How to Start a Business From Scratch: Easy Step-by-Step Guide

Coming up with a business idea is one step. Learning how to start a business from scratch is another step in becoming the entrepreneur you always dreamed of.

There are a lot of things you have to consider. From having a refined idea to planning your business structure.

Of course, you know that being your own boss, enjoying the flexibility with your schedule and keeping more of the financial rewards that come with business ownership has a lot of sacrifices accrued to it.

In fact, according to the SBA, 2/3 of businesses survive at least 2 years and approximately 50% survive 5 years.

So what is the reason for this high rate of failure?

Lack of, or poor planning can be a major factor.

And to get rid of this, you need to understand what it takes to start a business from scratch, and the steps involved. This article sheds a clear light on this topic.

What Does Starting a Business Mean?

Starting a business involves creating an organization that is primarily focused on a single product or service which it offers to the consumers.

Additionally, It involves many activities related to organizing the company. From generating an idea for the organization to researching the idea’s potential for success to writing a business plan. All of these processes are employed in starting a business.

As an entrepreneur who is just starting out, you are responsible for the financial risks of the business, as well as the operation and management of the business.

You may want to establish a small, local business organized as a sole proprietorship, or a large business, operated as a corporation.

Regardless of the size of a business, it has to solve problems to survive. Many large, successful corporations began as small organizations with a business idea that was significantly different from anything else on the market.

So, as an entrepreneur, you must be sure that your business idea offers a unique service to your customers.

And to do so, you must first know who our target customers are. Afterward, you can now identify what products they may like and tailor your services to suit their needs.

In general, when starting a business, you should have a plan on how the business will run for the next 2 to 5 years. In other words, you should have a time-based projection for your business.

This plan may cover short-term goals, ranging from 6 to 12 months, and long-term goals, ranging from two to five years.

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How to Start a Business from Scratch

To start your business from scratch, there are a few things to do. Firstly, you must realize that a lot of businesses have crossed the path you are on right now.

So, even if you don’t want to start from scratch, you can just read up on your favorite entrepreneurs and use the same tactics they used.

The bottom line is, you don’t need to reinvent the process, you just need the right information.

So, the question now becomes “What will I do with the business idea in my head right now?”

Here are 11 things you should know.

#1. Refine your Idea

Yes, you may have a very good business idea in your mind that has high potential of succeeding. But, if you look closely, something may be odd.

It could be your plan, how much you want to invest, how many people you intend to hire, how you want to present your services to the market, It could be anything.

This is why the first step is to go through your idea and be sure there are no loopholes. Of course, your idea is good, but it can be better.

#2. Do your research

You have a brilliant business idea that will scale in no time. But the question is “Have you done your research?”

Read books about business, listen to podcasts of your favorite successful entrepreneurs. Listen to the mistakes they made, and find out what they did to ensure you don’t make the same mistake.

Also, while researching, figure out what you can do better, if the market is saturated, why the market is saturated, how can you penetrate the market and generate leads that will in turn drive sales? Figure out who your target market is and how you can reach them.

If possible, build a prototype for people to use, touch and look at. If a prototype is not possible or it’s a service business, then offer a highly descriptive presentation of the business plan complete with it’s unique benefits and how it’s different from the competition.

Most importantly, understand the “why of your business”. You are going to have to do something better, and you’ll only find it out in your research.

Keep in mind that you’ll never come up with a universally loved product, your job is to produce a product or service that appeals to the broadest range of your target market.

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#3. Write a business plan

With a refined idea, and a solid result from your research, its time to write a business plan.

Your business plan will contain answers to questions like,

Why am I starting this business? Who is my target audience? How much will it cost to get started?

Asides these, your business plan should contain;

a. Executive Summary

This should lay out the businesses product or service and the problem that it solves for the consumer.

b. Market Evaluation

This section should talk about the market you are serving. Is it an expanding market, and how does your product fit into the already existing market.

c. Market Strategies

This segment should answer the question of how you intend to penetrate the market and sell your product or services.

d. Operational Plan

How do you intend to run your business, Who will be your key employees, and what are their specific roles. Will these employees have targets given to them each month.

While writing your business plan, it is important that your put your best foot forward.

Playing up the positives while minimizing the negatives is almost expected in a business plan.

Moreover, banks and other professionals who will want to invest in your business will do an in-depth analysis before putting any money into your idea.

#4. Do your risk analysis

Before starting that business, its imperative that you carry out a risk analysis of your business. What investments will you take in future that has a high risk potential?

Think about it. Because, many businesses comes with risk. So, the earlier you determine which risk level you can take, the better for your business.

One hack to this is to consider an exit strategy. It will help you figure out how to overcome any potential difficulties and what you need to sustain it.

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#5. Evaluate the Costs

Its not enough that you have a viable business idea. The next most important thing to consider is the cost of turning that idea into a business.

Every business requires capital, so you need to know how you’re going to get the finances to fund your business.

Are you going to be working with a team? Then you’ll have to consider the cost of paying these people.

Will you need equipment? If yes, you’ll have to determine the cost of acquiring that equipment.

Also, check the expenses you’d make, to ensure you wouldn’t be spending into your capital. You know that a startup doesn’t produce profit for at least the first five years of business.

So, how do you intend to get that money?

a. Self Funding

If you have the money to fund your business then this is the easiest. You don’t have to go to the banks or look for investors to invest in your business.

But this is not an option for most people as they don’t have the money to invest in their business.

Regardless, there are still other options available

b. Friends and Family

Your friends and family can be a good source of funding for your business. Go ahead and send out your business plan to everyone you know.

Then follow up, be prepared to tell them the total amount of money you expect to raise, the minimum investment you are looking for and what you will give in return for the investment.

c. Banks

Banks could be another source of funding for your business. However, the irony is that they are willing to give you money when you don’t need it but become stingy when its time to get a loan.

Before you approach the bank, go over your business plan with an expert and verify all the numbers and data that you provide.

Also be very familiar with your business plan, so that you can answer any question they might have.

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d. Crowdfunding

You can also source funds from several crowdfunding sites like Kickstarter or GoFundMe.

Other Important things you need to consider when starting a business from the scratch is;

You’ll need to determine your business structure. Whether you’d operate as a sole proprietorship or a partnership or an LLC.

a. Sole Proprietorship

Most small businesses choose to operate as a sole proprietorship. This is because, it allows most business owners use their personal account instead of a special business bank account.

Additionally, you as the sole proprietor has total control over all decision making.

The downside to this is that you are personally held responsible for the debts and liabilities of the company.

b. Partnership

A partnership is formed when two or more people decide to start a business. This can be another legal way to structure your business.

However, it is important that before you enter a partnership, you must have a partnership agreement.

The advantage of using the partnership structure is that its relatively easy and inexpensive to start.

Hiring key employees can be easier as you are allowed to give equity ownership to as many partners as you want.

For tax, each partner pays tax on their individual portion of the partnerships income.

The downside to this is that it can be difficult for some general partnerships to raise capital.

Because it is a partnership, the actions of one of the partners can affect the entire organisation.

Additionally, all profits must be shared according to the partnership agreement regardless of the amount of work done by any single partner.

c. Limited Liability Company (LLC)

This is the most popular business structure for various business entity. This is because, the setup cost is not prohibitive and there is a separation between the owners and the company.

The main advantage of this type of business structure is that it provides some protection against certain debts and liabilities that are solely the companies.

For tax purposes, its only going to be once, on an individual level.

d. Corporation

Another business structure you might want to consider is a corporation. A corporation is legally considered an independent entity that is seperate from its owners.

The advantage of this type of structure is that the owners cannot be held personally responsible for any debts or liabilities of the company.

The downside to this is that, it has higher administrative costs than any other business entity.

Also, you’d need to obtain license and permits fro the state where your business is located.

#7. Register with the Government

Different types of business entities have different registration and administrative requirements.

So, endeavour to register your business with the state.

#8. Build a team

If you’d need to work with people, which you definitely will, then go ahead to build your team.

Do you hates sales and marketing? There are tons of people that will be willing to do that for you.

What about Accounting? There are a ton of small accounting firms out there that will take care of that for you.

Whatever job you need to be done, figure out who will get it done and implement the solution.

#9. Buy Insurance

No matter what kind of business you start, you need insurance! Of course, no one likes to buy insurance, but it can be the difference between having a minor inconvenience and declaring bankruptcy.

#10. Brand yourself and advertise

Good branding is always important for any business to thrive. So figure out the best way to package your business to grab the attention of your customers.

#11. Grow your business.

Continuously review the strategies put in place to see the growth of your business.

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Business That Started From The Scratch

We wouldn’t just show you how to start a business from scratch without giving you some businesses that went through this procedure.

All of these businesses have grown to be big brands today.

#1. Oprah Winfrey

The powerful woman we know today as a talk-show host, writer, campaigner, Golden Globe winner, and a global icon was actually born into poverty in rural Mississippi and raised in inner-city Milwaukee.

After a troubled childhood, Winfrey landed a job in radio while she was still in high school.

By 19, she was a co-anchor for the local evening news. Soon after, she became a daytime talk-show host and went on to launch her own production company.

At 32 years-old, Winfrey was a millionaire. By 2000, she had a net worth of $800 million, making Winfrey the richest African American of the 20th century.

In 2008, her yearly income had increased to $275 million. By 2014, Forbes claimed that Winfrey had a net worth in excess of 2.9 billion dollars. The reason she did so well? Because she aligned her work with her passion.

#2. Steve Jobs and Steve Wozniak

Everyone knows the story of Steve Jobs and Steve Wozniak, the men who started Apple Computers in a garage in Los Altos, California.

The duo had pulled-out from their respective college courses and began developing consumer computer devices in Jobs’ parents garage in California.

But before this, Steve worked different low-paid jobs, including one when he was 13, for Hewlett Packard.

After developing a couple of different models with Wozniak, the duo knew they would need more financing.

So Jobs had to find a guarantor to get a bank loan for $250,000. But he more than succeeded: When he died, in 2011, he was said to be worth $10.2 billion. He had built this up over time.

He had a million dollars to his name in 1978, when he was just 23. As for his legacy? Well, it’s everywhere around us. In our pockets, on our screens, at the cinema.

#3. Richard Branson

Richard Branson may be synonymous with entrepreneurial success, but he came from a humble beginning, at one point believing he was “the dumbest person at school.”

His first attempt at business was by founding Student Magazine that he launched in 1966.

The youth magazines of that period were too “boring” and his ideas for the magazine were too “revolutionary” for that time. So he created a space that will allow fresh and new content that will interest the student audience.

At first, he was very short of cash, but after a stroke of luck, which saw him inherit £100 (which is the equivalent of $1500 today), he was able to pay his bills and keep the publication going for a few issues.

The magazine was a success, and from this tiny acorn, the seeds were sown for his future success. He’s now the founder of brands including Virgin Records, Virgin Atlantic, Virgin Money, and his latest venture, Virgin Galactic — which he believes will be the world’s first space tourism company.

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#4. Sophia Amoruso

Sophia Amoruso is the founder of Nasty Gal. She began her empire by scouring the racks at second-hand stores and selling her vintage finds on eBay.

She used the money from her sales to move her stock into a warehouse and used MySpace and other social media platforms to attract customers. In 2016, her net worth was $280 million.

But life wasn’t always a rosy entrepreneurial journey. As a young adult, Amoruso lived a strolling lifestyle, hitchhiking on the West Coast and grabbing food from bins to make ends meet.

More recently, Amaroso has lost half of her fortune but her star is still rising. She continues to evolve her personal brand, focusing on a best-selling memoir, a coffee table book, and a binge-worthy Netflix series about her past, Girlboss.

#5. Ralph Lauren

Ralph Lauren graduated high school in the Bronx, New York, but later dropped out of college to join the US Army.

He was working as a sales assistant at US menswear store Brooks Brothers when he began to wonder if men were ready for something more colourful, and stylish when it came to ties.

In 1967, he decided to try his hand at running his own business and he started selling ties. In his first year of trading, he sold $500,000 worth of merchandise.. He started Polo the next year.

The Ralph Lauren Corporation is now a global multibillion-dollar enterprise counting A-list models and actors as close friends.

As of 2018, Forbes estimates his wealth to be $7.2 billion, which makes Ralph Lauren the 91st richest person in America.

All these men have something in common, they all started their businesses from the scratch, sourced for funds and grew their businesses to be household brand names now.

The secrets they employed can be found in several business books which i’ll list below.

Books to Guide You When Starting a Business From the Scratch

Starting a business from the scratch requires proper guidelines from successful entrepreneurs.

Some of these guidelines can be seen in books by bestselling authors.

Below are some books to read to guide you when starting a business from the scratch.

#1. Start Now, Get Perfect Later by Rob Moore.

If you have a burning ambition, brilliant business idea or creative passion, now is the time to get going.

Learn how to launch your business or idea, begin the next phase of your career, or make that important life decision – right away.

#2. How They Started by David Lester

Lots of us have ideas we think would make great businesses. Most of us never do anything with those ideas.

This book is about 30 people like you. They all had an idea and went on to start a business. Those businesses are all extremely successful, and most are household names.

#3. How They Started Digital by David Lester

The media is full of headlines about the latest digital success story of a young billionaire.

But how do these businesses actually get off the ground? What are the steps to turn an idea into a thriving company?

In this book, the author tells a fascinating stories of how 25 famous and highly successful digital businesses were set up from nothing.

In Conclusion

Learning how to start a business from scratch can be one of the rewarding experience one can have.

But what’s more rewarding is starting a business from scratch is watching it grow into a big brand that is successful and profitable.

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