So you want to start your own business.
You’re not alone. According to the Small Business Administration (SBA), there are more than 30 million small businesses in the United States as of 2019. The SBA defines a small business as having fewer than 500 employees, but those businesses with fewer than 100 employees account for 98.2 percent of that number, and those with fewer than 20 employees account for 89 percent of all businesses in the country.
That said, more than 50 percent of small businesses fail in the first year – either due to lack of market demand, lack of finances, and poor quality of labor. However, by asking – and answering – the following questions, you may be able to use strategies to overcome these potential risks and set yourself up for entrepreneurial success.
Questions to Ask Before Starting Your Own Business
Before starting your own business, it’s important to give honest answers to some vital questions that will help set you up for success as a business owner. Here are some questions to ask before starting a business.
Why Do You Want to Start a Business?
What is the impetus for wanting to start your own business? Will this business give you an opportunity to work for yourself? Make a lot of money? Fill an unmet need? Or all of the above? Do you want to build a business in support of a product or invention?
Do you love what you do, but hate the company you’ve been doing it for? Do you want to branch out on your own? Knowing what motivates your desire to start a new small business will determine a lot in terms of how you move forward.
Regardless of your answer, starting a business requires good communication skills and discipline. You must be prepared to put in long hours, be able to make decisions and have the optimism to persevere through tough times.
Do You Have a Business Idea?
A great idea for a business is one that fulfills an unmet need. It doesn’t have to be something new; it can also be an improvement on an existing product or service. It’s also important to determine if your business idea is an opportunity.
Harvard Business School’s Entrepreneurship Essentials course defines opportunity as “a proposed venture to sell a product or service for which customers are willing to pay more than the required investments and operating costs.”
In other words, people must be willing to pay more for your offering than you’ll spend creating it. This means that your idea needs to be more than just something you think would be cool. Do your research to determine if it’s a viable opportunity.
You have a great idea and an interested audience of potential customers. Now, you need to answer the question, “What makes your business unique?”
A unique selling proposition (USP) will allow you to determine what your business can do that others — even those in the same industry — cannot do. Figure out your USP by focusing on the key strengths of your business and its ability to solve problems.
What is Your USP?
As mentioned above, your USP is the one thing that makes your business better than the competition. It’s a specific benefit that makes your business stand out when compared to other businesses in your market.
A compelling USP should be:
- Assertive, but defensible: Take a position with your product or service that differentiates you from the competition — and make sure you can back it up.
- Focused on what your customers value: Find out what’s important to your customers and make sure your product or services fills that need.
- More than a slogan: While a slogan is one way your USP can be communicated, it’s also something that you can carry over to other areas of your business. For instance, if your product’s tagline is “Here when you need it,” extend that motto to areas such as your product or service availability, shipping, and customer service.
Do You Have a Business Plan?
If you don’t have a business plan, you need to think about creating one before you go much further in the planning process. A business plan is important because it summarizes both your vision for the company and your blueprint for the company’s operating success.
The business plan is a written guide that details the startup and the future direction of your company. Most business plans include:
- Cover page: Identifies your business.
- Table of contents: Organizes information for the reader.
- Executive summary: Provides a “big picture” view of the plan, highlighting the factors that will lead to success.
- Business background: If it is a brand-new business, include your background and skills.
- Marketing plan: Relays the business’s marketing strategy.
- Action plan: Summarizes how you will create and deliver your product or service.
- Financial statements and projections: Illustrates how the business will perform financially based on the plan’s assumptions.
- Appendix: Includes statistical analyses, marketing materials, and résumés.
Who is Your Target Market?
English monk and poet John Lydgate said, “You can please some of the people all the time, you can please all of the people some of the time, but you can’t please all of the people all of the time.”
This holds true for a new business as well. Who is your target market? Are they in a specific age group, gender, or income level? Why do they need your product? Set your sights on a niche market so you can more easily target your product and/or service to them.
Who is Your Competition?
A successful business knows its competition, and tracking your competition has several benefits.
First, it will help you find out how many other businesses are doing what you’re doing so you can make sure you’re: 1) not coming into an already over-saturated market; 2) discover what you can offer that the other businesses don’t; and 3) analyze how their businesses are structured and how they interact with their customers to gain insight and ideas for your own venture.
How Will You Market Your Business?
Once you’ve determined your customers, you can more easily figure out how to market your business.
For example, if your product or service appeals to a certain age group, it’s important to research where that group is getting their information. For Generation Z (born 2001 or after), social media channels like Instagram, YouTube, and Snapchat may be a good place to start. For Baby Boomers (born 1946-1964), you might consider marketing through direct mail and eblasts.
What’s Your Marketing Strategy?
Behind every successful business is a good marketing strategy. The easiest way to approach your own strategy is to keep in mind the four Ps of marketing:
- Product: What good or service will your business offer? How is that product better than those offered by competitors? Why will people buy/want it?
- Price: How much can you charge? How do you find the balance between sales volume and price to maximize income?
- Promotion: How will your product or service be positioned in the marketplace? Will your product carry a premium image with a price to match? Will it be an inexpensive, no-frills alternative to similar offerings from other businesses? What kinds of advertising and packaging will you use?
- Place: Where will you sell your product or services and how will you deliver it to the market? Which sales channels will you use to economically reach your market?
The marketing strategy should summarize your findings about your target audience, market segments your business will compete in and your products/services compared to the competition.
How Will You Price Your Product/Service?
Beware of undercutting your competition on price because you may get stuck in an unsustainable price model. Start too high and you’ll price yourself out of the market.
Do your research on the market and demographic and base your price accordingly. If your product is innovative and serves an unmet need, you may be able to price it higher than one that is entering an already crowded marketplace.
Do You Have the Funds to Start the Business? If Not, How Will You Acquire Them?
Small businesses take quite a lot of funds upfront before you even begin to sell your product or service. Think about the costs involved with registering your company name, legal and financial advice, insurance, building a website, creating your product, packaging and labeling, advertising, and employee wages.
Funding can come from a variety of sources, including your own savings or loans/gifts from friends and family. Depending on the type of business, you may be able to look to a government agency for assistance, or possibly seek funding from an angel investor or venture capital firm.
Small business loans are another great source of funding for business owners who don’t want to use their savings or borrow from relatives. More than likely, you’ll settle on a combination of these options to bring your dream into reality.
How Will You Determine Your Startup Costs?
There are many websites and other resources that provide guidelines and worksheets to help determine costs for your business.
According to the SBA, most businesses fall into one of three categories: brick-and-mortar businesses, online businesses, and service providers. While startup costs for each may differ in some respects, here are some of the most common:
- Office space
- Equipment and supplies
- Licenses and permits
- Lawyer and accountant
- Employee salaries
- Advertising and marketing
- Market research
- Printed marketing materials
- Making a website
You’ll face different startup expenses depending on your business type. Closely estimated costs can be obtained from utility companies, trade associations, and networking with other business people who may have already gone through this experience. Do not start buying until the investigation shows this venture is viable and you have all the information needed.
What Should You Ask Yourself When Selecting a Location?
If you’re internet-based or provide a service that doesn’t involve having customers at your location, this question may not be applicable. But if you do have a brick-and-mortar business, a good location can make all the difference. Use the questions below as a checklist when comparing potential locations for your business:
- Are there parking facilities?
- Is transportation available and convenient?
- Is the quality of police and fire service adequate?
- Will it be a quality site for the future—not just five years from now, but in 10 or 25 years?
- Is there nearby competition? Are those sites better or worse than yours?
- What is the general business climate in the area? Is this a prosperous market?
- Are merchandise and raw materials available? Are your suppliers easily accessible?
- How is the traffic flow—can your customers reach you quickly and inexpensively?
- Is your building suitable for your kind of business—will it need any major renovations?
- Is there an adequate community infrastructure for utilities (sewer, water, power, gas, etc.)?
- What is the tax burden—town, city, county, state? Will this impede your business and growth?
- What are the costs of operation in this location—will it be too high to offer you an adequate profit? Is insurance more expensive here?
Will You Need Employees? If So, How Many?
Many small businesses start out as a company of one, then as they grow come to realize they need help. If possible, try to determine how many employees you may need at least in the first couple of years and whether they will be full-time, part-time or commission-based. Make sure you consult with an employment attorney on any contractors to be sure you’re in compliance with local law.
What Permits, Licenses or Registrations Might You Need?
Depending on the nature of the business, you may need the following:
- Permits needed for regulated businesses (aviation, agriculture, alcohol, etc.)
- Sales tax license or permit
- Home-based business permits
- City and county business permits or licenses
- Zoning permit
- Sellers permit
- Health department permits (e.g., for restaurants)
- Federal and state tax/employer IDs
How Will You Set Up the Legal Structure of Your Business and What Kind of Taxes Will You Have to Pay?
The business taxes you pay are based on the type of legal structure that you choose — sole proprietorship, partnership, LLC or corporation — as well as where your business is located and the profit and expenses incurred during the year.
Your business must be incorporated for it to be recognized as a legally operating business separate from the owner — otherwise, it may be a sole proprietorship, which may carry liability risks for the owner.
Make sure you keep a record of all business transactions. If you can’t afford to hire someone to do this for you (and it is a big job), consider investing in accounting software to start out. You want to cover yourself from any possibility of being accused of tax fraud.
What Kind of Insurance Will You Need?
All businesses need insurance to protect against unforeseen circumstances. You will need to have insurance for yourself, insurance for your employees, insurance on your products, and insurance on any vehicles used by your company. Depending on the type of business you have, here is a list of potential insurance policies to consider:
- General liability insurance
- Product liability or E&O (Errors and Omissions) insurance
- Professional liability insurance
- Property insurance
- Workers’ compensation insurance
- D&O (directors and officers) insurance
- Health insurance for employees
- Business interruption insurance
- Commercial auto insurance
- Data breach/cybersecurity insurance
While insurance can’t cover everything, it shouldn’t be considered an optional expense. It’s an important risk management tool to potentially protect yourself from unexpected accidents or other hardships.
What Are Your Short- and Long-Term Goals?
Your financial and operational strategy for yourself and your company will depend on your goals. How you raise funds, what the product roadmap is going to be like, how many employees you will need and how you operate will depend on these goals.
The long-term goals you set when you start your business will be useful for creating shorter term goals that feel more tangible and achievable. It takes a series of short-term goals to add up to a longer-term objective. Keep your long-term goals in mind as you work toward those more immediate outcomes.
How Will You Define Success and Failure?
How will you measure success with your company? Will it be when you’ve made a lot of money? Expanded? Made a name for it and yourself?
While your vision of success may change over the years, having a benchmark that is realistic for your situation (i.e.: “I want to make $500,000 in my first five years of business” or “I want to have three locations in my city” or “I want to have my family on the payroll”) gives you something to strive for and measure.
While there are benefits to failure, such as finding a better way to do things or learning a valuable lesson, you need to be able to gauge when it’s time to throw in the towel.
For instance, are you going to consider the venture failed when you haven’t made your money back in three years? Or when the business is taking a toll on your family and other relationships? Or you get to a point where you’re just not happy being in business for yourself? Defining what success and failure mean to you — even if those definitions change over the years — should be included in your plan.
Where Can You Get Help Starting Your Business?
There are endless resources for information and assistance for a business startup. SCORE “Counselors to America’s Small Business” provides free and confidential business advice and mentoring services to entrepreneurs nationwide. Other resources include the Small Business Association, the National Association of the Self-Employed and the Small Business Development Centers.
The process of starting your own business can be exhilarating and exhausting, satisfying and frustrating, profitable and indebting. Make sure you ask as many questions and do as much work as you can ahead of time to make your entrepreneurial dreams come true.
Need help getting insurance for your startup? Contact one of our business insurance specialists.