How to Start a Small Business (Ultimate Guide)

If you’ve been wondering how to start a small business, you’re in the right place! In this guide, we take you step-by-step through the entire process of getting a business started and ready to welcome customers/clients.

After we’re done here, you’ll have a detailed roadmap of how to start a small business and get it off the ground.

Ready? The let’s get started.

1. Research Viable Business Ideas

Finding the right idea is regarded by most people as the number one most important stage of figuring out how to start a small business.

This is at the same time true, and not.

In practice, execution is much more important than the idea itself.

You can do a quick exercise and look around you. Everything you see on your desk is probably not the most original item of its kind. There’s your coffee mug, your keyboard, a picture frame, some headphones, that handmade lamp you got at the local store.

Each of those items is made and sold by someone. Each of those someones made that the core of their business. The item itself does not need to be original. It just needs to be executed well.

A normal idea executed well will be a better business than an awesome idea executed poorly in 100% of the cases.

So how to come across that idea and make it your core thing as you figure out how to start a small business?

This is what we’ll cover in this part of the guide.

For most people, two paths prove the most fruitful:

• Ideas based on your professional experience or knowledge
• Ideas based on your passions

The former might be a good path if you’re thinking about starting a small business as a type of a spin-off of what you’ve been doing up until now in your “professional life.”

For example, maybe you’re a high-skilled worker in niche X, have Y years of experience, and you’ve noticed a way to improve process Z. A reflection like that is an awesome starting point for a new small business.

Similarly, you can grow a business on top of your education or unique knowledge that you might have in a given field.

The other path to how to start a small business is to base your idea on your passion for something.

In this model, you might not be the most educated or knowledgeable person in the field, but you do have a specific idea or drive to “make something happen.”

A good way to land on an idea that’s passion-based is to look for pain-points related to what you’re passionate about.

For example, up until recently, if you wanted to learn a language, you most likely had to attend lessons in person. The year 2020 changed all that, and now online lessons are the new standard. No matter what the trigger for change was in this case, the “I have to commute to attend lessons” is a great example of a pain-point.

The best part is that most of the time, there are various ways to solve that pain-point. In this example, you wouldn’t have to be the one who gives language lessons online, but you could be the person who trains teachers how to set up their online environment, give them the tools and the support in case of trouble. That’s a small business born of solving a pain-point.

Having the above two paths in mind, it’s now time to do some brainstorming:

Start by listing all experience and passion-based new business ideas that you have.

You can aim for 5-10 ideas that follow the above frameworks. At this stage, this is not about deciding whether an idea “makes sense or not” but about putting pen to paper and simply listing everything that’s a possibility. Look into all your passions and all your work experience up until now.

If you’ve walked into this guide with your perfect idea figured out already, that’s good too; you don’t have to do more work at this stage. You can skip to the next section.

2. Research Your Competition

This might sound counterintuitive to some, but dealing in “untapped niches” isn’t a fail-proof tactic.

Here’s why:

On the one hand, it’s somewhat intuitive that the more original and the less “covered” your idea is in the marketplace, the less competition and more space there is for you to dominate.

However, in practice, this is not as simple.

In most cases, the reason why a given niche seems “not attended to” isn’t because no one ever thought of tackling it, but rather because they did try…and failed.

For most small businesses, a niche is only good if there’s already someone making money in it.

But don’t worry, this is where some good ol’ competition research comes into play.

Why are we looking at the competition? A couple of reasons:

• First off, if there’s competition, there’s money to be made in the niche.
• Your competition already has some products/services in their portfolio – you can look at those and think if you can offer something similar.
• Your competition does some things well and other things not so well. Identify what you like about them and what you don’t. Think about what you can do better and how.
• You can examine how your competition positions itself in the marketplace and why customers buy from them.

There are several ways to research your competition, but doing it online sounds like a good idea in the 21st century.

Here are a couple of tools you can use:

• Ahrefs – one of the most popular and best SEO research tools out there. It will examine your competitors’ websites, tell you which search terms they target in Google and where most of their audience/customers come from.
• SEMrush – a tool that’s similar to Ahrefs but delivers its results in a slightly different form. For example, here’s what the “Top Organic Keywords” section looks like for a store selling houseplants:

• BuzzSumo – a great tool for finding your competitors’ top web pages. If we’re talking about a business website or an eCommerce store, those top web pages basically equal their top products.
• SpyFu – a very good tool if you want to research a couple of specific competitors. This is especially handy if you want to discover where the competitors advertise.

Depending on the specific business ideas you’re considering, you might already know who your competitors are. This makes your work easier at this stage since you can just input their websites into the tools above and see what you can find.

If you don’t yet know who the competition is, that’s not a huge problem either. Here’s what to do:

Start by identifying the main keyword that defines your niche. For example, if you want to start selling small houseplants locally, that keyword might be small houseplants London – or insert whatever other cities.

In short, think of what your prospective customer is likely to put into Google as they look for your products/services.

With that term at hand, go to Google and enter it in the search box. You’ll see a classic Google results page. Like this:

Right off the bat, we can discover several competitors in the houseplant niche in London.

• First, we have LondonHouseplants.com – a website that ranks no.1.
• Then, there are a couple of articles on no.2 and 3 that list where to buy houseplants in the UK. If you go to these articles, you’ll find even more competitors neatly listed for you.

You can use this strategy in other niches as well.

With your list of competitors, come back to the research tools we talked about earlier and look them up one by one.

This part of our research aims to see what’s out there and how your competition operates. Get ideas based on that, evaluate, and think about what you can offer that’s similar and at the same time better in certain aspects.

3. Who’s Your Target Customer?

As tempting as it can be to say “everyone who breaths,” we might have to do a little better when identifying your target audience and customer base.

All small businesses have their specific target, whether they realize it or not.

That boutique cafe in the hip part of town probably doesn’t have many customers over 50. Did they decide consciously to target a younger demographic? Maybe so and maybe not, but that’s where they are regardless.

Having your target audience clearly defined helps in a lot of ways:

• It makes it easier to decide what types of products to add to your offer and what products to skip.
• It makes identifying viable marketing and promotion channels easier. For example, if your target customer is 20-35 years old, you probably don’t need to advertise in local newspapers.
• It makes your branding more focused. Once you know who you’re talking to, figuring out what to say is not as big of a challenge.

So, where to begin with this? There are a couple of things you should know:

• What’s the demographic?
• What do they buy and why?
• Where do they hang out?
• How to best reach them?

You can identify a big chunk of the above just by brainstorming. To fill in the blank spots, you can come back to the tools we shared in the previous section. Input your competitors’ websites again and see what the data tells you.

All this insight steers you in the direction of figuring out why those people would buy from you. This is a key stage in learning how to start a small business.

4. Validate Your Idea

This step is fun(!), but it’s also not as obvious for people who have never used modern web tools for researching small business opportunities.

If that’s you, don’t worry, it’s all quite easy to do.

The challenge:

How do you know if your business idea will hold in an actual marketplace?

One way to find out is to create a “placeholder” offer and see if people bite.

• If they show interest, then the idea has the potential to work and should be explored further.
• If not, you probably need to go back to some of the earlier stages and re-evaluate.

So what could be that “placeholder” offer?

The idea is to offer a straightforward product that can gauge people’s interest in what can someday be your full offering.

The key element is that you don’t even have to have the product at hand. You’re only getting people on a sort of a “coming soon” list, and you are looking at how the offer is received by the people seeing it.

If many people engage with that test offer, then there’s a good chance they will be interested in the real deal later on.

Here’s an example of what an offer like that can look like in our fictitious houseplant store in London:

Test our houseplant service. Two flowers delivered to your home in London. Leave your info here to receive 50% off.

The quickest way to run this type of test offer is via Facebook ads.

Here’s what to do:

1. Create a Facebook page that describes what the offer is. Add a form to it that will allow you to get people’s contact info. Alternatively, you can ask people to contact you via Messenger about the offer.
2. Run a test ad campaign for that offer. The easiest way to do this is to create a new post with your offer’s details (for example, the text we shared above) and run it as a Facebook ad. Facebook lets you set up your ad targeting based on demographics, and it just so happens that you already have that data from the previous steps in this guide.
3. Wait and see how people receive your ad and what number of prospective customers it brings you.

The best part is that the cost of running this whole experiment is pretty low. The entire thing will cost you between $10-$20.

After a couple of days (or a week), you should have enough data to decide if there’s real interest in your test offer and, by extension, a good likelihood that people are going to be interested in your later offerings as well.

5. Incorporate Your Business

Disclaimer; we’re not lawyers, and this is not legal advice. Consider the following for informational purposes only. Always consult with your local governments, rules, and regulations.

Incorporating a business (or setting up a legal business entity) is probably the most intimidating part of the process when figuring out how to start a small business.

The good news is that it looks much scarier than it actually is. But first, let’s talk about why you’d even need a business entity in the first place.

Why Incorporating a Business Is Usually a Must

Businesses “do things.” As part of running your own business, you will have to deal with a lot of paperwork and make multiple parties happy and wanting to continue interacting with you. Signing contracts, agreements, buying products, selling them, leasing office space or a storefront, negotiating with real estate agents, getting loans, dealing with customers, suppliers, etc., is just part of the fun stuff that’s ahead of you.

Most business structures will protect you and your personal assets if any of the above go badly for whatever reason.

Once you do incorporate a business and pick a legal structure, that business becomes its own entity, and it’s that business that’s “responsible” for everything. Getting this level of separation and protection from personal liability is only possible if you’re operating through a business entity.

But that’s not all. Some professions require you to set up certain types of business entities even to be allowed to operate and then also get a business license. This, of course, varies from country to country and from niche to niche, so always check with your local regulations to make sure what the legal requirements are to open a business.

Further, there are government grants and low-interest loans available for businesses of certain types in some countries. Many EU countries do offer those in particular. In short, if your business is of a certain type, you might qualify.

And, last but not least, mind the taxman (aka IRS if you’re in the US). Again, depending on where you live, it may or may not be easier (and/or safer) to operate as a certain type of business entity from a federal tax point of view. As always, look into how things work in your local area.

How to Start a Small Business: Common Types of Business Entities

No matter the country you live in, you will most likely be able to operate your business as either:

• A sole trader/sole proprietor
• A partnership
• Some form of a limited liability company (LLC)
• A corporation (not very relevant for how to start a small business)

From the top, there are slight differences from country to country, but the sole trader (or sole proprietor) is a simplified model meant to help people get started quickly and with minimal paperwork required.

The benefits of this structure are usually:

• Simple setup
• Easy small business administration (paperwork required every month to run the business)
• Simple tax structure

In most cases, in this model, you basically operate your business as “yourself.” While you get the right to call your project “a business,” it all remains under your own name.

This also has one huge drawback – your personal assets are not kept separate from your business assets (the thing we talked about in the previous section).

Consider this model only as temporary if you want to get started as soon as possible and later transition to a different one. But again, this is only our point of view. We’re not lawyers, remember?

A partnership works very differently from country to country. However, in many cases, it’s two sole traders working together. The benefits are therefore very similar to those of sole proprietorship, and the drawbacks as well.

One more added trait is that you can define the percentage of the business that each partner possesses.

An LLC is, in many cases, the go-to long-term business structure for most small businesses.

The main benefit of an LLC is indicated in the name itself – limited liability. This means that your personal assets are kept separate from business assets.

The drawbacks are a more complicated admin, more complicated taxation, and more paperwork needed to set it up.

In the long term, though, worth it!

How to Start a Small Business Entity

Since this depends hugely on the country you’re in, let us cover the basics and send you over to a couple of local documents.

The good news is that these days most things happen online. Your country might already have processes and online systems set up to allow you to incorporate a business without leaving your home. Look those up.

For example, if you’re based in the UK, check out these official resources by GOV.uk:

• Set up as a sole trader in the UK
• Set up a business partnership in the UK
• Set up a limited company in the UK

If you’re in the US, read these by SBA.gov:

• Register your business in the US
• Get federal and state tax ID numbers
• Apply for licenses and permits
• Open a business bank account

Additionally, in the US, you can get help from Small Business Advisory Councils for basic consultation on business incorporation. These are usually free.

6. Assess Your Finances

They say that you have to spend money to make money. We certainly do like the “make” part better.

There are usually two groups of costs that businesses have to deal with:

• Business-specific costs
• Universal costs

Business-specific costs are everything related to the core of what your business is doing. For instance, if you’re opening a store with hand-made furniture, your business-specific costs would be things like raw wood and metal to build the furniture from, power tools, hand tools, screws, etc.

But then there are universal costs – costs that most businesses have to deal with. Usually, these are things like:

• Bank account
• Accounting/bookkeeping
• Standard office supplies
• Marketing and promotional materials
• Website
• Software
• Legal fees
• Payroll (when hiring employees, getting your Employer Identification Number)
• Insurance
• Leasing a storefront or office space (also including the cost to get it furnished and get equipment)
• Setting up your home office

When assessing your finances, it’s important to account for all of the above, both the universal costs and the business-specific ones. You can also check this business budget calculator by Omni to get a list of other common cost categories.

You don’t have to be rock-solid exact with those calculations, but you have to be in the right ballpark. This insight is invaluable because it lets you know what sort of budget you need to think about how to start a small business.

Now is the moment to put pen to paper and note down the numbers in your case.

• Pro-tip #1: As you go along, research on Google to get prices of things that you’re not entirely familiar with at this point.
• Pro-tip #2: When calculating what it will cost to have a website built, put in $40. We’ll explain that later in this guide.
• Pro-tip #3: Something we mentioned in the previous section; look for grants in your city or country. In some cases, you might be able to get part of your initial setup costs taken care of by the government. Getting a business loan, investors, crowdfunding? Those are also an option, but it’s not a solution for everyone.

“Okay, but that’s just costs; when are we going to talk profits?” We hear you! That’s for next.

7. Create Your MVP and Business Plan

An MVP is your Minimum Viable Product.

In short, an MVP is a type of product (or service) that is as simple as possible but at the same time good enough to bring in early customers or clients who will buy it. It’s a term especially popular in the startup world.

Why go the MVP route and not just develop/create a whole portfolio of products right from the get-go?

That’s simple – because that would require too big of an initial investment, a full-time commitment, and most of that investment would end up wasted.

When starting with an MVP, you’re focusing on a small portion of the market and making sure that you’re catering to it the best you can in a laser-focused way.

By giving people the exact thing they’re the most likely to resonate with, you’re getting an early customer base that will bring you sales and give you feedback on what you’re doing. This sort of insight is invaluable when it’s your first time figuring out how to start a small business. Don’t worry, as your business grows, you’ll add other things to your offering.

How to Start a Small Business: Steps to Create Your MVP

A good starting point is to do either of two things:

a) Start with your test “placeholder” offer that you advertised on Facebook in one of the previous steps.

b) Go back to good ol’ competition research and see what works.

If you’re going with (a), think about what you can do to that test offer to turn it into a fully viable product or service.

Where most people fail with the concept of an MVP is the “viable” part. Remember that the offer doesn’t only need to be simple, but – most of all – viable.

If you’re going with route (b), we’re back to those competition research tools that we discussed earlier.

See what else is out there on the market, what the prices are, what the most popular offers are, and what makes them popular. Try to emulate and come up with the absolute minimal version of your product or service that will be interesting to your potential customers.

This is not about copying your competition but about building up based on their experiences and trying to find a way in which you can innovate, simplify, or improve in some other way.

This MVP will then be the base on which you’ll not only learn how to start a small business but also expand into other products later on.

8. Establish a Brand

From a practical point of view, establishing a brand means picking a name for your business, getting a logo created, and reserving your profile name on popular social media platforms.

How to Start a Small Business: Picking a Business Name

“Wait, didn’t we register a business entity already?” Yes, we did, but your business entity’s name can be different from the name you put above your doorstep or in your website address.

We’re sure we don’t need to convince you why picking a good name for your business is important. Upon seeing your business name, your customers will already be getting the first impression about what the business probably does and whether or not they’re interested in your services.

If you haven’t picked your name yet, consider the following tools:

• Business name generator by Shopify. Shopify is one of the most popular eCommerce systems on the web. Their business name generator is remarkably effective at identifying interesting business names in any niche.
• Business name generator by NameSnack. A similar concept to Shopify’s, but a bit different execution.

Important! As you’re picking your business name, make sure that a .com domain name is available for that name. Our favorite tool to check those is Namecheap (here’s a complete list of our recommended domain name generators). As a general rule of thumb, don’t settle on a business name if you can’t register an accompanying .com domain name.

How to Start a Small Business: Getting a Logo Created

Two paths to go here:

• Either hire a designer to create a logo for you (cost $10-$2,000) or
• Make the logo yourself using some online tools.

We’re not going to sugar-coat here; if you want to get a truly awesome logo, you’re going to have to pay for it.

However, if all you need is a 90%-good logo, then that can be obtained for a very low amount or even for free.

Here are your options:

• Alternative (a): Go to 99designs and launch a logo design contest.

99designs is a cool site where you can start a contest and have 30+ professional designers compete for your business. You’ll see loads of awesome logo designs, from which you’ll be able to pick one. And the best part is that you pay only for that one.

The prices start from $299 per contest.

• Alternative (b): Go to Fiverr and have a logo made for less than $10.

Fiverr is a gig website. You’ll find thousands of designers on the platform, all ready to make you a logo for a very low fee.

Of course, the results aren’t going to be the same as a $299 logo from 99designs, but still worth it. Start in the logo design category.

• Alternative (c): Use a free DIY logo maker tool.

We used a free business name generator, so why not give free logo makers a try as well, right?

Three great options:

• Tailor Brands Logo Maker. A functional and easy-to-use tool and it also has an AI module to help you with logo design. If you like your final logo, you can download the source files for $4.
• Hatchful. Another tool by team Shopify. A great alternative to Tailor Brands, plus you don’t have to pay anything for logo downloads.
• ThemeIsle LogoMaker. Similar in concept to Hatchful. Also free, and easy to use even for a beginner.

9. Build a Website

Although this may seem like a fairly intimidating and expensive part of the process when you’re first trying to wrap your mind around how to start a small business, it’s actually far from it.

First off, we already mentioned that this is only going to cost you around $40, and we stand by that statement.

“But wait, don’t websites typically cost thousands of dollars?” Yes, they do, but only if they’re built by a third-party, like an agency or a developer.

Here’s how it’s possible to get the bill down to $40:

• You’re going to build the site on your own (don’t worry, it’s actually easy).
• You’re going to host the website on an affordable web server with beginner tools (we recommend Bluehost).
• You’re going to use free tools to build the website and then manage it later on.
• You’re going to use ready-made templates that will give you an awesome website design.

10. Set Up Your Sales Process and Marketing

It’s hard to imagine a successful business without any good effort put toward your marketing plan and promotion. Even the biggest companies out there, such as Apple or Amazon, don’t rely purely on word of mouth and have huge marketing budgets in place.

Of course, you don’t need to be as aggressive as you’re learning how to start a small business, but some investment in this area is still required.

Start by planning where and how you’re going to sell your products or services and how you’re going to make sure that enough people see your offering.

When it comes to selling itself, depending on the type of business that you’re launching, this can be handled either through an integrated eCommerce system on your website or via an external channel.

If you want to market and sell your products through third parties, the best bet for that is to use social media.

For example, you can set up a shop page on Facebook and offer your products directly there. You can also set up a scenario where you encourage people to buy from you on Facebook Messenger.

This ties into our earlier concept of testing a placeholder offer via Facebook ads. You can use the same advertising channel to promote the “real deal.”

If your business model doesn’t have a big online business component to it, then that’s fine as well. You can treat your website purely as a business card and collect sales in person in your storefront or office.

But even with that, social media can still be a powerful tool to get new people through the door and talking about your business.

As you’re getting that initial stream of customers, it’s also a good idea to ask them if you can add their email addresses to your customer database and subscribe them to your newsletter. You can then email them whenever you have a new promotion going on or a new product launching.

Creating and maintaining such an email list from a technical point of view is quite easy:

• Here are our favorite email marketing services for small business
• Here’s how to add an email newsletter to your website

Overall, your small business’s long-term success will depend just as much on your ongoing marketing efforts and the quality of the product you’re offering.

What’s Next on Your Path to How to Start a Small Business?

We’ve covered a lot of ground in this guide on how to start a small business! Here’s a quick overview and checklist of the entire process (this should be easier to follow after you’ve read the guide and you’re in the trenches working on the individual steps):

• Research viable business ideas
• Investigate your competition
• Define your target customer
• Validate your business idea
• Incorporate a business entity
• Assess your finances
• Create a Minimum Viable Product (MVP)
• Establish a brand
• Build a website
• Set up your sales process and marketing

How far along are you on the path to starting a small business? Feel free to share in the comments. Also, let us know what your no.1 challenge is with the process.