Today’s article is a guest post by Joel who is a CFP® that has started 5 small businesses: a health insurance agency and 4 other Internet companies that hold a portfolio of different money making websites. Some of his most recent projects include a website for comparing credit cards, a website for comparing car insurance, and a website for comparing homeowners insurance quotes.
(Craig’s Note: I thought this post fit well with my ongoing series on how to Start Your Own Home Based Small Business).
Starting my own business was easily the best career decision I have ever made. In fact, I have started 4 more companies since starting the first! While each progressive startup company was easier to start than the previous one there are certainly new things that I learn each time.
Top 5 Things To Know Before Starting Your First Company
#1 You Don’t HAVE to Incorporate to Start a Business
One day while I was working my J-O-B in a local CPA’s office as a tax preparer (this was years ago before starting my first business and becoming 100% self employed) I sat down to do the tax return of one of our clients who just so happened to be a cheerleader for the Tampa Bay Buccaneers. While assisting the head CPA prepare the tax return I began to realize that since the client was paid via a 1099 and treated as an independent contractor there were a number of different business expenses that the client could write off that were associated with her cheer leading business.
I began to look closely and there was no mention of any business name anywhere to be found. Of course, what I soon learned was that the CPA was simply treating the cheer leaders 1099 income as income earned in the client’s sole proprietorship named “Sally Smith Cheer Leading” that was then placed on Schedule C of the client’s 1040 personal income tax return (not the real client name of course).
This was a gigantic eye opener for me because while I had always had entrepreneurial dreams I was always under the misguided assumption that I needed to form an LLC or incorporate before I could begin working for myself. Of course, forming an LLC or incorporating is almost always the smart thing to do since being a sole proprietor leaves your personal assets exposed but I am embarrassed to admit that one of the biggest hang-ups for me to starting my first company was the mistaken belief that I had to file form after form and get bogged down in piles of paperwork and fees just to even form a company.
(I have also learned that at least in my state of Florida it is very easy to form an LLC and even elect different methods of being taxed as I have some of my LLC’s taxed as S corporations and some taxed as partnerships).
In a nutshell, I would certainly recommend forming an LLC or incorporating but do not let that cause you to procrastinate on starting your company (even if it is set up as a sole proprietorship at first) and testing our your business model!
#2 Selling is Absolutely Crucial
I learned the importance of selling very quickly. You can have the best product or the best service but if no one knows about it then you will soon find yourself out of business.
I remember stumbling across a website that taught CPA firms and law firms how to sell their services to clients and I can remember distinctly the light bulb flicking on – “Wow, even accountants and lawyers have to sell”. If you are a technically oriented person or an introverted person or someone who just flat out hates sales (I might actually be all 3 of those things ) then either partner with someone or hire someone who can balance you out and commit to being a strong sales person.
If you don’t force yourself to sell or find someone to sell for you (or something to sell for you like a website – i.e. I would hate myself if I had to go around door to door and ask people if they were in the market for a new credit card but building an information rich website about credit cards to do the selling for me is certainly something that an introvert like me can handle) then you will likely be in for a rude awakening when your business does not take off like it should.
#3 Develop a System
Even if you are starting a company and you are a one man shop then you should still develop a system for running your company. If you have plans to ever hire employees, hire sales people, or expand your company then you need to start documenting what you do and how you do it so that you can expand. I also learned that as I wrote things down and documented things that I not only become more organized and prepared for expansion but I also seemed to refine my business processes so that they become better and better. If you are a perfectionist or someone who can easily get bogged down with minutia then it is important to note that I am NOT saying to spend all of your time documenting your business instead of actually doing the things that cause your business to make money. Just plan to expand and prepare to expand and keep working hard to grow your business.
#4 Ideas are Nice but Execution is King
Everyone has an idea for starting a business. Ask your uncle, your cousin, your neighbor, or your brother in law. Everyone is ready to tell you about this great idea that they once had or have for starting a business. Of course, most of them never got around to actually putting their ideas into action but they love to talk about their ideas that is for sure.
I love this quote from Derek Sivers that is mentioned in Chapter 6 of “Getting Real” so much that I even put it up on my Facebook profile page under the favorite quotes section:
It’s so funny when I hear people being so protective of ideas. (People who want me to sign an NDA to tell me the simplest idea.)
To me, ideas are worth nothing unless executed. They are just a multiplier. Execution is worth millions. Explanation:
- Awful idea = –1
- Weak idea = 1
- So-so idea = 5
- Good idea = 10
- Great idea = 15
- Brilliant idea = 20
- No execution = $1
- Weak execution = $1000
- So-so execution = $10,000
- Good execution = $100,000
- Great execution = $1,000,000
- Brilliant execution = $10,000,000
To make a business, you need to multiply the two.
The most brilliant idea, with no execution, is worth $20. The most brilliant idea takes great execution to be worth $20,000,000.
That’s why I don’t want to hear people’s ideas. I’m not interested until I see their execution.” —Derek Sivers
Some people like to say that “Fortune favors the bold” but I like even better the verse in the Book of Proverbs that says that “In all labor there is profit”. I take that to mean that just like Craig recently mentioned the Biblical value of work there is something to be gained from just getting out there and going to work on starting your business even if you are still unsure of a lot of things.
#5 Start Right Away
I recently completed my MBA and one of my program “tracks” was a concentration in entrepreneurship. I can’t tell you how many different ideas that I heard from fellow classmates about starting this business and that business and doing this and doing that but the funny thing was that no matter whether the person was young or old most of the ideas were always about things there were going to do someday in the future.
I was always tempted (and I sometimes gave into the temptation) to ask, “What are you waiting for?” The responses varied but you and I both know that there is never an ideal time to start a business as there are always bills to be paid, day jobs to work, family to spend time with, TV to watch (Wait – did I just say that!? ), etc.
If your goal is to start your own company then the longer that you put off starting a company the greater the chance that you will never end up starting one. What are you waiting for?
To read other articles in this series see:
(Craig’s Note: Next week we’ll be back on track with our post on How to Keep Your Small Business Without Losing Your Family)