The following top 10 list is adapted from Carol Roth’s book The Entrepreneur Equation
Are you tired of working for someone else?
Do you think starting your own business could set you free?
Think again! The failure rate for new businesses is gloomy.
In fact, the great majority of businesses (up to 90%) fail within five years.
The reality is that the average business does less than $100,000 in sales, is not innovative, and has no plans for growth (from Professor Scott Shane, in his book The Illusions of Entrepreneurship). The majority of businesses (60%) do not earn a profit over their lifetime.
Yet despite incredibly high failure rates, over 6 million people start a business each year. Before you decide to join the ranks of the self-employed, find out if business ownership is right for you.
Are you ready to be an entrepreneur? Consider these 10 steps.
Step 1: Define your motivation.
Ask yourself why you really want to start a business. Are you looking to get rich quick? Do you want to showcase your talent or service? Are you tired of your boss taking credit for what you do? These are not reasons to start a business. On the other hand, if you love the idea of running an entity, if you like creating systems and procedures, adore servicing customers, and if you thrive on wearing many different hats and balancing responsibilities, then entrepreneurship may be something to look into.
Step 2: Say hello to your new boss.
Wait, I thought I was in charge now. Not exactly. When you start your own business, you are no longer in control. And, you may not have the freedom you think you do. See, you are controlled by your customers, investors, and lenders – and you are personally responsible for answering to all of them, all of the time.
Step 3: Evaluate how well you work with others.
Many people dream of opening a business as an escape – from the annoying coworker who won’t leave you alone, or from an overbearing boss. But having a business doesn’t mean you no longer have to interface with people. In fact, it’s the opposite. To get clients, investors, and others to help you with your business (including accountants, lawyers, and more) you’ll need to keep your people skills sharp.
Step 4: Add up your responsibilities.
Owning a business is very much like raising a child. It’s a 24/7 job. Will you be able to respond immediately when your “child” has an emergency? If anything happens to the business (including a loss of your investment money and income), how will it affect your family or home life? Consider the worst-case scenarios when evaluating your responsibilities and impact to your current lifestyle.
Step 5: Look at your management and industry experience.
Being able to manage employees and vendors is the type of entrepreneurial skill you’ll need to acquire before starting your own business. You’ll also need to know your industry inside and out, including aspects you may not be familiar with or may not even like, including marketing, accounting, and more. Don’t have the experience you need? Spend time working in a similar company, shadow a business owner in your industry, or accept an internship. Test the waters first with a trial run before you start your own company.
Step 6: Take stock of whom you know.
Business comes down to not what you know, but whom you know. If you don’t know many people, you may be tempted to overlook just how important it is to network and be connected. But good connections are worth their weight in gold. They will get you interest from investors and lenders. You’ll receive better financing, prices, terms, and conditions from business suppliers and professional services. And you’ll receive more customer referrals.
Step 7: Be honest about your relationship with money.
Are you financially responsible? Do you have any money to invest in your business, or will you be relying on others? Do you panic about spending money or avoid financial risk at all costs? Don’t expect your relationship with money to change just because you’ve opened a business. Opening a business requires money — enough for you to start, operate the business and to live on — as well as sound financial management.
Step 8: Assess your personality type.
Do you prefer the “status quo” and like to avoid the unexpected? Can you handle a life of highs and lows – including financial highs and lows? Could your savings and bank account handle financial lows as well? If you are a person who likes stability and control, or if you prefer when things go as planned, the roller-coaster ride of a new business may not be right for you.
Step 9: Examine the marketplace and your competition.
Before you leap into entrepreneurship, take a hard look at the marketplace and your competition. Is your market saturated with successful businesses? Is your industry littered with so many bad businesses that it’s developed a bad reputation? Both good and bad competitors will influence just how successful your business will be. You will need to market and brand your business to shine above the good competitors, and to make up for the bad ones.
Step 10: Test your scalability.
The most successful businesses rely on automation and delegation. Will other employees be able to do your work? If not, can you teach others what to do in an easy-to-follow format? If your business relies on your skills- and your skills alone – you might have a successful job, but not a successful business.
— Adapted from: The Entrepreneur Equation: Evaluating the Realities, Risks, and Rewards of Having Your Own Business (BenBella Books, March 2011).