The steps to starting a small business outlined below would help new entrepreneurs to attend to all the major activities concerned. An important aspect covered in this outline is the attention to factors that affect business success.
Instead, try to understand the full picture and the significance of each step. With this understanding, you would be able to adapt actions to your particular situation.
In actual practice, there would also be a lot of overlap. You would be going back and forth, and even working on several of the steps at the same time.
Analyze Your Reasons
You could start by looking at your reasons for starting a small business.
- Is it to attend to commitments that could not satisfactorily be managed while holding a job, or
- Is it to develop a product, process or business idea that you have found, or
- Is it to get out of a bad job?
Examining your reasons could help you in two ways. Firstly, it could help you arrange things so that your expectations are fulfilled. Secondly, you could check that you are not acting foolishly or in haste.
For example, the first of the three reasons we mentioned in the last paragraph is a quite good reason. In the case of the second and third reasons, you should look carefully at the aspects mentioned below before quitting your job. Ensure that you have a viable business plan and are in a position to carry it to completion. Quitting a job in a huff without preparing adequately for a business is highly dangerous.
If you want to know what your own small business could do for you, read the specialized article Why Small Business.
Develop A Full Business Idea
Initially, your idea of your proposed business is likely to be quite incomplete, or even vague. For example, it might consist of “making and selling” some product, or starting a retail business.
Many businesses are started on just this kind of a preliminary idea. Such “unprepared” small business starts lead to many kinds of problems, including marketing difficulties when you start operations.
You have to develop your business idea fully, starting with a look at the market as we describe in fuller detail below. You should have a clear idea of how much you would be able to sell, at what prices and what your costs would be. It is these aspects that generate business profits and you must have definite ideas on how you are going to make profits.
Assess Market Conditions
Two big mistakes of marketing are:
- Assuming that you can sell things once you make them, and
- Assuming that you know what the market needs.
If there is heavy competition in your market, you might find that you cannot sell your product or service. Or sell them at a price that would yield a profit. So your first task is to get a picture of the competition.
- Who are your direct competitors?
- How do they operate their business?
- How do they promote the product or service?
Consumers might have complaints about the product or service that they are getting now. You can become aware of these only by going to them and talking to them. And once you are aware of customer dissatisfactions, you have a big opportunity. Modify the product or service to provide greater customer satisfaction.
But first, you have to identify the customers and their expectations. We discuss market research in more detail in the article Small Business Marketing.
Develop Marketing Strategy
This is another key step to starting a small business. Without a good marketing strategy, even the best of products or services could not succeed. What are the elements of marketing strategy?
- Identifying customer expectations as we mentioned in the previous section. The better you know these, the better your product or service could be adapted to meet those expectations
- Developing a forceful sales message that would tell prospective customers how your product or service meets their expectations better
- Finding out how to reach the customers with your sales messages. This involves identifying effective methods to get in front of their eyes – through personal sales calls, print ads, public displays, radio and TV programs or some other way
- Ensuring that your product or service is available conveniently to the customers and that they know about this availability
In a business context, the basic technological objectives are two:
- Make a product that performs as expected without unacceptable side effects, and
- Do it at a cost that would produce a profit margin at current market prices.
You can achieve these results by:
- Selecting the right technology for production
- Improving the efficiency of operations
- Developing new products that perform the expected functions at lower cost
- Changing the methods of production to produce at lower costs
Value engineering is a discipline that relates performance with product or service features and comes up with improvements or lower costs. Finding technology and technological expertise could be a critical step to starting your small business. The separate article on Technology discusses these issues in fuller detail.
Having completed the essential steps to starting a small business, you reach the next step, finding the money to set up and run the business. It is here that business planning usually becomes relevant. Lenders and outside investors would expect to see a detailed business plan before considering your proposal.
Actually, business planning is important not only for raising money. It facilitates your small business success by:
- Coordinating different operations involved – typically sales, production, purchasing and funding. For example, you have to align your sales estimates with your production capacities.
- Serving as benchmarks for evaluating performance. If your sales or prodution are lower than planned levels, or your costs are exceeding allowed amounts, your attention is immediately called to the problem area. To do this effectively, however, you need a good management accounting system.
Business Planning is discussed in detail in the Small Business Planning article.
Once your detailed plan is ready, you could move to the next step to starting a small business – finding the money not only to set up the business but also to carry on till the business begins to bring in surplus cash. There are different sources of finance like banks, government grants, venture capital, supplier credit and leasing. There are also different types of loans to meet different needs such as term loans and overdrafts.
We discuss all these issues, as well as the matter of preparing an accpetable loan proposal, in the article on Small Business Funding.
Once the money has been arranged, we come to the final step to starting a small business – the step of implementing the start up project.
Efficient implementation of your start up project requires another plan, the implementation plan. This plan identifies all the detailed steps involved in the start up, and then sequences them in an order that minimizes time and costs. For example, some of the activities could be carried out simultaneously, saving time and costs.
We discuss implementation in more detail at Small Business Startup Project.
Controlling Business Results
Though not strictly a step to starting a small business, controlling performance is a key step to succeeding with your business.
Such control is exercised by:
- Establishing standards and targets for performance and allowed levels for expenses
- Accumulating data about actual performance and expenses
- Generating reports comparing performance against standards/targets and expenses against allowances, and
- Taking appropriate actions to put results back on track if adverse deviations have occurred.