Starting a new business is a risky and exciting venture. Whether you’re a serial entrepreneur who is constantly coming up with new ideas or trying to turn your skills and hobbies into an income generator, starting a small business is a big task. It’s a well-known fact that a majority of small businesses fail in the long term. Over 50% don’t make it past the first 5 years. In order to keep your business out of that 50% and to help you succeed, here are some of the Do’s and Don’ts for small businesses.
Do make sure you research your industry
All too often, aspiring small business owners think that starting a small business is as simple as filing for an LLC and opening up shop. This is one of the leading causes of small business failure. It’s very important that you perform research on the industry you’re looking at getting involved in. Some of the things you should look into are:
- The market demand
- Do you need special licensing?
- Are there any legal concerns?
- Is the industry growing or shrinking?
- How many similar businesses are there in your area?
After doing some research you might conclude that the industry is currently in decline and isn’t expected to rise for another 10-15 years. You might discover that you need special licensing that takes 6-12 months to acquire. All of these factors will play a role in the success of your business because they could cause your business to fail right from the start.
Don’t act spontaneously
The excitement of starting a small business is a lot to deal with. You might have hundreds of ideas buzzing in your head and just want to get started. However, when you act spontaneously, you might also be making irrational decisions. When it comes to starting a small business, every decision should be properly planned and analyzed.
For example, you don’t want to just order new inventory because there was a sale. You have to research and figure out the potential profit margins and determine whether or not the product will even sell. Make sure you do proper research on any major business decision because making the wrong choice could result in lost revenue. If you make enough of these bad spontaneous decisions, you’ll find yourself in that 50% of failed small businesses.
Do seek out a mentor
One often overlooked tool that can be very beneficial is to ask for help from someone who knows about the industry you’re entering. Obviously the competitor down the street isn’t going to help you run them out of business, so you’re going to want to seek out someone that has no stake in your business and won’t be affected by your success or failure. You can find mentors at networking events, trade associations, or take part in a government sponsored mentor program such as SCORE. There are plenty of industry executives that are more than willing to help new small businesses succeed.
You want to make sure your mentor has experienced success in your industry before, and is not simply someone who makes money by coaching others.
Don’t rely on gentlemen’s agreements
One of the number one rules in business is to make sure you get everything in writing. Legal issues can kill a small business, and often times the issues are 100% avoidable. Any type of agreement, deal, or negotiation, needs to be in writing. The practice of a gentlemen’s agreement does not hold up in court.
Having all business dealings in writing also helps to give you a reference point for past agreements. If one of your suppliers increases their prices on you, you can go back and check your contract to see under what circumstances a price increase can occur. Written documents help solve a majority of the disagreements that your business will run into with other parties including customers.
Do use the internet
Countless studies have proven that companies that adapt to technology and utilize it are more likely to succeed than those who don’t. Not only does putting your business online give you further exposure, it also gives you the opportunity to interact with customers through social media. Consider this statistic from Single Grain, 70% of local businesses are on Facebook. That means that there is a strong chance that your competitors are utilizing internet marketing to reach customers. This puts your small business at a huge disadvantage if you’re not doing the same.
In addition to this, aside from word of mouth, your business’ reputation will be spread online. You need to monitor what is being said about your business and address customer issues.
Don’t start your business with insufficient funds
Starting a small business requires money. Some businesses may require very little startup capital such as an internet magazine, and others might require a significant amount such as starting a new restaurant. Unfortunately many aspiring small business owners do not know how to fund their business properly.. Consider venture capitalism, getting a small business loan from a credit union, raising the funds yourself, or seeking investors.
Be careful about borrowing money from friends or family to fund your business. It can lead to building bad blood and straining the relationship.
Do make a business plan
Wrapping up our list is making a business plan. Every business should have a written business plan that outlines their entire business. This will help when seeking investors, analyzing your business idea, and many other factors that will determine the success or failure of your business. I can guarantee you that no legitimate venture capitalist, bank, credit union, or other investor will give you a dime without seeing a business plan. According to business coach Paul Fagan, 80% of business that do not create a business plan fail within the first 5 years.
A business plan outlines all of the aspects discussed in the research section of this article as well as other crucial aspects such as your company’s exit strategy, growth plan, financials, and more. If you want to increase your chance of success, create a business plan.
About the Author
Boney Pandya is a Marketing Manager at WebNet Hosting, a company which provides fully managed Cloud VPS and Dedicated Servers. Boney has an MBA in Marketing from Drexel university and a passion for online marketing.