So you’ve had that aha moment, a flash of cash, an epiphany or the lightbulb goes off in your head for a great new product, and you decide to become an entrepreneur and bring it to life. Before you quit your day job and sink a fortune into developing your flash of cash, take a deep breath and consider the following advice.
1. Start with a plan
There are many steps you have to take in order to start a business and there is no right or wrong way to begin. However, one of the least risky (and cheapest) first steps you can take is to develop a business plan. While there are a lot of websites, blogs and software packages that can help you create a business plan, you should first consider what you are creating the plan for.
Some entrepreneurs create business plans in order to secure more funding for their business. Others use the plan to describe how they are going to grow over time. You on the other hand have just had an idea and want to flush out the basics to understand whether it’s a potentially good business. What you need initially is a straightforward plan that covers a few key elements.
Here are a few of the things you should include in your simple plan:
- Description of the product or service – keep it simple (3 or 4 sentences or bullet points) that describe what the product or service does. Include at least one benefit, i.e. why would someone pay for it? If you can’t do this in 3 or 4 sentences, then it’s probably too complicated and you’ll have a difficult time convincing anyone to buy it.
- What is the price? – describe how much someone is going to pay for your product or service. Is it a one-time charge, or will people be paying you monthly. Since you won’t know the exact answer to this question until you actually build it and try and sell it, you need to use your best guess based on similar products in the market already. You can use a range, like between $10 to $15 per month, or $79 to $100.
- What is the cost? – describe how much will it cost you to make the product or deliver the service. There are complete textbooks that have been written about how to calculate what something costs. But you are going to use the common sense approach and estimate that cost to the best of your ability. If you are going buy something and then resell it, then your cost is pretty obvious. It’s how much you paid for it, plus what it will cost you to deliver it to your customer. As with the price, you can use range to estimate your cost.
- How big is the market? – describe how many people you think will buy your product or service. You need to base this estimate on some market data. For instance, if you are going to start a home cleaning service, then you need to know how many homes there are in your area and how many of those homes use a cleaning service. If you are going to sell a product for teenage girls online, then you need to know how many teenage girls there are and estimate how many of them might actually buy your product online.
- Putting everything together – armed with your estimates for price, cost and market size you can now start to figure out whether you have a good opportunity, or whether you will need to wait for your next idea to come along. If your price is 2 to 3 times what your cost is, then you will want to dig deeper to ensure your estimates are correct. If your price is only 25% more than your cost, but your market is very large, then you will want to figure out whether you can realistically address the market with a limited advertising budget. Play around with your estimates and come up with a few scenarios where you are going to make millions, and others where you will go broke before making your first sale.
The simple planning basics described above should fit on the back of a napkin, and definitely on no more than one sheet of paper. Once you’ve got the basics down, then you can expand your plan and get into as much detail as necessary. However, if you can’t convince yourself or someone else about how great your idea is with this simple plan, then don’t waste your time creating a multi-page document created with the latest business planning computer software.
2. Make sure you have enough money
In order to bring your flash of cash to life, you will need money. You will need money to create a prototype, set up an LLC or some other legal entity, build a website, start a social media campaign, and maybe even rent a booth at a trade show. Additionally you will need money to live on for a certain period of time. At least a year, and probably more.
Most entrepreneurs rely on someone else to fund their living expenses while they get their business off the ground – meaning they are already employed, going to college, living at home with their parents or have a supportive working spouse. For the expenses related to starting a business, you will need to have saved up some money, have credit cards with an available balance, a personal loan or a combination of all of these funding sources.
At some point you will not have enough money and you will be faced with a tough decision on what to do next. Do you continue to spend and rack up more debt or simply give up and go back to your full time job? It’s a hard decision to give up your dream, but if you can’t see light at the end of the tunnel or you are losing support from family and friends then it’s time to rethink what you are doing. There are no “participation trophies” in business, most startups fail, and sooner or later you will need to pay back those credit cards and loans or face some serious legal issues.
3. Set up a support network
You will need to have a network of supportive people when you start your business. Not only do you need the support of your family and friends, but also others that can help you solve the business problems you will encounter. If you are going into business with a partner, then you already have a certain element of support built in. Since your partner has at least an understanding of the business you are starting, then he or she can be an excellent sounding board for you to share ideas with.
You will also need some outside support that is not financially or emotionally involved with your business. Maybe it’s someone you used to work with, a friend from college, or someone who is a member of a local organization you belong to. Ask them if they would be willing to be your mentor and guide you as you grow your business.
If you are married or have a significant other, then you need to make sure they are fully supportive of your business venture. At the outset this is easy and everyone will be all smiles. However, as your business grows, you will end up having to spend more and more time on your startup and will have less time to devote to family and friends. This can lead to a lot of resentment and it’s not unusual for personal relationships to suffer or even lead to divorce.