If you’re reading this, it means you’re interested about starting a business. Now it’s time to focus your entrepreneurial spirit using the following five steps.
1. Look for that “aha” moment
Sometimes the inspiration for business ventures comes from what’s around you–or from what isn’t. Take Entrepreneur magazine’s home base of Irvine, Calif. The lack of fast-food restaurants in the business area meant treks across town for lunch, prompting two young men to ponder, “Wouldn’t it be great if we could get some good food delivered?”
Rather than waiting for someone else to capitalize on the idea, they purchased one of Entrepreneur’s business startup guides and launched a restaurant delivery business. So far, it’s served more than 15 million people.
Netflix provides a similar example. After founder and CEO Reed Hastings got charged $40 for returning a rental movie late, he didn’t get mad; he got inspired. That $40 led to a billion-dollar online DVD rental business.
The lesson? Everybody kvetches about what’s missing in their corner of the world, but only a select few–the entrepreneurs–do something about it. It may be cliché, but it’s true: Where there are problems, there are opportunities.
2. Plan ahead
You’ve got the inspiration. Do you really need a business plan?
Plenty of people argue yes. One is Sean Hackney, who co-founded Roaring Lion Energy Drink in Sun Valley, Calif., and grew it from a $62,000 investment to the No. 2 energy drink in bars and nightclubs. Hackney says writing a business plan was “absolutely” worthwhile: “I had a lot of stuff in my head that needed [to be] put on paper.”
Entrepreneurship professor William B. Gartner of Clemson University in South Carolina analyzed data from the Panel Study of Entrepreneurial Dynamics, a national survey of more than 800 people in the process of starting businesses. He found that writing a plan greatly increased the chances a person would actually go into business.
“You’re two and a half times more likely to get into business,” Gartner says. “People who write business plans also do more stuff.”
That stuff includes researching markets and preparing projections, which is valuable in itself, and also increases the chances that an entrepreneur will follow through. And if you want to get funding from banks, VCs or government agencies, a business plan often is required.
But more isn’t always better. Aim for 20 to 40 pages.
“The shorter, the better,” says William Bygrave, a professor emeritus at Babson College in Babson Park, Mass., and longtime entrepreneurship researcher. “And don’t have any numbers you can’t explain instantaneously.”
3. Value your business
Unless your startup funds are coming out of your own pocket, someone will have to value your business. Be prepared for a reality check: If investors say your startup is worth $1 million, then that’s what it’s worth. You might think it’s worth more and be able to back that up by pointing to, say, $2 million in liquid assets. But unless investors agree, you’ll have to live with their valuation.
That’s one example of how sometimes valuing a business is like pricing a home. Here’s another: comps. Use sites such as BizBuySell and BizQuest to determine what similar companies in your industry and geography are worth. Other potential sources are accountants and lawyers who specialize in your industry and geography.
4. Find the right location
Here’s another similarity with real estate: Location equals money. “In the brick-and-mortar retail world, it’s said that the three most important decisions [you’ll make] are location, location and location,” says Irene Dickey, a lecturer in management and marketing at the University of Dayton’s School of Business Administration in Dayton, Ohio. “Careful determination of new sites is critical for most retail and consumer service businesses.”
For example, look at neighborhood traffic generators, such as other retailers that draw people to the area, industrial or office parks, schools, colleges and hospital complexes. (Or lack thereof, as in the case of the Irvine restaurant delivery business.) Consider both highway and foot traffic if most of your customers will be coming in that way as opposed to, say, the Internet.
While you’re at it, look for competitors. “Quite simply, the best place to be is as close to your biggest competitor as you can be,” says Greg Kahn, founder and CEO of Kahn Research Group in Huntersville, N.C., and a behavioral research veteran who’s done location research for Arby’s, Buffets Inc., Home Depot, Subway and other major and minor players. “By being in close proximity to your competitors, you can benefit from their marketing efforts.”
5. Find your first customers
Your first customers are key–and not just because they’re turning on the revenue spigot. They also legitimize your idea, demonstrating that there actually is a market for your products and services.
They’re also a source of valuable feedback that will help improve your business so more customers keep coming in. Don’t overlook the opportunity to ask if you can turn some of the positive feedback into testimonials.
Where do you find your first customers? The answer varies somewhat based on your industry, but one common strategy is to leverage your personal and professional contacts–and their contacts. Those could include former employers, employees and customers, contacts within your civic activities, such as Rotary or Kiwanis, and tradespeople and professionals, anyone from your dentist to your plumber.
Consider sending each one a personal letter, then follow up with a phone call a week to 10 days later. In this letter, announce your new business and offer something, such as a free consultation or a special discount, or even a finder’s fee for any referrals they send your way.