The idea of being able to start a business is highly romanticized in American culture.
Indeed, every healthy economy relies on small businesses, and starting one lays the foundation for many peoples’ individual and community success. Also, 44% of the US economy is generated by small businesses. But for everyone who’s participated in or even been close to entrepreneurship, they will tell you it’s a grind.
In this article, we will deconstruct the myths surrounding entrepreneurship. Our intent is not to dissuade you from starting a business!
Rather, we hope that you are more prepared to realistically approach your business goals while avoiding the fatal mistakes that most first-time business owners make.
6 Things You Need to Know Before You Start a Business
These are the things you must understand before taking on the risk of running a business.
1. Business isn’t just about passion.
Being passionate about a certain kind of product or service will help you immensely.
But a passion for what your business sells is a different concept from business skills. In addition to business success resting on business skills more than passion, passion doesn’t mean there’s a realistic place for you in the market.
So, passion is certainly useful. But you will need to consider the gritty details of business management and the market conditions before you can go there.
Start with:
- Business finance knowledge
- How to interact with customers
- Business planning and strategizing
- Marketing
2. The odds are against you.
Even when all of the above is mostly in order, business management is rough.
You’ve probably heard the common knowledge that most businesses fail. The truth is that no matter how hard you work and how much passion you have, you will still be fighting an uphill battle.
This is particularly true of financial management for the first few years.
The lesson here is to not risk everything. No matter how romantic it sounds or how prepared you are, it’s best to start with the stakes being smaller. “Don’t quit your day job” is a term often thrown around as an insult.
But if you don’t have some serious business management experience under your belt, it’s a genuine, important piece of advice.
3. Activity = Profit
Hard work is important, but working hard is actually useless in business when your effort is misdirected.
It’s easy to confuse hard work with progress, or expansion with growth. But opening a new position, hiring a new employee, or expanding your commercial building are all useless activities if they don’t directly correspond with increased profit.
You will need to think through decisions more considerately when you start running a business. More importantly, you will need to gain the emotional resilience to separate actions that feel like the right thing and actions that directly (and empirically) improve your bottom line.
This may sound simple or even insulting, but you’d be surprised how easy it can be to make these mistakes.
4. Cash flow is the blood of a business.
A failure in your business’s cash flow is like a disease ruining your circulatory system. The longer they continue, the more difficult potential treatments become. If cash flow problems continue for too long, they will be your business’s cause of death.
The lesson here is to make sure no matter what you do with your business, make sure your day-to-day finances are viable. Some businesses take a while to become profitable, sure. But you must have income to maintain your working capital expenses.
Working capital expenses are the crucial expenses which, if not paid, will destroy a business.
Those include:
- Employee wages/salaries
- Rent or commercial mortgage payments
- Utilities
- Necessary inventory
5. Customer engagement is everything.
You can have the best product or service in the world. But it will all mean nothing if:
- No one can find your business
- No one feels excited to walk into your store or click on your website
People choose to patronize a business for completely logical reasons. Emotions are connected to how we spend money and nothing will change that anytime soon. To make matters more difficult for first-time business owners, people’s attention spans are objectively growing more fickle.
This is a trend that has been going on for years and only seems to be accelerating.
So, this means a few things for you:
- Remember that attention and engagement are key
- Appreciate that the merits of your products and services won’t normally make or break your business on their own
- Getting active on the most popular social media platforms of the day is increasingly important
- Responding to customer inquiries of any kind quickly is important because…
- When people are faced with a problem these days, they can simply find an alternative with a few movements of their fingers
6. As you grow, you will rely on others.
Hiring the right people is one of the most important challenges for a business.
You won’t be able to run a successful business all on your own. As your business grows, you will need a team to run it.
Hiring the wrong people as your business scales can easily ruin your business. So, it’s important to bring the right people on board. If you aren’t sure or haven’t been taught how to go through the hiring process, it can easily be justified to outsource the recruitment process to someone who understands it thoroughly.
Starting a Business With No Money
You won’t have a functional small business without existing capital.
But you can engage in entrepreneurship that can potentially lead to the creation of a thriving business with no money.
The key here is scalability, except it’s a much longer process of scaling. This question requires its own article to do it justice, but if money is your concern you can try:
- Listing all the things you can start doing right now for free
- Building up savings for a few months so you can cover necessary expenses
- Incorporating for free (normally with an LLC)
- Focus on providing products/services with little or no overhead
- Podcasting
- Freelancing
- Consulting
- Teaching/coaching
- Any products with low-cost production methods
- When appropriate, apply for a loan
- Look through all applicable grants or local funding opportunities
- Look for “angel investors” when you have a promising pitch with the history to back it up
What are the basic questions you should ask before starting a business?
Before you start a business, you can break down what we’ve gone over with a few questions:
- Am I passionate about the product or service I will be selling?
- Is there a market for what I am selling?
- Am I ready to face a brutal uphill battle and go through one of the most stressful financial experiences of life?
- Can I separate emotions and logic in decision-making in a way that the vast majority of people are not forced to?
- Am I financially disciplined?
- Are my personal finances in excellent condition?
