You’re starting a business, and you’re not sure if you’re ready. It seems like being your own boss and building a business from the ground up would be fun! And a ton of hard work and sacrifice, with no guaranteed pay off.. The second half of that description didn’t scare you off, which means entrepreneurship could be for you.
Before you move forward with any costly decisions or commitments, here are four questions you should definitely have an answer to.
1. What kind of business do you want to have?
Before you do anything else, figure out your vision. Are you looking to change how the world does something or are you looking to build an innovative product that lets you quickly cash out? Do you care about profit only or does your company have a social/environmental purpose or influence? Do you mind having non traditional work hours/days or are you looking for as much stability and predictability as possible?
Your lifestyle might dictate your industry. Don’t like the idea of working weekends and holidays? You probably shouldn’t get into retail. Or maybe it’s your financial interests and lack of experience. Some people find that they are better off buying into a franchise rather than starting their own business from scratch because you basically get a step by step guide on how to run the business from your franchisor and profits typically come much more quickly. For others, it’s their dream. Some people are so passionate about their idea and doing things their way that they will sacrifice anything to actualize it. Everyone is different, and your business should reflect who you are.
2. What capital do you currently have to work with and how much are you willing to borrow?
Nothing kills a dream quicker than the crushing reality of finance. You need to take a realistic and thorough evaluation of your cash and personal finance situation. Unless you’re buying a franchise, profit will probably be a far off distant goal, and you may need to go months without giving yourself any kind of salary. What does that mean for your family and any big expenses you can foresee popping up in the next few years? Do you have existing debt and if so, what kind of impact will starting this business have on your ability to pay it off?
Once you know exactly where you’re at, evaluate your options carefully. What kind of loans do you qualify for? Are there assets you own that you can borrow against to get the seed capital you need to get off the ground? The type and amount of capital available to you will dictate a lot of your options when you’re first getting started.
3. What do you already know how to do?
What kind of experience do you bring to the table, what are your greatest strengths, and what sort of connections or advantages can you provide to your new business? Building and managing a business require a wide range of skills, and most first time entrepreneurs only have a background or experience in one or two aspects of it. Have an honest conversation with yourself about your capabilities and shortcomings to figure out where you can learn new skills and where you need to hire support. Some skills can be developed, while others can’t.
4. Is failure an option?
There’s something to be admired about entrepreneurs who are “all-in.” But what many don’t realize is just how high the failure rate is for first time businesses. Starting a company is a huge decision that should never be taken lightly. If you have an escape plan laid out, when is the point of no return? How long are you going to give this a real try and at what point do you reach your deal breakers? Understanding your own limitations personally, financially, and emotionally are all crucial to entering into this world. If you get in over your head, it can be a swift fall to the bottom.
Be as realistic and thorough in outlining your own limitations as your are in describing your potential success (maybe more so.) Entrepreneurship is mostly a journey with the off chance of a destination. Know what you’re signing up for and make sure you’re the kind of person that thrives under those conditions.
The more time you put in up front into evaluating this decision, the greater your odds of success will be. Knowledge is power; make sure you’re taking advantage of every piece of knowledge you can acquire so you make the right choice for you, your lifestyle, your financial obligations, and your passions.