The Complete Guide To Starting A New Business￼
Since the start of the pandemic, the rate of new business formation has soared, as entrepreneurs have taken advantage of the massive opportunities the pandemic has created. We are living at a time of generational change. Crises are often fertile grounds for new businesses. Some of the best businesses we know were created during recessions. If you’re looking around and thinking that this is the right time to start a new business, this guide is just what you need.
- Check for Product-Market Fit
Venture capitalist, Marc Andreessen, called product-market fit, “the only thing that matters”, arguing that a company could fix not having a great team, but if a startup didn’t have product-market fit, it was dead before it started. So what is product-market fit? It’s what happens when customers are so hungry for your product you can’t make enough of it. It’s not just about having a great product. Centuries ago, Leonardo da Vinci designed the world’s first tank, but it was a tank without a market. We don’t even know if it ever got made. You’re not in business to be a visionary centuries ahead of your time, you’re in business to make a profit. That means having a product that’s right for its market. The better the fit, the better the business. Peter Drucker once said that the purpose of a business is to create and keep a customer. That’s done by having product-market fit. Knowing beforehand if you will have product-market fit is hard to do. Your base level is to ensure that you create a product that is designed to meet very powerful and urgent needs on the part of your potential consumers.
- Define Your Mission and Vision
Every business needs an organizing principle that drives what they do each day (mission), and tells them where they want to be in the future (vision). Every single decision you make, must be guided, ultimately, by your vision, and the mission just says how you will get there. Your vision is your One Thing that should, if it means anything at all to you, be your obsession. For instance, Amazon’s mission is, “We strive to offer our customers the lowest possible prices, the best available selection, and the utmost convenience.” This is how they serve their customers every day, their vision is simple: “to be Earth’s most customer-centric company, where customers can find and discover anything they might want to buy online.” Everything Amazon does is guided by its ultimate aim of being, “the Earth’s most customer-centric company”. Your vision has to be big, and it has to be inspiring, it has to be the thing that gets you thinking, “How does this help me achieve my vision”.
Your business should also have clear values that will form the culture of the business, the way you do things, and which will emanate from your vision and mission. When people think about your company, ultimately, they think about its values and what it wants to become.
- Define a Decision Making Framework
This is one of the most neglected aspects of developing a business. You and your business need a considered and articulate way of coming to decisions, a way that is objective and clearly looks at the available options, weighing the likelihood of each option. The best expression of this is the decision tree.
Leaders should also have a framework for knowing what decision tools they should use. For instance, many firms use capital budgeting tools even though this is not always appropriate. Having a framework that tells you when to use what decision tools, makes it simpler to navigate through all your decision tools and land on the right option.
Use these decision tools from Day 1, and you will avoid a lot of mistakes that entrepreneurs make.
- Draft a Business Plan
To understand the market, you will need to draft a business plan. Your business plan will study your potential market, its key drivers and players, the competitive landscape, your path to profitability, and other aspects. A business plan is important even if you don’t plan on seeking external capital. It’s about forcing you to study your business idea from every conceivable angle, and mapping out how you will get from concept to profitable business. Without a business, you can forget about getting external capital.
- Form a Company
Firstly, you need to protect your personal assets from your company’s potential liabilities. You don’t want a company creditor targeting your personal assets, so create a wall by creating a business. Secondly, you want a business because it allows you to organize yourself, raise capital, and get tax breaks in ways that you can’t achieve operating as a sole proprietorship.
So you will have to decide between a partnership, corporation, S corporation, or limited liability company (LLC). Each comes with its own tax and legal implications, so you should make this decision in consultation with an accountant or lawyer. In addition, the business structure you choose depends a lot on state and federal law regarding the kind of business you want to operate. You might want to start an S corp and then convert that later into a C corporation, when you are bigger, and need to bring in shareholders. An LLC is a popular business structure often used for its simplicity and cost-effectiveness. I encourage you to learn more about LLCs. There are a number of ways you can play this out.
You also need to open company bank accounts. Segregating your personal assets from your business ones only works if you also keep finances separate. If, for instance, you use your home as your office, and your bills are under your name, someone could argue that there is no distinction between your business and your personal assets. If necessary, rent your house to your company, and make sure all your bills and accounts are under your company name. You always follow correct corporate procedure so there is never any doubt that there is a difference between your personal and business assets. Any doubt will open you up to liability.