Did you make a New Year’s resolution that this would be the year you would finally build your own business? But, as you began making concrete plans along the path of business ownership, you found yourself overwhelmed, not knowing where to start. Maybe you’re already considering abandoning your resolution just like you have for the last few years (or longer). We know that it’s not going to be for everyone, but if the idea to build your own business appeals to you, then maybe it’s something that you should spend some more time on before you abandon the idea, putting it off for another year. Toward that end, we created this post to help you make a start to at least figure out whether you should invest some time and money to build your own business.
Should you build your own business?
When you build your own business, you must consider both the rewards and risks inherent in pursuing this endeavor. In business, we call this a cost/ benefit analysis so you might as well start by learning a core concept of business management. Let’s start with the upside of having your own business.
Benefits when you build your own business
Some benefits you gain when you build your own business are tangible, such as the profits, and some are intangible, such as the control you have over everything about the business and your role in the business. Let’s start with the tangible rewards.
Higher income is possible when you work for yourself than when you’re an employee. As an employee, you likely make a defined salary and benefits (unless you work in commissioned sales). And, with executive income increasing relative to that of the average worker (344 times the average worker’s wage in 2022 compared with just 21 times in 1965), that means you’re working hard for someone else. If you just want to build your own business to replace your income, you stand a good chance of earning 50% more than if you’re working for someone else. And, if you want to build a high-growth business, that’s also possible. Look at the owners of Amazon, eBay, Facebook, and other high-growth startups that are now worth millions (and billions) of dollars to their founders.
There are also intangible rewards you should consider before deciding to build your own business. Here are a few of them.
More control than when you work for someone else. Small businesses can quickly pivot when new opportunities open up and decisions like that make it attractive to own your own business. I once heard Charles Geschke speak about the early days at Adobe. They completely revamped their business model quickly when approached by prospective customers with an opportunity; meanwhile, Xerox, where he developed the software, didn’t even want to pursue marketing it.
Control doesn’t stop with determining direction. You also control who you work with, what you do, how you meet your goals, etc. If you want to close for a few days or work weird hours, that’s your decision. If you want to bring your kids or your dog to work, you can do it. Working for yourself has some great perks.
Psychic rewards are also a feature of owning your own business. You may feel a sense of pride and accomplishment when your business succeeds or even if you learn valuable lessons from its failure. You may feel good about providing jobs or needed services for your community. And, entrepreneurs are often seen as good role models and have status in the community.
Risks when you own a business
Of course, starting your own business is risky. You can lose any money invested in starting the business, and often, you’re responsible for paying off any debt incurred even if the business goes belly up. As you can see below, the chances of failure are a serious concern. You may also face cash flow problems if you must give up your job to pursue your business.
In the US, you also lose your insurance when you form your own business, and this offers a big risk as private insurance is expensive, even after the passage of Obama-era healthcare and the expansion of exchanges. A serious illness might wipe out your savings and make it impossible to make a profit from your business.
Questions you should ask before you build your own business
Are you a strong leader?
One of the things that you are going to need to think about is whether or not you would consider yourself a strong leader. As a business owner, you need strong leadership skills and the ability to communicate with a variety of different people. One of the biggest challenges I see once a business turns revenue-positive is the ability of leaders to delegate rather than continue to try to micro-manage everything in the business.
Your employees will respond to strong leadership, and a business will thrive under strong leadership. You know what they say – a team is only as strong as its weakest player, and you should never be the weakest player as the one in charge.
Leadership is MUCH more than just determining direction and giving orders. A good leader motivates and empowers their workers to:
- reduce absenteeism and turnover
- achieve optimal performance
- build a good, collaborative team
Leadership means supporting and growing your employees, more like a coach than a dictator.
What kind of business should you start?
What kind of business would you start if you had the choice? Is there a gap in the market right now that actually appeals to you? Do you have special skills that make this a good fit? Do you have some kind of passion project you’d like to spend time developing?
Consider your answers then explore the market within those niches. Of course, some people like to come up with their business idea first and then see if there is any room for something like this on the market. That’s okay as long as you don’t fall for the area so hard you feel you can’t abandon it if the market potential isn’t there. Maybe you can put the idea on the back burner until the time is more advantageous. Also, don’t fall for the sunk cost argument that you must continue even if the idea doesn’t look viable because you put so much time and effort (and maybe money) into exploring the idea.
Here are some things to consider as you explore the viability of your idea:
- Market potential: what’s the need for the product, and how much are people willing to spend to solve the problem it serves? A variety of sources can help quantify the market potential in most markets.
- Level of competition: if the market already features a number of competitors or several strong ones, it might not be the best market for you. Use tools like the product positioning map shown below to map critical consumer decision variables against perceptions of where consumers view existing products along this grid. Software can develop 3D models that compare across more than the two decision variables (called hot buttons) shown in this image.
- Environmental factors such as changing consumer culture, technology, and anticipated changes in the economy.
- Potential for new entrants into the marketplace that might change the nature of the competition.
- Barriers to entry such as high startup costs, level of expertise needed, and competition for skilled workers
Build your business strategy
Before making a final decision, you should build a business plan to determine your needs once you start the business. Some things you need to put into your business plan are:
- Your mission, values, and goals as a business
- Your financing needs and where you might find the money to start your business
- How will you market your business? Since sales are the only source of free money to run your business, you NEED marketing. Digital marketing makes marketing your small business much less expensive than traditional advertising. You likely want a
- website – For a lot of people this is the first impression that they will get of a business, and it’s gotta be a good one if you want them to stick around. This means including photographs of the team and products taken by a professional photographer. You’ll also need a logo and brand images, which may mean hiring a graphic designer or using an AI tool like Dall-E to create images. You need a well-designed website that’s easy to use, and loads quickly if you want to seem professional to visitors
- social media platforms
- an email marketing program for lead nurturing
- some business cards for networking events
- A timeline of your business. For instance, you might start building your own business while still working for someone else. This ensures you still have money coming in to pay your bills while supplementing your income with business income. Put your launch date into your timeline and work backward across all the activities you need to support your launch.
- Where you’ll source products for resale or how you’ll build products to deliver high-quality to your customers. Services are also products and you need to determine how to deliver services that meet customer needs every time.
Once you’ve roughed out the strategy, you have the information you need to make an informed decision about whether to build your own business.
Of course, this isn’t a tutorial on how to actually build your own business but more about how to make the decision to pursue the opportunity further. If the answer to all your questions suggests you should pursue the opportunity, you must flesh out your business plan in much more detail and begin making progress along your timeline. We’re here to help, so find more information to get you started using the Entrepreneurship 101 category.
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Hausman and Associates, the publisher of MKT Maven, is a full-service marketing agency operating at the intersection of marketing and digital media. Check out our full range of services.