How to Become an Entrepreneur

After retiring her professional dancing shoes, Judi Sheppard Missett became an entrepreneur by teaching a dance class in order to earn some extra cash. But she soon learned that women who came to her studio were less interested in learning precise steps than they were in losing weight and toning up. Sheppard Missett then trained instructors to teach her routines to the masses, and Jazzercise was born. Soon, a franchise deal followed and today, the company has more than 8,300 locations worldwide.3

Following an ice cream–making correspondence course, two entrepreneurs, Jerry Greenfield and Ben Cohen, paired $8,000 in savings with a $4,000 loan, leased a Burlington, Vt., gas station, and purchased equipment to create uniquely flavored ice cream for the local market.4 Today, Ben & Jerry’s hauls in millions in annual revenue.

In the 21st century, the example of Internet giants like Alphabet, the parent company to Google (GOOG), and Meta (META; formerly Facebook), both of which have made their founders wildly wealthy, have been clear examples of the lasting impact of entrepreneurs on society.

Unlike traditional professions, where there is often a defined path to follow, the road to entrepreneurship is mystifying to most. What works for one entrepreneur might not work for the next and vice versa. That said, there are seven general steps that many successful entrepreneurs have followed:

Ensure financial stability

This first step is not a strict requirement but is definitely recommended. While entrepreneurs have built successful businesses while being less than financially flush, starting out with an adequate cash supply and stable ongoing funding is a great foundation.

This increases an entrepreneur’s personal financial runway and gives them more time to work on building a successful business, rather than worrying about having to keep raising money or paying back short-term loans.

Build a diverse skill set

Once a person has strong finances, it is important to build a diverse set of skills and then apply those skills in the real world. The beauty of step two is it can be done concurrently with step one.

Building a skill set can be achieved through learning and trying new tasks in real-world settings. For example, if an aspiring entrepreneur has a background in finance, they can move into a sales role at their existing company to learn the soft skills necessary to be successful. Once a diverse skill set is built, it gives an entrepreneur a toolkit that they can rely on when they are faced with the inevitability of tough situations.

Much has been discussed about whether going to college is necessary to become a successful entrepreneur. Many well-known entrepreneurs are famous for having dropped out of college: Steve Jobs, Mark Zuckerberg, and Larry Ellison, to name a few.

Though going to college isn’t necessary to build a successful business, it can teach young individuals a lot about the world in many other ways. And these famous college dropouts are the exception rather than the norm. College may not be for everyone and the choice is personal, but it is something to think about, especially with the high price tag of a college education in the U.S.

Consume content across multiple channels

As important as developing a diverse skill set is, the need to consume a diverse array of information and knowledge-building materials is equally so. This content can be in the form of podcasts, books, articles, or lectures. The important thing is that the content, no matter the channel, should be varied in what it covers. Aspiring entrepreneurs should always familiarize themselves with the world around them so they can look at industries with a fresh perspective, giving them the ability to build a business around a specific sector.

Identify a problem to solve

Through the consumption of content across multiple channels, an aspiring entrepreneur is able to identify various problems in need of solutions. One business adage dictates that a company’s product or service needs to solve a specific pain point, either for another business or for a consumer group. Through the identification of a problem, an aspiring entrepreneur is able to build a business around solving that problem.

It is important to combine steps three and four so it is possible to identify a problem to solve by looking at various industries as an outsider. This often provides an aspiring entrepreneur with the ability to see a problem others might not.

Solve That Problem

Successful startups solve a specific pain point for other companies or for the public. This is known as “adding value within the problem.” Only through adding value to a specific problem or pain point does an entrepreneur become successful.

Say, for example, you identify that the process for making a dental appointment is complicated for patients, and dentists are losing customers as a result. The value could be to build an online appointment system that makes it easier to book appointments.

Network like crazy

Most entrepreneurs can’t do it alone. The business world is a cutthroat one and getting any help you can will likely help and reduce the time it takes to achieve a successful business. Networking is critical for any new entrepreneur. Meeting the right people who can introduce you to contacts in your industry, such as the right suppliers, financiers, and even mentors, can mean the difference between success and failure.

Attending conferences, emailing and calling people in the industry, speaking to your cousin’s friend’s brother who is in a similar business, will help you get out into the world and discover people who can guide you. Once you have your foot in the door with the right people, conducting a business becomes easier.

Lead by example

Every entrepreneur needs to be a leader within their company. Simply doing the day-to-day requirements will not lead to success. A leader needs to work hard, motivate, and inspire their employees to reach their best potential, which will lead to the success of the company.

Look at some of the greatest and most successful companies; all of them have had great leaders. Apple and Steve Jobs, Bill Gates and Microsoft, Bob Iger and Disney, are just a few examples. Study these people and read their books to see how to be a great leader and become the leader that your employees can follow by the example you set.

Entrepreneurship Financing

Given the riskiness of a new venture, the acquisition of capital funding is particularly challenging, and many entrepreneurs deal with it via bootstrapping: financing a business using methods such as using their own money, providing sweat equity to reduce labor costs, minimizing inventory, and factoring receivables.

While some entrepreneurs are lone players struggling to get small businesses off the ground on a shoestring, others take on partners armed with greater access to capital and other resources. In these situations, new firms may acquire financing from venture capitalists, angel investors, hedge funds, crowdfunding, or through more traditional sources such as bank loans.

Resources for entrepreneurs

There are a variety of financing resources for entrepreneurs starting their own businesses. Obtaining a small business loan through the Small Business Administration (SBA) can help entrepreneurs get the business off the ground with affordable loans. Here, the SBA helps connect businesses to loan providers.

If entrepreneurs are willing to give up a piece of equity in their business, then they may find financing in the form of angel investors and venture capitalists. These types of investors also provide guidance, mentorship, and connections in addition to capital.

Crowdfunding has also become a popular way for entrepreneurs to raise capital, particularly through Kickstarter or Indiegogo. In this way, an entrepreneur creates a page for their product and a monetary goal to reach while promising certain givebacks to those who donate, such as products or experiences.

Bootstrapping for entrepreneurs

Bootstrapping refers to building a company solely from your savings as an entrepreneur as well as from the initial sales made from your business. This is a difficult process as all the financial risk is placed on the entrepreneur and there is little room for error. If the business fails, the entrepreneur also may lose all of their life savings.

The advantage of bootstrapping is that an entrepreneur can run the business with their own vision and no outside interference or investors demanding quick profits. That being said, sometimes having an outsider’s assistance can help a business rather than hurt it. Many companies have succeeded with a bootstrapping strategy, but it is a difficult path.

Small business vs. entrepreneurship

A small business and entrepreneurship have a lot in common but they are different. A small business is a company—usually, a sole-proprietorship or partnership—that is not a medium-sized or large-sized business, operates locally, and does not have access to a vast amount of resources or capital.

Entrepreneurship is when an individual who has an idea acts on that idea, usually to disrupt the current market with a new product or service. Entrepreneurship usually starts as a small business but the long-term vision is much greater, to seek high profits and capture market share with an innovative new idea.

How entrepreneurs make money

Entrepreneurs seek to generate revenues that are greater than costs. Increasing revenues is the goal and that can be achieved through marketing, word-of-mouth, and networking. Keeping costs low is also critical as it results in higher profit margins. This can be achieved through efficient operations and eventually economies of scale.

How do taxes work for entrepreneurs?

The taxes you will pay as an entrepreneur will depend on how you structure your business.

Sole proprietorship: A business set up this way is an extension of the individual. Business income and expenses are filed on Schedule C on your U.S. personal tax return and you are taxed at your individual tax rate.5

Partnership: For tax purposes, a partnership functions the same way as a sole proprietorship in the U.S., with the only difference being that income and expenses are split amongst the partners.

C-corporation: A C-corporation is a separate legal entity and has separate taxes filed with the IRS from the entrepreneur. The business income will be taxed at the corporate tax rate rather than the personal income tax rate.7

Limited liability company (LLC) or S-corporation: These two options are taxed in the same manner as a C-corporation but usually at lower amounts.8

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