Before you start a small business, you must take these steps

As the new year begins, it’s a great time to consider your career, review your priorities, and potentially change direction. This new direction may entail making the leap to start your own business. If you’re considering such a move, you may have in the back of your mind the statistic that many small businesses don’t make it past their first year of operation. However, don’t allow this challenge get in your way. You can be successful with a clear sense of both the opportunities and the risks, as well as focus on your passion. To get started, here are a few pieces of advice.

The rise of new businesses

According to multiple sources, new business formation has been on the rise  in the U.S.. The U.S. Census Bureau reports a steady increase in new business applications and according to a report by drop-shipping firm Oberlo on new businesses, there are 75% more new business applications today compared with 2010. Further, according to the Economic Innovation Group (EIG) most new businesses begin in four industry sectors including food service, retail, health care, and transportation.

It makes sense new business would be booming because the pandemic has created flexibility for people to start side hustles and has opened new markets and opportunities for everything from products like masks to services like apps or technology to connect in new ways.

In addition, according the Oberlo study, the World Bank rates the U.S. as one of the best for ease of starting a new business.

Who is starting businesses?

If you decide to go out on your own, you’ll be in good company. According to a study by Ranstad, 41% of workers are considering leaving their current jobs to start their own business. Additional research by HiBob and Fiverr found 22% of people are leaving their jobs to freelance.

According to Ranstad, the intention to leave for their own business pursuits is highest among younger workers, with 51% of those leaving aged 25-34 compared to 20% aged 55 and above. A separate study by Oberlo on small business found Gen Zs and Millennials are 188% more likely to plan on starting their own business compared with Boomers.

Interestingly, according to the HiBob and Fiverr data, people who are leaving jobs in order to be their own bosses are coming from the fields of marketing (36%) followed by those in legal professions (33%), healthcare (28%), and technology (27%). In addition, those who leave an organization to start their own business tend to foremost come from large organizations (28%), followed by those from small companies (24%). All of this is important to know for a new entrepreneur, since you’ll want to understand your competition—and the types of roles and companies people come from may indicate the skills or experience they have to apply to their new startup.

The market for new business and freelancers is healthy. According to the HiBob and Fiverr research, when companies can’t find new employees for regular employment, 32% of the time them hire freelancers to fill the necessary roles. Ironically, people who leave to start their own businesses are in turn creating demand for the services or products available through the start-ups.

How to successfully begin building a venture

Research on new business and entrepreneurial success and failure provide great insights on what it takes to succeed. These are the evidence-based approaches to accomplish your dreams when you go out on your own.

• Know your goals. Most people start their own business because they want to be their own boss or because they want to pivot their career, pursue a passion, or build something new. However, if you’re hoping to become a millionaire, fast, you may want to rethink your reasoning. According to NorthOne, a provider of banking services, only 40% of businesses are profitable and the average entrepreneur’s salary is around $60,000 per year (though they note only about 8% of people start a business for financial gain).
  As you take the leap, be sure you know what’s motivating you so you can form your business accordingly. Are you in it because you are passionate about creating a special product and hope eventually to open your own brick-and-mortar store? Or do you simply want to become the next mythic tech CEO? It’s important to get clear on your priorities.

• Be aware of risks. Anytime you’re leaping into a new opportunity, it’s best to be aware of both the upsides and the downsides (which may include unexpected failure). According to a Oberlo’s report, more than 50% of startups fail in the first year and 95% are defunct within their first five years. And NorthOne’s analysis finds the most successful new businesses are in the areas of finance, insurance, and real estate with 58% still in business after four years. For your own success, keep your eyes open and don’t shy away from an understanding of potential failure—so you can increase your chances of success. One way to mitigate risks is to be aware of your targeted market. Forty-two percent of businesses fail because of a lack of market demand, says Oberlo. Understand markets by staying on top of current news and trends, including talking with experts and potential and current customers.
• Get your financing together. Twenty-nine percent of businesses fail because they run out of cash, reports Oberlo. In addition, NorthOne says 37% of business startups are financed by the founders themselves, with 10% securing funds from friends or family. But it doesn’t take a lot of capital to get started, with 58% of businesses beginning with less than $25,000, and 30% kicking off with less than $5,000.
  Be sure you financially plan for the immediate future as well as long-term, so you can respond to unforeseen changes and shifting demands. For instance, if you sell custom beach gear, you’ll likely focus intently on the summer season, since the winter time may be far from profitable. Further consider the need for continued investment over time. In the case of a new phone app, you’ll want to continuously make new updates and embellishments.

• Start small. Most entrepreneurs will tell you to ensure success by starting small and building incrementally. With increased remote and hybrid work, chances are you can start with a side hustle and build your business over time. Start writing your great American novel on the side or begin farming out your IT skills in an evening consulting gig. Be ethical in your use of time—ensuring you’re still committed to your regular job, but also use your extra flexibility to try, learn, and grow opportunities.
  It’s also important to commit to the hard work. NorthOne reports 62% of entrepreneurial enterprises have zero employees. This means beginner business owners will have to wear several different hats, as well be accountable for the success or failure of their business.

• Learn constantly. According to NorthOne, only 44% of entrepreneurs have college degrees, so formal learning need not be a barrier to starting your own gig. However, you’ll need to be sure you’re learning constantly—about markets, demand, new innovations and best practice processes to ensure you succeed. Network your way to success by forming a board of advisors and seeking out successful business people who can share their lessons learned.

Perhaps the most significant factors for entrepreneurial success are courage and perseverance. Starting something new can be scary and it will take continued effort over time.

Stay optimistic, hopeful, and positive about the entrepreneurial journey you’ll be undertaking. You’ll face hardship and setbacks, but with determination you will likely be rewarded.

Tracy Brower, PhD, is a sociologist focused on work-life, happiness, and fulfillment. She works for Steelcase, and is the author of two books, The Secrets to Happiness at Work and Bring Work to Life by Bringing Life to Work.