This past June saw more than 425,000 new business applications in the United States, more than double the number of businesses started the same month 10 years ago. Economists have speculated that the combination of easily accessible new technologies plus pandemic-era home confinement might have catalyzed many of the new businesses being launched.
Until this recent turnaround, the long-term decline of entrepreneurialism was an economic concern because startups constitute a significant source of job creation, innovation, and economic resiliency. This entrepreneurial shift might better equip the economy to bounce back amid future downturns.
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If you’ve felt the itch to create your own company, you’re certainly not alone, but do some research and reflection before taking the leap. These four key questions can help determine whether starting your own business is right for you.
1. What problem does my potential business solve?
First and foremost, customers need a reason to use your product or service. If you can’t figure out what problem your business solves, it’s unlikely to be successful. Then, once you’ve identified the problem, you need to make sure your solution is unique and doesn’t already exist on the market.
That said, not every business idea is a good one. Do the research to ensure that there’s a market for what you’re hoping to sell, including looking at trends in your industry and talking to people you know who could be potential customers.
2. Do I have the right team in place?
No person is an island, and the same is true of businesses. Before starting your own shop, it’s essential to build a solid team of individuals who share your vision and can help turn your dreams into a reality. Ask yourself whether you have the right people in place to execute your business plan and whether you have the financial resources to sustain operations. Conducting a SWOT analysis can help you assess your team’s strengths, weaknesses, opportunities, and threats. The information you glean can then be used to make informed decisions about how to move forward with your business.
You might also need to educate yourself on leading a business and a team before you start. Identify the skills and knowledge required to execute your vision, and then compare them with your current abilities and expertise to see where the gaps are. You can then take steps to fill those gaps. If you’re not willing to do this preparatory work, then starting a business might not be the right move for you.
3. How much capital do I need in order to get started?
Make sure you have a clear understanding of the costs associated with starting and running your business before taking the plunge — and that includes everything from web development to taxes. It’s just as important to have a realistic idea of how much revenue you need to generate to break even. You can estimate this by creating a simple spreadsheet that projects your costs and income for the first year. If you need assistance with this, talk to an accountant or business expert who can help you create realistic projections.
The bottom line is that starting your own business is a financially risky proposition. It’s good practice to bank sufficient savings to cover your living expenses for at least six months in case things don’t go as planned. When you’re self-employed, your income is not guaranteed. It’s essential to set aside some savings to tide you over during lean times; while some months may bring significant income, others might find you barely scraping by.
4. What are the risks and potential rewards?
Starting a business is risky, but if you’re prepared for the worst and have a solid plan in place, the rewards can be great. Do the work to understand the risks involved, and have a contingency plan in case things don’t go as expected. For example, no one is there to tell you when to start or stop working when you’re self-employed. You’ll need to be disciplined and motivated to get the job done, even on days when you don’t feel like it. If you want to succeed in business, you will likely also have to work long hours. This can be tough, especially if you have family or other commitments, but it’s often necessary. Additionally, if you’re used to working in an office with colleagues, you might find the transition to working from home or being your own boss a bit lonely. It’s essential to make an effort to connect with other people, whether it’s through networking events, online communities, or coffee with a peer.
While it’s unwise to make such a significant decision on a whim, there are many great reasons to start your own business. The drive to try something new, pursue a passion, or simply find a more stable profession is always worth exploring, as Dorie Clark notes in her book Reinventing You.
Above all, be sure to do your homework first. Answer the four questions and prepare for the challenges that come with being your own boss — because once you’ve decided to take that step, you’ll face a whole new set of challenges and decisions. Starting your business is just the beginning.