I’m Bob Adams. I have started over a dozen successful businesses. One business I began in my basement apartment with just $1500 and I later sold it for $40 million. I have mastered the art of starting a business with a very small investment and making it into a highly profitable and successful enterprise. I also have a Harvard MBA.
The Same Key Success Factors Apply for All Businesses
I have learned what works in business and what doesn’t. I have learned that the same key success factors apply for virtually all types and sizes of businesses.
They apply for product businesses and they apply for service businesses. They apply for online businesses and they apply for offline businesses. They apply for one person startups. They also apply for the largest corporations in the world.
Learning How to Start a Business Is Different Than Learning How to Succeed at Business
I have learned that there’s a huge difference between learning how to start a business versus learning how to succeed at business.
Just knowing the basic steps to starting a business will do little to insure your success in business.
You should go beyond this base level of knowledge and also understand what are the biggest and most costly mistakes made by entrepreneurs. If you don’t you will likely repeat some of these same mistakes.
You also need to gain a thorough knowledge of the most important factors for business success. These are the very few elements of your business that will overwhelmingly determine how successful your business will be, and perhaps, if it will succeed at all.
By approaching these key success factors well, you will avoid the most common mistakes made by entrepreneurs, and you will start your business on a rock solid foundation.
Doing an excellent job on these key success factors is not as easy. First you need to have a thorough understanding of the issues on hand. Then you will need to invest some time and energy to think through how to best approach them, often brainstorming different alternative solutions.
Many Entrepreneurs Never Master the Key Business Success Factors
Many business owners never really successfully apply some of these key success factors to their business. Sure most entrepreneurs do achieve some level of success.
But their ability to attract customers, to build customer loyalty, to grow sales, to enjoy high profit margins and to scale their businesses is significantly constrained when they do not excel on these key success factors.
To be really successful in business, you should have a solid understanding of the key success factors. Plus you need to take the time and energy to apply them thoughtfully to your situation.
Here are the Key Success Factors:
Use a Disciplined Process to Select Your Business Idea
Most people choose their business idea the wrong way. They just kind of drift towards it. Maybe they heard a tip from a friend. Maybe they saw it mentioned in a social media posting. They often never even make a conscious decision to choose a particular idea.
That’s not the way to go about it! You want to be both thorough and systematic in choosing your business idea. You want to set up criteria both for what would be a good business idea and just as importantly, what would be a good business idea for your situation.
“You want to be both thorough and systematic in choosing your business idea.”
What type of business would you prefer? A home based business? An online business? A part time business? A business that only requires a small investment? It is important to choose a business idea that not only you can succeed at – but that you also will be comfortable running and really enjoy operating.
There are tons of great business ideas out there, so take your time and go through them carefully. You should almost certainly find not just one, but a number of great business ideas that fit all of your criteria.
Next you should systematically evaluate and rank your best business idea candidates using the criteria that you have established.
Then before finalizing your business idea selection, you want to validate your idea. Before spending any money on your idea you will want to make sure that your business idea can succeed in the marketplace. And you will also want to weigh if there are any other obstacles to consider such as legal or technical issues.
Develop Your Idea Into a Complete Business Model
Coming up with a great business idea is only one step of building a complete business concept. No matter how large or small a business you are starting, it is important to follow through and carefully consider the other aspects of your business model.
These other factors will go a long way to determine how well your business will be able to compete against similar businesses. Hence how well you consider and develop these other aspects of your business model will often be even more important for determining the success of your business than the selection of the business idea itself.
“Coming up with a great business idea is only one step of building a complete business concept.”
These other aspects of your business model include your target market selection, your differentiation, your products or services, your marketing message, your business strategy and more.
These are all important factors. It may seem like a lot to consider. But believe me. It is worth spending a lot of time doing all of these things as well as you possibly can when starting your business. Otherwise you could spend years working hard on a business that is destined to underperform its true potential because of the initial decisions you made on these key factors.
Put another way. Hard work is important for business success. But the decisions you make on the many critical factors in starting your business is even more important.
Choose an Underserved Target Market
People ask “Why should I have a target market? I’d be happy to sell to anyone and everyone!” Well you might be happy to sell to everyone but that doesn’t mean that they will choose to buy from you in this competitive world that we live in.
Put another way. If you try to appeal to everyone, you may end up appealing to no one. A common mistake among small business owners is that they fail to focus on any particular target market. Then they either find it difficult to build sales traction or they are forced to compete on price and as a result suffer from low profit margins.
“If you try to appeal to everyone, you may end up appealing to no one.”
The more a product or service is designed for a particular end market, the more likely it is to appeal to that market. Then the less you will have to compete on price. In addition, the more an entire company is positioned for a particular target market, the more likely it is to be successful within that market.
Put another way, the smaller the target market you focus on the bigger your success. Of course there are limits to this. The market you are focusing on must be big enough to support you. But many entrepreneurs underestimate the size of smaller, more targeted markets.
For example, years ago many competitors thought that Walmart was crazy to open huge stores in small rural towns. But Walmart founder Sam Walton realized that other retailers underestimated the huge potential in smaller rural markets. So by initially focusing on these less competitive rural markets, Sam Walton was able to build one of the greatest family fortunes of all times, recently estimated at over $200 billion.
So other than being willing to consider smaller markets, how should you choose your target market? Again many entrepreneurs tend to end up with the biggest market partially because it is the most obvious and it also takes the least product or service specialization to break into. In other words it appears to require the least thought and least amount of effort.
Still other entrepreneurs believe they will do best focusing on the premium or most expensive segments of the market. They assume, not always correctly, that they will find the highest profits in the highest priced market segments.
Actually the best target market to focus on is usually the most underserved segment. In other words the target market that either has the fewest competitors. Or the target market that the existing competitors are not servicing the needs of particularly well.
Differentiate Your Business in a Way that Matters
Many entrepreneurs believe that the basic key to success in business is to compete against your competitors by producing better products or services.
This is a colossal mistake! Instead you don’t want to compete with your competitors at all! You want to avoid your competitors. One way you can do this is, as we just discussed, is by focusing on a different target market and serving their particular needs.
Another way you can avoid your competitors – or at least competing directly against your competitors – is to “differentiate” your product or service. This means making your product or service different from competitors’ offerings in a way that really matters to your potential customers.
I believe that the #1 mistake entrepreneurs make today is that they fail to truly differentiate their business. Hence it is more difficult for them to stand out from the crowd and to build sales traction and a loyal customer base. Often they end up competing largely on price and suffer from low profit margins.
“I believe that the #1 mistake entrepreneurs make today is that they fail to truly differentiate their business.”
Most entrepreneurs think that their product or service is differentiated or better than their competitors. But all too often they are mistaken because their differentiation actually does not really matter to their customers.
When I was running my book publishing company, I saw small independent bookstores threatened by the emergence of huge superstores and Amazon, both offering huge selections of books and substantial discounts.
The existing small independent store owners generally felt they would prosper by offering more personalized service. But did their customers really care? Two thirds of the bookstores open at that time went out of business.
Finding a meaningful way to differentiate your business will usually take some effort. But it’s worth it. For example, I started my first business, Bob’s Rent-A-Bike by renting bicycles through partnerships with gas stations and motels.
But my competitors had already grabbed the best locations. And they had shiny new bicycles, whereas I had old rusty bicycles – all that I could afford. No one was renting my bicycles.
Then I came up with a new idea. Something my competitors weren’t doing. I “differentiated” my business by offering delivery of rental bicycles directly to campsites and motels. My business took off.
Create an Outstanding Unique Selling Proposition
So you’ve got a great business idea. You’ve carefully selected your target market. And now you’ve really figured out how to differentiate your business. That’s all great. But none of it really matters until you tell someone about it!
It may sound simple. But it’s not. Today we are all bombarded with hundreds if not thousands of advertising messages from when we get up in the morning until we go to bed at night. So how are you going to stand out? How are going to be remembered?
The answer is with a unique selling proposition or USP. What is a USP? It’s a few words that quickly and succinctly communicates why a customer should do business with you and not with a competitor.
“Perhaps the best known USP was Fedex’s “Absolutely, positively overnight.””
A common successful approach is to emphasize your key differentiation. Another common approach is to emphasize your target market focus. But there are many other ways you could go about this to create an effective USP.
Perhaps the best known USP was Fedex’s “Absolutely, positively overnight.”
For my bicycle rental business, Bob’s Rent-A-Bike I used “Bicycle rentals delivered free.”
In general it is more important that your USP successfully communicates the value proposition of your business than it sounds cute or clever. A good USP will often be the length of a sentence, not just a few words.
A Great Business Deserves a Great Name
It pains me that so many businesses have a poor name. But you can have a great name. And you can change the name of your existing business. I’ve done it.
For example, the name of my book publishing company was initially Bob Adams, Inc. A classic mistake – naming the business after yourself. I changed it to Adams Media Corporation, a slight improvement.
“A classic mistake is naming the business after yourself.”
I classify business names into three categories.
The first category is the poor names. An example of a poor name would be “Bob’s House Painters.” It doesn’t sound professional and might make some people hesitant to do business with you.
The second category would be average names. An example would be “Boston House Painters.” This name doesn’t sound unprofessional or push me away. But it doesn’t attract me or give me a reason to choose your business either.
The final category are the great names. Few businesses have great names. An example would be the name I actually used for my little business “College Painters.” This name infers that a customer should consider doing business with you because you may offer a lower price and also includes an instant and credible explanation of why you can offer a lower price.
A very different example of a great name would be the New Orleans themed restaurant near me called “Buttermilk & Bourbon.” I love this name! It highlights its Southern food and beverages, positions the restaurant as a fun destination, and has a cool and catchy ring to it.
Develop a Distinctive and Tightly Focused Strategy
Your strategy is the unique success formula for your business. It is the few most important attributes that distinguishes your business from your competitors and that will most likely be the major reasons for your success. You don’t want to include too many elements in your strategy because then you then tend to lose focus on what is really most important.
Your strategy should be the nucleus from which you develop the overall plan and conduct the daily operations of your business. I want to emphasize again – every type of business and every size of business – no matter how small – should have a well articulated strategy.
I highly recommend that you come up with a compelling and distinctive strategy before you start your business. However, it is possible to later change your strategy.
“Every business – no matter how small – should have a well articulated strategy.”
To develop your strategy you should first carefully evaluate your market, your potential customers and your competitors. You should consider your competitive strengths and weaknesses. Then you should think about potential opportunities and potential threats.
However, while classic business school thinking suggests that a careful evaluation of these factors, and especially your strengths and weaknesses, should lead to your strategy, I would urge some caution in following this line of thought.
Instead I would suggest that you also consider some creative strategic directions that might be compelling in and of themselves, even if they don’t directly play off of your strengths. In short, brainstorm a number of alternatives.
For many businesses an important part of their strategy will be the target market they choose to focus on. For others an important part of their strategy will be how they choose to differentiate their products and services. For still other businesses different types of attributes may play a more important role.
For my book publishing company, Adams Media Corporation we developed a highly distinctive and successful strategy. Traditionally book publishers are dependent upon their authors to propose ideas for new books. The publisher pays the author a royalty for books sold and also a cash advance. The most important brand name is often the author rather than the publisher.
Our novel strategy was to turn the traditional publishing model upside down. We developed book brands such as The Everything Series. Then we, the publisher, came up with highly sellable ideas for new books. Next we hired writers for a flat fee to write the books.
This strategy proved incredibly successful. Sales surged and our profit margins jumped, reaching a much higher level than any of the larger, more established publishers.
Create an Outstanding Business Plan
A business plan is the central road map for your business. It pulls together all of your strategies and tactics, your operational plans and your financials in one place. It coalesces all of the disparate parts of your business planning into one blended document.
Every single business needs a plan! And it should be a darn good one! It’s just as important for a one person sole proprietorship to have a business plan as it is for a large corporation.
If you produce an excellent and thorough business plan, then the business plan essentially is your business. The rest of your business work is basically the execution of your plan.
“Every single business needs a plan! And it should be a darn good one!”
Why is a business plan so important? It allows you (and any other team members or stakeholders) to be able to immediately reference exactly where your business is headed, why it is headed there, and how it is going to get there. The business plan provides a framework for making day to day operational decisions about the business.
There is a lot of chatter that business plans are dead and that pitch decks are more important. OK. So if you are seeking to raise money from venture capitalists or sophisticated angel investors, start with a pitch deck. It’s in vogue.
But when you are planning and operating your business, create a business plan. You don’t necessarily need a 50 page plan, keep it as short as you want.
For a really simple business you could even do a one page business plan. But even for most one person businesses, let alone larger businesses, I would suggest that you do a more thorough plan.
But pitch deck or business plan, what is more important is the thought process that goes into your strategic direction and the tactics that you present. Did you really think through the marketplace, the customers and the competitors? Is your strategy truly distinctive and compelling? These are the kinds of things that matter a heck of a lot more than the length of your plan.
Take Advantage of The Many Funding Options
I started most of my businesses on a shoestring. Some I started with virtually no money. Even Adams Media that I eventually sold for $40 million, I started with just a $1500 investment.
Many, if not most, businesses you can start small with a very tiny investment. However there are other businesses that will hugely benefit from outside financing, by allowing you to build a better business, and to grow it more rapidly.
In hindsight, I consider not getting outside funding for some of my businesses a mistake. I could have grown them much more quickly with outside money. This is certainly a mistake that my son, a Stanford grad, is not repeating for his first business. He just closed on his third round of venture capital of $75 million.
“You can start a successful business with a small investment but there are huge benefits to getting outside financing early on.”
There are so, so many sources of outside capital. There’s friends and family – which means basically anyone you can dig up who’s a qualified investor! There’s angel investors. There’s VCs. There’s SBA funding of various types. There’s traditional bank landing. There’s online lending. There’s merchant cash advance lending. There’s three different types of crowdfunding. There’s government and university grants. The list goes on and on.
Finding, presenting to, and closing outside financing takes time and energy. So you want to get enough money to last as long as possible. But getting the money you need, like everything else in this article, can go a long way to making your business hugely successful.
Use Your Financials to Drive Your Business Ahead
Financial statements and projections are not just some business requirement that you want to dump on your accountant. You want to be totally on top of these numbers yourself. More importantly you want to use these numbers to manage your business and to drive it ahead.
I usually start by creating a pro forma income statement – which is a forecast of expected sales, expenses and the resulting profit. I like to start with an ambitious target for sales and profits that’s going to get me excited! If the projected profit doesn’t please me, I’ll then figure out how I can change the business to ramp the profit up to a happier level!
Then I create a pro forma cash flow to see if I will run out of money at any point. Finally, I sometimes create a pro forma balance sheet, especially if my bank requires it. Otherwise I tend to focus on the cash flow projections to assess my financial position.
“Cash flow projections can be especially important for a growing business.”
Then once a month I evaluate my projected sales and expenses and cash flows versus my actuals. Where are the variances? Why did they happen? What can I change to improve my future performance?
Cash flow projections can be especially important in a growing business. For example in my book publishing business we once came up with a projected cash flow shortage of more than $400,000 over our credit line at the bank.
But because we projected our cash flows well in advance, I was able to immediately slash our spending and to avoid any cash shortfall.
Create Competitive Products and Services by Benchmarking
You should benchmark your products and services against your primary competitors. You’ll want to compare each product attribute. And you’ll want to think through each product benefit.
But you don’t necessarily want to copy what your competitors are doing. As I talked about earlier under “differentiation”, it is more important that you offer your customers at least one difference that really matters to them.
And while you don’t necessarily want to match every feature that your customers are offering, you want to know where you stand. I see many small business owners who are convinced that their products or services are great – when they are really not great at all.
“You should objectively benchmark your products and services against those of your primary competitors.”
You need to get third party feedback on your existing or proposed products or services. Perhaps a survey will work? Perhaps a focus group? Perhaps even asking a few friends for their feedback?
In my book publishing business, I was able to get honest feedback from the independent commissioned reps who sold our books. At times the feedback was brutal. For example, early on I thought our books sold well because of superior writing and editing. Wrong! The book reps said that bookstore owners said that our books sold well because of their brightly colored book covers and their low prices.
After I got over my bruised ego, I realized that this was really great news. It meant we could sell books on any topics into bookstores – as long as they had brightly colored covers and low prices!
Accept that Marketing Is Hard So Test! Test! Test!
For some of my earlier businesses I personally sold advertising to thousands of businesses. I was surprised at how receptive these businesses were to listen to my pitch and buy advertising in my new publications.
Over time I figured out why. Businesses owners are generally not really happy with their marketing. It’s hard to develop marketing campaigns that work consistently well. It’s one of the big secrets of business. When I was at business school the marketing campaigns we planned on paper always seemed like they would work! The real world is different.
I have experienced this the hard way myself too many times. I’ve wasted a lot of money and time on marketing that hasn’t worked.
So I’ve learned a very valuable lesson. Test! Test! Test! Test different ad strategies. Test different ad messages. Test different offers. Test different ad media. Test different timing. Test it all. And test it with very small amounts of money until you are sure you have found something that works.
“Test different ad strategies. Test different ad messages. Test different offers. Test different ad media. Test different timing. Test it all.”
While testing is extremely important, you still need to first come up with a marketing strategy and a marketing plan. Just testing lots of different marketing options before coming up without a thoughtful plan is another mistake I see a lot of new entrepreneurs doing, especially with online marketing.
I have found that creative low cost or no cost “guerrilla” marketing tactics can work better than expensive advertising. Surprisingly simple posters were the most effective marketing method for my bicycle rental business.
They were also effective for promoting books on college campuses for my book publishing business. Sure my business school classmates would laugh at my posters – but they work!
While marketing can be difficult at times, there are cost effective marketing strategies that will work for your business.
You Gotta Know Digital Marketing
I want to be crystal clear on this point.
I am not simply saying that you need to do digital marketing.
I am saying that as the business owner you also need to have, at the very least, a solid basic understanding of digital marketing.
“As the business owner you need to have a solid basic understanding of digital marketing.”
The reason is not simply that digital marketing is vital for your business. The reason is that digital marketing is an extremely varied and changing landscape. And what types of digital marketing end up working best for your business may have a profound impact on the nature of your business.
For example, let’s just take your business website. It needs to do three things instantly when a visitor arrives on the page. It needs to immediately deliver your value proposition. It needs to show a clear call to action. And it needs to have an appropriate and attractive appearance that echoes the image you want to present for your business.
Learn Everything You Can – All the Time
Learning about business is the most important success factor of them all. I know a lot of successful entrepreneurs. And one of the few common traits of this diverse group is that they are always learning. Always.
I created BusinessTown so that people could easily learn how to start and run their own business by streaming our short courses. Even if you can watch one video lesson (about 7 minutes) each day on BusinessTown, you will rapidly increase your business knowledge.
Frequently Asked Questions
What are the keys to business success?
Start with a solid business idea that is a good fit for you. Focus on a target market that your competitors are not. Make your business unique from your competitors in a way that really matters to your customers. Have a great business plan. Test lots of marketing approaches. Stay on top of your financials. Learn all you can.
Can you start a good business in your home?
Yes you can definitely start a great business in your home! Apple Computer, Google, and Ford all started in homes. I started my book publishing business in my basement apartment with just $1500 and later sold it for $40 million. Having a good business idea and a well thought out strategy are more important than your initial location.
What small businesses are the most profitable?
Service businesses have the highest profit margins. Single person service businesses may enjoy margins as high as 90%, netting their owners over $100,000 or even over $200,000 a year. Product businesses have lower profit margins. But if your products catch on, sales and profits can quickly accelerate, often into the millions.
What do you need to do to start a small business?
- #1. A solid business idea that is a good match for you.
- #2. A target market of customers that you can serve well.
- #3. A way to “differentiate” your business from competitors.
- #4. A “unique selling proposition” that makes you stand out.
- #5. A well thought out business plan.
- #6. A budget projection and a sales forecast.
- #7. A plan for creating competitive products or services.
- #8. A marketing plan for attracting customers.
How do you start a business with no money?
There are basically four ways you can start a business with no money:
- Choose a business idea that requires no money – such as dog walking.
- Get your first customer to advance you money. For example for my first house painting job I asked the customer to advance me money for the paint and supplies.
- Get financing through one the many available alternatives for startups including angel investors, friends and family, and crowdfunding.
- Bootstrap – do everything you can to avoid expenses. For example I promoted my bicycle rental business by placing posters on bulletin boards instead of buying advertising.
How do you start a business from scratch?
First learn everything you can. Then choose a business idea you are likely to succeed with. Evaluate your market, your customers and your competitors. Determine how your business will be unique so that it will successfully compete in the marketplace. Write your business plan. Find a great name. Set up your marketing. Project finances. Start making money!
What are the steps to start a business?
- Step #1. Select your business idea in a disciplined way.
- Step #2. Turn your idea into a complete business model.
- Step #3. Choose your best target market.
- Step #4. Decide how to be different from competitors.
- Step #5. Create a compelling unique selling proposition.
- Step #6. Find a great name that pulls in customers.
- Step #7. Develop a distinctive and focused strategy.
- Step #8. Create an outstanding business plan.
- Step #9. Take advantage of the many funding options.
- Step #10. Develop your budgets and projections.
- Step #11. Create competitive products and services.
- Step #12. Build an effective online presence.
- Step #13. Test a wide variety of marketing strategies.
- Step #14. Learn everything you can – all the time.
From my experience starting 17 businesses, I can’t emphasize enough the critical importance of each of these key success factors. And while they are conceptually simple, I do acknowledge that to implement them well will take a lot of energy and effort. It’s worth it! Do it!
If you do an excellent initial job on these key success factors, you will start your business on a rock solid foundation, setting it up to prosper and grow for years to come.
To Learn More about How to Start a Business and These Success Factors…
Check out my courses on BusinessTown including Start-a-Business 101, How to Create a Business Plan, The Complete Guide to Digital Marketing and How to Find a Business Idea. You can try BusinessTown for free.