In September 2020, we’re losing more businesses and therefore jobs everyday due to the economic impact of COVID-19. This is leaving a massive gap in the market that I believe will trigger the next business startup boom in the US. If history repeats itself to mimic the last recession in 2008, some of the next greatest businesses are on the verge of beginning their journey.
Starting a business can be extremely challenging. After going through the startup process multiple times myself, I’ve refined what works and what doesn’t. So, I’ve decided to write a two-part series on how to navigate the startup process in hopes that it will save you hours of research and headaches. There are several core aspects of starting a business that apply no matter what type of industry you’re venturing into. This article series also takes into consideration the updated landscape you’ll be working in mid/post-pandemic.
My recommendation is to treat this like a to-do list (in order of importance and execution) to start working on once you know what type of business you want to start and have a name picked out.
Happy business building!
- Narrow down your idea even more
Once you know the type of business you’re going to start, I want you to narrow down your idea even more. What is the one thing you want to be the BEST at in your industry and demographic? When we focus on one thing, we can pour all our energy, resources and focus into being the best in the market at that single thing.
For example, if you decided to open an Italian restaurant, decide what one food item or even area of business like restaurant hospitality you want to be the best at. Similarly, if you’re starting a website development company, your one thing could be building websites for e-commerce businesses or building out whole websites 4x faster than your average competitor. I highly recommend checking out this book if you want a deep-dive into this topic. If there’s something I wish I had known and followed from the start of my entrepreneurial journey, it would be the One Thing principle.
In addition, when you’re refining your business idea, think about how you can make your business pandemic and recession proof. There’s a lot that goes into this, but one of the main components is accessibility and making sure you provide a product or service that is “essential.”
- Build a big picture business plan
As tempting as it is to just jump into starting a business, don’t underestimate the power of a plan. When you build out a business plan, it forces you to have to think through multiple different situations and perspectives.
My favorite business plan building tool is LivePlan. This is a great resource because it walks you through all the components you need for building a business plan, like automatically calculating data, graphs, and creating the proper templates you need depending on your industry.
Your business plan is a place for you to dream big and put in all of the supporting information to add structure to that dream. From there, you will be able to see gaps and improve on them from.
An overarching theme to keep in mind when you’re creating your business plan is to remember that your business isn’t about you, it’s about the customer and customer’s experience. The minute you start making your business about you, you lose focus on the whole reason businesses exist – to add value to the customer. The more you add value to others, the more value you gain in the long run. For example, Amazon adds value to millions of people’s lives each day. Therefore, Amazon itself, and specifically Jeff Bezos are worth a massive amount of value.
In the business plans I’ve created, I’ve found that they’re incredible for getting overall clarity on your vision. However, unless you’re a magician, you will probably end up veering off your business plan quite a bit. This is okay, and should even be expected. View your business plan as a guide, not your step-by-step map. You can take many trails to reach the same destination but your business plan helps keep that destination in perspective.
- Create values, a mission, and vision
Your mission and values are the WHY behind what you’re doing. As a business owner, you will spend the majority of your time working on your business, and if not directly working, you’ll likely be thinking about it. It’s so important to have a strong mission and driving force that adds meaning to what you’re doing and keeps you going through the good times and the bad times. Your mission and values will also help establish your company culture which is not only vital for your team but for your customer experience as well.
Here are a few questions and resources to get you started on the process:
- What are the non-negotiable principles that you want to guide your decisions and culture as a business? What do you stand for in this world?
- Three of Apple’s core values: “We are creative; we set the pace | We build products we believe in | Each person is important; each has the opportunity and the obligation to make a difference.”
- What is the ultimate reason for your company’s existence? What is your WHY and real purpose?
- Microsoft’s mission: “To empower every person and every organization on the planet to achieve more.”
- What will it look like in the future when our business is accomplishing its mission?
- Marriott Hotel’s vision: “To be the world’s favorite travel company.”
If you want a deeper dive into this topic, check out these free worksheets from my book, Dear Millennial. They can apply to both your personal life and business. The most successful companies have a mission, vision and values. Take the importance of this seriously and block out a couple hours to create the core and foundation of your new venture.
- Map out your core financial model
One of the most daunting aspects of starting a business is the financial element. If you’re like most entrepreneurs, one of the reasons you’re venturing down this path is so that you can be your own boss and therefore make a living from your business. When I started my first business, like many first-time entrepreneurs, I over-fantasized this component. I thought I was going to be making thousands of dollars a month in the first year. Well… I hate to break it to you but this most likely won’t happen immediately. When it comes to business finances, I’ve found that it’s best to be over-conservative, plan for the worst, and hope (just a little) for the best.
You may be saying, “But Chelann, I already worked on some financial projections in the business plan…” Yes, you’ll go over a lot of this in your business plan. However, like I said above, your business plan is for big picture perspective and goals – which as you will see, is not always how things go.
In this section, we want to map out a couple of different financial models that could take place. Specifically, what individual months in year one could look like. Some key areas you want to map out and put numbers to are the following:
- Map out realistic revenue numbers for each month of the first year.
How much money is realistic to be bringing in through your product or service each month?
- Make a monthly expense budget.
Here’s a comprehensive list of business expenses to pull from for your business budget. This list is going to be different depending on your industry but the main point is to write out every single expense item for your business in a given month. Everything from what you need to make your product or perform your service to your monthly internet bill. Specifics are key here, so don’t get lazy. I’d recommend putting a 20% buffer in your budget as well because you never know what will pop up.
- When will you hit your break-even point?
Your break-even point is the point at which you have paid off your debt and you’re up to date with expenses. At this point in the financial planning process you might have realized that you will need outside investment in order to fund your startup. This would require a whole different article to cover but in short, I always recommend bootstrapping (self-funding or starting really small so the business can fund itself). If that’s not an option, see if you can get a Small Business Loan at a bank with under 6% interest. Lastly, if all other options have failed, look into personal investors. However, due to personal investors requiring a much higher interest rate (sometimes around 12% and up), I’d recommend trying everything else first.
Notice I didn’t have a specific place for salary, owner draws or employees in this section. That’s because when you’re a startup, these expenses are a luxury at first – especially if you’re bootstrapping. A lot of businesses fail because the founder who is bootstrapping runs out of capital to infuse in the business. Hence, why I’m strongly suggesting you do the work here and make a solid financial plan. One thing to also include on a personal level is how much personal runway for your monthly expenses you have. You may have savings for the runway or you may have to get a job to support your startup at first. But don’t forget about yourself here because if you don’t have a financial oxygen mask first, your business won’t either.
- Set up your business’s legal structures
The legal side of a business can be an underlying stressor. It isn’t the fun stuff and it can oftentimes be extremely confusing. It took me until a couple businesses and multiple conversations with legal advisors to understand the legal process of starting a business. So, let’s dive in so you hopefully can avoid legal structure catastrophes and those random government fees because you didn’t file something on time.
First, decide what type of legal structure you want for your business. Here is a comprehensive list and descriptions for the most common ones. Do the research for your specific industry and talk to people who have more business experience in that industry than you do. I also recommend choosing a CPA or someone who is going to do your business taxes at this point in the process. If they’re a good fit, they should be able to tell you what structure will be most tax advantageous for your business model.
Since a Limited Liability Company (LLC) is the most common structure for small businesses, that is the structure I will go over.
- Go to your state’s business website and file for your LLC. It will be an sos.state.gov website. For example, here’s the link for Washington State’s. Don’t go through another provider because you will get charged a lot more than the $200 online filing fee. Once you fill out the form, It will take a couple days to process and will give you a UBI number which is needed for the rest of your filings.
- Go to the IRS website and fill out an application to get your EIN. This is very simple and you will receive your number right away. This number registers your business in the tax system.
- Get a business license by going to your state’s dor.state.gov website. Here’s Washington State’s dor site so you know what to look for. You can’t get a business license until you have your UBI number so this will have to be after your LLC is processed in the system which could take 2-5 days if you did it online. For some reason, this part of the business startup process is much more confusing then it has to be which is why I included links to where to find these government applications.
In order to open a business bank account (which we will cover in article 2), you need all of these legal documents processed so don’t think you can skip it. 😉 The last legal item that I will put a small note in here about is exit plans and ownership percentages. Believe it or not, on the LLC document, there isn’t a place to put ownership percentages. I highly recommend drafting another legal and signed document that lists the LLC governors (AKA members) and ownership percentages. Also, if you’ve developed any type of exit plans with your partners, this is a good time to establish those in writing as well.
Hopefully you’re still with me! Getting a business started can be difficult because if you do it right, it’s A LOT of upfront work. After doing this whole process a few times, I can tell you that doing and understanding the startup process correctly the first time makes a huge difference in the overall success of your business.
In the next article, we will go over the remaining five steps to take when starting your business.
Although I tried to make this article applicable no matter what business you’re starting, if you want a personalized look on how it should look specifically for your business, shoot an email to firstname.lastname@example.org and I would be happy to hop on a 30 min call with you to get you on the right track!