Have you heard of the podcast directory Odeo? Or the transportation data company Traf-O-Data? What about the Detroit Automobile Company? All of these businesses were founded by first-time entrepreneurs, and all of them failed quickly or were adapted into something completely different much later. Odeo was bought out by cofounder Evan Williams, who used the organization to start Twitter. Traf-O-Data was founded by high school students Bill Gates and Paul Allen to improve car-counting for traffic engineers. They took the hardware engineering experience from this company and started Microsoft. Henry Ford founded (and closed) the Detroit Automobile Company before he had success with his namesake corporation.
Starting a business is hard, and starting your first business is the hardest. You need every advantage to find success on your first outing. In this guide, we’ll look at the best practices that first-time business owners use—and the common mistakes they wish they’d avoided.
Basic Business Planning
1. Do Market Research
Market research is any background information that can “help you identify new business opportunities, avoid failure, secure funding (due to a more robust business plan), make informed business decisions, and ultimately deliver a more satisfying customer experience,” according to our guide on do-it-yourself market research for small businesses.
This research can help you make educated guesses to answer some basic questions: is there an unmet demand in the marketplace? Would consumers pay for your goods or services to fill that demand? And would it be profitable?
Market research sounds complicated and expensive—but it doesn’t have to be. There are 4 primary forms: interviews, surveys, focus groups, and customer observation. Additionally, you can use reliable sources of secondary data, like government databases and trade publications. With fewer than a dozen forms of input, you can get a clear picture of the existing market.
2. Create a Business Plan
A business plan is a blueprint for your entire operation. Writing a solid business plan is one of the most important steps in starting your business—it’ll not only be the guiding document for logistics, it’s also essential to gaining loans and investments. All that importance can make a business plan intimidating, especially if you’ve never written one before.
We’ve made an easy, step-by-step guide to creating a business plan that will take you from answering a few simple questions to structuring your formal document. Be sure to read the whole thing, but the sections of your final business plan will be:
- Executive Summary
- Business Overview (what physical resources you currently have)
- Market Analysis/Industry Analysis
- Competitive Analysis (what demand you’re filling)
- Sales and Marketing Plan
- Operations and Management Plan (human resources)
- Financial Plan (capital)
3. Have Specific Goals
First-time business owners often fall into the trap of vague goals—or worse, having no goals at all. If your goal is “to make money,” you’ll need to be a lot more specific. How far are you from profitability? Will you close that profitability gap by increasing sales to current customers, growing your business, or utilizing some other strategy?
When setting goals, make them SMART: Specific, Measurable, Attainable, Relevant, and Timely. Specific and Measurable go together—for example, increasing new clients by 25%. An un-specific goal, in contrast, would be to “increase new clients.” An unmeasurable goal would be to “make a better product.” (Better in what sense?)
Attainable goals can be determined through research. Look at the metrics you want to change, and assess how they’ve performed at your organization and at similar organizations under similar circumstances.
Relevant and Timely goals are directly related to your organizational mission and deadlines. While setting up an Instagram account might be relevant for a fashion line, it makes less sense for a notary public. Furthermore, that fashion line’s new Instagram account will be more effective if it has clear deadlines—for example, hitting 50,000 followers before debuting the spring collection.
4. Don’t Try to Be All Things to All Clients
A first-time business owner is hungry for customers or clients—and that drive is good. But too much hunger can make you do irrational things, like trying to perform every function for all customers. When a small business owner creates an overly broad selection of products or services in an attempt to appeal to everyone, it creates 2 problems: a marketing problem and an operations problem.
From a perception and marketing perspective, an overly broad focus means no one knows what you actually do. Marketer Jim Joseph describes this problem in Entrepreneur: “We become so vague that no one knows what we are offering and our potential customers turn to other, more specific options.”
Operationally, offering too many products and services means you will not excel at any of them.
An example of a small business with an overly broad business offering is the local restaurant with a menu the size of a phone book. If pancakes, tacos, lasagna, lobster, and peach cobbler are all available, customers might suspect that none of them are going to be very good. And those restaurants have a funny habit of getting new owners every few months.
5. Have an Elevator Pitch
As a small business owner, you’re always on the clock. One of your top priorities is attracting customers and investors. (Although don’t assume that you will get investors—more on that below.) That means you must always have your elevator pitch ready to go.
An “elevator pitch” is a summary of your business plan that could attract someone in a matter of seconds. The name comes from the idea of being in an elevator with someone and having only as long to pitch them as it takes to get to their floor.
“From a chance encounter with an investor to a curious customer, always be ready to pitch your business,” writes Scott Gerber at Entrepreneur. “State your mission, service, and goals in a clear and concise manner.”
6. Avoid Distractions (Like Other New Ventures)
Some small business owners start their first venture with dreams of becoming a serial entrepreneur. But starting a new company before the first one is fully established is a mistake—and a common one.
Jason DeMers made this mistake and learned a lesson the hard way. The founder and CEO of the marketing company AudienceBoom thought he could split his time leading a new startup—only to see that one fail and AudienceBoom falter.
“I learned that a successful venture requires 100% attention, focus, and effort,” he told The Hartford. “Secondary ventures need a full-time manager or else they’ll just distract you and derail your existing efforts if you aren’t careful.”
Legal and Financial Concerns
7. Don’t Depend on Investments
With the popularity of Shark Tank, every entrepreneur thinks they can score offers for their brilliant idea. The image of the angel investor or venture capitalist looms large in TV and movies, with sharp-suited millionaires always ready to fight each other over a good idea.
But in reality, investor money is hard to come by, especially if you’ve never started a business before. “It’s almost impossible to get investment for your very first startup,” writes entrepreneur and investor Tim Berry.
You should plan for the scenario that your business receives no outside investment. Create a business plan that would work with only your savings and conservative estimates of potential revenue. Bootstrapping, or operating your startup without investors, has advantages too. “That dream you had of building your own business ends when you take on outside startup investors,” writes Berry, explaining that investors become your partners—or even your bosses.
When looking for other forms of funding besides investment, consider business loans, lines of credit, and equipment financing. Lendio can connect small businesses with lenders through one quick, simple application.
8. Keep Overhead Low
First-time business owners can sometimes take the mantra “you have to spend money to make money” too seriously. A better mindset might be Jeff Bezos’ famous principle: “it’s always Day 1.” The Amazon founder and CEO wants his organization to run as lean and responsive as a startup on its first day, no matter how big it gets.
When beginning your first business, do everything you can to keep overhead low. Lower operating costs will relieve some of the pressure for you to generate revenue immediately.
One of the most common forms of unnecessary overhead for new small businesses is physical space. If you work remotely, does your business need a physical space? Even food businesses can begin as delivery services provided out of a home or an existing food business, if they’ll rent you time in their kitchen.
9. Choose the Right Business Structure
There are several common legal setups for small businesses in the US. Typical structures for a first-time business owner are a sole proprietorship or a limited liability company (LLC).
- A sole proprietorship is the most basic and least complicated legal form of a small business. It means a person is conducting business as an individual, and the business will be taxed accordingly. Under this form, a person is personally liable for the business.
- An LLC provides some of the protection of incorporation by separating the liability of the individual person and the business. In addition, the owner can still avoid being taxed as a corporation. LLCs are more administratively complex and must separate personal and business finances.
10. Have a Support Network
Almost every small business owner attributes their success to a community of supporters. And we don’t mean financial and business support (although that’s important too)—we’re talking emotional and mental support.
A mentor or team of mentors can be an invaluable resource for a first-time small business owner. Preferably, they have gone through the startup process themselves, so they can empathize with your situation and offer insight based on experience.
“The people in your support network can also act as your sounding board if you have new ideas about ways to run your business,” writes Alex Silady at SmartAsset. “If your marketing campaign for your new business fails to capture the attention of the people who are close to you, it probably won’t interest total strangers or potential customers either.”
Develop and maintain your support network the same way you’d develop and maintain any professional relationship. Network your connections to find mentors and approach them about offering informal guidance. Once you find mentors, communicate regularly and express gratitude outside of normal business contact. They shouldn’t only hear from you when you need something.
11. Delegate Responsibilities
Entrepreneurs can be control freaks. When you’re starting a small business, it seems to make financial and organizational sense to do everything yourself. Payroll and benefits for staff are huge expenditures. However, overextending yourself and trying to do work outside your expertise will quickly cost you money.
If you have so much workload that you can’t handle it or are even turning away paying gigs, it’s time to staff up. That’s a relatively easy call to make.
Doing work outside your expertise is a less obvious, but just as costly mistake. Small business owners find themselves wearing many hats: marketer, accountant, IT support staff, etc. One misstep in these areas could cost you big bucks.
Adele Cehrs, founder and CEO of Epic PR Group, writes on Inc.com about trying to be her own legal counsel as a first-time business owner and writing up a contract for a new client. “Many hours and $35,000 worth of work later, I lost that client when he claimed bankruptcy, leaving me $35,000 in arrears,” she says. “After that, I spent the money to make my contracts foolproof— even from myself.”
If you’re not ready for a full-time staffer, use consultants. You’ll see the benefits of improved work product and reduced mistakes.
12. Stay Healthy
As a first-time business owner, you’re willing to sacrifice for success. Perhaps you have romantic notions of late nights and fast food fueling your rise. But neglecting your health can be a trap.
Being physically, mentally, and spiritually healthy should be its own reward. Need more motivation? It makes you a better businessperson too. “One study found that workers who eat a healthful diet are 25% more likely to be more productive than workers who don’t,” according to Mike Kappel at allBusiness, adding that according to the Centers for Disease Control and Prevention (CDC), “23.2% of adults over age 20 reported they had trouble concentrating because of sleep deprivation.”
Do your best to eat right, exercise for 30 minutes a day, and sleep 6–8 hours a night. If you’re consistently sacrificing these practices for your business, remember: you could be hurting yourself in the long run.
Promote mental health as well. Mindfulness practice is increasingly common for entrepreneurs. According to Stephanie Burns for Forbes, mindfulness has been found to be helpful in “reducing anxiety, heightening productivity, and contributing to a greater sense of presence,” all very business-friendly outcomes.
13. Don’t Quit Your Day Job
Another common refrain from first-time business owners: “I wish I hadn’t quit my day job so soon.” Any venture has a chance of failing, especially your first. If you go all-in on a business when it’s just starting out, you may find yourself falling without a safety net just months later.
“But when you have the safety net of income from your job, you can treat entrepreneurship as a learning journey: Even if the venture fails, you’ve still gained valuable skills that can enhance your career,” says Dorie Clark in the Harvard Business Review. Clark also points out that income from your primary job can fund your side hustle. As we mentioned above, you don’t want to be dependent on investors for your first business, so self-funding is a good option.
Remember, success is subjective. Maybe your first business will be moderately successful and set you up for another venture, or maybe it will be a huge success that becomes your whole career. Maybe your business will end, but the lessons you learn will lead to something new. You won’t be alone: every successful business owner had to have a first.