Building the next “big thing”. Being your own boss. Getting the full rewards for your work. There are a lot of reasons to start a business, but taking the plunge is a step entrepreneurs have to face if they plan on striking out on their own.
Why Do People Start Their Own Business?
Every business starts with someone who wanted to do something and then took the steps to make it happen. People usually start a business for one of the following reasons.
- Be your own boss. If you start your own business, you get to make all the decisions – What will your work environment include? How many hours a day do you have to work? Will you work on holidays? What product changes do you want to make? Do you need to hire employees? Being your own boss is a huge motivation for some people to succeed.
- Getting the full reward for your work. When you own your own business, you get to keep all the profits. Entrepreneurs often see that the number of hours they work is closely tied to the success of the business. Many people with a strong work ethic are drawn to starting their own businesses.
- Exploiting a “hole in the market.” People who start their own businesses see something missing in their local economy – something of value that they believe they can provide and have others pay for.
There is no magic formula for helping a business become successful. You may have a great product that fills a need in the market, but if you aren’t organized and have a poor work ethic, you might not be able to get the product out the door. Conversely, you might be extremely organized and highly motivated, but if your product isn’t selling, your business could fail. According to the Bureau of Labor Statistics, about 20% of small businesses fail in their first year, and about 50% fail in their fifth. Why? Because business is uncertain and risky. However, if you take the time to create a solid business plan, your chances of success increase.
Your Business Plan
What Should Your Business Plan Include?
Your business plan is a written document that details several decisions you have made and the research you did about the industry you’re planning to enter.
The Problem Your Business Addresses
Every business exists to address a problem. Your product or service was designed to fill a void in the market, to give consumers a solution to a problem they have. Some businesses offer entirely new products, giving consumers something they want or need which they did not have before. Others improve on existing products by introducing new features or lowering prices. Some businesses innovate in entirely new ways. When you think about how your business will make money, think of what it has to offer and why people would be willing to purchase it.
The Market Analysis
When performing a market analysis, an entrepreneur looks at potential competitors in the market, companies who are already doing what his/her business is planning to do. If, for example, you want to open an Italian restaurant, part of your market analysis would be researching the other Italian restaurants in the area that customers already have access to. The information you uncover will help you build a SWOT analysis. A SWOT describes the strengths, weaknesses, opportunities, and threats of your company. You should be able to outline several advantages that your restaurant will have over the local competition. If you can’t find those advantages, then you will have a hard time attracting customers.
Your business plan should outline several goals you have for your company and its planned growth. Each goal needs to be specific and measurable, with a definite timeframe. Goals should build on each other, and they need to be attainable. For example, these three goals would allow you to track your business’s progress:
- Open for business by July 15
- Serve our 100th customer by October 15
- Earn $15,000 in revenue by December 15
Reviewing your goals regularly will help you get a clear picture of how well your business is really doing. You can update these milestones as time goes on to be more realistic, but keeping your goals in mind is both an important motivating factor and a good way to show potential investors that you are able to hit your own targets.
This section of the business provides details on how you plan to run the company. It should include how your business ownership is structured, who is part of the management team, your management philosophy, how many employees you intend to hire, what their roles will be, and what skills your key employees bring with them.
Risks Versus Reward
Starting a business is risky. You might need to buy equipment, rent office space, or even just spend a lot of time and energy on a business with no guarantee it will succeed. Entrepreneurs often use their life savings to invest in this new business. Some borrow from friends and family with the hope that they can pay them back. Having the business fail is always a possibility. This uncertainty is one of the biggest reasons people choose not to start a business, even if they have strong entrepreneurial skills and a solid business plan. That’s why entrepreneurs often begin a business as a side job. They keep their full-time job with its stability until their side business becomes successful enough to make a permanent job change.
The following video shows different funding options entrepreneurs have when beginning a new business.
You can read more about the wider-range impacts of starting a business in our economics article about entrepreneurship.