Each year, hundreds of thousands of Americans take on the challenge of opening their own businesses. Some even succeed.
Want to be one of them?
Daniel Oglevee, a senior lecturer in finance at Fisher College of Business, offers some tips to increase your odds. Starting with this: “Just do it. There’s never going to be a perfect time to start a business.”
Understand your business and your market
“People often forget the basic tenets of business,” Oglevee said.
When defining the early plans for your company, it is most important to create a foundation grounded in business basics.
- Is your product solving a problem for people or for a company?
- Is there a big enough market for your product to make an impact?
- Will someone pay for the problem you are solving?
- Can you sell the product for more than it will cost you to make or purchase?
Many businesses fail because their product market is too small or too saturated. To combat this, Oglevee suggests going straight to the audience and asking questions: What are their most challenging problems, and how can you tailor your product to meet their needs?
Figure out your business structure
Once your product has been defined, consider the most effective corporate structure for your company that is tax efficient, offers best liability protection and is easy to administer.
Two of the most common structures are C Corporations and Limited Liability Companies (LLCs).
C Corporations, which are taxed separately from their owners, work well for those looking to raise institutional funding such as venture capital, and they offer the strongest protection from personal liability. LLCs are good for “mom and pop” businesses and offer protection of personal assets.
Avoid these 5 small business mistakes
Entrepreneurs face plenty of pitfalls as they start their businesses. These tips can help you avoid some common mistakes.
- Have 10 months of funding. Many entrepreneurs underestimate the time, effort and cost of getting a product to market.
- Use a vesting schedule. Vesting schedules are used when allocating equity to cofounders and employees. They allow ownership of the company to be accumulated over time rather than all at once to limit the effects of bad partnerships.
- Find competent service providers. These are providers such as accountants and lawyers who want to operate as business partners. Often they have a background in business, so they can offer insights and add value to the company.
- Know your business partners. Sure, it can be hard going into business with family or friends, but it’s important to know the personalities of the people you’ll be depending on.
- Hire fast and fire faster. Hire employees as needed to keep the company running efficiently, but understand the importance of keeping workers who are helping the business grow.
Just do it. There’s never going to be a perfect time to start a business.