I was doing some keyword research on Google looking for topics that entrepreneurs were looking for answers to, and the number one searched term was “how to start a business.” I have been writing for over two years now, and just assumed most of you had already started a business. But, for those of you who have not already started a business, or are trying to figure out how, this is the lesson for you:
1. Determine an Idea
You can’t start a business without a good idea. Back in Lesson #1, we talked about determining if you have a good business idea or not. In Lesson #112, we learned how to come up startup ideas, if you didn’t already have one. I won’t reiterate those posts, but at the end of the day, your idea needs to build a real-world solution to a real-world problem, preferably in a sizable market. And, in all cases, do what you love, as it is important you have a passion about your startup to get through the good times and the bad.
2. Set Exit Expectations
You need to decide if you are building this business as a lifestyle business for yourself — as the sole owner — or if you are trying to attract outside capital. Because the things you would do for yourself may be different than the things you would do for outside capital. Outside investors will most likely require much faster growth and a clear roadmap to exit for their investment after around five years. On the other hand, you may be personally fine building a small revenue business that covers your desired lifestyle, without the hassle of outside investors.
3. Research Your Market
Before you get started, you need to do some preliminary market research for your startup, which we learned how to do back in Lesson #118. How large is your market? How competitive is your industry? How well funded are your competitors? Is it a market that will appeal to venture capitalists? You want to make sure you know what you are getting yourself into before you start. You are practically trying to kill your startup before you start, and if you can’t find a good reason to kill it, you are off to the races.
4. Business Planning
Once you have finished your market research, you need to build a a business plan, determine your revenue model, build a sales and marketing plan, and build a budget for your business. Where you can, bias businesses with a recurring revenue model to better leverage your upfront sales and marketing investment. As we learned in Lesson #120, in addition to budgeting for the development of your product or service, make sure you leave enough budget to test your sales and marketing efforts and achieve a profitable cost of customer acquisition and proof of concept that will appeal to future investors. In all cases, set reasonable milestones to shoot for along the way.
5. Business Formation
Once you are sure you have a good and well-researched idea and business/financial model that makes sense, you should be in a position to launch your business. This includes a mix of frequent legal questions of startups from Lessons #56 and #70 (e.g., determining corporate structure, intellectual property protection, state of formation). It includes the basics of setting up your bank accounts, accounting policies and process, employee handbook policies, and insurance protection. You also need to decide where to best locate your startup and how best to set up your board of directors and advisors. A good startup lawyer will be critical here.
6. Product Development
Now, you need to build the actual product or service you plan on taking to market. That always starts with a good product and pricing strategy. And, where you can, “productize” your business for maximum efficiency and scalability. In building your product or service, you will need to decide if it’s better to build your startup with in-house employees or third-party contractors. In all cases, you will want to build a minimum viable product to test and optimize over time — don’t build a “Rolls Royce” if a “Toyota” can do the job to start.
Now, you need to build your startup team and determine your team’s roles and responsibilities. Once you know what roles you need to fill, you need to recruit employees for your startup, determine employee compensation, determine employee benefits, and potentially giving equity to key employees. In all cases, make sure you hire people that are well-suited to fast-moving, nimble startup environments, preferably with a proven track record at other startups.
8. Fund Raising
The last piece of the puzzle, which is required for any startup, is capital. Back in Lesson #4, we talked about how to raise capital for startups. For very early stage businesses, if not your own money, this most likely means finding angel investors for your startup and other bootstrapping financing techniques. In all cases, you will need to build a reasonable bridge to a 10x return for your investors and structure the financing in a way that works for all parties.
Now that I have finished writing this post, I pretty much could have sent the table of contents to Red Rocket’s “101 Startup Lessons–An Entrepreneur’s Handbook.” So, make sure to read all the other lessons therein, to make sure you are heading in the right direction. Good luck!!
This article was originally published on the Red Rocket VC blog, a consulting and financial advisory firm with expertise in serving the startup, digital and venture community.
Image credit: CC by Andrew Stawarz