle and your home.
Do you have an exit strategy?
So, is now the time to start thinking of leaving the company you’re going to build before you’ve even started to build it?
Yes, it is.
When the company is profitable, do you still want to be working when you are 90? You will have to find a way of getting out. Either gradually make yourself replaceable by setting up systems to follow or figure out who and how you could sell the company to. You don’t need to go through with it, but you will want to decide what’s going to happen in the long run.
Was it all worth it?
Starting, building, and running a business is worth it. You get experience, satisfaction, and with good planning and a bit of luck, you also get a decent profit.
So, do you have an idea for starting a business?
Disclaimer: This article is written from a general standpoint and is not a replacement for local qualified business advice. The licensing, tax and legal regulations vary by geographic area, and you should always consult a qualified professional before committing to any start-up. This article does NOT constitute legal advice.