All the best businesses are built on a solid foundation, but what are the key pillars that you should be focusing on in the setup phase? In this article, you’ll learn the key facts step by step. We look at everything you need to do before you launch your business so you can avoid wasting time and money.
Validate your market
No matter how boring it sounds, and no matter how much effort you need to put into it, it is important to make sure there is demand for your idea. You need to make sure that there are actually people out there who want to buy what you’re offering.
Around 35% of startups actually fail because they’re building something that nobody wants. Often there’s some other piece of software or tool out there that already does the job, and you don’t have to put in more time or extra work.
For this reason, it’s a great idea to talk to real people and find out what they want, particularly the audience you hope to connect with. Make sure you build a minimum viable product and then test it on them to see what they think. Ensure you have some sort of unique value proposition that’s different from the existing solutions, or, if you can’t do that, make sure that your option is cheaper.
Sort out your banking
Sorting out your banking from the start is critical if you want to run a business. It’s key to open a business account so you can separate your personal and business expenses.
While this sounds basic, you’d be surprised how few business owners actually do it, at least during the first few months of setting up their operations. This then creates challenges later on when filing taxes, because it’s more difficult to figure out which expenses are personal and which are strictly business. The good news is that there are all sorts of services out there that can now integrate expensing, accounting, and tax calculations, so being more compliant is easier.
Check unit economics and cash flow management
There’s also the trap of failing to check your unit economics and cash flow management. More companies go out of business because they lack free cash on hand, rather than simply being unprofitable long-term.
Make sure you know your customer acquisition cost (how much you spend on marketing and sales to get a single buyer), and then calculate the lifetime value of that customer. What you want is a ratio of 3:1 between these two figures. For example, the lifetime value of your customer should be at least three times the cost of acquiring them.
Check your distribution channel
Finally, you want to check your distribution channel. You might have the best product on earth, but if you don’t have a good way to get it in front of customers, then it means nothing.
In the old days, distribution channels just meant logistics. Today, it can also mean digital platforms. Try not to use every single marketing strategy at once. Don’t combine TikTok with email, press releases, and SEO. Instead, focus on the channel that naturally matches what you’re trying to do.
