Now is a perfect time to start a new company. This may seem counter-intuitive to some, but recessionary environments are actually quite conducive to successful business launches. Think about it. Everything is cheaper right now. You can hire skilled labor at a significant discount. You can rent an office at much cheaper rates. Most goods and services have fallen in price in order to stay competitive in a very weak economic environment.
In fact, a disproportionate amount of Fortune 500 companies were actually started during recessions. Gary Beach conducted research that has now become quite popular in business circles. He found that 70% of the Top 10 companies in the Fortune 500 were incorporated during a recession year, as were 64% of the Top 25 companies and 52% of the Top 50 companies.
How To Get Started
Every successful business starts with an idea. Getting the idea, however, is the easy part! Translating that idea into a viable business model is where most people fail. Most businesses fail in the idealization phase. In this article, we are going to discuss several key steps to help the aspiring entrepreneur successfully transform her idea into a legitimate company.
Listen To the Old Proverbs
“There is wisdom in a multitude of counselors.” This truth has incredible power in the business world. When you get an idea, it can be very challenging to look at it from a completely objective view. I have started several companies. Each time I run my idea by mentors, friends, family, etc, in order to get a balanced view considering the viability of the idea. If everyone you know says it is a horrible idea and you are wasting your time, then you may want to seriously reconsider. However, if most of the people you share the idea with resonate with it, then you will carry that increased energy and confidence through the difficult times. (Quick note: this means people you trust. Not just anybody. Most people are resistant to change and not open to new ideas,.)
The Business Plan
This should go without saying—a detailed, written business plan is absolutely essential. This needs to include the entire business model, the marketing plan, projected financials, how you will raise capital etc. Will you apply for a bank loan or merchant cash advance? You can get business plan templates online for free, or you can buy them at your local Office Depot. Once your plan is written, get it into the hands of trusted advisors, friends, counselors, in order to get critical feedback and varied perspective.
To Partner Or Not To Partner
I have worked both solo and I also recently started a company with 4 other partners. I can tell you from this experience that partners are worth it, if you can find the right one(s). If you know people who may share the same vision and level of passion, taking on a partner in the early stages of the company can help alleviate a tremendous amount of stress and workload.
Raising Capital
This will vary considerably depending on the scope of the company and the business plan. Let this rule always guide you, though—operate on a bare bones budget as much as possible! Don’t borrow money unless you have to. If it’s possible for you to keep a part-time job, while you work tirelessly to launch the company, then that may be the best route.
Of course, the first stop when raising capital is typically friends and family. A merchant cash advance may be hard to secure in the early stages of launch. I have a rule that I lived by when raising capital for a pretty sizable launch. I always imagine losing every penny that a friend or family member invests. If you think it would damage the relationship at all, do not even consider taking a penny. Although you believe the business will succeed, the reality is that anything can happen. Anything! Therefore, don’t borrow money from your Grandma who is living on Social Security!
Legal Entity
This is really important, but often overlooked by new entrepreneurs. Your job is to legally keep the IRS out of your pocket as much as possible. Make sure that you incorporate your company in a way that sets it up for the best chance of success. My personal favorite entity is an LLC that elects to be taxed as an “S” corp. There are major advantages to this entity, but it will obviously depend on the nature of your company, and many other factors. The best way to ensure you make the right decision is to hire an accountant or tax attorney to help guide you.
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Great article. I think the most important part is to make a very detailed business plan. So many people I know start a business without the planning. They think they have a great idea (and maybe it is), but if you’re don’t have a business plan you’re gonna have very nasty surprises along the way.