There’s never been a better time to start your own business. No, really! Following the Great Recession – and all the corporate scandals that preceded it – consumers have grown increasingly wary of the big guys, and as a result, they are more willing to patronize small businesses and startups. If you’ve always dreamed of heading into business for yourself, now may be the time.
In fact, many people are already taking advantage of this wave of pro-small-business sentiment: According to the Kauffman Index, startup activity rose tremendously in the U.S. this year, having experienced its biggest year-over-year increase in the past 20 years.
That being said, you should never take the act of starting a business lightly. After all, the failure rate for startups is fairly high: 25 percent of startups fail in their first year, 36 percent fail by their second year, and 44 percent fail by their third year. An entrepreneur needs more than just a fresh idea, a shot of adrenaline, and a can-do attitude if they want to make it work.
In fact, what most entrepreneurs really need – especially in our startup-crazy environment – is a reality check.
If you don’t want you startup to be just another statistic, you need to ask yourself the following four questions before you give it a shot:
1. Is There Really a Market for My Product?
You’d think everyone entrepreneur entertains this question before launching a startup, but the sad reality is that very few do. According to research from CB Insights, the main reason startups fail is due to a lack of market need for their products, which suggests that a lot of entrepreneurs fail to do their research before heading into business.
It’s not enough for you to believe your idea is great – it has to be great in everyone else’s mind, too. Before launching a startup, you need to go out and so some serious market research. You also need to be prepared to modify your idea – or ditch it completely – if it turns out that the market doesn’t find it valuable. Don’t get attached. Be ruthless: If your product or service doesn’t meet a market need, then your business will certainly go under.
2. Am I Truly Business-Minded? Am I Ready for All the Boring Parts of Running a Startup?
We tend to glamorize startups and the life of the entrepreneur, but the fact of the matter is that startups are businesses, and business can be quite boring. It can also be terribly complicated.
General business incompetence accounts for 46 percent of startup failures, according to Statistic Brain. Even if your startup is pushing a genuinely valuable (and viable) product or service, your company can come undone if you can’t handle the complexities of business. Statistic Brain notes that factors like “emotional pricing,” “no knowledge of financing,” and “no knowledge of pricing” can easily bring down a startup.
If you are not much of a “business person” yourself, then you should find a business partner who is – otherwise, there is a strong chance that your company will join the startup graveyard.
3. Do I Have Proven Leadership and Team-Building Experience in a Startup Environment?
Both the CB Insights and Statistic Brain research cited above note that many startups fail because their leaders – i.e., you – fail to build the right team or fail to lead their teams properly.
If you have worked in a startup, this may not be much of an issue for you. Your time in the high-pressure startup world has likely given you insights into the pitfalls you need to avoid, the key skills you need to hire for, and the priorities you need to focus on in order to build a winning operational environment.
If, however, you don’t have experience in startup leadership, you may want to seek out a partner or mentor who does have such experience. Such a person will be an invaluable resource for you as you acclimate to the life of an entrepreneur, which is very different from the life of your average corporate worker.
4. Should I Give Up My Day Job?
Think carefully about this one, as studies show that entrepreneurs who work part-time while developing their ideas – known as “hybrid entrepreneurs” – have higher business survival rates. The stability of the day job helps them better handle the risks and uncertainty of entrepreneurship.
In other words: No matter how badly you want to work for yourself, it might make sense to stick with your day job for a while, until your project really takes off.
My purpose here is not to dissuade you from launching a startup. Small businesses are the lifeblood of the economy, after all, and being an entrepreneur can be incredibly fulfilling.
Instead, I want to make sure that, should you decide to go the entrepreneurial route, you have the best chance at succeeding. Face these tough questions – and the sometimes harsh reality of running a startup – and you’ll be much better off when it comes time to start your own business.