You’re a curious entrepreneur with an idea. How can you start a business from scratch and turn your invention into an innovation? Innovation is about examining what others have left unexamined. It’s challenging the status quo, noticing trends that others are missing, and uncovering hidden customer desires.
There are many reasons for starting a new business from scratch. Freedom, learning new skills, and following your passion are just a few. To successfully build a startup from scratch, entrepreneurs need to have hustle, grit, and dedication to problems worth solving. At NEXT Studios, we follow a strategic process that can help entrepreneurs form compelling ideas, create a competitive advantage, and set them on a path to serial innovation with high returns. But first, let’s start with the basics.
Here are five steps to start a small business.
Step 1: Finding an idea
“How do I get an idea for a startup?” might be the first question entrepreneurs ask themselves. Here is the key: fall in love with the problem, not the solution. As an entrepreneur, you have to be passionate about the problem you are trying to solve.
Dare to see the world differently. Many times, problems hide in the status quo. Y Combinator has a great piece on the 7 recipes for finding ideas.
Some of the greatest startups come from problems people didn’t even know they had. To invent an idea, consider what is possible. Before Microsoft and Apple, people were just fine with the analog way of working. The status quo was comfortable. When Steve Jobs and Bill Gates were crazy enough to conceive an image where every desk in every office would have a working computer, they stumbled across an idea that changed the world.
On a cold winter’s night in Paris in 2008, Gerrett Camp and Travis Kalanick couldn’t get a ride. That’s when they had the simple idea of requesting a ride from their phone. What began as just a thought turned into the global brand, UBER, focused on helping people move towards opportunities in the world.
Step 2: Make your new business official
Once a business model is set and initial funding is secure, there are a few legalities that need tending for your startup to be official. Here are a few requirements to start a business legally:
- Select a business entity – The business entity is sometimes referred to as a business structure or legal entity, which refers to how a business is legally organized. There are four primary business entities: sole proprietorship, partnership, corporation, and Limited Liability Company (LLC). There are also other business models to consider, such as a certified B corporation.
- Register your business with your state – This gives you legal grounds to move forward using your brand’s name.
- Pick up the right licenses and permits – Depending on your business, this can include food, liquor, health, or business licenses.
- Get an EIN – This allows the IRS to track your transactions
- Open a business bank account – Keeping your business and personal finances in separate bank and credit card accounts make it easier to track the business’s expenses.
Step 3: Write a business plan
One of the next steps to start a small business is to write a business plan. A good business plan acts as a roadmap for how you’ll structure, run, and grow your startup. Most business plans fall into one of two common categories: traditional or lean startup.
Lean Startup plan – Lean Canvas – This plan uses a standard structure and It focuses on summarizing only the most important points of the key elements of your plan. They can take as little as one hour to make and are typically only one page. They are ideal for founders to identify assumptions and risks. The plans are living documents. A great resource for Lean Canvas is leanstack.com. With these plans, some lenders and investors may ask for more information.
Traditional business plan – This plan is more common, uses a standard structure, and encourages you to go into detail in each section. It tends to require more work upfront and can be dozens of pages long. The challenge with this process is that the risks and assumptions are harder to spot and often the plans do not change over time. Lenders and investors commonly request this plan.
Step 4: Securing funding
Now that you have your business plan, you’re going to want to secure funding. Or you might ask yourself, “How do I start a startup with no money?”
Depending on the type of business, you don’t always need a lot of capital to get up and running. It’s true that to scale business you’re going to need some cash flow. Start by asking yourself what do you need to learn about the customers, the market and work to learn as much as you can for as little expense as possible. Find what is essential to your business and scour the internet for free resources. Whether it’s starting with a Facebook business page, designing your own marketing material on Canva, or trading your skills or resources with someone else in lieu of payment, there are limitless options.
When it’s time to look for more capital, there are many options open depending on what kind of business you are looking to build. Look into applying for a small business loan, small business grants, or local funding opportunities. Another option is to search for – and woo – potential investors. When approaching investors, keep in mind that the more you can do to begin building a vision of your business and demonstrate traction, the more seriously investors will consider investing. There are a myriad of ways to get that cash flow going. External investment can be the fuel to accelerate the growth of your business but is not the only way to grow, you may aspire to be a Unicorn, Camel or perhaps a Gazelle?
Step 5: Build Your Business
There is never a stopping point for entrepreneurs. When your startup has a foundation, you have to continue to grow and lay down the bricks. More next steps include obtaining business insurance, setting up an accounting system, developing a marketing plan, hiring employees, and building a customer base.
Here is an important element of entrepreneurship: if you love the problem you are solving,plan to pivot on your early idea of a solution. As you grow a fully formed corporation, challenges and obstacles will arise. See them as opportunities to learn, grow, and pivot to continue leading your business innovation to new heights.
Entrepreneurship is hard and lots of people get it wrong by repeating mistakes. NEXT Studios provides best practices, lessons learned, models, and direction to reduce the risk that your startup will fail and generate higher returns. We are the studio of entrepreneurs, for entrepreneurs, with entrepreneurs. Are you ready to get started? Find what’s NEXT and drop us a note here.