Like many entrepreneurs, Bethany Fite’s path to small business ownership started with a problem.
She’d been practicing hot yoga for 10 years, a passion that required she travel up to 60 minutes round-trip to the studio nearest her home. When a new studio opened closer to her, its limited class schedule didn’t accommodate her own.
Fite needed a studio close to home with a robust class schedule. In spring 2018, she and two partners opened one.
“The whole concept of the business was born out of [us saying], ‘This is something we love, and we would like to do it differently. How do we do that?’ That became the business plan,” says Fite, co-owner of S.W.E.T. Hot Yoga and Fitness in Springfield.
While the solution seems simple, getting her business ready to open and thrive in its first year was anything but.
As do all new business owners, Fite faced a first year full of challenges, anticipated and otherwise. To give a business its best chance of success in its first year, its owners must have several elements in place.
What’s the plan?
For Fite, who previously worked heading up sales and marketing in the beauty industry, starting with a business plan helped to create a roadmap for the future of her studio.
“You have to understand what you want to do first,” she says. “You’re going to have 100 ideas about what you can do to promote and enhance the business, but you’re not going to have the money or the time to do all of it.”
John Fleming, a mentor with Southwest Missouri SCORE — a nonprofit resource partner with the Small Business Administration, which provides free advice and counseling to small business owners — says a business plan might seem like a no-brainer, yet the majority of his clients don’t start out having one.
“The business plan sets the direction for the business: This is when I plan to start. Here is the market strategy. Here is my projection for sales for the next three to five years,” he says.
Jenny Miller, director of KCSourceLink and MOSourceLink, Missouri organizations dedicated to helping businesses find the right resources to start or grow, says a business plan shows the feasibility of a new venture by looking at who will pay for the product or service and how much they are willing to pay.
Such a plan enables would-be owners to “have eyes wide open as they are taking the leap into small business ownership or becoming an entrepreneur,” she says.
Miller’s organizations offer templates and outlines for plans to give new business owners an understanding of profit-loss statements, balance sheets, target-market information and more.
A lack of a business plan, experts say, often leads to the No. 1 reason small business fail: running out of money. For entrepreneurs, financial know-how is a must, whether obtained through a class, with the help of a business mentor or with the aid of a trusted team member.
“Raising capital in those first couple of years is one of the most difficult challenges of the entire business,” says Cliff Holekamp, professor of practice in entrepreneurship and academic director for entrepreneurship at Washington University in St. Louis.
“Sometimes, people make decisions that are suboptimal because of a lack of options,” Holekamp says. “In other cases, it’s a lack of experience. They haven’t been through the entire process to see how early decisions can come back to haunt them.
“The decisions an entrepreneur makes early on with regard to financing the business have an impact in the future,” he adds.
Many entrepreneurs overlook the fact that getting a business established in its first few years usually takes multiple rounds of capital infusion, Holekamp says. If a business takes on a lot of debt early on, equity investors might not want to get involved later. Also, owners can expect that special conditions or accommodations granted to early-stage investors will be demanded by future investors.
It’s best to think of capital as a marathon, not a sprint, Holekamp says.
“It’s supposed to be hard,” he says. “It’s a marketplace of ideas, and ideas are competing for capital. The process of raising capital is the first test of your idea.”
Pick a Team
In the competitive market, no one can go it alone, experts say. Entrepreneurs need a team of people, especially to help guide them through the crucial first years.
“The ones that have greater struggle or higher rate of failure are those who don’t appreciate the need for the appropriate guidance,” says James Niemann, director of the Entrepreneurship Legal Clinic at the University of Missouri School of Law in Columbia.
To start, the team should include an accountant, insurance agent, attorney and someone knowledgeable in human-resource management as well as an advisor: a mentor or business coach trusted to provide the entrepreneur with guidance and connect him or her to necessary resources.
Connecting with other entrepreneurs, small business owners and others with similar priorities, whether through a mentorship or via networking, is crucial for a new business owner, says Rikki Henry, Center for Emerging Technologies program manager with Cortex Innovation Community in St. Louis.
Henry works daily with entrepreneurs at the center, which provides infrastructure and resources needed for early-stage, high-growth companies in the fields of information technology, bioscience and manufactured products.
“The social aspect of it is what allows people to move forward,” she says. “When you’re connected at a networking event, you’re going to see people who, nine times out of 10, are in your same space or wheelhouse. That is collaboration, connectivity and conversation.”
Olamide Adeboye, founder of Wakava, a newly launched St. Louis-based organic-beverage startup that uses Cortex resources, says a dedicated team — of both employees and mentors — has been invaluable during his first year in business. The company started showcasing and selling its products in mid-October.
“When you have a like-minded team that has the same ambition and the same excitement about the product you’re developing, you can go far,” he says. “It’s all about putting the right team together that really has the same passion as the person who developed the product. Capital is something that comes after, but the like-minded people coming together can drive the product.”
Another connection Miller encourages is with local business or research librarians. Many libraries offers online access to databases related to business plans, competition and targeted markets.
“A lot of people don’t realize that the libraries have access to databases that are going to help entrepreneurs make the best educated decisions for them,” she says. “People don’t realize the power of a library card nowadays.”
Don’t Skip the Formalities
Most entrepreneurs are thoughtful about their own intellectual property, Holekamp says. They tend to forget, however, to consider the IP of others.
The key, he says, is to avoid conflict by conducting an infringement search. Otherwise, if a large, well-funded company comes after a startup with a claim of infringement — even if the claim is unfounded — it can cost the new business a great deal in both money and time. If such a discovery is made early, however, it costs nothing to make a change.
“A lot of entrepreneurs fall in love with their idea for what the name of the company or product will be, but sometimes you shouldn’t fall in love with an abstract name,” Holekamp says. “You should fall in love with avoiding conflicts in your future.”
Niemann says IP considerations are especially important today when most businesses need an app-based presence. Without a contract to set the terms, the app’s coding may belong to the programmer rather than the business.
“If you’re waiting until late in the day to properly initiate your business from a legal standpoint, you’re going to set yourself back and potentially forever impair the business,” he says.
Get Your Name Out
Most entrepreneurs underestimate the level of attention and money they will spend on marketing, Fleming says, but a well-thought-out strategy can make or break a new business.
“Marketing today is so much more complicated than it used to be [with social media],” Fleming says. “If you’re a small business owner, you better be familiar with what those tools are and, if not, you’re going to have to hire those services, and those services are expensive.”
For Fite, pay-per-click campaigns have been particularly helpful, as they allow her to see how her money is working for her.
“For a small business, where your resources are maybe a little slimmer than they will be in the future, it’s really important to start with marketing campaigns that are very trackable,” she says.
Know Your Value
Above all else, experts says, new businesses must be able to offer a unique value proposition — the thing that defines the way the business is doing something different or better than its competition. Crafting one requires a deep understanding of the customer.
“What is their need, and how do they think about solving that need?” says Holekamp. “In what way do they consume your competitor’s product and potentially your product? That can change the way you do product development, pricing, the way you structure your HR strategy.”
Fite knew S.W.E.T. would have to offer more than hot yoga to bring in the traffic she sought. In addition to a second studio where people can take cardio and other group exercise classes, the business features a front desk staff, a boutique-like lobby with shopping and lounge areas, and a well-equipped locker room. All aim to encourage class attendees to take their time, linger, chit-chat and enjoy their routine rather than rushing in and out for class.
“You don’t have to plan your day around when you’re going to go to S.W.E.T.,” says Fite. “We wanted people to have that flexibility.”
Such attention to detail is what gives a business its best chance of success, experts say.
“There are a lot of tactical things you need to take care of to grow a business, but none of them matter if you don’t have a deep understanding of your customer,” Holekamp says.
Fite says all of the work she and her team did to ensure a great first year have paid off.
“We’re really pleased with the results after only six months,” she says. “We’ve had over 3,000 people — many who started as beginners — take our classes. And, what’s been most meaningful to us is the feedback. We often hear, ‘This is my happy place,’ or ‘S.W.E.T. has become a favorite part of my day.’ We set out to make yoga and fitness accessible and enjoyable at any level and at any age. It’s been amazing to see that goal accomplished.”
Role of small businesses in the U.S. economy:
- 9 percent of all firms
- 7 percent of firms with paid employees
- 97 percent of exporting firms (287,835 small exporters)
- 9 percent of known export value ($440 billion out of $1.3 trillion)
- 5 percent of private-sector employees (59 million out of 124 million employees)
- 8 percent of private-sector payroll
Source: Statistics of U.S. Businesses, U.S. Census Bureau
- 63 percent of all businesses in America are small businesses, more than five years old and with 50 employees or fewer.
Source: The Kauffman Index/The Ewing Marion Kauffman Foundation
- 2 million small businesses operate in the United States, according to U.S. Census Bureau figures for 2015 — the most recent year available.
- 80 percent, or 24.3 million, had no employees
- 20 percent, or 5.9 million, had paid employees
- 02 percent of U.S. adults own a business as a primary job.
Source: The Ewing Marion Kauffman Foundation