Your Step-by-Step Guide To Entrepreneurship￼
We are in one of the most exciting periods in American entrepreneurship. Americans are forming businesses at the highest rate in decades, thanks to the opportunities that have been thrown up by the economic transformation that has come out from the pandemic. Since the pandemic, millions of people have left their jobs to start new businesses as part of what’s now been called, “The Great Resignation”. If you are one of the millions of Americans who are looking to start a new business, here’s your step-by-step guide to entrepreneurship.
- Develop a Decision Making Framework
Let’s start off somewhere where few people really go. It’s important to bring your passion and heart into your new business, but ultimately, decisions must be made in an objective, cold way. So many people claim to make decisions, “from the gut”, but not only does the gut lie, but it’s no way to run a business. Entrepreneurs are almost universally confident in their ability and their instincts and yet, 90% of startups fail, and this is not a hyperbolic, “90%”, it’s cold reality. Within a year, 10% of startups have failed, and in years two through five, 70% fail. So no, don’t trust your instincts, everyone does. Instead, you need to have an explicit decision making framework.
The best decision making framework is a probabilistic one, which can be done using a decision tree. A decision tree will force you to run through the various possibilities facing you, and articulate the likelihood of each possibility, so you can make the decision that has the highest likelihood of success. It’s about tilting the odds in your favour and as events change and new facts emerge, your job is to update your decision making framework, adding in that information and adjusting the odds. This process of constant updating is known as “Bayesian” updating and is a key tool in managing through uncertainty.
- Define Your Goals
Strangely, many people start new businesses without having explicit goals in mind. Why are you starting your business and what are your expectations? For instance, if your goal is autonomy, then what you need to do to achieve that is very different from a person who seeks to create a market leader. Neither goal is inferior to the other, but the choices each person makes are. For example, as a remote worker, or running an online business, a person can achieve autonomy or better work-life balance, and travel the world, working their own hours, while managing a thriving business. Indeed, many of the people who quit their jobs to start new businesses, did so because they were pursuing greater autonomy and work-life balance. However, a person who wants to create a market leader has to abandon these goals because creating a market leader by necessity means giving up on enjoying a better work-life balance. It’s about sacrifices, it’s about time away from your family, it’s about not seeing your friends often, it’s about long hours at work. Many people get into entrepreneurship without defining what they want from it, and then proceed to create a business that goes against their inner goals.
- Define Your Value Proposition
The great business thinker, Peter Drucker, liked to say that “The purpose of a company is to create and keep a customer”. That is done by doing something that no other company can do, something which will create a customer and have that customer returning again and again to buy from your business.
That sounds simple, but creating a customer is not the same as starting a business. The high failure rate of startups is because so many businesses fail to create enough customers to justify the business’ existence. So what you need to figure out is, “Do I have the right product-market fit”?
Product-market fit is so important that Marc Andreessen has called it, “the only thing that matters”. What this means is having a product or service that is in such high demand that your business struggles to make enough of it to feed this rising tide of demand. Growing businesses experience this. They have the “problem” of satisfying demand. The businesses that fail, ultimately, are businesses whose products and services are simply not in high demand.
The most important question in terms of your business’ viability is if your business has a good-to-great product-market fit. A business can survive not having many things, but it cannot survive not having product-market fit.
- Determine Your Business Structure
Different businesses have different business structure needs. Generally, we are talking about limited liability companies (LL ), corporations and S-corporations, and partnerships. Each structure has different legal and tax implications.
In addition, you want to domicile your business where it’s most tax efficient. For instance, Delaware is home to the most Fortune 500 companies in the world because of its low tax burden for LLCs and corporations, and the ease of business formation. You can get more information on Delaware LLC taxes here.
These measures will ensure that you reduce your tax burden and pick a business structure that meets your liability, tax and business goals.
- Define Your Business’ Values
Values cannot be copied, borrowed, stolen or faked. You won’t find them on any balance sheet, they can’t be insured, but they are the heart of the business. Values are why Amazon is such a great innovator. Values are why no company has ever been able to replicate Tpyota’s famed industrial processes. Values are why Enron became a cesspool of corruption and fraud. Values are why Kodak missed the boat on the next phase of the economy when they had all the tools that IBM and Microsoft would later use to become great companies. Values set the boundaries of what’s possible, good and bad.
Your business has to have clear ways that it does things. This is important not just for setting the tone and culture of the place, but for attracting new workers, developing a clear brand, and nurturing qualities that are important for your business’ success. You build your business from its values up.