How to Start a Company

Co-authored by Helena Ronis

Last Updated: April 18, 2024 Approved

New companies thrive on innovation. If you want to come up with a winning idea for a new company, you'll need to set yourself up for success by learning to conduct market analysis and identify a gap in consumers' needs, then develop a compelling vision to fill that desire with a new and undeniable product. See Step 1 to start learning how to start a new company.

Part 1

Part 1 of 3:

Having an Innovative Plan

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1
Identify a new market. A successful company uses creativity and innovation to discover previously untapped markets for products and services, creating things that consumers didn't even know they needed, then selling it to those consumers at a profit. If your goal is to form a successful company, you need to start by finding a great need in a consumer base and planning a way to exploit it.^{[1]
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Expert Source

Helena Ronis
Business Advisor

Expert Interview. 23 January 2019.}
- Do market analysis to identify potential consumer needs and desires. If you've already got a great idea for an innovative product, think about who it is that will want to use and purchase your product or service. Be as specific as possible.
- Consider important statistical factors in your potential consumer base that will help you plan your product and structure your company around its consumers:
  - Age of an average customer
  - Socioeconomic status
  - Location (urban, rural)
  - Education
  - Spending habits
2
Develop a compelling product, concept, or service for that market. When you've identified a need, fill that need with a new concept for a product. Think big. Innovation requires that you identify something that will change the way people think. Apple wouldn't be a successful company if they hadn't identified a consumer base's desire for elegant and simple music, phone, and computing technology.^{[2]
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- Recent start-up success story "Coin" had the idea of a simple card that consolidates all your credit cards, debit cards, gift cards, and other wallet-clogging plastic into one, easy-to-use card. By identifying a consumer need (to de-clutter) and a simple, elegant product that filled that need, Coin generated a lot of buzzes and attracted serious investors and customers.
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3
Create a working model of your product. To attract serious investors, you're going to have to prove that your innovation is possible. Whether your company will be structured around the most delicious brownie mix ever marketed to Brooklynites, or a chain of coffee kiosks, you'll have to develop a working model that works.
- Hook up with engineers and other technological innovators if you can't create a working model of your product yourself. Depending on what you're trying to create, this may be a serious time and money investment. Consider crowd-sourcing for an initial product, if it should prove expensive.
What will you need for your company to be successful at the end of this month? The end of this year? Ten years down the road? Give some serious thought to where you want your company to head and what you'll need to take it there. Flying by the seat of your pants is a good way to create a company that will fail. Careful planning will help you to structure your company and accurately anticipate the challenges that await you.
5
Put a name on it. It's important to come up with an appropriate and eye-catching name for your company to make it official. Brainstorm lots of possibilities and get feedback on a handful of your favorites. A well-named company has a much better chance of sticking around long-term. Your name also needs to be unique in your state, if you plan on filing for incorporation and should be registered with the Business Bureau or Administration in your state.^{[3]
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U.S. Small Business Administration
U.S. government agency focused on supporting small businesses

Go to source} A good company name should be:
- Catchy
- Simple
- Fresh
- Easy to brand
6
Write up a business plan to define your goals and appeal to investors.^{[4]
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Expert Source

Helena Ronis
Business Advisor

Expert Interview. 23 January 2019.} A business plan is an essential step in starting any company. A well-written business plan forces you to articulate the corporate philosophy for your company, the practical execution of your ideas in terms of marketing and funding, and a detailed description of your product or service. Your business plan needs to include:
- Your vision for the company
- Market research and consumer analysis
- A detailed description of your corporate structure, including leadership and staff
- Your marketing plan
- A specific breakdown of costs needed to get your company off the ground
- A personal appeal to potential investors
Depending on the nature of your products or services, you'll have to file at the federal and state level to conduct business legally. Research the requirements and talk to a representative at the business bureau to make sure you've filed appropriately and are within the bounds of the law. You can find the requirements for your particular state by clicking here.

Part 2

Part 2 of 3:

Structuring Your Company

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1
Form a Limited Liability Company (LLC) for maximum flexibility. An LLC is a hybrid of the flexibility of a partnership-style organization, with the liability features of a more complex corporation. While a corporation is owned by shareholders, the members of an LLC are not taxed as a business entity, but rather report the business of the company on their tax returns, making it a popular option for small companies getting off the ground. To register as an LLC, you need to:
- Register your name. The name must be unique and registered with the business bureau in your state.
- File articles of organization in your state. This is a basic document available from and filed with the Secretary of State in some states, and the corporation commission in other states.
- Create an operating agreement. While not required in all states, an operating agreement exists to codify the financial organization of your company in terms of profits.
- Obtain the necessary licenses and permits to hold business and/or manufacturing in your state.
2
Consider forming a business partnership to run a tighter ship. A partnership is shared by one or more individuals who divide profits, responsibilities, and other elements of the company among the parties equally, or on a limited basis depending on the company's structure. To register a business partnership, you'll need to register your name, acquire the appropriate permits for holding business, depending on your company, and file your company with the IRS. The tax formula for partnerships is somewhat more complicated than that of an LLC.
- The partnership must furnish an Annual Return of Income, as well as both employment taxes and excise taxes by filling out IRS form 1095. The individual partners must additionally pay individual income tax, as well as self-employment tax and excise tax.
3
Consider incorporation. To file as a corporation, you'll need to file the proper articles of incorporation in your state, generally with the Secretary of State's office. Depending on the state, you may also have to identify your shareholders and issue the accompanying stock certificates to make the corporation legal and file with the IRS, receiving a tax ID number and the accompanying permit.
- Corporations use IRS form 1120 to file revenue, while shareholders will file income tax as regular employees.^{[5]
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  Internal Revenue Service
  U.S. government agency in charge of managing the Federal Tax Code
  
  Go to source}
4
Open up to the public by using a cooperative business model. In a co-op model, the company is owned and shared by the workers and the customers, making the decisions and the operation of the business a fluid exchange of ideas between company and consumer. Often, co-ops also operate via consensus. To form a co-op:
- File for incorporation
- Draft your company's bylaws, or operating rules
- Draft membership applications
- Elect Directors from the initial membership group

Part 3

Part 3 of 3:

Funding and Marketing Your Company

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1
Estimate your start-up costs. This should be done as part of the business plan, as a way of figuring out exactly what you'll need to request from investors and acquire via other means. It's an essential part of getting your company started, and helps to give possible shareholders or venture capitalists a hard number to consider.
- Try to distinguish between essential and optional costs. The cost of the start-up should only include essential costs, the bare minimum to get things started. While it'd be great to have money built-in to the start-up for the Fruit Loops bar you've always wanted to have at work, it's probably not a great idea to build that into the initial plan.
2
Complete a cash-flow analysis. Before anyone will consider putting up money to invest in your business, they're going to want to know when they'll start seeing some return on that investment. You can determine this by performing a cash-flow analysis, the result of which will be a reasonable expectation of the time it will take for your company to become profitable and begin paying back the investment.
- A good cash-flow analysis should accompany your business plan when you meet with investors.
3
Apply for equity or debt financing. To get a business loan, you'll need to provide both evidence of good credit as well as experience in a management role, and also decide whether or not you're going to seek equity or debt financing options, or some combination over several sources.
- Debt Financing refers to a traditional business loan. To repay this kind of loan, you'll repay the money you've been lent over an agreed-upon period of time. These are offered by banks and the small business authority, who grants SBA loans under the right circumstances.
- Equity Loans are paid off with shares of the company to be formed. This is generally collected from business associates, friends, and other individuals, and is traditionally favored by small businesses and start-ups. In exchange for a piece of the business and a stake in its future, individuals will put up the cash.
4
Generate as much buzz as possible. People will be more willing to invest in your company if there's a difficult-to-define "buzz" around it. You want your company to poise itself as being impossible to fail. You want your ideas to seem so strong, your leadership so secure, that there's no way it could lose money. Partly, this will come from establishing an innovative and exciting idea that will be difficult to deny, as well as dipping your toe into the vast pool of advertising.
- Revolights, a garage-start-up that made awesome-looking rotary bicycle lights, managed to crowd-source almost five times their essential funds based on a simple Kickstarter video that went viral. Because the lights looked so cool, it was easy for individuals to convince themselves to pony up some money in exchange for the product's availability.
Bill Gates, Businessman & Philanthropist

Bet on yourself, and don't be afraid to take a big swing. "To win big, you sometimes have to take big risks."
While it's important to announce your company in the traditional business trades and make regular contacts, it's essential to embrace new media and structure your company in the 21st century. Building a buzz around social media and other online venues could be the difference between a hot new unveiling and a flat-out failure.
6
Make your company a trendy place to work. As you recruit and hire new employees, dropping your new company on the world, you want to cultivate a reputation as an innovative and trendy place to be associated with. Companies like Google and Facebook, aside from being incredibly successful and innovative service providers, have also established a reputation as places that celebrate progressive office culture. If you want to attract the best and the brightest in young workers, forego the dismal office park and the traditional culture in the wake of flextime, worker-friendly aesthetics and features, and an open policy of making your employees happy.
- In general, the difference between thinking in terms of a successful business and a successful company is that a company requires much obsession over issues of HR and office policy, in addition to the traditional business concerns of product development and innovation.

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Question

What types of financing are available to startups?

Helena Ronis
Business Advisor
Helena Ronis is Co-founder and CEO of AllFactors, a unified web analytics software to drive company's marketing and business growth. She has worked in product and marketing in the tech industry for over 8 years, and studied Digital Marketing & Analytics at the MIT Sloan School of Management Executive Program.

Helena Ronis

Business Advisor

Expert Answer

You can use loans from banks, lines of credit, your personal savings, and money from investors. You could find a partner for your small business who is willing to invest in it. One partner can bring the expertise and knowledge and the other partner can bring the money.

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How can I find investors?

Helena Ronis
Business Advisor
Helena Ronis is Co-founder and CEO of AllFactors, a unified web analytics software to drive company's marketing and business growth. She has worked in product and marketing in the tech industry for over 8 years, and studied Digital Marketing & Analytics at the MIT Sloan School of Management Executive Program.

Helena Ronis

Business Advisor

Expert Answer

You could approach friends or family members about investing and show them a well-thought-out business plan so they know you're serious. If you want to attract investors you don't know, networking with potential investors in person and sharing your vision with them is your best bet. You'll want to have a business plan or a pitch deck (a presentation about your business model) ready to show potential investors.

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Can I start a mechanic's shop if I'm a kid? Do I need a college degree?

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You don't need a college degree, but you will have to be over the age of 18 to sign the appropriate business license application and tax and insurance documents.

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Tips

Take your company public. When Facebook went public, lots of the initial investors became incredibly rich. As your company starts taking off, consider ways in which you'll decide to take it public and elevate it to the next level.

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