Why is starting a business from scratch hard?

If you’re looking to coast through life, avoid stress and minimize your risk, I don’t suggest you start a business. Being an entrepreneur is not for the faint of heart: it requires patience, hard work and perseverance. And even then, you’re not guaranteed success.

I find that a lot of first-time business owners are simply unprepared for what to expect their first year, and that leads to their own demise. But if you can survive the first 12 months, you have a decent shot at long-term success. Here’s what you need to be aware of if you’re planning to launch a business this year.

Truths About Starting a Business

1. You Need People

Now, I know you probably think you can do it all on your own. After all, you’re smart enough to start a business! Surely you can manage it all by yourself as well.

Let me save you some heartache: relying on people — the right people — will make your work so much easier. You’re good at some facets of running a business, to be sure. But there’s a lot I’m willing to bet that you’re less good at, like maybe accounting or designing your website. This is where bringing in a professional skilled in a particular area is a huge asset.

If you’re going to run a store, you need people to interact with customers so you can focus on administrative work and brainstorming on business strategy. And it’s always nice to have a mentor with experience in your field who can guide you to avoid making mistakes.

So leave the ego at the door and surround yourself with people who are as smart — if not smarter — than you.

2. If You Don’t Know Your Customers, You Will Fail

Another common mistake I see is entrepreneurs thinking because they have a genius idea (in their minds, at least), they automatically have a business that will thrive. But the problem is: they don’t do any research to understand who would actually buy their products or services. They don’t bother to understand who their customer base is. And so the business limps along until it collapses.

Look, friend, your business is nothing without customers. You need to know them as well as you know yourself so you can deliver exactly what they’re looking for. That’s the key to your brand’s success.

3. Profit’s Not Guaranteed

I know you don’t want to hear that, but it’s the harsh reality. Not planning for this will mean certain financial demise. In your first year, you will be pouring money — more than you budget, likely — into launching and gaining a foothold in your market. If you’re lucky, you can throw a little your way for salary. But those dreams of mountains of cash? Don’t plan on them coming true right away.

Smart hustlers find other sources of income to cover their first years of personal expenses so that they aren’t stressed out trying to pay their bills while growing their businesses. If you’ve got savings, great. If you’re taking out a loan, build in your own income to that budget.

4. Only 69 Percent of Businesses Make it Past Year 2

Here’s another hard-to-swallow reality. Think of the businesses that have shuttered in your own community, maybe before they even really took off. Imagine how many more online businesses disappear without warning. As I said in the beginning of this article: running a business is hard. Running one successfully — especially up to and past Year Two — is uber challenging.

I’m not saying this to deter you from trying, but rather to prepare you for the odds against you. If you know what you’re up against, you can arm yourself and fight becoming just another failed business statistic. You can develop a plan that will safeguard you against some of the risks you’ll face. I’m not saying there’s a magic formula for success, but I find that the businesses that invest more time and energy into planning do end up sticking around long-term.

Furniture Designer Photo via Shutterstock

If you've identified a great market, you're likely eager to get into business as soon as possible. However, there are pros of starting a business that should be first weighed against the cons. Often — but not always — buying an existing business in that market is going to be easier and more profitable in the first years, compared to starting from scratch.

Disadvantages of Starting a New Business From Scratch

Starting a business from scratch carries more risk than buying an existing business that is already producing a cash flow — and hopefully making a profit. An existing business already has relationships with suppliers and paying customers. It already has employees who are familiar with its operations, and all of those operations, including procedures and policies, are already running.

Directly related to this is the fact that it's much harder to get financing for a brand new business than it is to buy an existing business. However, not all businesses for sale necessarily give you this advantage. Entrepreneur recommends looking at a company's financial records over the past five years, including its tax records, to see if it's financially viable.

In many cases, an existing business already has the intellectual property you will need as well, such as patents, trademarks and copyrights. This leads to one last disadvantage of starting from scratch: the website. An established website has much higher search engine optimization (SEO) clout than a new one. It's also much more likely to have important links to other websites, leading customers to your business.

Finally, a brand new business comes with a steep learning curve, without any of the indicators of success that come with buying an existing company. If you haven't done your due diligence in researching the market or set aside enough capital to carry you through until you start getting clients, your business will likely collapse.

Advantages of Starting a New Business From Scratch

Before calling it a day, no pros and cons list can be complete without listing the advantages — and starting a new business has three important pros to add to that column. First is cost, which is likely the only advantage you need to know if you're on a shoestring budget. Each of the benefits of buying a company have a price tag attached to it. After all, nobody is going to hand you a verified client list for free. Equipment, inventory and other assets are all things you can buy on your own.

Secondly, you're starting on a fresh page. From its inception, everything can be done exactly as you like, which is a broad category of advantages for many business owners. There will be:

• no pushback from established managers and employees who resist change
  
• no incentive bonuses to keep experienced employees on board
  
• no old equipment to upgrade
  
• no delinquent clients to worry about
  
• no negative reviews online to haunt you
• no logos, signs, stationary, desks or even potted plants to stare at every day that you never really like

Thirdly, starting your own business carries with it a level of personal satisfaction that many entrepreneurs wouldn't trade in for the world. In fact, some might argue that if you buy a business, you're building on someone else’s work, and the only way to really start a business is to do it from scratch.

Starting a Business Compared with Buying a Franchise

For some, buying a franchise is a middle ground between buying a business or starting a business from scratch. In terms of cost, this is often the case, as franchises can start at just a few thousand dollars. Because franchising licenses vary considerably, you'll need to examine exactly what is being offered for the price.

The freedom of making your own decisions can be limited by your franchise contract, such as where your franchise will be located, what signage and marketing materials you can use, what products or services you can offer and what prices you can set. On the other hand, the franchiser's head office will likely provide you with marketing materials, licenses for their intellectual property, and training. According to Forbes, franchises usually give you access to better pricing from suppliers due to increased purchasing power.

Before making any decisions, take a good look at the market you're considering. If you can find a franchise opportunity or someone willing to be bought out, weigh your options carefully. Compare the startup costs of doing it yourself to the costs and potential jump-start in revenue that buying a business or a franchise can provide.

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