According to the Small Business Administration, half of businesses fail in the first five years, while more than 20 percent fail in the first year. Those are some pretty startling statistics, but they don't have to be discouraging. While there's plenty of room for failure, there's even more for success.
In order to succeed, however, your startup needs a strong foundation on which to build. Below are five of the most important components a new business needs, and how to gain each one.
1. A strong peer-support network
For new entrepreneurs, a network of peers and mentors is of greater importance than product and finances.
"If I had to name the single characteristic shared by all the truly successful people I've met over a lifetime, I'd say it is the ability to create and nurture a network of contacts," wrote Harvey Mackay in "Dig Your Well Before You're Thirsty" (Currency Doubleday, 1997).
Will Foussier, CEO and founder of Ace-up, said a strong network is key because it connects you with a talent pool, potential talent, industry experts and people who can provide legal advice.
"My advice for new entrepreneurs would be to think about the environments that are going to help you build momentum, get visibility, develop connections and have access to resources," he said.
How to build a support network
- Find a business innovation lab. Foussier highly recommends business labs as a way to connect not only with young entrepreneurs at the startup stage, but also with successful businesspeople and serial entrepreneurs who are interested in mentoring the next generation. Check with local colleges or look for online groups like WeWork.
- Join a professional organization for your industry.
- Join the Chamber of Commerce or other local business organization. "It can enable you to get quality feedback on what you're doing and see if there's a real demand for the type of products you're building," Foussier said.
2. A product people want
This may seem obvious, but one downfall of a new business is developing a product that, although a great idea, does not answer a compelling need or inspire enough people to spend enough money to make it profitable.
"Be mindful of the problem you're solving for your users. When aware of the problems of your specific customers, you can have a better idea of your market set," said Brad Matthiesen, founder and CEO of ClassForward, an education tech company based in the Harvard Innovation Lab.
How to build the right product
- Conduct market research. Foussier recommends spending half your time in product development and half your time in finding and engaging your target market. Talk to your target consumers. Run ideas past them. Learn their pain points and how you can help them. Not only do you increase your chances of building a product in line with their needs, you also build a pipeline of interested consumers.
- See it through the eyes of your consumers. "Your consumer sets the rules – it is a startup's responsibility to fully understand what they want – not how they see your product," said business coach Graham Gilley.
- Test before you invest. This is more than testing to make sure the product works. It means testing the product with your ideal users to make sure it does what they want. Doing this early in the process can help you find your direction.
"If [your product] fails in a testing process, then it's [easier] to correct it than if you spend two years building up a product to have it fail," said Jodi Goldstein, a serial entrepreneur and managing director of the Harvard Innovation Labs.
3. The right location
Real estate is not cheap. In addition to buying or renting your work area, you have to consider utilities, upkeep and insurance. According to an article in AZ Central, 1.2 to 8.9 percent of a small business' sales go to pay the rent. If you pay more than that, you should reconsider your space.
Online "locations," as defined by domain name, are cheaper, but still require consideration. For example, you'll want a website name that describes your product or purpose well enough to show up in a search. That way, you'll find new customers searching for a solution who don't know you. (You can also purchase more than one domain name and have them point to the same website.)
How to make the best use of your space
- Research before you rent. "Your physical location can still be an important factor in the success of your business," business consultant Larry Alton said in SmallBusinessComputing.com's blog. Your locations, both physical and online (as defined by your website and social media), need to be convenient for your target audience and those businesses or people you need to network with. Price is a factor, but must be weighed against customer convenience.
- Go virtual. While it's exciting to have a storefront or office for your team, a virtual space might suit you better. "Opt out of renting an office. Until you're established, you can run your startup from your apartment and coffee shops. Or you can have a virtual office, which is cost-effective and great for startups with team members all over the world," according to the Young Entrepreneur Council in Forbes. Cloud-based programs like project management software and video conferencing tools can enable everyone to share information and communicate with ease.
By the same token, a virtual store can help you build a customer base without having to spend a small fortune on non-inventory essentials, like displays and shelving, cashiers and other service personnel.
4. A plan for profit
Every business is interested in profit – but what exactly does that entail? Are you profitable if you can pay your business bills and have some left over for yourself, or when you've paid off your business loans? Or is it when you start making as much as the salary of the job you left to go on your own? Having the goal firmly in mind can help you determine if or when to declare defeat.
Whatever your definition of profit, no startup makes it without funding, and, in fact, Gilley recommends that you have a fully capitalized business plan before getting started.
How to get funding
These days, there are plenty of ways to get funded. Here are a few of the most popular.
- Small business loans are simply loans for businesses. There are commercial and government-sponsored loans, so be sure to check all angles when applying.
- Crowdfunding sites, such as Kickstarter or Indiegogo, let you ask for donations in return for prizes, which can be everything from shout-outs to promotional gear to pre-orders. If your product is unique or quirky and you have a good social media presence, this can be a good way for startup funds.
- Angel investors. These are usually millionaires who are looking to invest in the Next Big Thing or to promote an industry they have an affinity for. "Angel investors used to be a difficult group to find ― not so any longer," according to Entrepreneur Magazine. There are investment events, online networks and groups of investors you can contact. You can also check with your local network.
For more financing methods, check out this Business News Daily guide.
5. A brand presence – online and off
Even before you have a product to sell, you need to start making yourself known. This helps you find potential customers, beta testers, even people who may work with you in the development of the product.
How to get publicity on a budget
- Maximize your online potential. With a proper use of keywords that identify your company or service, you can target your ideal customer base. In addition, social media – including blogs, social media sites and directories like Yelp – provide a free or cheap source of publicity.
- Hang out where your customers are. Find blogs, Facebook groups, forums or other places where people with the interests your company shares, and join in the conversation. Don't jump in with promotions, but rather develop relationships. Kevan Lee, director of marketing at Buffer, wrote about six popular ratios for social media content on the Bufferapp blog. All of them lean heavily toward sharing content with others and retweeting as opposed to posting self-promoting content. However, he also said, "Self-promotion can work when you add value and engage."
Attend industry conventions your customers go to. Foussier said these are good places to talk with potential talent for your team, in addition to meeting with investors and customers. Even if you don't set up a booth, bring cards and brochures to share.
- Become a known expert in your field. Becoming a trustworthy source gets you followers, increases your network and makes people more likely to purchase from you rather than an unknown. Chris Myers, CEO of BodeTree, suggests writing articles for magazines and developing relationships with reporters who write about your industry. Guest blogs and guest lecturing accomplish this, too. Finally, you can "borrow" expertise by sharing applicable articles, infographics and memes that pertain, even peripherally, to your product or service.
Starting a new business is risky, but if you begin with the essentials in place, you stand a better chance of success. Those essentials include more than a good idea and enthusiasm. With a strong network, publicity, funding, a way to reach your audience and, of course, the right product, you can set up the foundations for a successful venture.