Starting a small business in the United States has never been easier and, in fact, small businesses make up the backbone of the American economy. 9 out of every 10 employees works for one of the 28 million small businesses across the country. Each month, a half million new businesses enter the market, of which about 70% will last at least two years and one-third will last longer than 15 years.
But what does it mean to be a small business? The traditional “American dream” for a small business is something along the lines of a brick and mortar office or store, a steady salary, perhaps a few employees and, if it ends up being sustainable, a family asset to pass along to the next generation. Over the last few decades, however, that popular idea has begun to change, particularly when we start thinking about small businesses like tech startups.
While all businesses “start up” and start out “small”, not all “small businesses” are “startups”. Whereas a small business is founded to be profitable and create a good living for the entrepreneur and his or her family, a “startup” is founded with the intention of rapidly achieving exponential growth through scale, and either being acquired in a few years by a larger company, or becoming a “unicorn” and going public in an IPO…in both cases bringing in massive returns to its founders and investors.
While this type of venture seems quite different from the traditional corner store where the owner greets each customer by name, many of the first steps in starting a successful business—either small or high growth—are rooted in universal best practices.
What then can the small business owner learn from the startup entrepreneur? The answer is, a lot.
For the past 45 years I have been a serial entrepreneur, founding over a half dozen companies. I’ve also been an active business angel investor, having personally funded over 100 other startups. I’ve founded, taught in, or advised many of the country’s leading entrepreneurship training programs, and as the founder and CEO of Gust, I’ve learned from the aggregate experience of providing the tools used by more than half a million startups around the world.
One of the most valuable lessons I’ve seen proven true over and over again, is that many of the biggest obstacles that businesses face along the way can be avoided IF you take care to start things up correctly from the beginning. When launching a company, investing a little bit of time and money at the very start can pay large dividends later…but only if you have a solid foundation, a thoughtful structure, and a strong focus.
Many of the critical first decisions need to be made earlier than one might think. Here are the first seven steps every entrepreneur—including the small business startup—should take to ensure a solid footing for their business down the road.
- Get smart
There are thousands of books and articles available about starting a company. It is impossible to read and follow every piece of advice, but it is valuable to know the different strategies and perspectives that are out there and to apply the most fitting to your venture.
Especially for first time entrepreneurs, there are many, many people who have already learned hard lessons through trial and error—take advantage of their experiences and your business will start off ahead of the game.
- Answer the question: What is your business model?
Establishing the business model for your business is something that might not be as easy as it sounds. Do not waste your time looking for partners or investors, performing competitive research, or even moving forward with a website, before you have a clear idea of what need your business will fill, how you will fill it…and most importantly, how you will create value and monetize whatever it is you do.
- Feedback Round 1: the first of many
It is easy to get wrapped up in your own brilliant idea for a business. Give someone else the chance to tell you what they think. Run your idea by others in the field, especially others who have started a business from scratch, or anyone you respect and think may have good feedback. Fight the confirmation bias and truly listen to each critique. That is not to say that you must act upon every suggestion, but listen carefully and weigh each as a serious possibility to help strengthen your business.
- Analyze the market
You must understand the landscape you are about to enter, inside and out. And you must be realistic about where your business will fall in that landscape. First, know who else is out there with a similar offering and identify your differentiating qualities. You do not necessarily have to be the first to market, as more than one major player can coexist in the same ecosystem, but you need to have a realistic understanding of the size of the market. More than one major player can succeed, but an accurate read of the market can set expectations and guide your business plans.
- The Business Plan
Many entrepreneurs draw up a complicated business plan as step one, but end up wasting a lot of time rewriting it as they work through their business concept. If you’ve done all the previous legwork and feel confident that your concept is marketable, viable and profitable, the next step is to begin to write it down. You’ll want to use a simple, structured format to note the various things that you are going to need to do to implement your business idea. For now, don’t worry about a long document for investors…just start by writing down bullet points outlining what is supposed to happen, a timeline, assignment of responsibilities, cost analysis, and revenue projections. There are some great resources available for this, and the best I’ve seen is the web site leanplan.com, by Tim Berry, the legendary author of Business Plan Pro. The site offers an online course you can purchase, as well as commercial online tools such as LivePlan, but it also includes the entire text of Tim’s book “Lean Business Planning” for free. As you’ll learn from Tim, the most important thing about a business plan is not that it be long, but that it be live. An effective business plan is a living document, reviewed and updated every month, that adapts to the market, the field, and your actual results.
- Feedback Round 2
Now that you have channeled your knowledge, research, and business idea into a structured, quantitative plan with strategies and tactics, you should get another round of feedback before going live. This is when you want to speak with people who are knowledgeable about your specific field. Try reaching out for advice to people you respect in your industry. If you are respectful of their time, and not asking them for money, you may be surprised at how responsive they might turn out to be. At this stage you are looking for substantive comments about the business and market, along with specific critiques (don’t take offense; listen to them carefully!) and actionable insights. Refine and perfect your plan with this round of feedback before there is any infrastructure in place, clients on board, or investments made.
- Put it to the test
Even with all this background work, there are many things you just can’t anticipate until real users are involved. It is best to do a soft launch of your business with a small number of customers who you can easily track, analyze, and use to adjust your projections. The biggest test will be to see if customers really want or need what you are providing, and to understand if they are willing to pay for it at a price at which you can afford to supply it. At this point, theory becomes practice, and you will be able to put final tweaks on pricing and process to best fit the market. These initial tests will provide the quantitative analysis that investors or potential partners want to see.
Whether you are creating the next global app or opening a local small business, the same preliminary steps are crucial to success. From there, traditional small businesses and high growth startups may have differing paths, but the best of both of them are based on strong foundations. Entrepreneurship is, after all, at the heart of every good business…whether high-growth and scalable, or small and independent. Good luck with yours!
This article was originally published at Forbes.com.