Starting a business is your chariot ride to financial independence. But first you must brave the coliseum. Win your freedom in battle against scores of entrepreneurial gladiators.
- The WealthFit Startup Strategy begins by forming a vision and ends with testing unique sales channels.
- Vet your business name to make sure it’s available digitally and legally.
- Choose an entity that shields you from personal liability and fosters your company’s growth.
Avoid The Traditional Business Plan
Contrary to popular belief: traditional business plans are useless. A business plan is a document where you propose the strategy for your upcoming business. A typical business plan describes the product, market, distribution, costs, and revenue projections. A hopeful entrepreneur typically fills these sections in with vague best guesses for the course of the business. Then they set sail on making the plan a reality.
But starting a business is a huge risk, and starting out with a vague untested plan only minimally reduces that risk. If business plans were helpful for starting businesses, most businesses would succeed. According to the US Bureau of Labor Statistics, 50% of businesses fail within 5 years. If business plans were effective, these numbers wouldn’t be so high.
So if business plans are useless, what you should do instead? Follow the WealthFit Startup Strategy.
The WealthFit Startup Strategy
The WealtFit Startup Strategy is a tested method of starting a successful business. The strategy was developed by serial entrepreneurs at WealthFit with decades of experience. The WealthFit Startup Strategy is designed to get companies from zero to their first round of revenue without external funding. A WealthFit Startup is one with:
- Inspiring Vision
- Proven Teammates
- Proven Demand
- Proven Product
- Unique Sales Channels
If your business follows the WealthFit Startup Strategy, it’s got a serious advantage on the competition and is poised to beat the odds.
Form A Vision That Inspires Collaboration
Begin by forming a vision that inspires collaboration.
You need a vision to unite your team. A strong inspiring vision is the cornerstone of any company. A vision inspires team members and makes a team adaptable.
A vision inspires collaboration. You’re going to need help. To recruit others to your team you need a vision worth accomplishing. Your vision should incite action in everyone who hears it.
A vision will also guide your company through obstacles. A vision is your company's method of adaptation. The vision will survive when parts of your business model are modified or destroyed. For more on visions, read our article on leadership.
Recruit Proven Teammates
Take your inspiring vision and use it to recruit teammates.
A company is simply a group of people.
Only a fool starts a company alone. A team of two is greater than the sum of its parts. Having another person will make up for the shortcomings of the other. Each team member’s strengths compliment the weaknesses of the others.
Cofounders push each other and hold each other accountable. It’s hard to stay motivated when no one depends on you. When you tell a cofounder about your objectives and milestones, you feel more obligated to meet them. Cofounders provide the motivation for traction.
But you shouldn’t select cofounders carelessly. Start with respected acquaintances (not friends, not family, not strangers). Past success is the best predictor of future success. Choose cofounders that are executors, with a record of accomplishment. You want cofounders with grit.
If you’re considering a person as a cofounder, consider these questions:
- Is this business worth ruining my relationship with this person forever?
- Is this person my friend because I respect them professionally, or is it something else?
- Would I loan this person one month’s salary?
Ask these questions or your business might fail at the same time you permanently destroy a personal relationship. Choosing a cofounder will be the single most important decision you make for years. Making the wrong decision can single handedly tank your business.
But teammates don’t need to be employees or cofounders. Teammates can be anyone that supports your vision. Potential teammates include:
- Business advisors to serve on your board
- Industry experts who support your vision
- Academics with complementary research
- Companies with complementary products
- Entrepreneur and small business support organizations
Don’t stop at a cofounder. Recruiting teammates is an ongoing process. At every turn seek out opportunities to grow your team. The stronger your team, the faster you’ll climb. Your company’s traction will be proportional to the quality and size of your team.
Demonstrate Proven Demand
After you recruit a team but before you do anything else, you should demonstrate demand. You need to be sure people want the solution you’re offering. Why build a product you’re not sure people want?
You can verify demand without having a product. Digitally, you can build landing pages to test demand. Landing pages can provide excellent insights into consumer demand without even selling a product. You can ask for emails of interested customers and estimate your market size.
In the physical world you can do customer interviews. Customer interviews are a go to for most startups without capital. Customer interviews allow startups to measure demand and gain insights on customer problems.
Test demand before you build the product so you don’t waste time building a product no one wants. You don’t need to sell your product before you build it but you need evidence that people actually want it.
Build a Proven MVP
If you prove demand, it’s time to build the first version of your product, the minimum viable product (MVP).
An MVP is an early, complete, first version of your product. Why is it important to get to an MVP? Because there’s no point in putting years of effort into a product you can’t sell. An MVP is the first version of your product that solves your customer’s problem.
But an MVP is not a half-hearted effort. Your MVP should be a complete product, not an incomplete attempt at a solution. The point of establishing an MVP is to prevent your company from diving into feature overload. You want to focus all development efforts on an initial product and build from there.
Prove Unique Sales Channels
Finally, the crucial last step to a WealthFit Startup is verifying unique sales channels.
Sales channels are ways you’ll market and distribute your product. If your marketing strategy is “sell through social media,” I can promise you, you’re going nowhere fast. It’s okay to sell through social media, but you need to be more specific. Saying your sales channel is something as broad as social media isn’t actionable or testable.
It’s like if someone asked you “How are you gonna sell your product” and you say “We’re gonna do marketing.” Of course you’re gonna do marketing. Of course you’re going to have some sort of social media involvement. But you’re not looking for broad strategies. You need proven channels.
You need to create specific and unique sales channels. Start by listing potential target customers. Then create a list of channels for reaching that customer. Finally, create the advertisements you’ll use to reach the customer.
Create multiple potential channels to test. When you’re ready to test, you can just turn your channels on and pump money into them until you either make a sale, or burn through your profit margin. If a test out costs your profit margin, consider the channel a failure and look for a new channel.
If you can’t sell your product below your profit margin, nothing else matters.
Choosing an Entity for Your Business
When you’re ready to start a business you need to choose an entity that fosters growth and matches your business goals.
An entity is just a legally recognized organization. For example, imagine you started a club with a friend called the “He-Man Women Haters Club.” If you went to a bank and tried to open an account for your club, they wouldn’t let you. The bank wouldn’t know who was in the club, what members to trust, and what the rules of the club were.
But imagine instead you register your club as a corporation with the state, so now you call yourselves the “He-Man Women Haters CORPORATION.” Now when you go to the bank, they automatically understand your organization. They know to only give power to your officers (President, Secretary, Treasurer), and they know your club must follow the state’s rules for corporations.
Opening a bank account isn’t the only reason to form an entity. Entities are so popular because of the many benefits they provide. The two most important benefits are limited liability and funding potential.
Why Form An Entity?
Why do you want to start a corporation or an LLC? The main reason: limited liability. Liability, in this case, simply means responsibility for money owed to people. And limited liability means owners of a business aren’t liable for the business.
Imagine you go mow your neighbors grass today. While you’re mowing, you hit a rock and it flies into the face of a jogger. The jogger is probably going to sue you. If you’re not a corporation or an LLC, any money the jogger gets is coming out of your personal savings. And if your savings doesn’t cut it, you might lose your car or house.
But if you are mowing grass as a corporation or an LLC, the jogger’s lawsuit can only take money from the bank account of the company. The entity is a liability shield.
Companies are often criticized for having limited liability. But those criticisms don’t consider the positives of limited liability. Here are reasons to love limited liability:
- Limited liability doesn’t protect owners who break the law or defraud people. If you break the law, intentionally defraud, or act reckless and injure people, you won’t be protected.
- Limited liability spurs innovation. Technology advances because entrepreneurs are willing to take calculated risks. If they didn’t have limited liability the risks would be too great, and innovation would be stifled.
- Limited liability protects investors who have no control in the business and only provide funding. Technology advances so quickly because businesses are able to accept funding to scale their ideas. But investors wouldn’t fund businesses if it made them personally liable for a company they have no hand in managing.
Limited liability is great but another reason to form an entity is the funding potential.
No one's going to fund you if you don’t have an entity. The law for LLCs and corporations is designed to protect investors. If you raise funding for your company, that funding is put in your entity and the investor becomes a part owner. If done right, this guarantees you won’t run off with the investor’s money. Also, as an owner, the investor’s money in the company can grow in value with the company.
This won’t happen without an entity.
Types of Business Entities
Another important decision you have to make for your company is what type entity to be. It varies by state but there are four main types of entities in the US: Sole Proprietor, Partnership, Corporation, and Limited Liability Company (LLC). Which you choose will depend on the law of your state and your business’ goals. You should speak with a licensed attorney before choosing an entity type.
A sole proprietor is what you are if you go mow your neighbors lawn for $20 right now. Technically, you don’t even need to register to be a sole proprietor. A sole proprietor is the default entity of any single person working (not as an employee) for money. Money made as a sole proprietor is taxed as the personal income of the individual.
A partnership is the same as a sole proprietor but for more than one person. Like a sole proprietor, each partner is also taxed as an individual.
Here’s the thing, as a sole proprietor and in a partnership there’s no limited liability. If someone sues you as a sole proprietor or partner, they can take the money they win right out of your personal bank account.
If you want to limit your liability (prevent people from taking money from your personal life) you need a corporation or an LLC.
A corporation is the typical business entity. You probably heard a lot of complaining about corporations in the past decade. This is because corporations have limited liability, meaning the debts of the corporation can’t be taken out of the shareholders personal money. A corporation is an old business entity. American corporations are modeled after British corporate law, which has been developed since the 1600s. Corporations are complex organizations with lots of rules.
A corporation’s profits are taxed twice. Corporations are taxed once when they make money, and then again when they give the profits to the owners.
An LLC is a more modern type of entity. Wyoming was the first state to allow LLCs in 1977, but they were so useful all 50 states soon adopted them. LLCs have less rules than corporations, and the owners of an LLC have a lot more freedom to structure their company.
LLCs combine the limited liability of corporations with the tax benefits of a partnership. The owners of LLCs only pay taxes once, when the company gives them profits. The LLC doesn’t pay taxes itself.
Choosing between an LLC and a corporation is a tough decision that should be made with an attorney. The biggest factor in choosing between an LLC and a corporation is the company’s vision for the future.
How to Form an Entity
Here are three ways to form an entity:
- Hire a Lawyer ($$$$)
- Use an Online Service ($$$)
- Do It Yourself ($$)
Hire a Lawyer
If you hire a lawyer, make sure you find a lawyer that specializes in startup business law. A lawyer will help you map your business goals onto a type of entity. The insights a lawyer can provide are ultra valuable. But hiring a lawyer is the most expensive option.
Use an Online Service
Online services are great but they don’t give you much flexibility in how you organize your company. For flexibility, you need to hire an actual lawyer.
Do It Yourself
There are lots of people who create entities themselves. Most states have online portals that allow you to file the paperwork from anywhere. Further, it’s easy to find standard management documents for free online.
This is riskiest method of forming an entity. No online template is going to be a perfect match for your company. In legal matters, it won’t matter whether or not you understood the document you signed. These documents set the rules for your company. Doing it yourself is very risky business.
Name and Register Your Business
You know what entity you want, but what do you name it? I know, this is a tough decision. Here’s some advice for vetting a name.
Picking a Name
Picking a name for your business is difficult. Sometimes it’s best to start with a management company. That’s right, the name of your company doesn’t need to be the same name you use for products or marketing. A name you use for products or marketing is called a trade name.
For example, imagine you just created the best diamond necklace on the market, but now you’re struggling with what to name your company. Instead of worrying about the name now, you can just start a company named “Necklaces Corp.” and pick a trade name later.
When a management company uses a trade name for marketing, the trade name is listed as “Doing Business As” or “DBA.” So it’s typical to see companies listed as “Necklaces Corp.” (the company name) DBA “Best Necklaces in The World” (the trade name).
Before choosing a name, check the availability of a related domain name. Domain names are more scarce than business names because they’re cheaper and easier to acquire. Regardless of your market, it’s very likely an online presence is key to your success. If you decide on a business name and find an available related domain, you should purchase it immediately. At worst, you’ll lose $12. The most popular service for researching and buying domains is GoDaddy.
Next, you need to search the US Patent and Trademark Office (USPTO) online database to make sure your business name isn’t already trademarked. If your name is trademarked, you’ll need to hire a lawyer to help you decided whether or not you should go forward with your business name.
After you’ve secured a domain name and searched the USPTO, search your state’s entity database for businesses using your desired name. The registration of a business with a state is completely different and independent from the USPTO’s trademark registration.
Registering with the Federal Government
If you know the entity type and the name of your business, you’re ready to register with the federal government and the state.
For the most part, the federal government only cares about one part of your business: taxes. Unless you’re in an industry that’s specifically regulated, to register your company with the federal government all you have to do is apply for a federal Employer Identification Number (EIN).
You can apply for an EIN online. You’ll get your EIN immediately after completing the application. Guard your EIN carefully. Your EIN is like the social security number of your company. You’ll use the EIN to register your company with the state and your bank.
Registering with the State
After you get an EIN you’re ready to register your entity with the state.
In the US, each state has its own set of rules about the organization and management of companies. Every company is registered on a state-by-state basis. Usually one department of a state is responsible for registering companies. You submit an application to start a company and soon after the state accepts or denies your application.
If the state accepts your application, it will publish your company in a directory that lets everyone in the state know your business name is reserved. Once your company is published, other persons in the state will be (for the most part) precluded from using your business’s name in a similar industry. Don’t forget this is limited to the state in which you register. To make your registration national you need to file a trademark application with the USPTO.
Time to Start
The first steps of a WealthFit Startup are forming a vision and recruiting teammates. These steps can be performed with little time and money. If you know you want to be an entrepreneur, don’t delay any longer. Start crafting your vision and inspire others to get on board.
Nathan is WealthFit’s Managing Editor. He's previously worked as an attorney in entrepreneurial law and venture capital.