There are so many great individuals with great ideas, but no idea of how to bring their vision to reality.
Over the last couple of weeks, I have covered the role of effective leadership in change management, as well as 5 tips for small businesses during this time of struggle. However, both of these articles are for current businesses and I am leaving out all of those individuals that have wonderful ideas, but no idea of how to bring those ideas to market and begin down the road of small business ownership. When I started Polaris Strategies during some bumps in the proverbial road, I was luckily to have a couple of friends to bounce ideas off of, some contacts already made, and an extremely trusting wife to support me. Anyone who knows me, also knows I love to research new things, but what took me several months of research and development to get beyond the idea stage of a startup, could take someone significantly less time with the right guidance. What I intend is not to give an end all be all guide to a startup, we frankly don’t have enough time, but this can be used as a loose guide to how to startup a business. The examples I will use are from current and past clients that I have worked with or from observations to help illustrate some key points.
Your Keys to Success
1. Define your Idea
The very first step to becoming an entrepreneur is to define and refine your idea. If you want to startup a gathering place that serves food and drinks, will you be a sit-down restaurant or a tap house, a food truck or a pub. The list can go on and on, but as you can see even within the idea of “I want to open a restaurant” there is a broad spectrum of what is possible. By taking the time to define your idea entirely, it will assist with crafting a stronger business plan during start up and provide better guidance for the following steps.
2. Location, Location, Location
The location of your business will determine a great deal of who your proposed customer will be, how you will market, and much of your operation possibilities. Using the restaurant example, it would be very difficult to open a “dive-bar” in a ritzy part of town and expect it to do well, the same for a small-town local feel restaurant in a heavy business area. Not to say that these examples cannot work, and if marketed properly with the right captain at the helm, they can be very successful. However, unless you have a very strong feeling about how a location will fit your particular business, it is easier to use your location to your advantage.
It’s So Hard to Find Good Labor
A great example of this has been seen when the commercialization of the U.S. based space market occurred. It is easy to think that most of the space agencies would have offices close to the existing NASA hubs in Houston, TX and Canaveral, FL. However, the manufacturing base for these companies is actually rather far away from these locations. Can you guess where most of these companies opened manufacturing sites at? Bonus points if you said Seattle, WA. That’s right, even California-based SpaceX opened a facility in the Emerald City to build the StarLink satellites. Others include Amazon’s Jeff Bezos-owned Blue Origin and the Boeing and Lockheed joint venture United Launch Alliance. While it seems obvious because both Amazon and Boeing have very large presences in Seattle prior to the commercialization of space, they were following the leads of SpaceX. So why Seattle? Elon Musk saw a huge opportunity to capitalize on the very specialized workforce in Seattle comprised of programmers from Microsoft, manufacturers from Boeing, and logistics personnel from Amazon. He had a trifecta perfect for executing his vision of WiFi for the world.
Every area has its unique niches that an aspiring entrepreneur can utilize to their advantage. Detroit, MI has one of the largest automated assembly lines in the country, Orlando, FL has the most visited (pre-quarantine) theme park resort in the world, and San Francisco, CA has some of the most innovative computer programmers. Location can mean more than finding good labor though, location could be a geographically advantageous or offer unique customers.
3. Structure Yourself
Depending on your business and circumstances, there are more advantageous legal structures than others. It will be up to you to decide what makes the most sense for your situation, but the following can help.
In this structure, the business owner is the sole owner of the business and is responsible for all of the assets and liabilities for the company. This has the benefit of being a very simple structure, however comes with the downside of the law considering the business’s and your personal finances the same in some circumstances. It is massively important to separate company finances from personal finances in the case of an audit.
Similar to the sole proprietorship, however the ownership is split between multiple people. This spreads the liability of risk across several people and therefore makes it slightly safer. Also important to a partnership is that there are two types of partners, general partners and limited partners. A general partner is one that is involved with the day-to-day operations of the business and functions in much the same way as a sole proprietor would but within a team. A limited partner is only an investor in the company, limited in their involvement in the company operations. Limited partners also possess a good portion of protection from company debt and liability. Additionally, when it comes time for taxes, the business does not need to file, but instead each individual partner files their portion of taxes commiserate to their percentage ownership.
Corporation (C Corp)
Everyone should understand this structure fairly well since most of the large conglomerate companies operate this way. It is the most complicated and expensive way to open a small business and would absolutely require an attorney to assist with the paperwork. That being said, the benefit is that all owners are issued shares of company ownership and are paid dividends from the company’s available profits after debts and liabilities have been paid. This means that owners have the greatest liability protection from the complete legal separation of business from shareholder. The company files its taxes and shareholders are taxed on dividends. Again, I recommend anyone who wants to go down this road, seek professional assistance.
Corporation (S Corp)
A special designation for a small business corporation. All of the liability benefits of a corporation, but streamlined for small businesses. This means the same legal veil between business and individual, while the shareholders are taxed directly through pass-through taxing. This allows a workaround for the “double taxation” issue of most small businesses.
Limited Liability Company (LLC)
Many small businesses choose to file as an LLC because of the simplicity of filing and structure. There is also a veil of asset immunity with an LLC as well, although not as strong as in corporations. Only assets that are used by the business are considered for liability, while risk can also be spread among all owning members of the LLC. Where LLC’s get tricky is with taxation. A LLC is filed with the state and therefore is not a structure recognized by the IRS, therefore will need to file taxes as one of the other structures. Additionally, if planning to operate in several states, LLCs will need to be licensed in all states that in-person operations will take place. This caveat does not apply to online businesses, or organizations that conduct business over the phone.
4. Build Your Plan
Simply put, a good business plan is what will make or break a new company. In its simplest form, it is a road map and guide for how you will operate, outlining goals, expectations, and company operations. In years past, this was a MASSIVE document that spanned cost analysis, customer projections, and financial estimates. It has thankfully evolved since then to be more focused on the strategy, tactics, and major goals for the organization and how it will be successful. With this in mind, it should not be a “set-in-stone” document that is framed on the company wall, but a fluid, constantly changing document that adjusts for the needs of the business. An electronic document that is revisited regularly by company officials will ensure that the organization stays on top of the competition. This is also a key document required by most financial institutions if your business is seeking this sort of assistance in startup funds. If you need help building your business plan, feel free to send a contact message and I would be more than happy to assist.
5. The Legal Mumbo Jumbo
No one likes this part unless they are a lawyer, so please take this section with a grain of salt. Also, side caveat, I am not a business lawyer (thank god), so do not assume that this is all encompassing, but merely a guide. When in doubt consult with a legal professional. The following is some of the paperwork you will need to file to get the license to operate:
- General Business License: to operate in the state you are actually doing business in.
- Professional License(s) specific to your industry: examples include an electrician’s license, food handler’s license, etc.
- Federal Employer Identification Number (EIN): filed through the IRS, this is your business’s social security number.
- Seller’s Permit: often called a sales tax permit, it is only required if you are selling goods that your state collects sales tax on.
- Zoning Permit: to ensure you have the ability to operate your type of business within the area you want to, check with your local government’s zoning board.
- Health Permits: if operating a business that prepares and serves food, this will be a requirement.
- Fire Department Permits: Any business that uses flammable materials during the coarse of its operations will need permitting through the local fire marshal.
- Sign Permit: Local requirements for placing a sign that govern content, size, and placement among other things.
- Building/Construction Permit: Only required if you are making changes to an existing structure or building a new one.
- Beer, Wine, and Alcohol License: Required if serving alcohol at your establishment.
- Animal Occupied Space: Check your local government on this one, every state has specific requirements, but this would allow pets in outdoor areas for restaurants with some stipulations.
Again, this is probably not everything, but it gives you an idea of all of the paperwork required to start a business. Check with your local government for any additional requirements.
6. Get Ready!
Once you have all of the paperwork done, lets get to the fun stuff! You need to start setting up your kitchen, assembly line, or shop. Purchasing the materials you will need to actually execute the idea you have been wanting to! There is a lot of logistics involved with this, but I will put it simply, get what/who you need, try to keep your startup costs low, and make that first impression to the public one to remember!
7. Market to Your Audience
I will end on my favorite topic, marketing! Once all of the paperwork, planning, and decision making is done, you can take a quick breath, right? Nope! Welcome to being an entrepreneur! The last step before you open your doors is to market to your audience. Hopefully, you have followed this list and have a good idea who your audience will be and how to best reach them. Demographics play a massive role in deciding what your marketing strategy will be. If there is not enough people knocking on your door on day 1, do not shy away, just learn, adjust and overcome!
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