#2: The 10 Critical Steps to Launching a Business
Knowing your why is the most important first step into starting a business. ~ Renée Warren
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Hey you wild lady!
Today we are going to be chatting about the ten critical steps you need to take in starting your business. I want to deep dive into discussing these important steps.
Taking your first step into starting your business is insanely intimidating. What do you do? What is the first thing you set up? A logo, a website? Do I do my own bookkeeping, should I incorporate? WHAT? When I started one of my first digital businesses back in 2007, I thought that branding was the most important thing. So I spent money on a logo, started blogging like crazy, but SO much time into setting up the virtual storefront, but no one came! I really didn't know much back then, to be honest.
So, backing up a little bit more...
My foray into entrepreneurship started when I was 17 years old, managing a small restaurant on the side of a lake in northern Ontario. I didn't have to worry about marketing because the building had been there so long already that people knew where it was and generally what type of food was served. (My sister, mom and I had taken over the business lease from the owner to operate and manage the business.) SO when I started my first little one-person agency, I thought the same rules would apply... I'd open my doors, and people would come flooding in to buy!
Ennh. Wrong. I needed to DO the work this time. Well damn.
Mistake one = assuming I knew what people wanted.
So let's talk about the first critical step into successfully starting a business. And it may not be what you think.... Are you ready? Here we go.
1. Know your Why
I want to start this first section by telling you a quote
"He who has a why can endure any how." ~ Frederick Nietzsche ("Nee-cha")
If your purpose (your why), is very clear, then how you get from A to Z can be endured. The hardship and courage that comes with starting and launching your business can more easily be tolerated because you know who you're doing this work for and why you're doing it.
If you have a difficult time understanding your why, here are some prompting questions for you:
1. What do you love to do?
2. Do you love it enough, that if you were taken away from your family for a while to work on that purpose, you would be ok? [This is a question about commitment.]
3. What does the world need?
4. What can you get paid to do?
5. What's your mission?
Knowing your why is the most crucial first step into starting a business. Even if you want to create a little Etsy shop or launch a billion-dollar company - your why will get you through the hardship.
2. Define Your CORE offering
What is the one thing you are going to be offering? Better question, what is the one thing you want to be known for? For me, that's "Helping women start the business of their dreams." How I do that at this point only matters a little bit. Why I do that is the most important reason "because I believe we need more women in a position of power, more leaders, CEO's, and creators. More women at the table and making the damn-table." My core offering is business training/coaching for first time female entrepreneurs. Again, the how is not so important at this step.
3. Define your Target Audience
Also known as your avatar, ideal customer, ideal audience...this is the one person you are targeting. Yes, you will reach more, yes, you will have customers that fall outside of this ideal customer, but you have to focus. The riches are in the niches.
You need to get granular here. You need to identify their gender, age, income level, relationship status, if they're parents or not, what stage in life they're in, etc. If you need to complete this exercise, you can download the workbook in the show notes below.
Take the time to understand this person because your why, as we mentioned already, is about this person. You wake up every day to help this person -- knowing these customers inside and out will also help you get through the tough days.
4. Create Your Quick Pitch
My friend Clay Hebert came up with this framework called The Perfect Intro, where you learn how to introduce yourself or your business in 6 words or less. It's a tough exercise but a super helpful one. Mine is "I help first-time female entrepreneurs start the business of their dreams" It's a couple of words longer than 6, but it proves the point. It answers who I help and what I do for them. Since it's a somewhat vague response, it entices people to ask more. The how and the why can be answered in any subsequent communication. Again, at this stage, you don't' need to have your messaging too clearly polished as long as you explain who your customers are and what you do for them.
Now, I'm a messaging expert, in that when I ran my PR agency, this was all we did for our clients. We helped craft and massage and tweak the words use in pitch decks, media pitches, and on websites and landing pages. If you're lucky enough to bang this out quickly, good for you, but most people need time to craft their quick pitch.
5. Validate your idea
With your idea in place and somewhat formalized, pitch it to your friends and family (And don't worry about someone stealing your idea, because Ideas alone are a dime a dozen. It's the execution of the idea that's what makes you money and the consistent way in which you build the business that makes you profitable.) All you're doing here is gauging whether or not this is a terrible idea. Now, your closest friends and family will be biased - they don't want to disappoint you, so will tend to say what you want to hear. What you're looking for is their initial knee-jerk reaction, do they light up, or do they question it? Get a sense. But this is only a very weak initial filter. You're still going to do the work.
The work.
This is the grunt work and a process in running a business that should never really end. Customer validation is designed to help validate your idea through the eyes of your ideal customer, not through your opinion.
With your newly defined perfect customer, you are going to reach out to at least 20 of these people, preferably ones you don't know and will ask them a series of questions. The point - to understand their biggest pain point and understand what they are doing, if anything, to solve that problem.
Here are some golden rules before we get started:
Never tell them about your new product idea. We do this for two reasons: 1. People tend to be polite and will encourage your idea even if they think it's crap. 2. It creates bias in their answers. If they get an inkling with what you want to hear, they'll likely give you that answer over the truth.
Always ask some questions that have the potential to crush your idea. We are so married to our ideas and think they will change the world, and some very well could, but with that passion, we tend to become a little overzealous. This can be dangerous as you continually seek approval of your idea over customer validation. The point of this exercise is to know if an idea is flawed (i.e. there is no market need for it) as soon as possible. It's NOT to incorrectly validate an idea because that's what you want to hear.
Here are some examples of the questions to ask: (Note: these are tailored to a specific industry, in this case, a marketing expert, so make sure you create your own questions.) Your questions should all be open-ended and not leading.
What’s your biggest pain point in ____________ ? (insert industry or segment) For example, my question was, "what was your biggest pain point when first starting your business?" Note how respondents described their problem and circumstances with their opinions, perceptions, and assumptions.
What tasks are you responsible for doing in your business day to day? (Listen for response) .
Which of those tasks take the most time?
Which task do you like the least?
Tell me about how you go about doing (insert task from response above).
If you could wave a magic wand and could do anything related to (insert task from response above), what would it be?
As you start to see a pattern, you can start to get an idea for a solution or something you may have already created. You don't have to do all calls before you move on to the next step, but you should be well on your way.
Another trick is asking why 5 times
Once you get some preliminary data about your idea, you'll need to refine your' elevator pitch' and start asking people who you don't know what they think of your idea. Using your list of customer validation questions, ask why.
This is by far the most important question. Sakichi Toyoda, the Japanese industrialist, inventor, and founder of Toyota Industries, developed the 5 Whys technique in the 1930s. It became popular in the 1970s, and Toyota still uses it to solve problems today. There 'go and see' philosophy means that management is to look on the shop floor at the problems rather than on what someone in a boardroom thinks might be happening. The 5 why's is true to this philosophy because it successfully gets to the root of the issue when asking the people that have hands-on experience. This is why asking your potential customer these questions will help you uncover things you may not have thought of, could validate your idea or help you realize that your idea stinks - sorry!)
Here is an example of how I did this when I ran my PR agency:
The Problem:
Our client is not happy with our turnaround time.
Why?
Because he needs to see results faster.
Why?
Because he needs to assess whether he should hire a new employee based on the success of the marketing initiative
Why?
Because he is overworked and stressed, doing the job of three people.
Why?
Because he is tight on budget and may need to pull the plug on the contract
Why?
Because he is really shitty with financial management
The problem wasn't so much that he wanted a quicker turnaround time. It was because he needs help in managing his time and finances. So as an agency owner, I could better understand his need for processes and systems. From this, we instilled a mandatory work-back schedule for all projects so that clients could see exactly what's going happening
While I did that with my client, you can still do something similar with your potential customers.
When you look at the qualitative results of the research like what are people saying, how much would they spend on your product or service, how often would they use it/visit you, you're digging deep to find their pain points. A successful business has a cure for someone's pain. What I mean by this is that you need to solve a damn problem!
6) Competitive market research
Market research is crucial when first starting your business. If you aren't doing this, you are already taking 2-3 steps backward. This might sound obvious, but how deeply do you really understand your industry and what your customers are buying and who you're competing against? Whether you're a newbie (which is totally ok) or experienced with market research, these next steps will give you a good framework for conducting a thorough study of your competition and industry.
You must answer:
Who are your top five competitors?
The best way to begin this step is to create a Google Doc or spreadsheet and creating the following columns outlining your competitors:
Competitors Name (and location if relevant)
URL
Elevator pitch (Brief answer to the question "Who is this company?")
Mission (If it exists.)
Products/services offered (with pricing)
Strengths (What is the competitor good at?)
Weaknesses (Where does the competitor fall short?)
Key brand differentiators (What are the messaging, product/service offerings, etc., that set the competitor apart from their competition?)
How are you different from them?
What is their marketing strategy?
What is their price point?
Is this a dying industry?
What is the market size?
What is the market potential?
If you have to write a business plan for a bank or a potential investor, then you will have to know this information anyway. Do the work upfront so that your competitors don't ever blindside you. Remember, as much as you need to keep a pulse on what they do, you need to stay in your lane while keeping an eye on the evolution of your industry.
7) Choose a name
If you haven't already done this, now's the time to come up with your name. I usually suggest starting this by seeing what's available on a domain provider. Getting the .com is still an amazing feat. If that's not possible, then try variations of it. Plop your name into Google Search, Twitter, and LinkedIn to see who else may already be using it. Remember to keep it:
Simple
Clear
Memorable
Easy to pronounce
Obvious
Don't go naming your new vegan clothing line 'Smoke & Beef.' Also make sure your name today wont limit your long term growth.
Once you've come up with five options, get your lawyer to do a NUANS and/or trademark search. DON'T take a chance here. The last thing you want to face is a cease and desist letter from a company because of trademark or copyright infringement. If you're lucky, they won't fine you. So play it safe.
8. Understand your Legal and Accounting Obligations
Blah I know this can be so boring, but if you just take a little extra time to set this up right the first time, you won't be scrambling come tax season or when you face some legal issues.
Setting up your business the right way from the very beginning will inevitably help save you time and money in the long run. I always suggest that small business owners outsource two things from day one: legal and accounting. Sure, there are some things you can tackle yourself, but if you are not formally educated in either, then it can be a slippery slope.
Many of us like to cut corners to save money, but it ends up costing us time and big nasty mistakes. Never doubt the privilege you have when it comes to hiring a good lawyer and accountant for your small business.
When it comes to setting up your business, there are several things you need to consider, depending on the company you are starting or growing -- structure, licensing, insurance, and permits, accounting, financial projections, and procedures. Having a solid foundation using best business practices and an organized system will help keep you on task, organized, and ahead of the competition.
Business structure. Have you decided how you're going to structure your company? There are several options like Sole Proprietorship, Partnership, Corporation and others (like a Co-Op). I could go into detail here, but let's save you the time....get on a call with your lawyer to decide which structure is best for you.
Business name
That name that you came up with back at the beginning of this exercise, you need to register it. Depending on which province or state you're in, there are several ways you can do this. I keep that work for my lawyer.
Business Number Registration
Once you've decided on a name, the next step is to get a business number. This number is used to identify your business across all levels of the Canadian or US Government , from municipal, provincial/state to federal. It is mandatory for operating a business in Canada and in the US.
You also have to consider a tax number and other licensing and permit requirements. Before we move on, you should consider small business insurance as well.
Accounting wise, just get a small business accountant. Budget for this the day you open your doors for business and pass off this grueling task to someone who likes the work and is good at it. Otherwise, you have to file your own taxes, remit payroll and expenses, know what CAN be expensed, and have a good grasp of your business finances.
9. Setting Up Your Financial Systems
Even if you aren't good with numbers and don't understand reading financial reports, this is the BEST practice to get into to understanding your business. After all, you're not in it to give money away. You want to make a living and get rich while doing it. The more you make, the more you can give back, and you can't do that if you have no clue about your company's finances.
Here, we will be reviewing your:
Balance Sheet
Income Statement
Cash Flow Statement
3-Year Projections
Alongside good accounting basics, creating financial projections for your small business is an essential step to success. Your little shiny business won't stand a chance of success if you don't put some effort into creating your financial projections.
As I mentioned earlier, I use a platform called LivePlan that helps me set and tweak my projections. It's fun and straightforward to use. But you don't have to spend a single dime here as all you need is a spreadsheet and some guidance.
If you are seeking external funding either from an investor, corporation, or a bank, you'll need to have these financial projections. This helps them know that your project your business to be profitable and when they will either get a return on their investment or get their money back (loan).
For internal purposes, financial projections help you budget for your business and set benchmarks to gauge how well you're achieving your goals. It also helps determine feasibility, like how many cupcakes you'll need to sell to pay rent.
With projections, it becomes easier to determine how much, say cash flow, you'll need to invest in new items like machinery or software. Variance Analysis, the difference between budgeted/expected costs and the actual cost, is what you're keeping an eye on. This analysis allows you to see if your business is consistently falling short of your projections, where that's occurring, or if you're exceeding them.
Are you falling behind? Then you can make some changes like increasing prices, or cutting costs.
Exceeding expectations? Now's the time to consider hiring, outsourcing, expanding, and use your excellent standing finance to seek financing (always ask for more money when you don't need it.)
What forecasts should you make?
Sales Forecast: What do you expect to make (revenue) over the next three years?
Expense Budget: What are you expected to spend over the next year to reach your revenue goals?
1. Income Statement (also called Profit and Loss)
This focuses on your company's revenues and expenses that were generated during a particular period. The four main items in the income statement are revenue, expenses, gains, and losses. For your first year, you'll want to do this monthly or quarterly (I prefer them monthly when first starting so that you get used to your numbers and what you're looking for/watching for). For years two or three and beyond, using annual statements work great.
2.Balance Sheet
A balance sheet is your assets, liabilities, and owners' equity. It shows a general overview of your business's financial health. Assets are on one side, and liabilities are on the other, and the two sides must be equal, hence the name 'balance' sheet.
3. Cash Flow Statement
The cash flow statement helps you better understand how your company's operations are running. It shows how much money is flowing into and out of your business. Three main components include operating activities, investing activities, and financing activities.
How to Create Your Three Year Projections
The challenge for most entrepreneurs is creating your financial projections when your business isn't even up and running. If you're in this position, you'll have to rely on a lot of assumptions, experience, and market research. Here are some common questions around these projections:
1. What's the purpose of these projections?
If you are using it to raise money, get a loan, write a business plan, or to open a bank account, then you'll need to be as accurate as possible. If you are using this as an exercise for your internal reasons, then you don't need to be as formal. The idea is so that you can plan ahead with spending and predicting when you will need more employees or contractors.
2. Where do I start?
With your expenses. That's because it's something you have the most control over. Revenue is much harder to predict (at least accurately) because there are several external forces out of your control. And if you're smart with your money, you'll quickly see when and where you'll need to start making money to offset those expenses.
3.Should I be both conservative and aggressive?
Yes! You can do this with a good, better, best approach.
Define your Good goal, then add 20% to make your Better goal, then add 20% to create your Best goal.
What are your three-year projections?
Good = _______________________________
Better = _______________________________
Best = ________________________________
10. Mindset/Imposter Syndrome
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