Earlier this week I stumbled on an example of absolutely terrible advice from the U.S. Small Business Administration.
This advice made me angry and sad at the same time. Angry at the SBA and sad for anyone who follows the advice.
I was googling some common phrases about building a business as research for an upcoming podcast episode. One of the phrases I typed was: “How to Start a Business”
Google now includes some list content from articles directly in search results, and for this search I found this special box as the first non-advertising result:
This partial list is from the U.S. Small Business Administration (a government agency) from an article titled 10 Steps to Starting a Business.
Here’s the whole list:
Step 1: Write a Business Plan
Step 2: Get Business Assistance and Training
Step 3: Choose a Business Location
Step 4: Finance Your Business
Step 5: Determine the Legal Structure of Your Business
Step 6: Register a Business Name ("Doing Business As")
Step 7: Register for State and Local Taxes
Step 8: Obtain Business Licenses and Permits
Step 9: Understand Employer Responsibilities
Step 10: Find Local Assistance
They introduced the list by saying “Starting a business involves planning, making key financial decisions and completing a series of legal activities.”
What? Are you serious? Is this a joke?
This list is tragically flawed. I wouldn’t be surprised if following these steps made you less likely to succeed than if you didn’t follow any advice at all.
Here’s the simple truth the Small Business Administration is completely missing: a business can’t succeed unless it creates something people will pay for. Registering for a business name, choosing your legal structure, registering for taxes, permits, blah, blah, blah, all do nothing to help you get closer to making something people will pay for.
Filling out paperwork doesn’t make you an entrepreneur any more than buying a fancy guitar makes you a rock star. These are the steps you’d follow if you were just “playing business.”
Filling out paperwork doesn’t make you an entrepreneur any more than buying a fancy guitar makes you a rock star.
If you were serious about making something people will pay for (i.e., building a successful business), you’d know that the two most important aspects of starting a business are shockingly absent from the SBA’s list.
The two most important parts of starting a business are: 1) your customers, and 2) your product. Without customers and a product (or service), a business isn’t a real business, it’s just a shell of paperwork and legal filings.
Yet there is zero mention of customers or product in this supposed list of 10 steps to start a business. These 10 steps are utterly insignificant compared with knowing your customer and building your product.
Seriously, this oversight is incredible. Whoever is in charge of the SBA should be fired for perpetuating this tired and dangerous advice about starting a business.
Just so you don’t think I’m being unfair to the SBA by criticizing one article from their site, you should know that nowhere within the entire outline of curriculum on the SBA site about starting and managing a business do they mention a market, customers or building a product. Here’s a screenshot of the whole curriculum:
No section on making a product or connecting with customers? WTF?
Luckily this probably doesn’t affect you. I doubt you take the SBA seriously anyway. I don’t know a single successful entrepreneur who credits the SBA for any part of his or her success, with the exception of a couple of SBA loans I’ve heard of people raising. Maybe they should stick to loans and stay out of the advice business.
Anyway, enough about the SBA.
Let me offer a better list of steps for starting a business. If you asked me how to start a business, here is what I would say.
10 Steps to Starting a Business:
- Follow a roadmap
- Choose an opportunity
- Define your customer
- Connect with other entrepreneurs for support
- Talk to customers
- Create a 1-page business plan
- Set up your business (name, legal structure, permits, taxes, etc.)
- Build a minimum viable audience
- Build a minimum viable product
- Measure, learn, iterate, grow
There are many solid training programs and incubators available to entrepreneurs these days. Find and follow a system like Fizzle’s small business roadmap to avoid wasting time on things that don’t matter. You can build a business without following a proven system, but why would you want to take on so much unnecessary risk?
What opportunity will your business address? You likely have many ideas floating around, but you have to pick one. An ideal business opportunity will be a combination of something you’re interested in, something you’re good at, something the world needs and something people will pay for.
Who will your business serve? What do you know about them? What is their life like? What do they value? What problems do they face and how are they currently solving those problems? Defining your customer is an essential part of your foundation.
Being an entrepreneur is incredibly difficult, sometimes lonely and you’ll often feel like you’re on an emotional roller coaster. The most effective way to maintain a healthy perspective while also improving your odds of success is to spend time with other entrepreneurs.
The biggest risk you face as an entrepreneur is building something nobody wants. The best way to reduce this risk is by talking directly to the potential customers you’re trying to serve, so you can learn intimately about the problems, needs or desires you aim to address.
Business plans are full of guesses and often give a false sense of security to entrepreneurs. A simple 1-page business plan (like Fizzle’s Business Sketch Template) will give you the benefits of a business plan without page after page of unreliable guesses. This plan will primarily describe your customers, the problem, your solution and how you’ll reach those customers.
Now that you know who your customers are and what you’ll be building for them, it’s time to name your business and get your legal ducks in a row.
If you build it they will come. If only. Smart businesses today know that you have to connect with your customers to succeed, by meeting them in the channels they already use. The best time to do this is before your product launches, to build buzz and use their feedback to make your product even better.
Your business idea is nothing more than a hypothesis. You believe there is a group of people with a problem that you can solve in a way they’ll be willing to pay you for. The first step in testing this hypothesis is by building a minimum viable product, a product with just enough features for you to learn from your customers and improve upon.
Once you find a group of customers and create a simple product or service for them to consider, it’s time to measure, learn, iterate and grow. Customer feedback is essential at this stage as you turn your minimal product into a full-fledged offering.
I suppose you could argue that the business is technically “started” by the end of step 7 in our list. Steps 8, 9 and 10 are about building the business. Including these building steps here is intentional, because describing the act of starting a business without covering the actual development of the most important things (customers and product) does you a huge disservice. The SBA’s list allows would-be entrepreneurs to feel like they’re doing important work, when they haven’t done any of the important work at all, towards growing a customer base and building a product.
Even if our list stopped at step 7, notice how much of the first 7 steps is dedicated to cultivating the customer, knowing who they are and talking to them to identify problems/needs/desires you can address. This is where real business opportunities come from, from knowing your customer intimately.
So many people still think of the entrepreneur as an inventor, someone who tinkers away in a garage somewhere for months or years on a big important product that they eventually unveil to the world, which responds with oooohs and aaaaahs.
The biggest risk you face as an entrepreneur is building something nobody wants. The “inventor” mythology is wrong because it ignores this risk and assumes the inventor knows everything.
But you don’t know everything. You’re just a humble entrepreneur with a belief. You believe there exists a group of people who have a problem, need or desire that you can solve in a way they’re willing to pay money for. Your job is to prove whether this is true or not, with as little risk as possible.
Our list of 10 steps to starting a business is carefully crafted with a central focus on customers, product and your journey (and needs) as an entrepreneur, because we want to help you build something people want. Unfortunately the Small Business Administration doesn’t seem to have a clue about what really matters when it comes to building a business.
You know better now. Use our list to your advantage. Stay focused on your customers and your product and you’ll have a much better shot at building a business that matters.