It’s a new world! A world of start-ups and Entrepreneurship.
The startup revolution has made things way more easy, way more accessible for all of us.
And this has caught the eyes of Corporate, media and most importantly VCs,bringing the much-deserved attention to their cause.
Consider this – More than 90 Billion dollars were invested in 2nd quarter of 2018 in Start-ups across the globe.-
Today, every famous company across the globe has their Startup Accelerator Program to make the steps to become an entrepreneur as smooth as possible.
All this attention has helped create a positive buzz towards Entrepreneurship, with millions wanting to take the road to entrepreneurship.
College students are leaving offers from established companies to start their own startups, and many others want to do the same.
However, Everyone doesn’t know what to do or where to start, as there is no manual or rule-book to be an entrepreneur.
So,where do you start?
What are the Steps to become an Entrepreneur?
To become an entrepreneur, you must identify the right business for yourself by doing an extensive market research, creating a financial plan and hiring the right team.
All the above steps require a lot of work.
One wrong move and your startup dream can crash overnight.
Consider this – “As per cbinsights, 42% of startups failed because of no market need”
Which is why you will learn “How right market research can help you identify market need” in this definitive guide to entrepreneurship which clearly lists the 6 steps to become an entrepreneur with relevant examples demonstrating the process.
Let’s get started:
Step 1: Are you ready to be an Entrepreneur?- The Science of identifying “Entrepreneurship Go back to main table of content
I think of Entrepreneurship as a career. A career where you either work hard to grow in it or you are simply talented enough to make money.
Unfortunately, not everyone is cut out to be an Entrepreneur.
In-fact, many a times a small business fails because of an incompetent founder.
The point I am trying to make here is that like every career, entrepreneurship too has its own set of requirements and expectations from the person stepping in.
The first step to becoming an entrepreneur is asking yourself a simple question:
“Are you ready to be an entrepreneur?”
I know it tempts you to answer – Yes.
Well – It’s not as simple as saying “Yes”.
The answer to this question lies in asking simple, yet important questions to yourself.
Questions that help you judge your “Readiness to be an Entrepreneur”.
Let me ask you something else:
Are you willing to take Calculated risks?
Before you put a check box in front of–I am a risk taker, here is what you must know: Inherently, we all are not risk takers.
We are not risk takers as risks are unpredictable.
And with unpredictability comes anxiety and apprehensions of uncertainty.
Not everyone is ready to throw themselves in an unpredictable and uncertain situation where the failure rate could be as high as 80%.
How do you convince yourself to take risks?
You convince yourself to take a risk by understanding your idea better and by following steps like Market Research and Financial Planning, which we will discuss in depth after this step.
Here are a set of questions to help you decide about entrepreneurship:
- How well do you believe in your idea?
- Are you willing to go that extra mile to taste success?
- How good are you living outside your comfort zone?
- Do you work hard to get better at your strengths and improve your weaknesses?
If you are positive with all the questions asked above, you are ready to take the call.
Always remember, No one can or will take the call for you.
When I quit my job to start my first business, I had to answer all the above questions for myself.
Well!I wasn’t exactly sure about some of the answers, but then deep down I knew I had to start my entrepreneurship journey now.
Similarly, you too should be sure about the arduous, fun journey you plan to take.
Some call it soul searching. Others call it self-introspection.
You are the one responsible for consequences of your action– hence, take a call only when you are ready for it.
Step 2: Market Research—How to Learn more about your Startup? Go back to main table of content
Understanding the market is the next step to entrepreneurship.
You might have hundreds of ideas running in your mind.
Trust me, 99 out of the 100 ideas we think are absolute trash.
How do you differentiate a good idea from the “run off the mill ideas”?
You get down to Market research.
Market research helps you get more clarity about the idea or ideas you have in mind for starting a startup.
The concept behind Market Research is to identify:
- Market size.
- Issues in the sector and how other startups are tackling it.
- Build a Revenue Mechanism.
- Customer Feedback on existing players.
- Competitor Research
I won’t confuse you with “big words” to do Market Research.
On the contrary, I will teach you some simple steps to do Market Research.
Start your Market research with:
A. Internet Research:
Do a keyword search on the internet for topics related to the startup you plan to start.
For example, if you were planning to start a startup that disrupts the food delivery industry.
Start by typing keywords:
- Food delivery business in India
- Problems in Food delivery business
- Why food delivery businesses fail
- Food delivery business size in India
- How food businesses can succeed
- Startups in food delivery business
A generic keyword search combination to help you get data for the initial search will be:
“Startup Business Industry“+ location – this gives you insights about the food delivery startups in the location you plan to target.
Problems/issues/fail | “Startup Business Industry“ – the keyword provides you with problem areas in the lines of business you plan to disrupt. It will help you understand the struggles of existing startups.
“Startups” | ”successful startups” | “Startup Business’s Industry” – Time to look at the successful players in your industry. 8 out of 10 times you will see names of funded startups on internet. Read about them and update your notes.
By the end of internet research, you will have an initial list with the answer to following questions:
- Why do I need to start a startup in this area?
- What is the market size?
- Why are my competitors struggling and how can my startup help resolve them?
- What has been the key areas for the failure of past competitors? How will I ensure my startup will not fail?
- What will be my startups revenue model?
- What are the requirements to start this startup?
Gather as much data as possible to understand the market.
Do not forget that with internet research, you are trying to give shape to your idea.
You are working in a direction where you should be able to make some assumptions, projections about your business and understand the pitfalls in running this business.
Get answer to your questions and write your analysis based on what you research.
When I did my internet research for food delivery startups, my key observations were:
- Thin margins for restaurants.
- Cold food because of long time taking delivery of food.
- High accident rate with delivery vehicles (they must deliver food in committed time)
How about you pick few of the key issues and find a solution to them?
B. Validating Internet Research:
How do you validate what you discovered on the internet?
You do it by field research, by talking to peers in industry, talking to end customers, taking help from mentors.
What you discovered through internet research gives you a vague idea of what your startup will look like. A field survey or a first-hand interaction will further help you validate what you have researched.
This is where you further update the answer to questions listed at the end of internet research.
The more you study your market, the better prepared you will be to start the startup.
Again, taking the example of food delivery startups, how about you talk to a few restaurants listed on food delivery apps and then, talk to food delivery boys?
A first-hand interaction will help you dig in deeper into the issues identified through internet research.
When I started my first venture, we missed almost all the points listed above.
How did we struggle?
Since we learned while running our venture, the learnings came at the cost of time and money. Something that ultimately slowed down our progress.
I know of a failed business that failed specifically as they did not do a market research to identify the paying capacity of their end customer.
Unfortunately, they overestimated their service and launched it based on their misconceptions.
Predictably, they could not sustain as the end customer refused to pay the prices set by them.
Reducing the price was not an option for the business as they had spent a fortune on establishing their business.
The business failed.
This is where a simple market research could have helped them.
Market Research is the most important step of becoming an entrepreneur as it helps you understand your startup better.
Also,market research helps clear any doubts you had about starting the venture.
As per cbinsights,42% of startups failed because of no market need. Incidentally, it was also the topmost reason for failures of startups. Source-5rf
In addition to above, User Un-friendly product and products without a business model contributed 17% and 14% respectively to the failure of startups.
Trust me,all the above only happens- If you do not have your ears to the ground.
With proper market research, you will also save yourself from the agony of a failed startup.
Step 3: Financial Planning – How well do you know your numbers? Go back to main table of content
“Failing to Plan is Planning to Fail”
And when it comes to financial planning, you should be certain – one wrong step and you will run out of cash.
Did you know “29% of startups fail because they ran out of cash”?
In my experience, bad financial planning is the most common and most frequent reason for failures of startups.
How will you ensure your startup does not fail because of financial troubles?
By following a simple financial planning technique which I will explain you further in the blog.
To start with, forget all the Jargons you read on one of the startup websites a few days back.
We will follow an easy-to-understand method to check the financial viability of startup by applying maths of expense v/s income v/s seed fund or the money you need to run the startup.
- Never start with an assumption, you will get an investor. This way you will prepare yourself for the worst-case scenario and will keep your expenses in check from day one.
- Work backwards i.e, list all the expenses (capital expenditure and operational expenditure) you will incur to reach a stage when the startup will make money. Reach a final number to the net expenditure. Call it X.
- Now, you need X + 20% money to start the startup before it makes any money. (I keep 20 to 30% buffer for unforeseen expenses)
- List your revenue models and put numbers in front of each revenue mechanism to the list of income.
Let me give you a live example of what I wrote above.
For example, if the next startup i plan to start is an online business directory. My expense should look something like this:
Well, Look…It wasn’t the most difficult of spreadsheets to make.
By the way, did you notice – I kept founder’s salary as 0 for the first 6 months?
This is one of the harsh realities of running a startup. Since the company makes none money, the entrepreneur does not get paid.
So, besides the 6.15 L amount above – you will need money yourself to survive. Add it to the cost and you have your expense sheet, or the money required to run the startup for next 6 months.
Now comes the tough part. Building a revenue model for the startup.
As far as I remember, business directories rely on two revenue models:
- Paid Listings
- Sale of advertisement space
And then there are bells and whistles which kind of complicates the above two models. I will build a simple revenue model minus the bells and whistles 😊.
Assuming, the website generates a good amount of traffic in 6 months and you are ready to start with revenue generation. Here is how the revenue section will look:
Few assumptions that I have made:
- The revenue starts from month 6 onward
- The startup intends to close 10 new paid listings in 6th month and double it every month.
- The churn rate is 5% i.e, 5% of old customers do not renew membership every month
- The 20% buffer should be enough to cover our losses in month 6 and 7th.
If you keep the expenses as how they were earlier, you should be smiling all the way to the bank from 8th month onward as you will go above the break-even point.
By 11th month, you will have enough to spend on generating more revenue.
As I mentioned earlier, a simple financial planning is not rocket science.
You will obviously need to drill down the financial and revenue parts further to build a sustainable financial plan.
Frankly, it is all speculation.
But the speculation only gets better with good research.
Do you know what is the other benefit of financial planning?
It helps you pave the path for your startup. i.e. you now have the right numbers to ask unavoidable business questions like
- How will we reach the required number of paid subscribers?
- What is the traffic we need on our website to reach the required numbers?
- How many leads should we generate for paid customers?
- What are the keywords we should capture the top positions for?
- Which category in our business directory should receive maximum attention? (think of customers who would be the first ones topay you money)
- Won’t we need to upgrade our servers when the traffic numbers reach a respectable number?
By the way, the answer to above questions will also help you refine the market research.
I am of the firm opinion that the more the time you spend on Step 2 and Step 3, the better are the chances – you will make fewer mistakes when you start the startup.
(Note : do not spend eternity over-thinking. I know of startups that could never see the light of day because the founders spent months working on step 2 and 3. By the time they launched the startup,someone has already taken away the first mover’s advantage from them)
Once you have done the financial planning, you must now figure out a way to fund your startup.
a. Self-financed or financed from Friends and Family: That’s the route taken by most bootstrapped startups. For them, every day is a challenge as they are racing against time to achieve the impossible in a limited time frame.
b. Raise Funds from Banks: Banks can give you the loan against property. So, if you are a lucky entrepreneur with a property against your name, you can approach the nearest bank with a project report and mortgage the property to get a secured funding for the startup.
c. Raise Funds from Government Schemes: There are a lot of startup schemes started by the government to provide easy loans to Entrepreneurs. You can know about them by approaching the nearest bank or by typing “government schemes to help startups” on google.
d. Angel Investors: Angel investors are usually early investors who believe in your idea and will spend money on the startup.
e. Venture Capitalist: Venture Capitalists invest money in the startup based on Startup’s evaluation. You can have the startup evaluated by a professional and then, approach VCs to fund the startup by offering a stake of the startup to the right VCs.
f. Crowdfunding: The newest kid in the town of startup funding. You get to pitch your idea to others and then they all come together to fund your dream.
Step 4: Identifying the right business type Go back to main table of content
Not all businesses types are the same.
All of them have different meanings and require a different level of compliance and paperwork.
How do you identify the right business type for you?
You identify the right business type by identifying the needs of your startup. i.e, are you a single person company or do you have partners?
Do you want to start small and then go for Private Limited after you have extra money to meet compliance?
The different business types that can be legally started in India are:
- Sole Proprietorship Firm
- Partnership Firm
- LLP Company
- A Private Limited Registered Company
- A Limited Company
I will skip the limited company option. They are for the big players who have reached a certain level and now want to raise more funds for this company by listing it on the stock market.
Coming to the other four options.
What is the right business type for your startup?
Sole Proprietorship is a business type where one person is the sole owner of the firm. All liabilities are of the proprietor of the firm.
On the other hand, A Partnership firm is a business entity with more than one partner.
Based on my experience, I suggest new startups to start as a registered sole proprietorship or partnership firm and then eventually, turn into a private limited company – once the business reaches a respectable position.
One of the reasons, I do not suggest privately limited option for startups is to save them the paperwork involved with private limited companies.
Less paperwork means less money spent on CA fees.
Don’t you think you need to save every single penny to grow your business? Let’s save some here.
Moving to LLP Companies – LLP companies is the business type where one partner has unlimited liability. While the others have limited liability.
Before I shift to the next step, here is another important point to remember
“You must know how to handle all Paperwork, Licensing and Compliance”
This is not exactly a part of this step. However, when you register the business with government – you will be asked to complete all compliance regarding the business.
For example, industries need a certificate from the Fire department, labour department, etc.
Restaurants need a compliance certificate from some 100 departments. (they are the toughest to run ☹ . I wish I knew a code to crack the restaurant business challenge. Imagine – grumpy customers, online reviews, government compliance, staffing troubles, expensive rent. Makes me wonder! How do restaurants survive?)
So, before you finish the formalities, figure out all the compliance you will need to have the business officially registered.
Step 5: Hiring People – How to hire the right team for a startup? Go back to main table of content
As an Entrepreneur, you will need a team which shares the same vision as you.
This is the topmost criteria you will have to keep in mind while hiring team for the startup.
A right team is the difference between the success and failure of a startup.
As per CBInsights, 23% of startups fail because of “not the right Team”
How do you hire the right people for a startup?
There is no hard and fast formula to get the right people to work for you but based on my experience of being a part of few startups, here are few tips to help you build a startup team:
- Look for people who share the same vision as you. Do not shy away from offering a stake to the right people.
- Hire people who can help you with your weakness.i.e, if you are not technically sound, hire people you can trust with the technical aspects of running the startup.
- Use social media to build your brand. This in turn will attract others to join you.
- Find people who will not shy away from working long hours or over the weekend.
- Hire the ones willing to take challenges such as multi-tasking. They should be open to helping company grow than stick to the roles they have been hired for.
- Do not hire superstars or self-obsessed employees.They will ruin your startup culture and will make it difficult for you to scale the startup to next level.
Hiring a team for a startup is the toughest challenge you will face.
Employees will always look for bigger enterprise or better salaries. They will regularly need a lot of motivation.
Step 6: Getting Started – How to use the learning from step 1 to 5 in the startup Go back to main table of content
Jet set and Go!
You are finally starting your venture.
Time to put to good use – the learning from step 1 to 5.
The question you might have the back of your mind is:
“How do I implement the learning from step 1 to 5 in my launched startup?”
Let’s go one by one.
Remember, we spoke about checking your readiness to be an entrepreneur in step 1.
Well! You have already passed the stage of turning back. Hence, the option to take a U-turn is out of question.
To ensure your mind does not plan any more mind games – you need to train it for the hardships.
How do you train your mind to help you during tough times?
I suggest reading Books, entrepreneurial stories, learning of fellow entrepreneurs and watching ted talks to keep yourself in a positive mind frame.
The market research you did in step 2 was just the start.
Until now, you just scratched the surface.
Now things will be different.
Learn to absorb all the real-time feedback you get while running your startup.
And do not forget to update the past learning based on the new learning in market research.
Next comes the financial plan.
I based the earlier financial planning done by you on speculations, projections and estimations.
Fast forward today, you have a running startup and you will witness everything real time. Financial planning (though in the same format) will change.
Moreover, you will have the real numbers to enter against the planned financials.
For the same business directory example, I gave above, here is my new spreadsheet based on running the startup for one month:
I updated the future month’s expenses based on the first month’s expenditure. Thereby, leading to a marginal increase in the funds required to sustain the first 6 months.
Basically, the financial planning now becomes real time based on what you learn.
The team building exercise is an ongoing process. You should hope that you have everything sorted before the startup starts.
And, that ends our Guide to Entrepreneurship – Steps to become an Entrepreneur.
I hope the guide will help you kick-start your entrepreneurship journey.
It’s your turn now to let me know what I might have missed in the guide.
Feel free to drop a comment below the article.
A. James Altucher
I started following James answers on Quora around a year back. Trust me, his words are gold. He shares his entrepreneurial journey, life advice on his blog.
Mark Suster is a Serial Entrepreneur who sold his last company to Sales Force. You will love his blog for topics like “What should you send to a VC before your meeting.”
C. Pat Flynn
The founder of Smart Passive Income. In his own words “I’m here to show you through my own experiments exactly how you can stop trading time for money and start building a business that works for you. I’m here to show you how it works.”
D. Gary Vaynerchuk
A household name amongst today’s entrepreneur. Gary transitioned his father’s local liquor store into one of the first wine e-commerce platforms resulting in growing the family business from $3-60MM in sales during a 5-year period.
E. Guy Kawasaki
An Evangelist, Speaker and Author of 13 books. He shares his thoughts on entrepreneurship and life on his blog.
F. John Les Dumas
The founder of EofFire . James built an online business around his website and he teaches financial and lifestyle freedom on his blog. His podcasts are one of the best in industry.
G. Yaro Stark
Yaro Stark’s blog is a must read for entrepreneurs who want to learn – “How to make money from the internet”. I have been a follower of his blog for quite sometime and trust me, he shares some practical advice for entrepreneurs.
H. Suitcase Entrepreneur
Natalie’s blog is highly recommended for anyone who wants to follow their passion and build a running income around it. She is an adventurer who currently lives on her dream lifestyle property in her home country, and the rest of the time out of her suitcase, traveling the world and running her business and going on adventures.
I. David Skok
David Skok is a VC Partner at Matrix Partners. His blog is a must read for entrepreneurs looking to getting started, raising funds and building successful businesses.
J. Andrew Warner
Andrew runs a site where the ambitious learn from a mix of experienced mentors through interviews and courses.
K. Neil Patel
Neil doesnt need much introduction! The Wall Street Journal calls him a top influencer on the web, Forbes says he is one of the top 10 marketers..
L. Chris Brogan
Chris shares his experiences to help you use media and community to earn customers.
M. Dr. Jeff Cornwall
Dr. Jeff has been writing on entrepreneurship for more than 15 years. I found his article “What motivates Millennials” to be quite interesting.
QuoransBrett Fox Jason M Lemkin Gordon Miller Hector Quintanilla Jasmeet Singh