One of our readers is considering opening a business this year and sent in a few questions. I’ve done my best to research and answer them from public knowledge, personal experience, and of course, a little bit of speculation.
For more general information on starting a business, like how to file your organizational documents and what type of business entity to select, see our business startup checklist.
How Would You Start a Business in This Economy?
1) What kind of business would be most resistant to the current and upcoming economic environment, and would it be characterized as recessionary or just difficult?
It’s not likely to be easy for any business in the current economy, which in my opinion seems to be in a recession already. December 2022 just saw the biggest drop in retail sales in a year, which is bad news, considering the holidays are usually a windfall for businesses.
However, with the majority of business owners in a recent poll indicating supply chain issues wouldn’t be solved by at least 2025, that spells trouble for anyone outsourcing their manufacturing, especially for someone relying on China.
China has locked down millions of people over what it has claimed to be a “Zero-Covid” policy. It sounds like a convenient excuse for their regime to maintain control at a time when their demographics are suffering, and they are set to lose population over the coming decades.
Supply Chain Issues Still Not Resolved
Indeed, we’ve already covered supply chain issues as one of the top challenges facing businesses in 2023.
Without a predictable supply chain, anyone selling physical products will either need to source them elsewhere or produce them locally to avoid large gaps and lead times in shipping, which could cause products to be out of stock for months or even years at a time.
In a seasonal business like fashion, sitting on lots of inventory costs you bigger with each month that you’re not earning a profit. As the world began opening up in early 2022, Shopify’s stock lost over 70% of its value because people returned to the brick-and-mortar.
Warehouse costs for business storage have increased 400% as a result of excess inventory, while factory orders in China are down 40 – 50%. That tells me there’s a potential lack of demand as well as procurement and order fulfillment issues, for starters.
While people prefer the convenience of Amazon, they still enjoy the convenience, efficiency, and experience of spending an afternoon shopping in-store as an exercise in value-seeking and consumerism.
If you’re planning to open an ECommerce store or Ecom business, remember that your success will rely most heavily on the ability to produce and display high-quality images and a simple and sleek shopping interface. Professional lighting and a good camera against a solid white background can work wonders for your customer’s perception of your products.
You should also be able to test small amounts of products for both inventory and advertising like running paid ads to you can test the market for winners and losers, then adjust. There’s no point to buy 1000 items of something you’re not sure will sell until you’ve already sold what you have and orders continue pouring in.
There’s a lot of hype out there when it comes to starting any business, so make sure you look for success and failure stories to see the pitfalls that have held others back. One such business is starting a food truck business, which can be much easier or harder, depending on your location and local government.
2) Should I seek outside capital in the form of a loan or bootstrap my own business? Does that change the consideration if the business is online, such as e-com or building websites?
With interest rates rising, I’d recommend going for “the flip” first. In any business, your only real indicator of future success is current demand. Once you can make that first “flip,” i.e. order new inventory while having made a profit, that’s when you start to see the opportunity for scaling.
In the beginning, you might be tempted to throw around larger-than-usual amounts of money on things that you’re not sure will work. Maybe you just heard they’d work. You probably heard on some marketing website selling things that you needed to do this thing or that thing. The executive team at QuickBooks is famous for that.
The main reason to seek financing would be to buy equipment or rent out commercial property space. While inflation has cooled slightly towards the end of 2022, I really don’t think that’s going to be the last of it.
The producer price index just dropped in December of 2022 to the third-worst level in a decade, including spring of 2020. The producer price index (PPI) is a price index that tracks the average changes in prices paid to domestic producers for their production.
That means producers are making less money per sale. That means producers are having to mark down their prices and offer discounts. This is leading to warehouses and stores full of unsold inventory. This happened to Target recently.
So while inflation is cooling, the price of houses and real estate (hard assets) isn’t really going down that much. The cost of doing business isn’t going down for entrepreneurs or business owners, and if inflation goes up even more towards the end of 2023, we really will have a stagnant economy + inflation, or “stagflation,” a popular term coined in the late 70’s during Jimmy Carter’s time as President.
Businesses are hiring fewer people right now as well, with the latest figures coming in at about half the monthly average compared to 2022 on the whole.
3) If it is an SEO business, what services should the business offer e.g. keyword research, on-page optimization, or link building?
As someone who was once an SEO manager, I’d say a lot of your success lies in the ability to gain interest, show the data and bottom-line sales proof, and show them they’re making more money as a result of your services.
You should definitely offer those services and they are a big part of it, as a matter of fact and benefit to the business, as far as organic SEO and SEM go. Good, compelling, written content that solves a real problem or need, then directs a consumer towards a solution is the general successful trajectory for your marketing and sales funnel.
Fast Business Websites Do Best on Google
Another thing for SEO: Google loves speed. So make sure your website passes Core Web Vitals, which is a measure of basic website metrics like homepage loading speed time, first input delay, and the time it takes for the actual words, images, and interactable screen with links to appear for a site visitor to engage.
4) In business, what is the fine line to decide whether to just start or continue to do more research e.g. any key metrics you would look for before starting a service or a goods-based business?
It’s good to do your market research of what businesses are in demand, as well as their associated skill and experience, risk, and initial financing requirements. The truth is, there will likely be demand for traditional goods and services into the future, even with a less-than-hospitable business client, a condition due mostly to government mismanagement of the economy and money supply for half a century, its most dire consequences manifesting themselves now.
While it’s good to use your own personal interests to guide your decisions, you have to realize the scale of the task at hand, especially, say, when starting a photography business. In a scenario like this, a person must understand how little photography will actually make them successful. The business side will have to be equally impressive and thought out.
5) What are the tax implications for a U.S.-based online business that many people are unaware of or they don’t pay enough attention to?
You don’t have to incorporate in your own state. Some people incorporate and do their necessary business-liability shielding and business formation, annual registration and registered agent requirements in states like Wyoming that have no income tax. It’s not a bad choice for a 1-person business.
And if you ever want to do an LLC business conversion to a different entity, should you need to hire more employees and must abide by other state laws, you can always take care of it later.
An LLC for Your Business Might Be Better for You Than Just Winging It
While it’s totally fine to start out as some guy or gal on the internet making money or working a side hustle, once the money starts coming in any significant amount, the best thing to do is look to achieve minimum compliance with federal and state law and be set up for success long-term with how you file your taxes (which often involves how you pay yourself from the business entity, even as the owner).
6) If someone lacks capital, should they start a digital services business, or is it still advisable for them to begin an ecom business?
The key to being successful in any business is finding a demand and meeting it with superior value. While the overhead for a digital business is much less, that makes your competition much more staunch and your unique value proposition and market/customer angle so crucial.
Additionally, with digital services-based offers, it helps to have almost overwhelming demand and desire, which is why dating sites, online casinos and gambling sites, money-making sites, and anything related to greed, love, total fear, or fortune are usually good indicators of the pulse of your potential customer and their willingness to spend.
Additionally, solving a totally painful problem is a way to go about this. With so many potential topics that many people have personal experience and may have already Googled themselves, this provides a great inroads, if they feel comfortable committing a large portion of their time and efforts into graduating to expert for a corner of the web.
Some issues are too painful or personal to wake up everyday and put on your emotional sword and shield, especially when the web provides no shortage of people who will express disagreement in an unfriendly manner.
7) How has the recent Apple privacy changes affected small business marketing efforts?
Small businesses are scaling back on marketing spending as a result of Apple’s sweeping privacy changes, which have made it more difficult to target new customers online, in a growing trend that has cost platforms like Facebook billions of dollars in lost revenue. That also partially explains Facebook stock’s price-drop in 2022.
8) What mixture of marketing would you recommend for a digital-based business such as a newsletter or an informational website?
The more I research marketing and business, the more I see a recurring theme: make it good, useful, and unique. I think the goal with something where you’re not specifically buying advertising in the form of PPC and trying to get your site visitor’s prospects should look long-term and the present time as an opportunity to build their digital skyscraper.
Eventually it will be figuratively unavoidable even from miles away on the online business horizon. It helps to see it as a labor of love that will likely pay off. You know what doing nothing gets you.
So keep it as organic as possible in the beginning. If you’re e-commerce, you should get your website tip-top and see if you can make a few sales via a paid-influencer marketing campaign on either Instagram or TikTok.
9) American-made products have quality but are expensive, Chinese-made products lack quality but are cheaper, what are other countries that can be alternatives to sourcing goods from these two? Is Vietnam a viable option?
Vietnam’s trade with the US has grown significantly since 2018. According to the most recent data, Vietnam’s trade surplus with the United States increased to USD 81 billion in 2021 from USD 63 billion in 2020.
According to Vietnam’s General Statistics Office, the Vietnamese economy grew by 5.03 percent in the first quarter of 2022 compared to the same period last year, outpacing China’s 4.8 percent growth. Furthermore, Vietnam’s foreign trade increased 14.4% year on year to USD 176.35 billion in Q1.
Sourcing Products for Your Business
In comparison, China’s first-quarter foreign trade increased 10.7% in yuan terms. Doing a Google search for “source your products from Vietnam” to get some websites that offer contact information for various business verticals.
10) How would an online business handle changes to search engine algorithms?
While the search engine algorithms change regularly, the basics don’t. Your main goal is to maintain a clean, fast site that offers value and a logical customer journey while providing vital answers to questions people have.
As long as your core web vitals are good and you have original content focused on keyword clusters, not strict keyword phrases, and you provide value without resorting to trickery like being tempted to buy lots of spammy backlinks, you should be ok.
11) When should I quit my job to focus on my business? Should it be when I am making as much as in my job, or at a 2X level?
I would say you should quit your job under a few conditions:
- You have enough money to maintain a lifestyle you’re comfortable with while having the freedom to do what you want with your time and work on your business
- You’ve begun to make an overwhelming amount of money from your new business, or you see an opportunity to scale in the coming year that will require more of your time and effort now
It’s good to visualize what moves you think you’ll be able to make to replace or create income. Additionally, if a job is toxic, you might consider finding a way to get rid of that job. Finally, an adult is welcome to take any amount of business risks they care to, but they’ll have to deal with the consequences.
12) What are your favorite books for a prospective entrepreneur?
I like the 4-Hour Workweek which helps shape your perspective on how you should view time as an entrepreneur and business person. I also like “The Rainmaker,” which is more about how a lowly upcoming lawyer creates a functional law firm on a shoestring budget straight out of law school and sues a giant, crooked insurance company.
13) When should a person look to bring in help to assist them with their business?
It’s good to find and have a mentor in the beginning in a similar profession or business as your own, but that should be kept as free or cheap as possible in the beginning. Bringing in a consultant may be a good idea when you need to scale your business and there are some legal questions to have answered.
14) Automation tools that you believe are really helpful for small business owners?
Conclusion: Business Startup Questions in 2023
Business owners should do as much self-education as they can for now, from YouTube videos to reading, to experimentation. The sad reality is that starting and running a business is a lot of work. Sometimes, that work doesn’t pay off but a lot of times, it does.
While it’s great to do what you love, it’s also helpful to do what you don’t hate, that has a real market need, and something you’re good at. Remember, there’s more successful small business people out there than there are A-list actors.
But considering that most businesses are small and start small, there’s proof for all of us that it can be done everyday.
Frequently Asked Questions – Business Startup Questions
The average small business can plan to spend an average of $40,000 just to open its doors for business. Microbusiness startups operating from home can cost much less, like a one-product ecommerce store with detailed audience-targeting on social media. Depending on the cost for the first run of a product, the total cost can be around $2,500 – 5,000.
The IRS lists three types of startup expenses that qualify as tax deductions. IRS Publication 535 describes these deductions in great detail in Chapters 7 and 8. The most important lesson here is that startup expenses must be connected to one of three things: establishing a trade or business (or looking into starting one or acquiring an existing one), getting the business ready to launch, and costs of organization.
To start a small business, research and identify a market and customer need which you can or will endeavor to fulfill. Tap into a niche of motivated buyers by solving a problem in a unique way. Get compliant with licensing and taxes as soon as possible to shield your personal assets from liability. Buy business insurance, when needed. Listen to the needs of the customer. Learn from experience, then optimize and adjust your marketing approach.
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