How to Start a Business From Scratch: What My First Company Taught Me
I started my first company around 1998 out of my parents' house in Anna Maria, Florida, with no clients. Here's what it actually took, and what I'd tell anyone starting from zero today.
If you want to start a business from scratch, here's what I learned doing it: know your numbers, expect to spend money before you make any, go stand in front of the people who send the business, and don't quit before the first customer shows up. Mine took a few months, and I was ready to give up before it came.
Start with something you can see is working
My first company was a mortgage company. I didn't dream it up. I was working for a mortgage company called Crossland Mortgage, and from the inside I could see what the brokers were earning. On the low end a broker made about 1.25% of a loan. Some made 4%. On a $100,000 loan that's $1,250 to $4,000, for one loan. Do several a month and it's a good income.
That's the first lesson. The best business idea is usually one you've already seen make money up close, often at the job you have now. You already know who the customers are, what they pay, and where the money goes.
Know your per-sale math before you open
Because I knew what one loan paid, I knew roughly how many I needed a month to pay my bills. Before you open anything, write down three numbers: what one customer pays you, what it costs you to serve them, and what your monthly bills are. That tells you how many customers you need to stay open. If you can't fill in those numbers, you're not ready yet.
The bills start the day you open
Here's what I had to do before I made a dollar:
- Get licensed. My business needed a state license before I could do any work.
- Rent an office. I started in my parents' house and still had to rent an office.
- Rent a copy machine. My work meant tons of paper, so I rented one.
- Ship every file by UPS. You couldn't email a file back then. Every one went out by UPS, and every one cost money.
All of that came out of my pocket every month while I waited for my first customer. Nobody tells you that part. The bills start the day you open. The income starts whenever your first customer shows up.
Your list will look different today, but you'll have one. Two things almost every new business needs:
- An EIN. Your business tax ID from the IRS. It's free on IRS.gov. Don't pay a website to file it for you.
- Licenses and permits. They depend on what you do and where. The SBA says to check your state, county and city rules, starting with your Secretary of State's website.
Go where the referrals come from
I had no client list. So I printed rate sheets with my name and number on them and drove them to real estate offices, handing them out one office at a time. Home buyers ask their agent who to use for a loan. I wanted my name in the agent's hand when that question came up.
Every business has people like that: the ones your customers ask first. For a contractor it might be property managers. For a bookkeeper it might be tax preparers. Figure out who they are and get in front of them, in person if you can.
Don't quit right before the first one
It took me a few months to get my first deal. Honestly, I was ready to give up. I didn't think I would ever get one. Then one came in.
If you've started something and nothing has come in yet, a few months of nothing is normal. It doesn't mean it isn't working. It means you haven't been in front of enough people yet.
Be ready for things to change
That first company didn't last forever. Later on, licensing in my industry went from state rules to federal standards. SunTrust recruited me into their wholesale mortgage department. I thought it was a better move. It wasn't. Then the mortgage meltdown hit.
So I made a parallel move into insurance as an agent, and later I opened my own insurance agency, which I still run today. What I learned starting that first company in my parents' house is what got me through starting the next ones.
What I'm seeing right now
At my insurance agency we get quote requests every week from people starting brand-new businesses, a lot of them because they can't find a job. Many are pricing their costs before they have a single client, just like I was with that office and copier. Some can't afford what it costs yet, and that's a hard thing to learn on day one.
That's what I'll keep writing about here and talking about on the live show: how to get from zero to your first customer without running out of money first. If that's where you are, join free and I'll let you know when I'm live.