Setting up a local business: setting up a business in 8 steps

The majority of start-up tends to fail within the first three years

Anyone who has an innovative idea or discovers a niche with a lack of players, has the option to establish a start-up.  The objective is to secure relevant market shares. However, the successful implementation of such an idea tends to be the exception: Depending on the survey, 80 to 90 percent of all start-ups fail in the first three years. The reasons can be multi-fold: for instance, the potential of the idea was over estimated or critical errors were made in the foundation process.

The factors that are important when establishing a location based business and the errors that must be prevented are explained herein in eight steps.
 

Step 1: Acquiring knowledge

Multiple responsibilities are waiting for the founder moving from the idea to the implementation of a business - and a lot of things must be done while the essential knowledge is limited.  A huge amount of paperwork, legal issues, accounting, staff recruitment, the search for investors and suitable funding models are all requiring attention. First and foremost, it is important to gain an overview of the requirements and to obtain the knowledge required - either through seminars, at presentations or in YouTube videos and podcasts.
 

Step 2: Market research and competitor analysis

A market analysis can determine how good an idea or detected niche really is. Those who depend on the enthusiasm of their immediate vicinities may quickly drown with their ideas. How high is the demand for the new product or service? What are the realistic prices and margins? How much local competition exists? What are the likely future developments? All of these and other questions should be discussed since a lack of demand in the market is the main reason why start-ups fail.
 

Step 3: Putting together the right team

The assembly of a compatible team is a key step in every incorporation process. At this time, it is difficult to find a variety of specialists and founders are, as a rule, not in a position to pay the wages established competitors pay. The staff should also be chosen while taking into account potential conflicts, since lasting tensions within the team can have devastating consequences. More than 50% of start-ups fail as a result of problems between employees. At the very least, the team of founders should get along well, have differing qualifications and should not consist of more than three to four individuals.
 

Step 4: Creating a business plan

Every company needs a business plan that shows whether the idea, despite the existing market, actually has financial potential. This document is not only elementary for self-assessment, but also for potential funders.  The business plan should contain, amongst other things, a definition of the target market, a comparison of the expected revenue and expenses, an analysis of the opportunities and risks as well as summary of the key elements. It is extremely important to ascertain the realistic assessment of demand among the planned target group: The enthusiasm about one's own idea may not necessarily be shared by potential customers.
 

Step 5: Finance

Financing is a challenging issue for many start-ups. Most founders don't have enough capital to get their businesses off the ground without outside funding. There are many sources of funding: traditional bank loans as well as investors such as business angels, venture capital, crowdfunding or state subsidies or other financial support. Often, start-ups still fail  because the funding runs out.
 

Step 6: Protecting your idea and other legal aspects

As a founder of a company, you should always deal with the legal aspects of your project early on. This includes protecting your idea, whether that is by registering a patent or a trademark at the German Patent and Trademark Office (DPMA). You should also check if your intended company name may be in conflict with an existing company in the same sector. The question of the legal form of the company (limited or unlimited liability) must also be decided, as well as potential insurance to minimize risks.
 

Step 7: Finding the best business location

For location-based business models, the proper location is extremely important. In the business clientele segment, walk-in customers play hardly any role, however, if the target group is rooted locally, the business should also be easily accessible to customers. The offices must not be too small, but also not too expensive. It is definitely not a disadvantage for finding employees and customers if the location is representative. Any required merchandise storage must also be taken into account - will this work at the headquarters or do you need a separate warehouse?
 

Step 8: Tapping into and expanding your own network

A broad range personal and professional network will prove very helpful when establishing a company. Whether you want to obtain feedback on the product or service to be developed, to reach initial customers, to win over investors or the support of experienced founders or mentors or to prevent errors during the foundation process -  it is extremely important that you expand your existing network early-on and contact the members if needed without resentments. It can be beneficial to join a founder's network to get to know like-minded people and people with more start-up experience.
 

Professional support for founders

A variety of institutions offer help to people founding a start-up. One example is the start-up certificate issued by the founders' center of the University of Munich, which offers participants a 24-week program to attain their own foundation ideas.  The aim of this sponsoring program is to minimize the risk of founding a business.