People are always asking for a list of fundamentals, a checklist they can use to start their own businesses. From your business type to your business model to your physical location, there are so many variables it’s not easy to come up with a list that will work for everybody. The key, regardless of what type of business you’re starting, is to be flexible!

That said, here’s are 7 steps to take before you start your business.

Step 1: Personal evaluation.

Begin by taking stock of yourself and your situation. Why do you want to start a business? Is it money, freedom, creativity, or some other reason? What skills do you have? What industries do you know about? Would you want to provide a service or a product? What do you like to do? How much capital do you have to risk? Will it be a full-time or a part-time venture? Your answers to these types of questions will help you narrow your focus.

Step 2: Analyze the industry.

Once you decide on a business that fits your goals and lifestyle, you need to evaluate your idea. Who will buy your product or service? Who would be your competitors? You also need to figure out at this stage how much money you will need to get started.

Step 3: Make it legal.

There are several ways to form your business ––  it could be a sole proprietorship, a partnership, or a corporation. Although incorporating can be expensive, it is well worth the money. A corporation becomes a separate entity that is legally responsible for the business. If something goes wrong, you cannot be held personally liable.

You also need to get the proper business licenses and permits. Depending upon the business, there may be city, county, or state regulations as well as permits and licenses to deal with. This is also the time to check into any insurance you may need for the business and to find a good accountant.

Step 4: Draft a business plan.

If you will be seeking outside financing, a business plan is a necessity. But even if you are going to finance the venture yourself, a business plan will help you figure out how much money you will need to get started, what needs to get done when, and where you are headed.

Step 5: Get financed.

Depending on the size of your venture, you may need to seek financing from an “angel” or from a venture capital firm. Most small businesses begin with private financing from credit cards, personal loans, help from the family, etc. As a rule of thumb, besides your start-up costs, you should also have at least three months’ worth of your family’s budget in the bank.

Step 6: Set up shop.

Find a location. Negotiate leases. Buy inventory. Get the phones installed. Have stationery printed. Hire staff. Set your prices. Throw a “Grand Opening” party.

Step 7: Trial and error.

It will take awhile to figure out what works and what does not. Follow your business plan, but be open and creative. Advertise! Don’t be afraid to make a mistake.

Above all, have a ball! Running your own business is one of the great joys in life!

Business planning is about determining your business future.

Where do you want your business to go?
Where should it be in three years?
What are the steps to get there?

Wouldn’t it be great if you had someone who could help you through the hard parts of business planning? Maybe give you a guiding hand in the how and why of it all?

This week we’re going to be posting Tim’s popular business planning video series.

Tim has spent years studying and honing his process of writing successful plans. And he’s passing that knowledge on to you.

We’re starting with the first two videos.

(If you can’t see the videos above, you can view them on our how to write a business plan video page)

Every year, I spend a lot of time reading and judging  business plans for business plan competitions. I have read some great plans and some not-so-great plans, but that is how it always turns out in any business plan competition.

I thought it might be useful to talk about the most common deficiencies that have come up in the reading of these plans.

Executive Summary – Frequently, business plan authors are so immersed in their business and their business concept that they forget that all potential readers of the plan aren’t experts in their industry. Many executive summaries that I read assumed some degree of knowledge about the industry and in some cases even the business and business concept. Executive summaries need to be short, direct, and provide an overview of the business opportunity. The idea of an “elevator pitch” is critical here. A good plan will communicate what the business does, who the target market is, and what the potential upside is in no more than 5 sentences.

Expenses – A common failing in business plan financials is to either under-estimate expenses or to leave out some expenses altogether. Several plans I read recently neglected to include any personnel costs. This is fine if you are bootstrapping the business, but this needs to be explained clearly in the supporting text. On the flip side, don’t discuss plans for a sales team and then neglect to include the costs of that team in your personnel plan.

On the expenses side, make sure that your P&L includes all of your fixed costs for running your business. You’d be surprised how many people forget things like rent, insurance, hosting costs for a web site, etc.

Optimism – Optimism is great and a required attribute of any entrepreneur but it can be a minor detriment in planning. While it is tempting to create a sales forecast that shows exponential growth, make sure your forecast is realistic. Most business plan readers are going to question what appears to be overly optimistic growth scenarios and it is important to back up these claims with text if these projections are realistic.

Market Size – Similar to my point on optimism above, it is very common for businesses to define their market too broadly in their plans. It is not uncommon to see plans that define their markets in the billions of dollars and millions of potential customers. While this is not a bad thing on its own, it’s very important to sub-divide this huge market into manageable target markets or market segments. Divide your market into manageable segments such as location, customer needs, age, income, etc. Without a realistic market segmentation strategy and a marketing plan that addresses that segmentation, you will have a difficult time implementing the plan.

There are plenty of other topics worth focusing on to build a successful business plan, but these four I mention today are common enough that they merit being singled out for discussion.

What’s the difference between a marketing plan and a business plan? Doesn’t a business plan include a marketing plan? Why would anybody do one without the other?

Good questions, and since I get them a lot, I decided to answer them here:

1. A business plan covers the entire business, including overall strategy, financial plans, target markets, sales, products and services, operations, and how they all relate to each other. A marketing plan, in contrast, focuses on the marketing: marketing strategy, target markets, marketing mix, messaging, programs, etc. Cash flow is vital for a business plan, but not usually included in a marketing plan
2. Yes, a business plan almost always includes the marketing portion. Emphasis varies, and I’ve seen some plans that focus much more on product or service than on marketing. But those are unusual.
3. Lots of people do marketing plans rather than business plans because their job or their attention or their focus is on the marketing, not the whole business.

A few days ago entrepreneur.com published my 5 steps to creating a marketing plan, my most recent column there. I’m including a summary here:

Step One: Your identity as a business.

Create separate lists that identify your business’ strengths, weaknesses and goals. Put everything down and create big lists. Don’t edit or reject anything.

Then, find priorities among the bullet points. If you’ve done this right, you’ll have more than you can use, and some more important than others. Kick some of the less important bullets off the list and move the ones that are important to the top.

This sometimes requires input from your managers as well. For example, your management team thinks being conservative on spending is a weakness but you don’t. That might be something to drop off the list.

Step Two: Focus on markets.

The next list you’ll need to make outlines your business’ opportunities and threats. Think of both as external to your business — factors that you can’t control but can try to predict. Opportunities can include new markets, new products and trends that favor your business. Threats include competition and advances in technology that put you at a disadvantage.

Also make a list of invented people or organizations who serve as ideal buyers or your ideal target market. You can consider each one a persona, such as a grandmother discovering email or a college student getting his or her first credit card. These people are iconic and ideal, and stand for the best possible buyer.

Put yourself in the place of each of these ideal buyers and then think about what media he or she uses and what message would communicate your offering most effectively. Keep your identity in the back of your mind as you flesh out your target markets.

Step Three: Focus on strategy.

Now it’s time to pull your lists together. Look for the intersection of your unique identity and your target market. In terms of your business offerings, what could you drop off the list because it’s not strategic? Then think about dropping those who aren’t in your target market.

For example, a restaurant business focused on healthy, organic and fine dining would probably cater to people more in tune with green trends and with higher-than-average disposable income. So, it might rule out people who prefer eating fast-food like hamburgers and pizza, and who look for bargains.

The result of step three is strategy: Narrow your focus to what’s most in alignment with your identity and most attractive to your target market. In other words, focus on the area that is shared by all three lines in the diagram here.

Step Four: Set measurable steps.

Get down to the details that are concrete and measurable. Your marketing strategy should become a plan that includes monthly review, tracking and measurement, sales forecasts, expense budgets and non-monetary metrics for tracking progress. These can include leads, presentations, phone calls, links, blog posts, page views, conversion rates, proposals and trips, among others.

Match important tasks to people on your team and hold them accountable for their successes and failures.

Step Five: Review often and revise.

Just as with your business plan, your marketing plan should continue to evolve along with your business. Your assumptions will change, so adapt to the changing business landscape. Some parts of the plan also will work better than others, so review and revise to accommodate what you learn as you go.

I’m amazed how often I still get emails asking me to either write a business plan or recommend a business plan writer for somebody who has a great idea and mistakenly thinks having a business plan done for them, by a supposed expert, will sell that idea to investors.

Sorry, it just isn’t so. Your business plan is the key to what you say in the pitch, and how quickly you can respond to questions. Investors want you, not an outsider, to plan your business. And that’s what they’re after — planning, which leads to management and controlling your destiny — not just a plan document.

I say “still” in my first paragraph because this should be common knowledge by now, but the myth of the “great” plan lingers on.

When you imagine a business plan document so great that some investor will read it and want to invest, you’re being wildly unclear on the concept. They don’t want the business idea by itself; they also want people who can make that idea a reality. The idea by itself isn’t enough.

Anybody who can develop a business can develop a business plan. A plan is good or not based on its content, specifics, milestones, scalability, defensibility, financial projections, and team in charge. It’s not style, writing, or formatting.

Maybe a coach can help, somebody to look over your shoulders, particularly on the financial projections. You want the math and finance to be correct. But having it your own plan, that you know backwards and forwards, and that you can change in an instant, is many times more important than any quality you’ll get by farming it out to an outsider.

Having just completed my spring business plan season — three big business plan contests and our angel group investment — I think it’s a good time to poke some holes in several damaging and far-too-common myths about startups.

Furthermore, as I write this I’m just leaving Disney World, so the myth of the Pied Piper (the illustration here, in case you were wondering) comes to mind too.

1. Be your own boss

Forget it. That’s a myth. Sorry, but if you’re looking for freedom and independence choose wealthy parents, win a lottery, or learn to live on no money at all, and have no relationships you care about. If you’re going to build a business, you’re going to have lots of bosses. In the best businesses, every customer is a boss. And then there are the people you owe money to, the people who owe you money, strategic allies, and your own employees. All of them can be bosses at times.

And if you have investors, you have bosses. One thing they buy with their money is their voice.

2. Finding investors is a win

That’s what we teach in business schools and classic entrepreneurship: you develop a business plan, you get financed, and then you start. And often it is a win, and it is good. But it ain’t necessarily so.

It’s a conditional win. It’s only a win if 1.) you need the investors and you can use the money to grow your business; and 2.) you find compatible investors you can work with. If you don’t have both those conditions met, then winning investment can be a big loss.

Getting investment from the wrong investors can be like a bad marriage. It can spoil your business and your life.

If you can build your company without investment, there are some important advantages, like in that case you own it all yourself. Nobody is looking over your shoulder, or at least nobody with as much power as investors. Owning it yourself is a good thing, if you can make it.

Of course it depends on the opportunity. There are some businesses that need investment badly, and would not make it without it. And there are some that have a choice. They may grow slower on their own, but they can make it.

3. More money is better

It’s out of date now, but if you look for it, you can find the 1997 Dun & Bradstreet research on causes of business failure that listed “too much money” as one of the causes. It seems silly, of course, but they were serious. There’s a lot to be said for spending money wisely, and filtering spending opportunities according to the related business benefits.

I think there’s a startup sweet spot, for most startups, in which the resources available match the opportunity. Money is spent the right way, building the business, but without overspending.

And my own company, Palo Alto Software, might not have survived the dot-com crash in 2001 if we’d had more money to spend in 1999. We didn’t have enough monetary rope to hang ourselves with. That was a good lesson.

(Image: J. Norman Reid/Shutterstock)

I was happy to pick up this quick piece from Jeff Bezos last month on Business Insider. Jeff, founder of Amazon.com, ought to know. In Business Insider’s Instant MBA series, Jeff says Business Plans Are Important and Necessary. He says it’s not about being right and guessing the future correctly. It’s about guiding your business and managing better:

“You know the business plan won’t survive its first encounters with reality. It will always be different. The reality will never be the plan, but the discipline of writing the plan forces you to think through some of the issues and to get sort of mentally comfortable in the space. Then you start to understand, if you push on this knob this will move over here and so on. So, that’s the first step.”

So my conclusion, from Jeff’s advice, is that developing a plan is good for your business, but sticking to that plan, not so much. Develop the plan, start moving, review and revise often. Keep it flexible.

It’s a plan, not a document.

I stumbled on this short video from ABC with Susan Solovic talking about the business plan for starting a new business. It’s a few months old now, but it’s also a really good summary of why and how you want to have a business plan for a startup, and what that plan should include.

If for any reason you don’t see the video here, you can click this link for the original on the ABC site.

While speaking at Entrepreneur magazine’s Growth Conference in Atlanta this week, I spoke to small business owners in a talk I’m calling 3 Weeks to Startup after the book that I co-authored. I went over the basic assumptions behind starting a business in three weeks – that it’s a tight schedule, and very quick, but doable with tools available online today – and I shared some of my favorite common startup mistakes to avoid.

Here are the top 3:

1. Starting a business with no real customer need.

You know the type: all businesses should be built on what the founder wants to do, but that has to be tempered with consideration for what people need, want, and want to pay for. And the image on the slide is the Apple Newton, which is a good example. There was a need – the success of the Palm Pilot four years later proved it – but the Newton didn’t meet it. Don’t just count on pride and persistence, make sure there’s a need for what you’re selling.

2. Running out of cash.

Starting costs are predictable, they depend on what you need to buy, the early expenses, your marketing costs, your strategy, resources, and so on. Some cash flow dynamics are predictable. For example, you need to know ahead of time if you’re going to have to wait for customers to pay you after receiving the goods or services you give them. You need to know if you have to stock a lot of inventory.

Cash flow is easiest to understand if you lay it out into rows and columns. It isn’t as simple as profits, because profits are an accounting concept that takes liberties with the timing of sales, costs, and expenses. A good cash flow plan will focus on the money, when you get the checks to deposit, and when you write the checks, regardless of the technical timing of sales and such you need in accounting.

3. Failing to plan.

There’s so much uncertainty in any business, now and since forever, that it’s just foolish to not break that all into a plan that puts it into perspective. It doesn’t matter that a plan will change – and it will – because just getting started with the planning helps you understand all the factors involved. And when you have a plan, you start immediately to review and revise and track results, so having the plan makes it easier to correct it as needed. Plan, and keep that plan alive.

Talking about starting a business? Before you start the talking, identify yourself and your business on this scale. It makes a huge difference. Try to choose one of three possible choices, the one that most applies to you and your business.

1. Just get going: you don’t need anybody’s approval except possibly your first customer or client. You’re a consultant, artist, artesan, professional service, or something else that doesn’t require building a product, or packaging, or design. Nobody has to approve your plan except you. You have what you need to get going, or the money you need to acquire what you need to get going.
2. Building something: You’re looking to start a business that requires more start-up money than you have, maybe more knowledge than you have. This is like a restaurant, an auto body shop, a retail store, a serious website, anything that requires building serious products, or packaging, or significant market launch. For the restaurant, as an example, by the time you buy the expresso machine, the chairs and tables and stoves and ovens, hire the people, develop the identity, prepare the location, you’ve spent serious money. You need investors, or partners, or (gulp) a lot of debt.
3. Planning to fly: You have worked with a successful startup or two or three behind you, you’ve got a team ready, and you have an idea that seems to offer very high growth of sales (or maybe web traffic instead of sales, if you’re in that world) and reasonable prospects of defensibility.

All three of these are startups, but they have very different needs and wants and prospects. One of the things I want to do with this new blog is distinguish between these different kinds of startups. Much of the writing and thinking about startups applies to some but not all startups. Here are some examples:

1. What do you need to start a business? I’m a business planner, I have been for years, so you think I’m going to start talking about the business plan.*  However, while I do think everybody benefits from planning, if you’re in that first group — the get going group — when what you really need, can’t start without, is at least one customer. I supported my family with planning and research consulting for more than a decade before Palo Alto Software took off, and that business started with a customer (Apple Computer) before there was a plan.*  If you’re in the second group, the builder group, then yes, you need to develop a business plan. You can’t get customers until you have a location rented and fixed up, you have assets in place, you’ve launched the marketing, etc. You don’t have the resources on your own, so you’ve got to involve others, and that takes a lot of explaining, and making commitments, and, frankly, it’s just dumb to try to go that way without having a prepared plan.

   *  If you’re in the third group, intending to fly, some of the more fashionable high-tech and highly-visible ventures of recent years were able to land at least verbal agreement on venture financing without actually completing a full traditional business plan document. They used pitch presentations and personal track records and personal commitments. Those, however, are the exceptions; most of the high flyers need a plan whether their investors read it in detail or not, because they can’t build a pitch without a plan and they can’t manage without a plan. Of course some of them avoid the plan because they confuse it with a brick wall, but that’s a different post.

2. The legal steps change. The “just get going” crowd doesn’t really need to sweat the difference between corporations and partnerships and LLCs and ficticious business names. I ran my consulting business for years using my real name and my social security number. I didn’t worry about corporate umbrellas or the extra expense of legal formation because — who was I kidding? — it was just me and my client. I was a lot more worried about how long they took to pay invoices than about them suing me. Those of you in the “planning to fly” group, in contrast, are going to have legal work coming out of your ears, lots of jockeying for position between your lawyers and their lawyers, with their lawyers having the final say because they’re writing the checks. You builders will need good attorneys to set you up right, with the details depending on what you’re doing, resource levels, which state, and other factors.

So those are just a couple of examples, but I assume you get my point. In this blog, talking about startups, let’s establish a better mode for talking about apples as apples and oranges as oranges; or something like that.