For many people, they get to a point in their lives where they think to themselves, “I could start a business, or I have a great idea for a business!” Most people know what a business start-up is, but many people may not realize what it actually is, and so maybe it is best to start at the beginning. A start-up is a newly formed company or venture undertaken by entrepreneurs, specializing in a single product or service that addresses a particular gap in the market.
Start-ups arise when a founder or co-founders develop a unique solution or idea to an unsolved business problem, create a business plan and provide the funding necessary to get the business running. A start-up can be as simple as a small trading business, or it can be as large as creating a new technology that will revolutionize an industry.
Start-ups are rooted in flexibility and innovation, characteristics that aim at achieving fast growth potential. Unlike the big corporations, some start-ups don’t have a fully developed business model and are typically lean in operations. More crucially, most start-ups lack adequate capital to move on to the next phase of business. These smaller, flexible teams are initially focused on start-up best practices and start-up growth tactics to facilitate the rapid growth and upward scaling of the company. Start-ups are new businesses with the mission to grow large beyond the initial founders.
Most start-up expenses exceed their revenue, which is why so many of them require external financing. Without funding, it would be challenging for start-ups to develop and market their innovative products and services. In order to secure seed capital, many start-up founders turn to friends, family, and venture capitalist communities like Silicon Valley, Silicon Beach or Austin Texas.
The start-up phase of a business is not permanent but only the beginning, since the founder or group of founders put their primary focus on scaling the company ahead to make profits. High profits are crucial to the founders that choose to go public as a start-up growth tactic, and the others that sell their start-ups to larger, more established corporations as an exit strategy.
Below are the main characteristics of a start-up company:
– Problem solving
– Fast growing
Although the road to a successful start-up isn’t always easy, there are founders that have been successful in such ventures over the years and these include; Facebook, Airbnb, Instagram, Mailchimp, Uber, Pinterest among others.
How to start a start-up
Start-ups are not any different from other businesses since founders experience high and low moments, especially in the early stages of planning. Luckily, there are a few strategies that can get your business up and running smoothly. Start-up can be very simple, but they can also be very complex. The following are some things you should consider if you want to start a business.
1. Developing a great idea
The most important step of setting up and running a start-up business is identifying a problem and solution. Most successful start-ups derive business from identifying gaps in the market, and coming up with ideas that fulfill the customer’s needs. Usually, the best start-up ideas come from the frustration somebody has with an existing product or services, and thinks to themselves that if only I could do it “this” way, or if this product could do “that”, then it would be better.
This shows that start-up ideas don’t have to be brand new, meaning existing products and services can be changed and updated in a way that better serves the consumer. Actually, the best start-up ideas are ones that really solve an unmet business need, one that current products or services don’t solve or don’t solve well.
During this idea development stage, it is necessary to conduct market research as a way of gathering information about potential clients, and other businesses already operating in the area chosen. Therefore, it is vital to understand the existing market conditions from the outset in order to give your start-up business a competitive advantage.
2. Drawing up a business plan
Once you have a workable business idea, then you write up a business plan that describes your products and services. A business plan is the road map and foundation for any start-up business, since it lays out how to structure, run and grow your business. A good business plan should include information on your; industry, operations, finances and a market analysis.
Your business plan is also a tool you can use to convince potential partners and investors that working with you and investing in your start-up is a smart choice. Writing a business plan is also important to banks and other financial institutions who require extensive information when considering providing external funding as loans.
Besides a detailed financial model for your business plan, it is important to do a Product Market Fit analysis, in which you talk to potential users, sellers and customers to verify the needs of the market and to verify what the market is for your business idea. Finding your product-market fit can be elusive, but it is critical to success to clarify your target customer/market, understand their core needs, and identify the right feature set and value proposition for your business. Check out our podcast on Product Market Fit.
3. Securing funding
The business plan will help you figure out how much seed capital is necessary to get your start-up business up and running. Costs of different start-up companies vary with each individual business owner. Having estimated costs and cash flow, as well as interest rates on loans gives you a rough figure to work with when financing a start-up.
How you choose to fund your start-up affects how you structure and run your business. Lacking funds puts your start-up at risk of not being able to cater to operation costs, which stalls business.
Most start-up businesses are funded by the founders initially (known as bootstrapping), and where funds are low, they seek financial aid from; friends and family, angel investors, venture capitalists and bank loans.
4. Build a start-up team
Building the right start-up team is essential, especially in the early stages characterized by heavy work loads, and high risks. Having the right team of experienced; co-founders, contractors, employees, remote workers, developers, engineers, business advisors, attorneys, certified accountants, bankers and insurance professionals is crucial to the success of a start-up business.
5. Establishing a location
Whether working from home, setting up an office space, opening up a storefront or establishing a manufacturing facility, it is important to determine if you will buy, rent or lease a physical premise, or you will operate as a “virtual” company. This decision to set up a physical location affects costs, taxes and legal requirements of your start-up business.
In order to run a start-up in today’s digital era, it is important to set up an online presence or e-commerce platform, since customers are increasingly shopping online using their mobile devices to search more about your products and services online.
6. Creating Infrastructure
All businesses need an infrastructure. This includes a website and social media presence to give a business a digital “location” where people can find you and contact you.
Email and cloud storage is part of the infrastructure, and when starting a business you need to choose email hosting or cloud platform like Google Apps, as well as digital cloud storage and workspace so that you and your team can collaborate on work and presentation.
If you are building a digital product such as a website, e-commerce site, SaaS product or other digital products, you will need to set-up development infrastructure, hosting and data storage infrastructure.
Don’t forget, running a business involves money, and that means accounting. Accounting infrastructure is something that needs to be thought out, and whether you use spreadsheets or one of the many SaaS accounting platforms, you will need to consult a tax accountant and bookkeeper to determine what will be best for your start-up.
7. Following all the legal steps
Before entering the market, ensure that your start-up business is in compliance with legal and taxation guidelines. Theses may include:
– Applying for a business license
– Registering a business name
– Getting a tax identification number
– Filing for a trademark
– Opening up a bank account
– Familiarizing the start-up team with the industry regulations
Starting a start-up can be a difficult venture but a rewarding one. In the long run, start-up businesses result in high profits, flexible working environments, increased job satisfaction and the possibility of leaving a legacy.
Contact an expert from Screaming Box to learn more about start-ups today.