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.”
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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.
Learn how to set goals that actually stick!
The Top 10 Mistakes in Online Business
Every week we talk with entrepreneurs. We talk about what’s working and what isn’t. We talk about successes and failures. We spend time with complete newbies, seasoned veterans, and everything in between.
One topic that comes up over and over again with both groups is mistakes made in starting businesses. Newbies love to learn about mistakes so they can avoid them. Veterans love to talk about what they wish they had known when starting out.
These conversations have been fascinating, so we compiled a list of the 10 mistakes we hear most often into a nifty lil' guide. Get the 10 Most Common Mistakes in Starting an Online Business here »
Spot on, Corbett. Anyone who says starting/running a business is all about paperwork has never done it before. I will add, while I’m a huge fan of the audience-first approach, I think there are plenty of ways to build a business without #8 necessarily. I think it’s the best way, but I’m not sure it’s as necessary as the other items on the list. Thanks for sharing this. Loved it.
Still, a checklist on the paperwork, licenses and other structural legalities will preclude having to scramble later to “make it all legal” and possibly avoid unexpected fines, fees and other potholes in the road to business success and stardom. You generally don’t want to be circling back and having to play catch up if you can help it.
Oh wow! That is terrifying!
Corbett – I really appreciate your sound advice and perspective. Since I joined fizzle almost a year a ago and started the roadmap, I have decided to skip all other advice out there. All of it. There are way too many top 10 lists advising people about what to and not to do. If I spent all my time digesting that, (which I have done in the past), I wouldn’t move forward. I am building my business as a side hustle, so I can’t mess around. Keep up the great work. I hope you and your team get to hear enough good feedback to feel rewarded for your efforts. I sure appreciate this service and community you have built.
I’ll be honest, I dismissed much of Fizzle’s advice since I signed up about a month ago. I took a 3 year Business Administration diploma, with a major in Human Resources. Everything taught is based on processes and theories that have been used in the business world for decades. I put a lot of value in those approaches, because they work. I’ve used them across multiple jobs as a small business development coordinator. However, Fizzle’s rethinking of standard business theories are more logical; they aren’t based on paperwork. They’re based on active thought to yield results. In any research that I do related to my work or business, I always match it against Fizzle’s interpretation now, and I can tell you it hasn’t steered me wrong yet.
Wow, this is amazing, thanks for sharing.
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hi Fizzle,
so if SBA is lousy, deceptive, missing the point, can you please give us your opinion on LivePlan business planning ; )
($20/mth or $12 at annual rate)
https://www.liveplan.com/how-it-works, thanks ; )
Hey Rolf, I didn’t call the SBA deceptive, just out of touch.
I don’t have any familiarity with live plan, not sure about it, but we believe the most effective business plans are very short, one page even: https://fizzle.co/sparkline/simple-business-plan
thanks.
well, when you have time, could you look at LivePlan structure and see if it’s more robust than SBA and if it has a solid foundation or is missing real world approach as yours, or is more fluff at a monthly fee, please? thanks
Isn’t that an executive summary? Shouldn’t every serious business plan have one?
The SBA does have a section or area regarding customers and marketing it’s called “Growing your business” but even then – not much thought was put into the layout of that menu or the hotlinks. They should have a HUGE section on Marketing – no one succeeds without marketing. How can such a vital and important section of information be condensed down to one minor link?
Honestly that site is about 10 years behind anyway. I like your list much better. SBA seems so “stiff” and kind of like the straight laced guy at a party trying to dance but just stiffly bobbing around. They do have information on their site but you really have to dig and it was written in legal-ese – good luck translating it.
I think the SBAs approach covered much of Fizzle’s criticism in the “Write a Business Plan portion” and while I agree that having an extensive business plan can lull an entrepreneur into a false sense of security, there is nothing for doing extensive serious research and networking on products, customers and other competitors while writing a business plan. The one things that any entrepreneur must keep in mind that like battle plans, “plans are (often) useless, but planning is indispensable.” to paraphrase Dwight D. Eisenhower. Many others have said that “No battle plan survives contact with the enemy.” and that is true for a business plan as well.
Also, the SBAs approach is more geared toward individual entrepreneurs who provide local services or combinations of products and services such as shops and tradesmen/craftsmen and who likely already have their products pretty well defined and in many cases might already have a customer list. This is the bread and butter of cities and folks who are developing a new product for manufacture or internet entrepreneurs usually have more resources and education (but no less chance of success) than the cook, hair stylist, convenience store owner, repairman, plumber, carpenter or mechanic who wants to start his or her own business. As such, the SBA fills a valuable role, just one not aligned very well with tech startups. As Kristin says, her BA and the SBA are based on processes and theories (old school) that have been used in the business world for decades. They have a lot of value, but I am combining them with Fizzle’s list and some seminars and classes from the local Library in conjunction with the SBA as well as a local bootstrap group.
I would call a one page business plan or a short presentation more of a Mission Statement (or a synopsis) than a plan. Every plan should have a synopsis or executive overview. I would hope to have it backed up by many pages of research and planning as well so when it all goes awry, you don’t have to scramble like hell (just like a commander in battle, “oh, we thought of that, didn’t we plan that our on page 76 already? Move company B in as reserve over Porkchop ridge”.)