What’s the First Step You Should Take When Starting a Business? Here’s What Most Americans Say

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America is a country of aspiring entrepreneurs. According to a new GOBankingRates survey of more than 1,000 adults, nearly 60% of people would rather own a business than stay at their current jobs, and two out of three plan to launch their own companies at some point in the future.

But despite their aspirations, confusion over where to start will doom many of those would-be magnates to lives of W2 wage-earning. After all, launching a successful business involves doing countless things correctly and in the correct order. Still, a majority of Americans think they know which crucial step should come first — but are they right?

GOBankingRates asked the experts.

So Much To Do, but What Comes First?

The study found that a majority — 55%, the largest group by far — think creating a business plan is the first step to running your own company. That number remained roughly the same even after eliminating the one in three respondents with no plans to open a business.

The next-largest share, about 18%, thinks step No. 1 should be to acquire a loan. Another 11% think you should start by choosing a business structure, like LLC or sole proprietor. About 8% would prioritize applying for licenses and permits, while smaller shares — about 5% and 3%, respectively — would start by opening a business bank account or getting a business credit card.

So, does the majority rule?

Aspiring Entrepreneurs Are Right — Businesses Start With a Plan

Daniel Feiman, MBA, is the managing director of Build It Backwards, a management consulting and training firm specializing in business strategy, leadership, finance and succession. His decades of experience working with small businesses as both a commercial banker and management consultant tell him that the majority of the study’s respondents have excellent entrepreneurial instincts.

“You should always create a business plan as the first step before starting a business,” said Feiman. “This is where you ask and answer all the tough questions before committing your life savings to your new make-or-break endeavor. This plan clarifies your decision-making for everything else.”

Those who participated in the survey were also right about what follows the business plan.

“Your business structure — i.e., LLC, S Corp, etc. — will come next and be determined by the plan you create,” said Feiman. “After this, you decide where you will develop your banking relationship, including loan facilities and bank accounts. Licenses, permits and everything else can wait until these steps are completed.”

But Shouldn’t Plans Be Based on Ideas and Research?

Haydn Bratt, author of “The M-Powered Business” and “Microleadership,” is a  founder and partner at Mindset Leadership, a business consulting and leadership development firm that works with global brands like Alpine F1, Fujifilm and McDonald’s.

He thinks creating a business plan first is putting the cart before the horse. In his experience, entrepreneurs must answer important philosophical questions before they start hashing out details that will impress lenders and investors.

“The first stage is to identify your dream client and the problem you will solve for them,” said Bratt. “Once this is identified and you believe you have a viable business opportunity, then you can proceed to create a full business plan. However, a lot of people start with what they want to do or sell before really doing the research to see if there is a viable market for this. It’s less about the activities and more about the mindset of the potential business owner.”

Ideas, Research and Planning Can All Be Part of the Same Phase

Kyle Golding is the CEO and chief strategic idealist at The Golding Group, which has spent more than a decade helping businesses build, improve and scale their operations. In his experience, Bratt is correct in saying that entrepreneurs should start by contemplating who their business will serve, what needs it will fill and what demand it will supply.

“The first step in starting a successful business is to understand exactly how the business will function, what value it will provide, who the audience is, who the competition is and how to be profitable,” said Golding.

But that doesn’t mean Feiman is wrong in saying the business plan should come first.

“This is all achieved in the business planning process,” said Golding. “The smartest decisions about organizational structure, funding and compliance can only happen after research, analysis and application of real-world data based on market conditions and competitive landscape.”

In short, smart entrepreneurs conduct philosophical deliberations and hash out the nuts and bolts of how their business will run at the same time.

“Without going through the process of writing and refining a business plan, you will not have the answers, or at least educated projections, to properly secure a loan, hire the right employees or sign a lease,” said Golding. “A business plan can show a logical path to profitability, which will be needed to pay your bills, employees and loan debts.”

Whatever You Do, Don’t Rush In

Some argue that the conceptualization and analysis phase precedes the creation of a formal business plan. Others believe they’re both part of the same process. A credible argument can be made for both — but under no circumstances can you skip either.

“Before diving into the creation of a business plan or contemplating company structure, make sure you are solving a problem or creating an opportunity that others need in a way that is differentiated or focused on a specific buyer profile, and ask your potential customers what they think of your solution,” said Shireen Hilal, founder and CEO of business consulting firm Maior Strategic Consulting. “If they don’t understand it or say they don’t need it, it means you need to rethink your product or offering. Too many business owners create in a vacuum. Instead, go straight to the market and see how it lands before burning time or cash.”

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