8 tips for starting your own business and not failing horribly

featured-on-usnIf you’re thinking/fantasizing/wondering about ditching your job and going to work for yourself, you should read my eight pieces of advice on this over at U.S. News & World Report today — including trying it on the side before quitting your day job; figuring out how you’re going to set your rates (confusing and stressful!); realizing that no matter how great your product or service, if you don’t have a plan to get clients, you don’t really have a business at all; and more. You can read it here.

{ 31 comments… read them below }

  1. Anonymous

    #5 re:setting rates is really important. I know of a few people who’ve started etsy businesses doing knitting and related crafts, and set their rates soooooo low. Like yarn cost x2 low. If you’re starting your own business, don’t try to beat Walmart on price.

    1. Naomi

      Depending on the yarn, even twice the cost of materials could be pretty expensive–like $200 for a sweater. Because people who hand-knit are competing with stores selling mass-produced stuff, it would be hard for any but the richest people to afford stuff on etsy if we charged even yarn cost + $10/hour. Most people I know who sell knitted stuff on etsy are just trying to support their own knitting hobby, not make a living, though.

      1. Anonymous

        I’m talking about people who are actually trying to make this their full time job, and can’t understand why they aren’t making money.

        1. Nydia

          It is fairly acknowledged that when selling ‘crafty’ items you can’t create a price based on an hourly wage unless you are incredibly popular and successful.

  2. Bean

    Oy…my fiance is currently in this internal debate. He makes a very decent living as a Mechanical Engineer, but has an ecommerce site that is rapidly approaching the point where his side income matches that of his regular earnings from his job as a Mechanical Engineer…and he maybe puts 15 hours a week into his side business. It’s the fear of losing a guaranteed paycheck that scares us both.

    1. Anonymous

      15 hours a week isn’t a huge time commitment. Unless he hates being a mechanical engineer, it sounds like a pretty good set up.

      1. Bean

        It’s a great set up, but he could do an extra 25 hours + of custom work, where his hourly rate is triple what he makes as a Mechanical Engineer, but there’s the fear that the demand will drop off and he won’t be making any money.

  3. Jill

    I would add that it’s not enough to have a dream. Study the market. Right in my own neighborhood a Dairy Queen (burger joint) went out of business. A new restaurant opened up serving….burgers. Um, if a national chain couldn’t make it at the location, are you sure that you, an independent, can make it?

    Also if you’re going to set up a shop, study the neighborhood. Three months after the sixth coffee/sandwich shop opened up near me, two of them went out of business because of so much competition clustered in one area.

    Get any kind of financials from similar companies that you can and see exactly what they spend money on. Or, if you can’t do that, study up on the failure rate of businesses in your field. REstaurants, for example, have incredibly high failure rates but cost a ton to open.

    While you’re researching taxes, also research whatever inspection and licensing fees you’ll have to pay. These are sometimes enough to choke the life out of any new business.

    1. thenoiseinspace

      Well, you CAN make a go of having exactly the same kind of business that just closed if you do it right. In our town square, we had three cupcake shops in a row in the exact same storefront open and close within about 2 years. When the last one was replaced by yet another cupcake shop, nobody thought they’d last long. But then they won Cupcake Wars. A few years on, they’re still doing great.

      Moral of the story: if what you’ve got will make people think you’re the same, do something to stand out.

    2. The gold digger

      My husband’s father and brother (who is a fabulous chef) bought a restaurant together. They did not consult a lawyer or an accountant because my husband’s dad, with a PhD in English, is the Smartest Person in the Room, so why would he pay a professional before sinking $200,ooo into a business with which he has no experience?

      A few years later, the restaurant was out of business and they sold it for far less than they had paid for it. To add insult to injury, the broker they had signed to sell it didn’t find the buyer, but if you have ever signed a contract with a realtor or broker, you know that the contract says you pay the commission when the property sells, regardless of who finds the buyer.

      So. Even if you are not going to consult professionals before making a huge investment, please read the contracts before you sign them.

      1. Jessa

        Oh and another idea, if you’re opening a business where they have a TV show that makes over businesses (restaurants, bakeries, hotels, bars, whatever.) Sit down and watch a BUNCH of the show in question and if possible more than one type (for instance opening a restaurant watch Robert Irvine, Gordon Ramsay and that other makeover show that they’re rerunning from awhile ago.) Serving booze at that restaurant even if it’s a bar, watch all the bar overhaul shows.

        AND TAKE NOTES. 80% or more of the advice on those shows is the VERY same advice to every single person they work with, and often relevant to other fields as well. If there’s not a show for your industry there may be consultants. Most of the people doing those shows worked as consultants and then got a TV show. Find a consultant in your field and pay for an hour or two of their time and pick their brains.

        Your local Small Business Association is in the business (pardon the pun) of helping people start or keep businesses.

        1. Anonymous

          If you have to learn how to run a restaurant from watching Kitchen Nightmares you should not buy a restaurant.

          1. KellyK

            Definitely. It’s a good place to start, but I don’t think watching a show is a good replacement for real-world experience.

        2. JessB

          I think this is great advice! It can definitely stop you from making the same mistakes that everyone else makes, and give some good, general advice. Of course it’s not a replacement for more detailed, focused research, but it’s a good place to start.

    3. MR

      When I think about going out for a burger, Dairy Queen is one of the last places I think of for burgers. While they do indeed serve food, I think of ice cream when Dairy Queen is mentioned. I’m sure it’s similar for a lot of other people.

      That being said, I failed spectacularly at owning my own business. Lost everything except for my wife. I won’t use Alison’s site to pimp my story, but her advice in the above article is great for those looking to freelance/consult. Some of it also works well for a brick and mortar type business as well.

      You shouldn’t be scared off by failure stories if you are looking to start your own business, but you must be well educated in advance.

  4. Anon Accountant

    I’ll completely agree with getting a good, qualified accountant. Get good tax advice from a qualified professional. The tax laws are complex and can be very time consuming for a small business owner to navigate.

    I can’t begin to tell you how many small business owners I’ve worked with that really should’ve consulted a qualified accountant before they sank deeper and deeper into a huge tax mess. (Ending my rant)

    1. The gold digger

      You mean not paying your payroll taxes? And the problems that can lead to?

      Or paying some employees cash under the table.

      Honestly, it’s amazing that some people I know who shall not be named here are not in prison.

      1. Jessa

        Oh yes those people and then worse they get sued by employees who later find out that NO they’re not contractors. Back pay and all that.

        And ask your tax accountant if they know someone who can show you a basic cost accounting formula for your business type. Obviously you have to tweak for common practise in your city but seriously one of the biggest issues with new places is they either massively over or under charge.

      2. Anon Accountant

        Those and many more issues! There’s been countless people that I’ve educated them many times that yes, you really do have to pay payroll taxes and no, don’t just pay Joe and Jane in cash. And you really do need to remit sales tax collected from customers.

        And 1 of my favorites is finding new polite ways to tell people that just because your friend does something doesn’t mean it’s acceptable to the IRS or Dept of Revenue. Yes, it’s a gamble that they’ll find out but don’t take that chance. No, going to my boss won’t change my answer. (And when they do, he gives them a much more stern talking to).

        It’s definitely amazing more people that I’ve met aren’t in prison, too.

    2. Riki

      Yes, this, please. I know a lot of small business owners and a good number of them do not consult with an accountant at all either because they don’t think they need to or they are too cheap. A couple of thousand spent on CPA services over the course of a YEAR is worth the investment and a lot better than dealing with the IRS. While you’re at it, hire an attorney to review all of your contracts and agreements, too.

      1. Anon Accountant

        Exactly. I like to joke they either pay our fees now or pay them later. It’s much better to pay us for tax advice vs. “oh no, I got an IRS audit! Help us!”.

        And ditto on the attorney reviewing contracts and agreements.

        1. Grace

          Added to the “to do” list for any small business, do yourself a favor and join your state’s Chamber of Commerce because they have organized a wealth of federal and state laws (including employment) that you will need to follow, legally required posters and pamphlets for purchase, harassment and discrimination training, templates for handbooks, etc. My state’s CoC (California) has a $600 membership level that includes calls to the Chamber’s employment legal counsel.

  5. HappyFreelancer

    Circumstances worked out with my last job so I wasn’t able to try my self-employment status on the side first. I dove in head-first to the freelance world out of necessity and I’m learning along the way. But honestly? I really wouldn’t have changed this for the world. Don’t wait for the perfect opportunity or you won’t get anything done. One change (like losing a job) can necessitate another change (freelancing).

  6. HappyFreelancer

    Alison, is that the right link on #6, “Take advantage of free online resources for freelancers”? Maybe I’m missing something.

  7. VictoriaHR

    So many times yes to #1. I work full time in HR but have a tiny one-person business making soap and bath/body products at home that I sell online. I’ve been doing both for just over a year. Originally the goal was to make enough selling soap to quit my day job, but I have learned that if I were to do that, I’d very quickly come to hate the process of making soap. Right now I love it, it’s my hobby, and my go-to activity for when I’m stressed out. If it became my full-time job, it would no longer be that for me. So I’ll keep it as a side business.

  8. Brittney

    Starting a small business on the side is the best way to see if it is successful, and if you enjoy it. When thinking about starting your own business, it is vital to be prepared for anything!

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