Six Steps to a Successful Business Startup

Planning carefully before launching a new business is not limited to preparing a business plan. While preparing a business plan is generally a valuable exercise, there are other ways to plan carefully. Some of the recommended planning methods include:

• The Apprentice Model: Gaining direct industry experience, as the founders of Tender Greens did.
• The Hired-Gun Approach: Partnering with experts who have in-depth knowledge and experience.
• The Ultra-Lean School of Hard Knocks Tactic: Figuring out a way to rapidly test and refine your model at a very reasonable cost.

While writing a business plan is certainly helpful, the real value is not in having the finished product in hand, but rather in the process of researching and thinking about your business in a systematic way. The act of planning helps you to think things through thoroughly, study and research if you are not sure of the facts and look at your ideas critically.

If you don't commit to in-depth preparation, launching a new business can be a very expensive lesson in the value of planning.  One would ask, "Would you enter a high-stakes poker tournament without knowing the game, assuming that you'll figure it out as you go?"

Sixty percent of new businesses fail within the first three years. To often people rush into business without carefully checking out their idea to see if it will work. Research is essential.

While the internet makes it possible to conduct research without leaving your desk, Googling is not enough. Talk to real people who are in the business you want to go into. Talk to people who might be your customers and get their views and opinions. Test your ideas if possible.

For the founders of Tender Greens, spending two years in the planning  process allowed for a unique opportunity to try their ideas out on the  public that would eventually become their clientele. During that time they were able to test recipes and refining their business.

Because we were already working in the restaurant industry, they were able to actually test some of their recipes on customers at the resort, for two or three times the price they planned to charge at  their own restaurant.

Ask questions, conduct research or gain experience to help you learn your market inside and out, including the key suppliers, distributors, competitors and customers. You also have to really  understand the critical metrics of your market, whether it's as simple as sales per square foot and inventory turnover, or an esoteric measurement in a highly specialized niche market.

Tender Greens' and their partners spent many years working in the California restaurant industry before launching their business. That  experience allowed them to not only perfect their craft, but also to develop longtime relationships with food purveyors, farmers and other  suppliers that they relied on to help Tender Greens succeed. In fact,  Scarborough Farms, the restaurant's lettuces and greens supplier, is a  partner and investor in the company, thanks to its long relationship with the founders.

In most business plans, a description of potential customers and how they make purchasing decisions receives much less attention than operational details such as financing, sourcing and technology. But in the end, it will be the customers who determine your success or failure.

You need to know who they are going to be, what drives their purchase  decisions, what you can do that will differentiate your offering from that of competitors and how you can convince them of the value of your offer. And the answers to those questions shouldn't be off-the-cuff guesses. They need to be well-grounded in reality and market testing.

Before launching Tender Greens, the owners spent years creating and serving the kinds of dishes they wanted to one day serve at more affordable prices. That experience is what helped them develop an understanding of the types of farmers-market-inspired dishes that would please local customers.

Understanding your future customers can be the difference between changing a failed aircraft engine on the ground vs. doing so midflight. The former is much simpler and much more likely to be successful. Once you start up the business, it's likely that you will be consumed with operating details, often with little time to think and even less to make adjustments. Implementing the right plan from the start is far more likely to yield success than figuring out a plan on the fly. 

"Cash is king", so you must take steps to adequately capitalize the business and secure ready sources of capital for growth. A good cash-forecasting tool is critical so that you can plan for the sources and uses of cash on a rolling basis.

While some startups rely on owners' capital, others look to investors. Tender Greens' owners raised funds from friends, family members and colleagues.

To determine how much cash you'll need, we can help develop a cash-flow statement  that estimates your expenses and income. Be sure to include appropriate expense levels by researching actual business costs rather than estimating based on your personal experience as a retail consumer. For instance, you can host your personal website with unlimited bandwidth for $9.95 a month, but operating a commercial website may cost hundreds or thousands of dollars a month. Plan appropriately.

Limit your need for cash by avoiding long-term commitments, like long-term leases, until necessary. There will be a considerable amount of uncertainty during the first few years, so be  conservative in making commitments for resources that might not be yet needed. 

From the beginning, it's critical to select the appropriate corporate structure for your business, which will have legal and tax implications. The structure you choose can also ensure the success of  future decisions, such as raising capital or exiting the business.

Most startups should probably operate as either an LLC or an S-Corporation, The benefit being that because starting with one of those structures and converting to a C-Corporation later is much easier than starting as a C-Corp and trying to convert to an LLC or S-Corp. To determine which structure is best for your business, let's outline four considerations:

• Liability limitations: For C-Corps, S-Corps and LLCs, the owners' personal liability is generally limited to the amounts invested and loaned. There is unlimited liability for general partners.
• Startup losses: If your company is an S-Corp or an LLC, also known as "pass-through" entities (because tax liabilities and benefits "pass through" to the owners' personal tax return), you can usually write off startup costs as losses on your personal tax return. In a C-Corp, startup costs producing tax losses can only be utilized at the business level and offer no future benefit if the new company has future tax profits.
• Double taxation: Generally, double taxation of earnings is avoided for pass-through entities, but not for C-Corporations.
• Capital-raising plans: If you plan to take your business public or raise funds through private equity, these plans may require that the company not be a pass-through structure.