Running a business can significantly impact your life and the lives of those around you. But before you can run a business, you need to learn how to start a business.
Deciding how to start a small business can seem like a daunting prospect if you’ve never done it before. Luckily, plenty of other entrepreneurs have, and you can benefit through the wisdom they gleaned from their successes—and their business mistakes.
These 10-tested steps on how to start a business—whether it’s your first or your 10th—will help you with everything from finding and validating your money-making idea to figuring out your shipping strategy to finally launching your product or service.
1. Find a business idea
First of the steps to start an online business is figuring out what you want your business to be. Finding small business ideas is a task you can approach systematically by relying on time-tested approaches that have worked for other entrepreneurs. No matter whether you’re looking to start a low-investment business on the side or you’d prefer to go all-in on your idea, the best way to find a product to sell starts with asking questions:
A. What’s the potential opportunity size?
Entrepreneurs are often too dismissive of small markets. Yes, the market size should match your ambitions from the business, but the opportunity size of a specific niche is determined by a few other dimensions. For example, if a product category has relatively few active customers, but the price of the product is relatively high and requires repurchase, that’s an attractive opportunity that founders focused on market size might miss.
That said, the costs to acquire any customer isn’t exactly cheap these days. The best opportunities will come from product areas where you can encourage repeat purchases, either in the form of a subscription or by (eventually) upselling and cross-selling customers complementary products. That can come later, but keep the potential in mind as you explore opportunities.
Business inspiration: Daneson is a business that sells luxury toothpicks. The small market size will influence potential revenue, but as a specialty brand, targeting the right customers and acquiring them inexpensively could result in Daneson owning the space.
B. Is it a trend, fad, or growing market?
One of the best ways to start a business is to tap into the market before you start. The trajectory of a market matters more than its current state. If you want your business to go the distance, remember it’s not only critical to understand the demand for a category today but to know how it might trend in the future. Does your product or niche fall into a fad, trend, stable, or growing market?
- Fad. A fad is something that grows in popularity for a brief period of time and fades out just as quickly. A fad can be lucrative if your entry into the market and exit are timed perfectly, but this can be difficult to predict and a recipe for disaster.
- Trend. A trend is a longer-term direction that the market for a product appears to be taking. It doesn’t grow as quickly as a fad, it lasts longer and, generally, it doesn’t decline nearly as fast.
- Stable. A stable market is one that is immune to shocks and bumps. It is neither declining nor growing but maintains itself over long periods of time.
- Growing. A growing market is one that has seen consistent growth and shows signs of a long-term or permanent market shift.
C. What’s your competition?
What does the competitive landscape look like for your product? Are there many competitors, or very few? If there are a lot of competing businesses in your niche, it’s often a sign that the market is well established; that good for ensuring demand exists, but it will also require you to differentiate what you offer (to some degree) in order to attract customer attention and build market share.
D. Will there be restrictions and/or regulations?
Understanding how to start a small business also requires understanding legal obligations. Before diving into a product category, make sure you understand the regulations or restrictions that will apply. Certain chemical products, food products, and cosmetics can carry restrictions by not only the country you are importing your goods into but also the countries you are shipping your product to.
2. Choose a business name
What’s in a name? For starters, your business name is a universal facet of your marketing; it shows up everywhere you do. Word of mouth is hard enough to earn, so there’s no reason to make life harder with a dull, confusing, or irrelevant business name.
That said, the early days of starting a business are fluid, with very little being set in stone. Whatever name you come up with now isn’t the one you have to live with forever.
Keep things simple and focused: find a name for your business that makes it clear what you do, that’s short and memorable, and that aligns with your mission and vision statement. This isn’t an effortless task, but it’s very achievable with a bit of ingenuity.
Name generators can help you come up with an initial set of ideas—the rest is up to you. If you’re starting from scratch, there are also a few time-tested practices to lean on for direction. Below are some tips to start a business with s fitting and memorable name:
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Keep it short and simple
- A good tripwire here is if you’ve spoken about your business idea before and people frequently ask you to repeat the name. Don’t make customers work to remember your brand. One or two words is ideal, although three to four short words can also work if they form a concrete phrase. (E.g., Storq, Star Cadet)
- Dare to be different. If your market research shows that everyone in your industry seems to have similar names or relies on similar elements, consider avoiding these tropes and veering in a completely different direction; many brands underestimate the marketing upside of wild originality. You can always amend your name with your product category to blend clever with clear, too. (E.g., Deathwish Coffee, Beefcake Swimwear)
- Be original. You’ll need to ensure your business name isn’t in use by another business, especially a competitor. To do that, run a free trademark search in the countries you’ll be doing business in, and make sure to check Google and social media sites, too. The same goes for URLs, so run a quick domain name search or a whois lookup before you register anything. (If you’re still unsure, it’s best to consult independent legal counsel for advice specific to your business.)
3. Validate your product idea
Until people pay you, all you have is a list of assumptions. Market research, surveys, and feedback from friends and family can point you in the right direction, but the calling card of real product validation is the sound of the cash register ringing.
So, the first and arguably best way to validate your product is to make a few initial sales.
There are, however, a number of ways to validate your would-be idea as you’re developing it. Most focus on a single essential action: commitment. Let early customers commit in some form or fashion to show that, yes, people really are interested in buying this product and they aren’t just telling you what you want to hear.
This bias toward speed and experimentation can save you from costly mistakes down the line. It’s advice so simple and obvious it too often gets dismissed: make sure you’re selling something people want.
Here are a few ways to test the waters before diving into the next part of how to start a small business online.
Set up a store to take orders
- pre-orders. Imagine having product validation before developing your product. Pre-orders make it possible. Over the years, customers have become more accustomed to and comfortable with paying for a product today that they’ll receive later. Describe and sell what you’re building, honor your promises, and cast your net before placing that initial inventory order.
- Launch a crowdfunding campaign. Kickstarters aren’t the cure-all tonic to your financing woes, but they are still an advantageous way to get funding from the best possible source: customers. Kickstarter isn’t the only game in town, either, which is helpful for brands working outside of the platform’s most prominent product categories.
- Sell products in person. For certain products, like homemade goods, local fairs and markets offer the ideal way to test a product: by creating an initial batch and selling to customers in person. When Nimi Kular and her family’s business, Jaswant’s Kitchen, first started selling their homemade recipes, they found this approach indispensable. “Selling in person at a craft show or local pop-up is a great way to share your story, get feedback, and explain the benefits of your product to potential customers,” says Nimi.
There are other ways to validate your product ideas, but when in doubt, start selling as quickly as possible. There are downsides to moving too fast—if you rush and try to sell a product before it’s ready, all you’ll learn is that people don’t like bad products. But, our experience is that most entrepreneurs wait too long to start validating their ideas.
Consider this: if you’re customer-driven, then trust your potential customers to guide you to the right product. No matter how clever you are, there’s no substitute for direct, pointed feedback from a paying customer.
4. Write your business plan
Next on our list of steps to start an online business is your business plan. Writing a business plan helps formalize your idea and can streamline the business-creation process by getting you to sit down and think things through methodically.
And, yes, plans are (often) worthless, but planning is everything. Many entrepreneurs say they rarely look at their plan once they’ve launched—but they’ll also tell you there’s value in thinking through and researching your idea; writing a business plan is the perfect canvas for this exercise.
In fact, writing a business plan may reveal more insight into how to start a business online, especially as you get to the logistics parts.
At the very least, you’ll quickly figure out what questions you don’t have answers to. Having a firm grasp of your “known unknowns” is important because all it means is that you’re actively not prioritizing finding a solution right now; that’s a lot better than being unprepared or caught off guard, especially if you struggle to answer these questions while seeking funding.
Your day-to-day of getting your business off the ground will undoubtedly move on a much shorter timeline than the average business plan. And that’s a good thing; you need to know what you think, not what you thought. But the initial draft of your plan is like charting a course for an intended destination.
Along the way, things will change, and minute details in the original plan will become out of date. But if you don’t know where you’re going, how will you know when you’ve arrived?
5. Get your finances in order
The goal of any business is to make money. Otherwise, you just have a hobby (which is also OK!). But if your goal is to find effective ways to start a business, knowing what you’ll need to start up and how to manage cash flow once you have it will be integral to your success. Although it’s hard to get a definitive list of reasons as to why most businesses fail, cash flow and insufficient capital are frequent culprits.
There are two sides to this coin: financial literacy and securing funding (if it’s needed). Let’s start with the first one. There are plenty of businesses you can start with minimal startup costs, but others will require money for inventory, equipment, or physical space. A clear view of your total investment—before you spend a cent—is a must for helping to make important projections, like when you’ll break even.
Where the money ends up going will largely be determined by your business, but our research shows that for most businesses, product and inventory costs represent a large share of spend in Year 1.
If those calculations show you’ll need more funding than you can afford to spend out of pocket, you can look at options like a small business loan, a Shopify Capital offer (for those qualified), or a crowdfunding campaign.
The second part of the equation is financial literacy, or understanding the flow of finances through your business. Remember, if the math doesn’t work, your business won’t work. Bookkeeping needs to be one of your primary financial tasks as soon as you’re ready to start making purchases for your business.
Accurate records of your income and expenses will help you keep an eye on cash flow and make for a smooth transition to working with an accountant or bookkeeper later on—when you’re able to afford professional help in these areas, it’s some of the best money you invest.
- Shopify Capital. Financing that helps approved merchants get the funds they need without lengthy bank approvals or giving up part of their company.
- Profit First. A book designed to help you understand how to start a company and make it profitable, no matter what kind of business you run.
- Accounting tools. Apps that work directly with Shopify to streamline your accounting processes.
- Business Loan Interest Calculator. Easily calculate fixed-rate loans for your business.
6. Develop your product (or service)
You’ve done the legwork, understand the financials, and, ideally, have begun to validate your idea with early interest from customers. Now, it’s time to go deeper into how you’re going to build what you sell. For a product-based business, developing your product could mean taking one of three general approaches:
A. Create your own product
Whether you’re making items by hand or sourcing an original product from a manufacturer, developing your own product to sell can help you stand out in the market.
- Ideation. The SCAMPER model is a useful tool for quickly coming up with product ideas by asking questions about existing products. Each letter stands for a prompt: Substitute; Combine; Adapt (e.g., a bra with front clasps for nursing); Modify; Put to another use (e.g., memory-foam dog beds); Eliminate; Reverse/Rearrange (e.g., a duffle bag that doesn’t wrinkle your suits).
- Prototyping. Prototyping involves experimenting with several versions of your product, slowly eliminating options and making improvements until you feel satisfied with a final sample. These days, with the innovation of 3D printing, designs can be turned into physical samples at a much lower cost with a quicker turnaround time.
- Costing. Costing is the process of taking all of the information gathered thus far and adding up what your cost of goods sold (COGS) will be, so you can determine a retail price and gross margin. We have a free spreadsheet you can copy for your own product
B. Customize an existing product
Various print-on-demand services let you add unique designs and branding to white label products, including t-shirts, leggings, towels, backpacks, and much more. This option is popular for categories where most of the differentiation comes down to design; coffee mugs can use a variety of materials, for example, but many customers are actually buying the witty phrase or branding, not the build quality.
If you have an existing audience as a content creator, this model is also great for selling merch to your fans—once you know what they want.
C. Curate a selection of products
Dropshipping is a way to sell existing products without holding inventory. With dropshipping, you partner with a supplier of existing products who ships and fulfills your customer’s order only after you’ve made a sale; your job as the dropshipping is to handle marketing and customer support.
This model is highly accessible and can be competitive in certain product categories, but it gives thousands of entrepreneurs the chance to start their business immediately without shouldering a huge upfront investment for inventory.
One last thing: as you develop your product, keep your total costs in mind when figuring out your pricing. While your product’s price is not solely driven by costs—and there are many factors that influence pricing—it’s important to price your product profitably.
7. Pick a business structure
There are many ways to start a business with different incorporation structures. Your business structure influences key parts of your business, from taxes to operations to your personal liability.
Choosing the right structure is about balancing the legal and financial protections you need with the flexibility offered by different options. It’s an important decision, and it’s one you should consider carefully before you launch your business.
Business structures vary based on your country and area, but two common types—that may go by different names in your country—are sole proprietorship and incorporation.
A sole proprietorship is great if you’re the only person involved in the business and is usually the lowest-effort structure to pursue, but it leaves you personally liable for the business and its activities. You can hire employees as a sole proprietor, but you’ll need an employer identification number to do so, which means registering your business.
On the other hand, if you opt for a more formal structure, like a corporation or a limited liability company, it’s easier to involve multiple owners and you’re not personally liable for the business. At the same time, there’s more paperwork and steps involved in starting and maintaining a corporation.
When it comes to considering the right legal structure for your business, there are a few factors you’ll need to consider as you understand how to start a small business:
Where is your business located?
- Your country’s laws will outline the different business structures you can form and whether or not you need a business license to get started.
- What kind of business are you running? Some structures are more suited to businesses of a certain scale or within a certain industry. There might come a time when you need to restructure your business in order to work with new partners. It’s not uncommon for large businesses to ask that their suppliers or partners be incorporated, for example.
- How many people are involved? If you’re going it alone as a solo founder, you may be able to look at streamlined options. If you have a business partner or multiple people with ownership in the company, you’ll need to look at more advanced options to ensure everything is set up and shared properly.
An accountant or lawyer can be helpful in evaluating the different options available in your area and with the process of setting up a business. You can also check out this sole proprietorship vs. LLC comparison.
8. Research licenses and government regulations
Once you understand how to start a business online, look into what licenses and government regulations you need to operate legally. No one wants to end up in legal trouble. Your business is subject to the laws governing businesses in your area, as well as laws and regulations specific to your industry.
For instance, a food service business needs to follow specific licensing and regulations for handling what it sells, but it also has to pay attention to the legalities of its marketing efforts and to trademark and copyright laws.
With so much to know, and a lot of it specific to your location and industry, it’s worth consulting with a lawyer to get advice before you launch your business. Investing time and money upfront to obtain legal advice can save you from considerable headaches down the road.
9. Select your tools
Taking the steps to start an online business means having more to do than reasonably can be done. That’s why business owners shouldn’t underestimate the value of good software—it’s one of the best ways to reduce the heavy lifting involved in running a business.
The right tool fits the job to be done, so the first step to earning back some of your time is figuring out which streams of work continually eat up portions of your time.
Are there repetitive tasks in that list that don’t require much decision-making? Software is perfect for streamlining or automating that sort of work. You can also deploy software early to support
some of your marketing and sales work; while there’s a genuine risk of getting distracted with excess tools, there’s a portion of marketing that will benefit from automation from day one.
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Consider looking into software to help you manage the following:
- Accounting. With numerous options to help you track everything from a meal with your business partner to a big inventory order, accounting software is one of the best ways to start your business off on the right financial foot. Save as much manual number crunching for valuable investigative work as you can; let software and professionals help you with the day-to-day stuff.
· Email marketing.
Most businesses will benefit from setting up cart abandonment and welcome email sequences even before they’ve made their first sale. An email list is one of the few things, alongside your online store, that you truly own on the internet; it provides a direct line to your customers that isn’t dependent on third-party algorithms.
- Ads. Paying for ads is a cost of doing business, especially online, but there’s marketing software that can help streamline the process and make the most of your advertising budget—no matter how much you have to spend. Marketing in Shopify can help you reduce the time it takes to create, test, and track your campaigns, but if you plan on scaling your paid advertising, it’s smart to familiarize yourself with their individual platforms.
- Project management. Even if you’re a sole proprietor, having one place to plan your work and keep track of important tasks can help you stay on schedule. Tools like Trello and Asana can help you keep your finger on the pulse, and connective apps like Zapier are great for stitching together and automating your most common workflows. · Website or online store. Choose a website builder or ecommerce platform that allows you to easily manage all the critical tasks involved in running your business. Look for a theme that supports your product lines and gives you the ability to take and manage orders easily. For commerce businesses, site performance, payments and checkout, and omnichannel capabilities are especially important considerations
10. Find a business location
Your business plan will help guide what kind of space you need for your business. If you’re selling print-on-demand t-shirts, you may only need to find space in your home for a small workspace, a desk, and a laptop. On the other hand, if your business requires in-person retail space, you’ll need to find a place to rent.
To help narrow down what you need from your business location, consider these questions:
- How much space will you need for inventory? If you’re accepting deliveries of thousands of items at once, you may not be able to accommodate them in your living room.
- Do you plan on offering in-person retail sales? Selling out of your home is certainly an option for your first orders, but if in-person is an important channel, you’ll want to find space that’s comfortable and easily accessible for customers to visit.
- Will you be packing and shipping orders from your location? Depending on the scale of your shipping operations, that may necessitate more space than you have available in a home office.
It’s possible you’ll be able to figure out how to start a small business from a space you already have available, especially if you don’t plan to sell in-person.
The journey of a lifetime
The lead-up to launching your business always has a certain thrill to it. Why?
Many entrepreneurs have told us that it’s setting sail into the unknown that they find so thrilling; in the planning steps to start an online business, they have so much control, but once a business is out in the world, you are now in completely uncharted territory. That’s not the most comforting thought,
but the call to adventure is just too strong to resist—so they answer the call, even when the voice in their head tells them otherwise.
That’s what we respect the most about entrepreneurs: they’re willing to leave safe harbor to pursue their dreams. And while starting a business isn’t easy, you shouldn’t let go of a purpose left unrealized just because it’s hard to do.
It’s only out there, in the unmapped territory of your own personal growth, that you’ll discover who you can become.
Frequently Asked Questions
Can you start a business with no money?
Yes, you can start a business with no money. There are five ways to get funding if you have no money:
- Tap into a skillset you have and use free tools.
- Save six months’ worth of expenses.
- Ask your family and friends for startup funds.
- Find out about local small business grants and funding opportunities.
- Apply for a small business loan.
- Look into potential angel investors.
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How can I start my own small business?
- Identify a business opportunity
- Conduct market research
- Find a business name
- Write your business plan
- Understand business finances
- Develop your product or service
- Pick a business structure
- Research licenses and government regulations
- Select your software systems
- Find a business location
- Plan workload and team size
- Launch your business
When should you start a business?
There’s never a specific right time to start a business. Learning how to own a business is like starting a relationship. You should start a business when you have the time and attention to commit to it. However, there’s no problem with starting a side business while you are still working another job.
What are the most successful small businesses?
- Print on demand
- Tax preparation and bookkeeping
- Handmade products
- Digital products
- Video games
- Self-published author
- Pet product retailer
- Freelancing/Business consulting
- Social media influencer
- Coffee retailer
- Renting unused space
- Food waste
- Buying businesses for sale
- Website design
- Online tutoring