Millions of Americans have quit their jobs to start new businesses and seek a better work-life balance. The Great Resignation has spurred one of the biggest booms in new business formation this country has ever seen. Although many women participated in new business formation, many more were forced to put off their ambitions, because of the pandemic. Nevertheless, the opportunities thrust open by the pandemic are still present, and as the pandemic recedes, women can seize these opportunities. Here’s what women need to know so they can successfully start a business.
Understand Your Goals
Research shows that women who started new businesses as part of the Great Resignation, did so for a number of reasons:
- 58% wanted a greater work-life balance
- 24% wanted to leave a business behind for their families
- 37% wanted to increase their income
- 19% had lost their jobs and needed a new income stream
- 9% couldn’t find another job
Now, this is important because it governs what the appropriate decisions should be regarding your business. For instance, if you want to start a business to have a better work-life balance that enables you to work and travel as a digital nomad, you will have to create a very different business to someone who wants to leave a business behind for their families. Being clear about your goal will help you be successful not only in starting your business, but in achieving your personal goals.
Think About Your Value Proposition
Management guru, Peter Drucker, once said that “the purpose of a business is to create and keep a customer”. How do you do that? You do that by creating value for your customers. Any time you create something that people are willing to pay for, you create value.
Your value proposition is what you are offering a customer. In the internet age, several things are true:
- The internet makes it easier for customers to find your competitors.
- The internet makes it easier for you to find customers.
These two things mean that you have to offer customers something that solves some problem for them, and which they are willing to pay for, despite the presence of competitors. In other words, with hundreds, thousands, or potentially millions of competitors, you have to answer a silent question, “Why should I buy this thing from you?”
This question is so important that venture capitalist, Marc Andreessen, calls product-market fit, which I think is a great measure of value, “the only thing that matters”. You see, it’s not enough to just have a great product, you have to have a market for that product, and if you’re really lucky, it’s a large and growing market. You want demand for your product to be so high you’re struggling to meet it.
Think About Your Passions
The competitiveness that arises from the internet, is just the flipside. It’s easier than ever to find customers. In fact, it has become possible to create businesses serving just 1000 or even 100 “true fans”. These businesses operate in the passion economy. You can be an author on Substack, teach piano on Teachable, sell your art on an online store, and many other things. For instance, if you can get 1000 true fans to part with $100 a year, you can earn $100,000 from them. Similarly, if you can get 100 true fans to part with $1,000 a year, you can earn $100,000 a year.
The internet defines the intensity of competition but also offers opportunities that weren’t possible before.
Using the strength of the internet isn’t just about starting niche businesses. The internet makes it possible to be a digital nomad, it makes it possible to run a business with a distributed work model rather than one large headquarters, and many other things. Big businesses have understood this and many big businesses have started to leave large corporate headquarters and set up satellite offices instead, to reduce their costs. As a business started in this age, you have an opportunity to think about your business model in really radical ways. When you consider the importance of work-life balance for many women, it’s hard to see why any women starting businesses would not start with a digital-first mentality.
Choose a Business Structure
Your personal and business goals will guide you as to what business structure you should operate. The type of business you select will determine the tax form you will have to fill, and the degreThe default business structure for unregistered businesses is the sole proprietorship. With a sole proprietorship, there is no distinction between the individual and their business. So, if your business suffers losses or faces a lawsuit, your personal liability is at stake.
If you want to protect your personal assets, then what you want is to select a business structure from partnerships, corporations (technically, C corps), and S corps. The limited liability company (LLC) business structure is mandated under state law.
Partnerships are great when you are starting a business with another person or a small group of people. Partnerships are formed when you and your partners pool resources, from money, talent, labor, property and other things, for a share in the business’ profits and losses.
Corporations are formed when investors buy shares in a business, providing that business with equity capital. Corporations take the same deductions as sole proprietorships when estimating taxable income. A corporation has personhood, which means that it is taxed as an entity, earns profits and suffers losses, and distributes profits to its shareholders. Not only does the company pay corporate tax on profits, its shareholders also pay taxes on any dividends received from the company. This double taxation is unique to corporations. Because corporations can issue shares, they are the best business structure for entrepreneurs who want to raise large amounts of capital. Their personhood also means that they provide the greatest protection of shareholder assets.
S corporations are corporations that exist as pass through entities, so that profits and losses and deductions are passed through to shareholders. The shareholders of an S corp report this income and any losses on their personal tax returns and pay taxes at their income tax returns. This avoids the problem of double taxation.
An LLC’s regulations depend on the state in which your business operates. It combines the features of a partnership with those of a corporation. This makes it very popular with entrepreneurs. It is a pass-through entity, avoiding the double-taxation problem of corporations, and yet, it can issue stock to investors, who are known as members, allowing it to raise capital from many investors. You can learn more about LLCs here.