Small Business

Why Start Your Own Business

By David Krug David Krug is the CEO & President of Bankovia. He's a lifelong expat who has lived in the Philippines, Mexico, Thailand, and Colombia. When he's not reading about cryptocurrencies, he's researching the latest personal finance software. 9 minute read

The advent of low-cost computing, widely available online marketplaces, and simple access to crowdsourced finance has altered the nature of entrepreneurship. Entrepreneurs nowadays are more likely to launch their businesses online, work from home or in a tiny office, and rely on the expertise of others than their predecessors.

Some are small, guerrilla operations jumping from one hot idea to the next; others are big, well-funded disruptor concepts conceived by brilliant minds. As far as new ventures go, it could well be the finest moment ever.

The Success Factors

Historically, the United States has been the world’s premier destination for budding business owners. Andrew Carnegie in steel, John D. Rockefeller in oil, and William A. Clark in copper are just a few examples of immigrants and first-generation Americans who made enormous fortunes.

However, thousands more founded successful small businesses that provided financial security and employment for hundreds of thousands of their fellow citizens.

There has never been a time in the country’s history when the chance to control one’s own destiny was higher than it is now. Opportunities for new firms and innovations have proliferated at an exponential rate, with each fresh idea and creative reworking of tried and true techniques ripe with potential. This is the case for a number of important reasons.

  1. Cultural Adjustment

Through much of its existence, capitalism has only been available to those of privileged backgrounds. Cultural standards that had stood for hundreds of years were destroyed by the vast landscapes and unexplored resources of the new continent in the 19th century. There was an influx of business owners who used the country’s abundant resources, expanding consumer base, and cutting-edge innovations to build the world’s premier manufacturing powerhouse.

Despite the breakthrough, these new opportunities mostly excluded people of color. Racial discrimination, cultural prejudices, and ineffective education all contributed to the exclusion of minorities (outside of their own groups) and women.

Anyone who is educated and bold enough to start a new firm in 21st century America may do it, regardless of their gender or race. There are 8.6 million women-owned companies in the United States, generating over $1.3 trillion in revenues and employing 7.8 million people, according to a 2013 survey by American Express. In the years spanning 1997-2013, the pace of expansion for enterprises owned by women was 1.5 times the national average. 

According to a 2011 press release from the U.S. Census Bureau, led by Deputy Director Tom Mesenbourg, “The rise in the number of minority-owned organizations – both employers and non-employers – has significantly surpassed that of businesses overall.”

Numerous federal and state-run resources are available at no cost to would-be entrepreneurs. An entrepreneur can take courses in everything from bookkeeping 101 to advanced negotiations for services and goods.

Organizations like S.C.O.R.E. offer low-cost, on-site, face-to-face mentorship, while municipalities, schools and universities, and private firms all provide affordable incubation space, complete with administrative and accounting support. Laws on the books mandate a certain amount of subcontracting of federal contracts to small firms and offer comprehensive contracting help to those persons and organizations who are actively seeking subcontracting opportunities.

  1. Open Markets

Because of the Internet’s pervasiveness, businesses of all sizes may now compete on a global scale. A single individual with a website and social media accounts may communicate with customers all over the world as easily as with those in their local neighborhood. 

Nowadays, consumers throughout the world are exposed to the same media and cultural phenomena, making it simple for a trending product or service to quickly gain traction in other nations. There is increased pressure on established routes of distribution to widen their nets and do away with any remaining impediments, whether financial or otherwise. In a nutshell, a modern entrepreneur may sell virtually anything to virtually anyone, anywhere in the world.

While it’s simpler than ever to reach a wide audience, niche audiences may now be easily found by analyzing demographic and social media data. The internet has made it possible for niche businesses to reach certain demographics of consumers: a graphic designer may reach self-publishing ebook writers; a garage rock band or an aspiring filmmaker can gain international exposure through sites like YouTube; and so on.

When a smartphone game like Candy Crush suddenly goes viral, it might inspire an initial public offering of shares. The potential exists whether the entrepreneur’s target market is in their own backyard or across the globe.

  1. Inexpensive Technology

Technological advancements have lowered prices, raised standards, and made products more accessible to folks who aren’t mechanically or productionally inclined as the Internet has fostered open marketplaces. Today, few organizations rely only on in-house resources such as machinery, buildings, and personnel to manufacture all of their offerings.

Whether you’re looking in your own backyard or halfway across the world, you can find dozens of manufacturers who specialize in your field of choice. The latest robotic technology allows for precise cutting, milling, welding, shaping, and painting of a wide variety of materials.

Third-party logistics providers can affordably acquire, store, and deliver items of any size, fragility, or shelf life, to any location. Transparent and multilingual assistance with even the most personal and intimate parts of doing business, such customer service and technical support, may be offered by remote workers in other countries.

Even those who aren’t particularly tech savvy can benefit from the enormous processing power offered by software translators, since they can read and simplify the most complex computer language.

Remote, on-demand printing services supplied by customer-owned printers; simple yet powerful image and picture editing tools freely available online; 3D printers capable of producing everything from one-of-a-kind physical prototypes to entire components and models from a wide variety of materials.

Telecommuting, job-sharing, and video conferencing are just some of the ways in which technology has revolutionized the traditional workplace by eliminating the need for centralized planning, uniform procedures, and physical boundaries. Business consultants, administrative professionals, artists, and writers, among others, may serve clients and consumers considerably more efficiently and cheaply than in the past if they go into business for themselves.

  1. Funding Is Available

In the past, anyone who wanted to start a business but didn’t have the funds to do so had to go to others who did have the means to do so and beg and plead for investment. Presenting the case, explaining it in detail, and making several predictions seldom result in the desired funds. Unfortunately for them, business owners rapidly discovered that “He who has the gold writes the rules.”

Those in need of financing had to cope with obscure, often illogical restrictions on who might be approached for funding, how much money could be raised, and what it could be used for. 

Not even business owners or financial backers benefited from the system because of how time-consuming and costly it was. Many business owners lost up or fell victim to unscrupulous promoters and scam artists because of the high costs and ineffectiveness of complying with the myriad of rules that needed to be enforced.

Individual investors (sometimes referred to as “angels”), venture capital funds established for the sole purpose of investing in new ideas and new companies, public and private offerings to groups of investors, and government-subsidized debt through programs established by the Small Business Administration (SBA) are all options available to entrepreneurs today. 

While investors still must demonstrate the value of their ideas, they now have more funding alternatives and a generally simpler procedure. Among the many potential funding options are:

  • Multinational Conglomerates. Start-ups that supply services or goods to larger corporations, or that find and develop niche markets outside of the larger corporations’ areas of interest, are often supported financially and even actively encouraged by such corporations.
  • Institutions of Private Banking. In addition to conventional finance businesses and factors, banks are now prepared to offer short-term loans to new company owners for the purpose of funding the acquisition of capital assets, accounts receivable, and inventories.
  • Concepts that have already shown to be successful often become franchises. Franchisers typically provide attractive financing to entice both prospective franchisees and existing small business owners (looking to sell and retire) to accept long-term payment plans in place of cash, allowing the new owners to pay for the business with profits.

There are at least two distinct methods used by the new startup fundraising business that emerged as a result of less government regulation. Investors that expect products, advantages, or rewards in exchange for their investment may be interested in a donation-based strategy.

In exchange for funding, a musician, author, or restaurant owner can provide investor-only perks like discounted meals or prime seating. On the other hand, investors in investment-based models get equity or debt in return for their financial backing, thereby turning them into the business’s owners.

Almost double that amount, $5.1 billion, was predicted to be raised through crowdfunding platforms in 2013, per Massolution’s 2013 Crowdfunding Industry Report. To name just a few, the following are some of the most popular online resources for budding entrepreneurs looking to secure financing:

  • Kickstarter. Kickstarter, one of the first platforms, focuses on donation-based fundraising for creative businesses including writers, artists, singers, and filmmakers.
  • Crowdfunder. Crowdfunder is the top portal for businesses seeking to raise funds in towns and regions around the United States and Mexico. It offers approaches based on donations and investments.
  • Somolend. Somolend focuses on debt-based investment capital for small enterprises, allowing entrepreneurs to entice friends and family as well as local banks to participate with the site.

Individuals can often capitalize their own operations by drawing on employer savings and investment accounts to which they have contributed for years, as well as severance payments and personal investments made during earlier employment, in addition to the possibility of using “OPM” – i.e., “other people’s money” – to fund a new company. If you, as the company’s planned management, or your business idea can’t convince investors to put money into the venture, you shouldn’t.

  1. Relaxed and Beneficial Regulations

With the passage of the JOBS Act in 2012, there is now access to a much larger pool of funding for startups and established small businesses. Small firms (those with assets of less than $10 million or with 500 or fewer owners) have had federal registration requirements loosened as a result of this statute.

Additionally, it allowed for greater public marketing initiatives than were previously in place and broadened the pool of possible investors to include persons earning less than $100,000 per year (with a restriction on the amount that such potential shareholders might contribute). 

So, the pool of money available to invest in new businesses grew significantly. Tax regulations are always changing, but Congress has proven to be flexible and supportive of small company owners. One of the ways to claim the home office deduction has been simplified.

Among the 2014 rules are raised limitations for qualifying retirement plan contributions and benefits and raised credits for employee health insurance. Furthermore, it is quite likely that the 2013 deadline for filing taxes will be extended, along with the favorable laws on accelerated depreciation and the multiple-business credit.

The Affordable Care Act of 2010 exempts from its requirements those business owners with less than 50 employees who do not offer health insurance to their workers. However, the newly established health insurance exchanges will most certainly give small companies with greater health insurance alternatives and better coverage at cheaper rates. It’s important to keep in mind that the law has sparked a lot of debate and will likely be drastically revised in the years to come.

Bottom Line

Dropout and GM founder William Durant once said, “Forget past mistakes. To hell with past mistakes. Put everything else aside, and accomplish the thing you’re planning to do right now.

Having a successful business of one’s own and reaping the benefits of one’s own hard work and smarts has long been a pillar of the American Dream. It’s never too soon to start working toward your goal of becoming a business owner whether you have an idea or have always wanted to run your own company.

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