Small businesses are the heart of the American economy. They may not generate news headlines, but over 99% of businesses are considered “small businesses” and they employ 46% of all workers in the U.S. Owning and operating a business and being your own boss is deeply embedded in American culture.
How do you start, though? It starts with four questions.
1. What do you like to do?
A lot of people don't start here, but I strongly believe that this is the first question to ask before getting into business. That does not mean that you can't pick something you're not familiar with. Some people think, "oh, I'd like to have a coffee shop” or “I'd like to have a little bakery” or “maybe a little clothing store." It doesn't have to be retail, of course — maybe you’d like to manufacture things, or provide a service like accounting, gardening or design.
But you have to ask, “what do I like to do?” At this point, it really doesn't matter much whether you know anything about the industry or not because just by going through the entire process of starting the business — if you do it right — you'll become an expert at the business before you even start. It seems like good business sense to start with "let's look at the financials," but I recommend starting here instead.
You might say, “I'm not sure about the type of business."
Well, what kind of industry are you interested in? Our country's economic system is divided into sectors — healthcare, transportation, retail, etc. And each has subcategories — there's all kinds of retail, all kinds of modes of transportation. Once you decide that — what kind of industry, what type of business within the industry — then you're off to the races.
2. Where do you want to do it?
For a small business, this question is very closely connected to where you'd like to live, since you might be spending a lot of time at the business, especially early on.
Do you want to live in Southern California — L.A. County, Orange County, in the mountains of San Bernardino County? Maybe it’s the Sierras, or along the coast somewhere? Or maybe out of California altogether? Be sure to leave yourself some options.
Small-town, suburb or city are common variables in these “location” decisions. If you’re doing manufacturing or import/export they’re less important, but in retail or service industries those are crucial distinctions. Big cities mean lots of potential customers, but lots of competition and likely higher costs, while small towns may mean less competition, but a smaller and perhaps less-diverse — either culturally or economically — pool of customers.
3. Are you ready to learn and make decisions?
Now you're already making decisions — discovering and evaluating different options. This evaluation process is crucial. The fact that I began with "what do I want to do?" and "where do I want to do it?" doesn't mean you can wish your way into a successful business. But I do believe that answering those questions first is the best way to honor the person God made you — with your gifts, your experiences and your passions — rather than getting into a business you couldn't care less about in a location you don't want to be, even if it does make money. There is more to a successful business than just making money.
So now be ready to do some research. If you're not well-versed about the industry, set up some pros and cons. Do some research on different types of businesses to get to know them a little bit. It's certainly not hard to find information online. If it's coffee shops, start reading about coffee shops.
4. Are you ready to tweak your idea?
As you go along, the options become a bit more nuanced. Let’s say you've picked a business type and a geographical area. Now, you need to consider if you will need to tweak or adjust your business to that area, especially if you're doing something storefront like retail or food. Is it a good fit?
Here’s a scenario: You want to get out of the urban crush and live in a small town — and you love sushi. You're even an expert at sushi, and you want to have a sushi shop. And lo and behold, that little town doesn't have any sushi — let's open up a shop there!
Unfortunately that might not be the best idea — there might be a reason that no one sells sushi in that town. That’s where your decisions become more nuanced and take into consideration whether the type of business really fits the local clientele.
Now what's terrific and challenging about business is that while “fit” is a good rule of thumb to follow, it doesn't always hold. Innovation happens and sometimes the best idea is doing something new. Maybe these folks have never had sushi before, and you come in with a great presentation and quality food and it's a hit.
Or maybe it's not. You will have to look at the area and the demographics and make the decision that “No, I don’t think this area will support this, no matter how innovative I am in marketing or presentation.” You could do some on-the-ground research in that town — "have you ever had sushi?" "would you come to a place like that?" — but banking on innovation is a risk. What is your stomach for risk?
Maybe you want to open a donut shop in an area that already has one that offers just traditional donuts, but you're going to offer gourmet donuts that are not $5 a dozen, but $5 each? In a big city, maybe that'll work. But in a rural area, maybe not so much. It’s a great idea, it’s just the wrong area. Don’t take it personally, and don’t let your creativity get shipwrecked on the rocks of your ego. Some great entrepreneurs are very stubborn people, but a lot of failed entrepreneurs are, too.
Tweaking your product to fit the area isn’t always negative, of course. Maybe you want to open a coffee shop in a town, and it’s a pretty good fit. But that town used to have a small diner that served great chili, until the owner retired. So you negotiate with that owner to get his recipe, and your shop now offers coffee and chili. You get to offer customers something new and something familiar — that’s a win-win. But it requires you to do some research and to be flexible with your vision.
Dr. Randy Markley teaches finance and accounting at the Crowell School of Business. In part two of this post, Dr. Markley will discuss the pros and cons of buying an existing business versus doing a start-up and the steps in buying a business.
Image by tirachardz on Freepik, used under license.